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Analysis Of Budgeting And Budgeting Control Accounting Essay

This paper should not be reproduced by any means, in full or in part, except for short extract in a fair dealing, for research or private study, critical scholarly review or discourse with an acknowledgement. No part of this dissertation may be reproduced, stored in any retrieval system, or transmitted in any form or by any means without prior written permission of the author or Coventry University.


To begin with, my sincere appreciations go to my supervisor Mr. Harrison Ngowi who spent a lot of his time guiding me during the time of writing this paper. His academic understanding and the character have motivated me in so various ways. Without his leadership, I might have not got unlimited insight into the study and to finalise my dissertation. I am also deeply grateful to Dr. Joseph M. Temu for his productive advice and support in writing this research paper who helped me to improve the academic worth of this work.

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I owe a favour to the management and staff of Nachingwea District Council who made it possible to carry out my study. Specifically, my deep thanks go to the Finance department staff who provided a priceless support and assistance to make this study possible at NDC.

I also show appreciation to my friends and colleagues, specifically Harrison Temu and Tumaini Richard for providing me with nonstop support, encouragement and precious advice to finish this dissertation.

Lastly but not least, my warmest appreciation and gratefulness goes to my beloved parents Daniel S. Msangi and Shikanaeli D. Msangi, my fiancée Nyamizi G. Mgonela and my siblings. My father and mother all the time supported me to obtain more knowledge and they are representation of love. My brothers Samuel and Ephraim, my sisters Juliana, Angel Elizabeth, Rhoda, Tabitha, Veronica and Lucy, for their care to me have always motivated me in my study. They must be pleased to witness my advancement in education.

Edward D. Msangi

31st October 2012


To my beloved parents: Daniel and Shikanaeli

For the endless love and support

To the love of my life, Nyamizi,

You were always there for me for the support and encouragementAcronyms

The following acronyms presented are used throughout this study.

CAG Controller and Auditor General

DED District Executive Director

HODs Head of Departments

IBRD International Bank of Reconstruction and Development

LGAs Local Government Authorities

MED Municipal Executive Director

MOFEA Ministry of Finance and Economic Affairs

MTEF Medium Term Expenditure Framework

NAPA National Academy of Public Administration

NDC Nachingwea District Council

NGOs Non-Governmental Organisation

OPRAS Open Performance Review and Appraisal System

PCCB Prevention an Combacting of Corruption Bureau

PPE Plant Property and Equipment

SWOT Strength, Weaknesses, Opportunity and Threats

TNAO Tanzania National Audit Office

PER Public Expenditure Review

PMO-RALG Prime Minister Office-Regional Administration and Local Goverment

WB World Bank


This study focused on ways in which budgeting and budgetary control impacts Local Goverment Authorities(LGAs) perfomance.This study was conducted in Nachingwea District Council (NDC) as case study.The approach used was quantitative one and primary data were collected using self-administered questionnaires with closed ended questions. Secondary data were collected by documentary review and the study applied both convinient and judgemental sampling in selecting the sample.

The study has generated a number of discoveries which concluded that; establishment of the role of proper budgeting and effective budgetary control practices and its effects on perfomance; identification of the factor which limit the proper budgeting and effective budgetary control which may hinder the perfomance of LGAs.However, this study found out that the current sytem of sytem of budgeting and budgetary control practices in LGAs satisfactory but was able to provide some clear suggestion for the prospect of improving the current sytem. This research also recognized different aspects of perfomance in relation to the budgeting and budgertary control practices specifically on how these practices can be used as the tool to evaluate the perfomance. The central findings of the study was on relationship between budgeting and budgetary cotrol and LGAs pefomance. There is positive correlation between budgeting and budgatry control and LGAs perfomance as measured by budget discrepancies.

The study puts foward a number of recommendations for improved perfomance in LGAs and NDC as a result of proper budgeting and budgetary control practices are: LGAs should modernise these practices by means use of software and computers ,to invite consultancy to update the personnel responsible for these practice on any new information, involvement of accountants in budget setting, avoid copying the previous budgets as it is and make sure there is budget transparency.

Table of contents

List of Tables

List of Figures


1.0 Introduction

This chapter presents to the readers a variety of issues related to the budgeting and budgetary control in relation to performance in Local Government Authorities (LGAs).

1.1 Background information of Nachingwea District Council (NDC)

Nachingwea District Council was established on 31st December 1983 when the clerk of the National Assembly signed the certificate of establishment under the terms of the provisions of sections 8 and 9 of the Local Government Act 1982, (District Authorities). It started its operations on 1st January 1984. In accordance with Local Government Authorities' classification, Nachingwea District Council is in class III. The Act clearly states stipulates the basic functions of the authorities:

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To maintain and facilitate the maintenance of peace, order and good government within its area of jurisdiction.

To promote the social welfare and economic well-being of all persons within its area of jurisdiction.

To formulate, coordinate and supervise the implementation of all plans, economic, commercial, industrial and social development in its area of jurisdiction.

To monitor and control the performance of duties and function of council by departments, its offices and staff.

To ensure the collection and proper utilization of the revenues of the council.

To make by laws applicable throughout its area of jurisdiction, and to consider and approve by laws made by village councils within it area of jurisdiction.

To consider, regulate and coordinate development plans, projects and programs of villages and township authorities within its area of jurisdiction, so as to ensure the more beneficiaries development and mobilization of productive forces in the village and township authorities and their applications towards; The enhancement of productivity; The acceleration of social and economic development of villages; The amelioration of rural life and to regulate and monitor the collection and utilization of revenue of village councils and township authorities.

To take all necessary measures to provide for the protection and proper utilization of the environment for sustainable development

Subject to laws in force, to do all such acts and things as may be done by people's government at the district level (Act of Parliament 1982)

1.1.1 NDC vision

The vision of Nachingwea District Council to have the strong and sustainable social and economic development through stakeholders' participation and appropriate use of available resources and opportunities by the year 2025

1.1.2 NDC mission

The mission of Nachingwea District Council is to provide quality and sustainable socioeconomic services in order to improve the quality of life of the people of Nachingwea District through efficient and effective use of resources and good governance.

1.1.3 NDC objectives

NDC objectives are in line with those objectives by which Local authorities were established as stipulated by Local Authority Act no. 7 and 8 of 1982. These objectives are fulfilled through implementationof projects allocated by funds or revenue collection

Service improved and HIV and AIDS infections rate reduce

Enhance, Sustain and effective implementation of the National Anti-corruption Strategy

Access and quality of social services improved

Quantity and quality of economic services and infrastructure improved

Good governance and administration services enhanced

Management of natural resources and environment improved

Social welfare, Gender equality and community empowerment improved (Act of Parliament 1982)

1.1.4 NDC Strenghts, Weaknesses, Opportunities and Threats (SWOT) analysis

The district council has Strengths, Weaknesses, Opportunities and Challenges in achieving its objectives. The SWOTs are elaborated in the Table 1.1

Table 1: NDC SWOT Analysis



Well established administrative structures (vitongoji - village - wards - District level)

Presence of few qualified personnel.

Availability of few working gears (transport facilities, buildings).

Fair distribution available extension staff and other staff like primary school teachers and health staff.

Existing good National policies.

Political stability and social cohesion.

Availability of enough fertile land for cultivation and livestock pasture.

Present of potential areas for irrigation farming.

Good networking facilities - roads and air port.

Existence of functioning farmers' associations, groups and cooperatives.

Inadequate training / refresher course for Council staff.

Low production and productivity.

Inadequate funds for the implementation of development activities.

Inadequate and poor functioning of institutional facilities like staff quarters, offices, schools and health infrastructures

High price of agriculture inputs.

Inadequate participation of the communities in development activities.

Weak leadership at the village and ward levels.

Poor socio-economic infrastructure system.

Ignorance on the sustainable use of the available natural resources.

Poor involvement of women in decision making at various levels of leadership and household level.

The Council has limited resource to develop Human resource

Inadequate skills to employees and leaders especially at Ward and Village Levels.

Inadequate working tools and poor condition

Farmers limited with market information and lack of skills on processing of agricultural produces.

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Unreliable market prices for agricultural produces.

HIV/AIDS scourge.

Source: NDC Medium Term Expenditure Framework (MTEF) 2012

SWOT analysis of NDC



Existing Non -Governmental Organizations (NGOs), Institutions and International organization for supporting the district.

Financial support from external donors. .

Availability of huge number of indigenous livestock and fertile land.

Availability of enough labour force.

Plenty of natural resources like forest resources and mineral and wildlife.

Growing culture of community contribution to development activities.

Presence of various education

(Learning) and research Institutions.

Presence of Microfinance Institute to provide credit facilities to farmers

Presence of supportive private sectors such as stockist, NGOs

Expanding access to market opportunities (due to improvement in roads networks)

Presence of telecommunication networks such as Airtel, Tigo, Zantel, Tanzania

Telecommunications Company Limited (TTCL) and Vodacom and Internetservices

Prevalence of agriculture, livestock and human diseases including HIV/AIDS.

Adverse weather conditions (Frequent droughts).

Entrenched social and cultural practices.

Technological changes.

Widespread of gender inequalities due to complex socio-cultural factors.

Source: NDC Medium Term Expenditure Framework (MTEF) 2012

1.2 Background information of the problem

This research intends to gain deeper understanding about how budgeting and budgetary control relate to Local Government Authorities (LGA's) performance. LGAs can make a significant contribution to the public welfare through the execution of government policies and the delivery of public services that are important to the people living in certain locality. LGAs special economic advantage lies in the nearness of the community to the decision makers and administrators of the programs that provide services. Local government has the potential to be the most transparent and answerable level of government in providing services to the community. Strong LGAs fiscal administration enhances full realization of local programs as the citizen welfare are reflected in local programs; so that policies are conducted in a fiscally sustainable way; and so that resources are not lost through inefficient, ineffective, wasteful, or corrupt operations. The potential of responsiveness to the citizenry means little if resources intended to provide services slip into the pockets of politicians and bureaucrats (Shah 2007). Annual budgets for LGAs in Tanzania from domestic sources and grants in total exceed one trillion shillings (Tanzania National Audit Office (TNAO) 2010).

Most of the LGAs are practicing balanced budget which requires close budgetary control. Effective budgeting and budgetary controls are means to proper usage of allocated funds by the central government to the council towards development of the council in question. Effective budgeting and effective level of budgetary control arrangement depend upon a coordinated and efficient system of planning and control of operations. Coordinated and efficient system of budgeting and budgetary control ensures monitoring and execution of planned activities and provides directions and guidance to the council officials and other stakeholders on service delivery during the fiscal year.

In many LGAs; auditing reports have shown budget variances which contribute to poor performance due to lack of proper follow up of budgeting and effective level of budgetary control, embezzlement and haphazard reallocations.

In this study, the researcher analyzes the budgeting process and budgetary control in relation to local government performance for Nachingwea District Council and to examine the links between budgeting, budgetary control and performance.

In discharging their duties, every LGA is charged with the responsibility of passing a detailed budget of the estimates of the amounts expected to be received and expected to be paid by the LGA during the financial year not less than two months before the beginning of every financial year. Every LGA is required to presents the budget performance schedules which compare actual expenditure/income with approved budget as supplementary information to the financial statements.

Budgeting and Budgetary control practices is an important tools of management control and performances measure. It is an important component of improving Local Government performance and comparing current performance with expected performance with the view of attaining equilibrium. In the conduct of the day to day activities of Local Government Authorities, effective budgeting and budgeting control must be the key operating procedure which has to be prioritized. Budgeting and budgetary control has been practiced in LGAs for years but general public and stake holders are increasingly being dissatisfied by the way these councils are run. The LGAs are not only criticized for lack of proper control budget but also for the ill-conceived procedure for planning the expenditure and revenue.

The inefficiencies in budgeting and budgetary control by LGAs have generated dissatisfaction and criticism on council's financial management. In the most recent report from the Controller and Auditor General (CAG) more LGAs than before received qualified and adverse opinion on their accounts.

The review shows that of all 133 LGAs in Tanzania, 48.5% had unqualified opinion, 48.5% had qualified opinion and 3% had adverse opinion. This shows that the number of unqualified opinion has decreased from 77(58%) in the year 2008/2009 to 65(48.5%) in the year 2009/1020 whereas the number of qualified opinion has increased from 55(41%) in the year 2008/2009 to 65(48.5%) in the year 2009/2010. The number of adverse opinion has also increased from 1(1%) in 2008/2009 to 4(3%) in the year 2009/2010 (TNAO 2010).

This information portray poor management of funds by local government in Tanzania, the reason is being lack of supervision on the part of council management to supervise and monitor implementation of projects for example Council transfer funds to wards and villages without making follow up. This demonstrates LGA's low capacity in budgeting and in execution of budgetary control which leads to poor performance; this builds up "the researcher's fundamental problem" to be studied.

1.3 Statement of the problem

The objectives of LGAs are non-profit. Social, economic and education services are objectives of LGAs which are directed towards individuals or groups which received the said services. The head of departments in LGAs like their counterparts in merchandise business are charged with stewardship of economic resources instead of trying to derive monetary gain. Thus, LGAs as an example of non-profit organization should install adequate and effective methods and procedures in budgeting and budgetary control practices (Matz and Usry 1984). Since their establishment in the year 1961 to 1965, budgeting and budgetary Control practices in LGAs has been unsatisfactory, marked with mismanagement of public funds and poor collection of revenues resulting to failure on the part of the Council to fulfil the financial and economic goals hence poor performance.

Budgeting and budgetary control practices is crucial as it could lead to council poor performance. A recent review of revenue and expenditure evidenced that, 103 Councils in Tanzania had incurred total expenditure of Tshs. 1,373,576,272,098 against total income of Tshs. 1,521937,206,309 recurrent grants. Thirty one (31) LGAs have incurred a total expenditure of Tshs. 451,774,320,398 against total income of Tshs. 426,419,510,511. This results to budgetary variances of Tshs. 148,360,934,211 and Tshs. 25,354,809,887 respectively. Also the review shows that outstanding receivables and prepayments in all Local Governments in Tanzania amounted to Tshs. 44,059,104,038. This signal there is a weak budgeting and budgetary control since Local Government practices a balanced budget (TNAO 2010).

Effective budgeting and budgetary practices is one of major bottleneck for LGAs to engage effectively in economic development of the council which leads to poor performance. The implementation of proper budgeting and budgetary controls will improve performance as it keeps the Council management focused on its programs and objectives of the Council. It is against this scenario, that the researcher found interest in analyzing budgeting and budgetary control in relation to LGAs performance.

1.4 Objectives of the research

In response of the different literature on the concepts of budgeting and budgetary control in connection with performance especially limited research related to LGAs, intention of this research is to identify the relationship between budgeting and budgetary control and performance. The study then tries to check whether the recognized relationship between budgeting and budgetary control and performance is set by the actual budgeting and budgetary control of Nachingwea District Council. The following is a list of the specific objectives of this study:

To identify the role of budgeting and budgetary control in Nachingwea District Council

To identify the factors which limit the proper budgeting and budgetary control in Nachingwea District Council

To explore whether proper budgeting and budgetary control contribute to performance in Nachingwea District Council

To unveil the weaknesses in the current system of budgeting and budgetary control those accelerates the mismanagement of public funds and suggest measures to be to arrest the situation and enable Nachingwea District Council to perform better.

To identify the relationship between budgeting and budgetary control and performance in Nachingwea District council.

1.5 Research questions

The study was guided by the following research questions;

What are the roles of budgeting and budgetary control in Nachingwea District Council?

What are the factors which limit the proper budgeting and budgetary control in Nachingwea District Council?

How performance is affected by proper budgeting and budgetary control in Nachingwea District Council'

What are the weaknesses in the current system of budgeting and budgetary control which accelerates the mismanagement of public funds and the prospects to improve it?

What is the link between Nachingwea District Council performance and budgeting and budgetary control?

1.6 Scope of the study

Since the researcher cannot conduct the study at a large scale of say the whole country due to scarcity in financial and time resources, the researcher decided to take Nachingwea District Council as the case study however the methods developed can also be extended to other local government authority operating under similar conditions in budgetary control practices . However, generalization should be avoided.

1.7 Justification of the study

Local authorities form the grass root of development of Tanzania economy because every citizen lives in a certain local authority. Misuse of public funds by unscrupulous officials or inefficiencies in the collection of revenue or due to lack of enough accounting skills has been widely reported in Tanzania local authorities. This study therefore intends to do the following;

1.7.1 For Theory

It can provide additional literature on budgeting and organization performance, to help future scholars a good reference material in the field of finance and investment. It also tries to fill the gap in preceding literature about how budgeting and budgetary control impacts performance in LGAs perspective particularly in Tanzania. It gives a bright insight into the correlation between budgeting and budgetary control and performance in LGAs by academic investigation. Furthermore, the study shows how budgeting and budgetary control practices impacts performance in LGAs performance. Lastly, it expands the existing research with more practical figures. Also the study contributes to LGAs literature, mainly in terms of the performance measurements in LGAs.

1.7.2 For Empirical Practices

This current study suggests measures for proper budgeting and budgetary control which will accelerate and by passing the likely problems and weaknesses so as to improve the performance of LGAs. The findings of this study will present Municipal Director (MED), District Executive Director (DED) and Head of Departments (HODs) of Councils with more useful perceptive about how to apply the budgeting and budgetary control practices within LGAs. The study offer supplementary evidence of budgeting and budgetary control practice towards LGAs in Tanzania. Lastly, the study will facilitate the researcher to acquire more skills on how to conduct research findings and generate solutions to organization problems and also part fulfilment of the requirements of Masters Degree in Finance and Investment of Coventry University.

1.8 Limitations of the study

The study was limited to the following factors


The time taken by the researcher do not suffice the collection, analysis and interpretation of data in its best way expected. However the researcher tried his level best to take note of this in order to have good results.

Access to data.

This was one of the problems that the researcher faced along the way. Some documents were confidential that they cannot be accessed with easy. The researcher asked permission to the officials concerned and assured them that data was for the learning purpose only.

Accuracy of data.

The data might not be very reliable due to unscrupulous officials who tend to hide their mistakes. The researcher educated respondents so that they can give reliable and accurate data.

1.9 Structure of the dissertation

Figure 1.1 shows the dissertation organization

Figure 1: The organization of dissertationChapter one


Introduction about the research site, background of the problem, statement of the problem, justification of the study, scope of the paper, and limitations of the study are explained here.

Chapter two

Literatures review

Literature review on budgeting and budgetary control in relation to performance both theoretical and empirical evidence and conceptual framework and model

Chapter three

Research methods

This chapter gives the overall view of the research methods used to analyze the research problem

Chapter four

Presentation and discussion of findings

Descriptive Data analysis and presentation of the findings in relations to the study objectives and questions are discussed and will be presented

Chapter five

Summary, conclusion, recommendations and policy implications

This chapter provides summary of the findings from the study and conclusion of the study and recommendations either if further study is required.

Chapter six

Critical evaluation

This chapter presents a critical evaluation of the project, it review the appropriateness of the methods used and exploring the lessons learned.

Source: Study Findings (2012)


Review of Pertinent Literature

2.0 Introduction

This chapter reviews some of the available literature on budgeting and budgetary control in relation to organization performance. Some basic concepts such as brief history of budget (section 2.1); budgeting process (Section 2.2), the budgetary control (Section 2.3), and performance (Section 2.4) are defined and explained in this chapter. Furthermore, this literature review also aims to identify the link between budgeting and budgetary control with Local Government Performance (section 2.5), how budgeting and budgetary control impact LGA's performance. This helps the researcher to establish a theoretical as well as an empirical base of the study.

2.1 A brief History of Budget

The English word "budget" stems from the French word "bougette" and the Latin word "bulga" which was a leather bag or a large-sized purse which travellers in medieval times hung on saddle of their horse. The treasure's "bougette" was the predecessors to the small leather case from which the finance ministry's even today in countries like Great Britain and Holland present their yearly financial plan for the state. So after being used to describe the word wallet and then state finances, the meaning of the word "budget" in 19th century slowly shifted to the financial plan itself, initially only for Governments and then later for private and legal entities (Hofstede, 1968, p.19). It was then that budget started to be used as financial plans and not just as money bags.

2.2 Budgeting Process

Budgeting is the process of planning,adopting,executing, monitoring and auditing the fiscal programs for the LGAs for one or more futures years( World Bank (WB) and The International Bank for Reconstruction and Development (IBRD) 2007). The budget process in LGAs is the comprehensive process including all financal bodies linked with it and there are no additional budgetary funds to hamper with financial discpline, clearness, answerability and the struglle against fraud. The process of budget reduces the use of allocated that minimizes the capability to allot resources to areas of main preference.

Budget as the effective guide was passed to be implemented and serve as the statement of LGAs guiding principles. The process of budgeting in LGAs holds a greater focus on the link with development of guidelines, examining perfomance and legislative goals. The main intentions of LGAs budgeting is: assissting in planning expenditure to meet policy requirements; policy implementation and control; measuring and monitoring perfomance;determination of the total expenditure of the LGAs and ensure that it is consistent with total revenues;provide a basis for authorising the basis for budgetary control and satisfaction of statutory requirements (Scholes and Johnson 2001).LGAs budget is not just a statement of LGAs finances but it is the connection between mobilization of funds and accomplishment of LGAs objectives (Schaeffer and Serdar 2008).

LGAs budgets have traditionally been put up on the foundation of incremental line item budgeting practices.The crucial option of the line-item budget is that of spending management and management accountability. Generally, funds spent on line items and staffing levels are described as budgetary input. Hence, a certain type of performance measure can reflect the progress of LGAs with respect to spending in accord with its line item budget.The line item budget give a hand to LGAs officials to in understanding how much they are spending but does not reveal how much is being spent on the actual services delivery(Schaeffer and Serdar 2008).

The process of budgeting in generally involves an iterative cycle which moves between targets of desirable performance and estimates of feasible performance until there is, hopefully, convergence to a plan which is both feasible and acceptable(Emmanuel, Otley, Merchant, 1990, p. 31).

Budgeting process had grown beyond the financial tool. It is above all managerial tool, in the essence; it is the best tool for making sure that key resources, especially performance resources are assigned to priorities. It is the tool that enables manager to know when to review and revise plans, either because results from expectations or to environmental, economic conditions, market conditions or technologies change, which no longer correspond to the assumptions of the budget (Hope and Frazer 2003). The scholars emphasized that budgets should be used as a tool for planning and control.

In LGAs budget process is the recurring series in which DED or MED develops a service plan to counter the likely circumstances in the forthcoming years; the district fully council reviews the plan and approve it based on the plan; then the district management presents it to MOFEA for approval then the mamangement of the council puts these plans into effects.After approval, MOFEA now is answerable for apportioning,disbursing and ccordinating the execution of budgets at all LGAs.

In management accounting theoretical literature, some theorists believe that through budgeting is the process of financial decision-making and inside operation of organization, numerous functions concerning budgeting behaviour can be achieved (Drury, 2000; Joshi, 2003; Garrison, Noreen and Seal 2003). These functions are planning, coordinating, communicating, control, and evaluating. If administered wisely, budgeting; compels management planning, provides definite expectations that are the best framework for judging subsequent performance, and promotes effective communication and coordination among various segments of the organization (Hongren, 1977, pp. 125). The budgeting process in LGAs is the wide-ranging process intergrated in Medium Term Expenditure Framework (MTEF). LGAs budget provide the grassroot of the financial management of the Goverment as it is where the broad fiscal guiding principles and programs of the Goverment are developed and Goverment size is well-known.

Budgeting provides a basis for judging the financial performance of LGAs (Webster 2001). Feedback is a significant role of budgeting for attaining the expected quality and standards in planning, control, leadership and staffing. Feedback is generally associated with budget performance and focuses on the extent to which employees have achieved expected levels of work during a specified period of time (Cook 1968). Being a standard measure of performance, budget also is used to evaluate the managerial performance of an organization (Srinivisan 1987).Comparison of budget estimates with actual amount for performance evaluation purpose places a high importance of budgeting.

The literature above mainly focuses heavily on budgeting in merchandise business in advanced countries. For example, Dugdale (1994) finds that the U.K. companies derive high benefits from the use of budgeting planning, or Bonn and Christodoulou (1996) indicate that 72 per cent of the largest manufacturing companies in Australia use formalized strategic planning systems.

Joshi, Ali-Mudhaki and Bremser (2003), however, examine budgeting planning, control, and performance evaluation practices in a developing country. He conducts a questionnaire survey of 54 medium- and large-sized firms, including both the listed and non-listed firms located in Bahrain. His research finds that most of the firms prepare long-range plans and operating budgets, and use budget variances to measure a manager's performance, for "timely recognition of problems, and to improve the next period's budget". Additionally, there has been some discussion in the academic literature on the relationship between strategic planning and performance of Small and Medium Enterprises (SME's)(Aram and Cowen, 1990; Hillidge, 1990; Knight, 1993), but researchers have not paid considerable attention to the possible relationship between budgeting process and performance in SMEs (Wijewardena and De Zoysa, 2001). So the process of budgeting and its relationship with performance in SMEs are still unclear.

Merchant (1981) points out that the budgeting process is adopted differently in forms which differ in size and/or diversity of organizational. LGAs as the non profit organization prepare it strategic plan with the vision and mission of incresing the welfare of the citizen.This strategic plans are quantified into monetary terms, so measuring the perfomance of LGAs depends mainly on the attainment of the budget goals as it would need someone to relate the projected targets and actual amounts.

It is also vital to consider the implications of proof that propose that Governments agencies like LGA's conform with required systems of budgeting process. A measurement of performance through budgeting is a vital component of improving performance of the LGAs. Many LGA's in Tanzania have tendency of underestimating their budget due to the fear of not getting the inadequate fund hence ending up performing poorly. Budgeting sets out clear goals of LGA's financially.

LGA's as the government entities are guided by standards such as government reporting standards. This requirement binds most of them to increase accountability on the part of budgeting process. Accountability on budgeting for these Councils ensures that fund is allocated appropriately and hence good performance. But due to unscrupulous officials in many LGA's there is a great misallocation of funds and embezzlement of funds which in turn lead to poor performance.

2.3 Budgetary Control

Budget is the plan at the beginning of the fiscal year and its the management control tool for performance measurement against expectations so that upcoming performance may be enhanced. Control is achieved in the course of constant reporting of actual expenditure progress relative to estimates (Shim, Siegel 1994, p. 15). The aim of budgetary control is to provide a formal basis for monitoring the progress of the organization as a whole and of its components parts towards achievement of the objectives specified in budgets (Lucey 1996, p. 147).

Budgetary control practices generally function in a closed circle. Figure 2:1 illustrates this circle which starts with the planning phase, then recording of actual transactions, and finally reports against the plan and generates management response.

Figure 2: The budgetary control process circle

Management directives PLAN Budget


Analysis EVALUATE Report

Source: Lalli 2003, p. 3-7

Comparisons of target with the actual create a benchmark for effective control. Effective control is a key management task which ensures that efforts produced at all levels are matching with those required to ensure the long-term future effectiveness and success of the organization (Smith 2007). If there are no standards of measuring level of achievement then there will be no effective control. When there is a difference between the actual amount incurred or realized, and the corresponding budgeted (forecasted) figure, there is budget variance (Garisson et al 2003).

Budget variance is divided into favourable and unfavourable; for revenue items, if actual revenues are less than budgeted figure, this is unfavourable budget variance, if actual revenue exceed the budgeted figure, the variance is favourable. For expenditure items, unfavourable variance refers to a variance that decreases operating income relative to the budgeted amount; a favourable variance, however, increases operating income relative to the budgeted amount.

Budget variances are generally signs of efficient, effective cost management and increases in net income. Conversely, unfavourable budget variances are the results from inefficient, ineffective cost management and reduced net income (Friedlob and Plewa 1996).

The causality of variance is subdivided into four reasons. Firstly, variance can be the result of inaccurate data. Secondly, an upward change in costs (price standard) or production conditions (quantity standard) can result in an unfavourable variance. Thirdly, variance can be the result of random happenings (something that is unlikely to occur on an ongoing basis.) Finally, variance can be the result of especially efficient or inefficient operations.

Anthony (1965) pointed out on the mechanism of budgetary control contribution on management control. In Anthony's structure, control activities in an organization are categorized into three major types, namely strategic planning, management control and operational control. Management control is the process that links strategic planning and operational control. As we have mentioned before, strategic planning is concerned with setting overall corporate strategies and objectives over the long-term; it belongs to one kind of long-term planning. Operational control is the process of ensuring that specific and immediate tasks are carried out.

They are employed within departments at the level where inputs are processed and resources are consumed to produce outputs.

Following Anthony's framework, Emmanuel, Otley, Merchant (1990) also state that four conditions must be satisfied before any process can be said to be controlled. Firstly, objectives for the process being controlled must exist. Without an aim or purpose control has no meaning. Secondly, the output of the process must be measurable in terms of the dimensions defined by the objectives. In other words, there must be some mechanism for ascertaining whether the process is attaining its objectives. Thirdly, a predictive model of the process being controlled is required, so causes for non-attainment can be identified and proposed corrective actions evaluated.

Finally, there must be a capability for taking action so deviations from objectives can be reduced. In 2000, Drury further introduced a mechanical control system (as shown in Figure 2.2).

Figure 2: A mechanical control process




Automatic regulator

Feedback Feedback

Source: Drury (2000)

The mechanical control system as shown in Figure 2.2 above consists of the following: the process is repetitively monitored by automatic regulator; deviations from determined level are identified by the automatic regulator, and corrective actions are started if the output is not equal to the predetermined level. Achievements on the function of control may not be automatically being the results of budget system but it can contribute to the use of control. As a result, there is a number of overlap between budget and control. It is logical to wrap up that the elements used in a mechanical control process can also be applied in a budgetary control system. (Figure 2.3)

Figure 2: Budgetary control processes

Planned inputs (the budgets


Output (Actual results)

Regular comparison of (budget and actual)

Feedback Feedback

Source: Glynn et al (2008)

The above figure 2.3 indicates that planned inputs as reflected in the budgets are compared with the actual results and the deviations from the desired inputs are identified. Independently from comparing of actual outcome with budget in identifying variances, budgetary control model also emphasizes the significance of feedback management which includes the required budgetary variances justification and remedial actions.

Top management should permit their junior managers to give explanation to variances in budget and report action taken to correct the causes of those variances. Achieving the ceiling results from predetermined plan of action in any organization is common when there is effective budgetary control.

Establishing effective budgetary control system in organization requires planning where a budget manual should reflect the details of the budgeting process from activities to the responsible people. The use of budgetary controls by managers in the organization as an aid to decision making is essential towards achieving high performance of the firm (Meigs 2000).

In LGAs, effective budgetary control sytem is established by a well functioning LGAs budget and managerial structure. LGAs is is subject to accountability to its citizens, public agencies and higher- level goverment.These kinds of accountability is referred as: bottom up-to local citizens; horizontal accountability to public agencies and vertical accountability to the central goverment.Horizontal accountability cover up the range of public entities to check LGAs abuses and inefficiencies. These agencies may include TNAO, LGAs councils and Prevention and Combacting of Corruption Bureau (PCCB). LGAs are also held accountable to central government. Central government often set the rules under which LGAs operate. In addition with, centrl goverment always provide a portion of their financial resources to LGAs through fiscal transfer. Thus, there is always some level of budgetary reporting and accountability by LGAs to the central government(Schaeffer and Serdar 2008). Figure 2.4 shows the linkages of accountability;

Central Government


Citizen, Media



LGAs councils

Figure 2: Accountability Linkages

Vertical accountability Horizontal accountability Bottom-up accountability

Source: Schaeffer and Serdar (2008)

These linkages is necessary in the perspective of not only enhancing effective LGAs budget development but also establishment of effective budgetary control sytem. The challenges in implementing these mechanism for LGAs accountability is when the these agencies fall short. (Schaeffer and Serdar 2008).

Budgetary control is concerned with ensuring that actual expenditure is in line with budgeted amounts and that the objects and levels of activity envisage in the budget are achieved. A crucial role of management accounting is that of introducing and maintaining a sound system of budgetary control. Closely connected with budgetary control is the question of cost allocation, and an obvious function of management accounting is to devise adequate costing systems. Finally, it is often suggested that the evaluation of managerial performance in public sector organizations could be greatly improved if more services were sold rather than provided at no charge. Although the income received might not always measure accurately the real value of services provided, it might offer an approximate indicator of output. Management accounting can help not only in determining the prices to be charged, but also in putting the issues surrounding charging for services into perspective (Jones and Pendlebury 2000).

Companies continue to blunder and fail because they have flawed budgetary planning and control systems, which they apparently fail to recognize. Some firms sense weakness of their budgetary analysis but viewed them as individual problems rather than systematic deficiencies. They misdirect efforts and produce greater frustration. As a result, corporate strategy and capital allocation become misaligned and remain so, despite disapproving financial performance (Boquist 1998)

2.4 Organization Performance

"Performance is defined in terms of effectiveness (mission fulfilment), efficiency, ongoing relevance (the extent to which the organization adapts to changing conditions in its environment), and financial viability. The framework implies that certain contextual forces drive performance: the capacities of an organization, forces in its external environment and the internal motivation of the organization" (Pabari, Macpherson 2004, p. 7).Performance measurement is defined as the "ongoing monitoring and reporting of program accomplishments, particularly progress toward pre-established goals and objectives" (United States General Accounting Office 2005). Performance measuring practice often requires the use of statically verification to ascertain progress towards particular definite organizational objectives.

Fundamental purpose behind measures is improving performance. Measures that are not directly connected to improve performance are measures that are means to achieving that ultimate purpose (Behn 2003).

There are eight managerial purposes for performance measurements in the LGAs. Each of these aims to answer specific questions to aid District Executive Officer or Municipal Director or any other public managers. The eight purposes are; to evaluate how well the Government agency is performing; appraisal process consists of two variables; the agency performance data and the target that creates a skeleton for analyzing the data. For the agency to evaluate performance, it requires targets to compare its actual performance against past performance/from performance of similar agencies or industrial standards or political expectations (Behn 2003 p. 3-4).

The scholar identifies control as another managerial purpose. Behn argues that how DED or MED or other public managers can ensures their subordinates are doing the right thing? Most of the managers nowadays do not control their subordinate's mechanically. In Tanzania, public sector introduced the system of Open Performance Review and Appraisal System (OPRAS) in 2004.This innovation aimed at managing individual performance in public sector in Tanzania. The OPRAS requires all public servants and their managers to develop their personal objectives based on strategic planning process and the organization respective service delivery (Bana 2009 p. 12-13). The measurements of compliances to these requirements are method of control.

Budget is crude tool in improving performance. Poor performance by public sector should not necessarily caused agency failure to achieve budget targets. Budget cut may not be the answer for improving the performance. Sometime budget increase could be the answer for improving performance (Behn 2003, p.5). "Public managers may use performance measures to learn how to perform better" (Behn 2003, p.5). Performance measures have proven to be very useful for motivational purpose. This strategy requires an agency manager to give its subordinates a significant goal to achieve which will grabs their attention then measurement of progress towards the goals provides useful feedback (Behn 2003, p. 5). General public and stakeholders suspect their Government is both inefficient and ineffective. Government agencies to achieve their objectives and goals they need public support. Performance measures can contribute to such support by enlightening not only when the Government agencies are weakening but also when they are doing good or excellent job (Behn 2003, p. 6).

Furthermore, by achieving particular goals, subordinates gain sense of personal accomplishments and self-worth (Locke and Latham 1984, 1990). By accomplishing goals and objectives, organization needs to commemorate their accomplishments by celebrations. A celebration is important because it motivates, promotes and recruits. Celebration helps to improve performance because it brings awareness to the agency, and hence promotes it competence (Behn 2003, p.6)

Performance measurements help public managers to learn and evaluate. From performance measurements, public managers may learn what is not working and what is working and be able to shift existing resources to non performing activities or add new resources that become available. Learning can help with the budgeting of both money and people (Behn 2003, p.7). In order for the organization to measure what it wants to improve, it first needs to recognize what it will improve and develop processes to achieve that. Performance measurements is not an end to itself but must be used by managers to make improvements (National Academy of Public Administration (NAPA) 1994, 22).

From larger city council to town council, given that most council requires a balanced budget, the descending pressure on revenues and uphill pressure on expenditures provide a challenge to council officials who are responsible for budgeting and budgetary control practices. Connecting budgets to performance creates a further challenge, specifically an appropriate performance metric. The conceptual and technical problems involved with valid and reliable performance measurement are numerous. Public performance measurements is, in effect, like putting on a black box, public have little understanding of the system inside and no theory connecting inputs , processes, outputs and outcomes to enlighten why particular outcome occurred or to stipulate what management organization wanted to get better performance (Grenier 1996).

2.5 Budgeting and budgetary control practices in relation to performance

There are many researches on the impact of budgeting and budgetary control on organization performance. The impact of budgetary control in organization performance has been discussed extensively. Calahan and Waymire (2007) pointed out that the existing literature suggest that budgeting and budgetary control is definitely linked with performance, the number studies is limited, and the results have not been entirely convincing.

Simons (1987) finds that tight budgetary is associated with performance for all firms in his sample except those classified as large defenders. Defenders are characterized by Miles and Snow as operating in stable industries, offering limited products, and competing on the basis of cost. Simons (1987) is unable to offer an explanation for why larger defenders would not reflect performance improvement, as measured by return on investment (ROI), when tight budgetary controls are in place. One would expect that defenders would stand to benefit most from tight budgetary control, given their low cost strategy.

The other categorized group of firms in the Simons (1987) study was the prospectors. Prospector firms were characterized by Miles and Snow as competing on the basis of differentiated products rather than price. One would expect that these firms would require flexibility that would be indicated by looser control in order to promote the innovation necessary to have a successful strategy. Simons' (1987) results then appear to be counterintuitive, suggesting the need for additional empirical examination of this topic. There are several other more important also studies linking budgetary control and performance (example Merchant 1981, Brownell and Merchant 1990, Dunk 1992, Aberthney and Brownel 1999, Davila and Foster 2005).

Van der Stede (2001) found that degree of budgetary control can be measured with results oriented approach, meaning that variances in revenues, expenditures, and the net of revenues and expenditure, can serve as a measure of budgetary control. However, studies have historically had small accomplishment in determining the detailed measures that lead to better performance (Hirst, 1981, 1983; Brownell, 1982, 1985; Govindarajan, 1984; and Govindarajan and Gupta, 1985). Exacerbating this difficulty, researchers have had difficulty in agreeing on the performance metric that best captures the concept of organizational performance (Otley, 1994; Malina and Selto, 2004; Ittner and Larcker, 1997, 1998; Chenhall and Langfield-Smith, 2007).

After several decades of research in this area, we have few clear conclusions (Merchant and Otley, 2007).One area in which researchers have provided some clarity in linking management controls to performance is in the area of budgeting. For example, Abernethy and Brownell (1999) present a theoretical model and examine the relationship between strategic change, style of budget and performance in a non-profit hospital setting (Calahan and Waymire 2007).

Budgetary control as proven management tool helps organization management, and enhances improved performance of any economy in different ways. Its primary function is to serve as a guide in financial planning operators; it also establishes limits for departmental excesses (Collier 2006). It helps administrative officials to make careful analysis of all existing operations, thereby justifying expanding, eliminating or restricting present practice (Musselman and Hughes 1981).

Lau and Tan (1998) argued that budgetary control positively and significantly associates with performance. Milani (1975) found that either only a weak positive association between control and performance) or a negative association between two variables (Bryan and Locke 1967). When talking about weak positive association it means that, there may be proper budgeting and budgetary control but still the organization perform poor.In LGAs, when connecting budgeting and budgetary control practices and perfomance, the weak positive correlation occurs when there is negative correlation between projected line item revenues and expenditures and actual revenues and expenditures.LGAs expenditures usually depends on revenues collected, This is due to the fact that, all LGAs are practicing balanced budget which means they expend as the they receive the income. When it happens the net variances is positive, it means, the budget perfomance but when there is weak correlation between projected revenues and expenditures and actual revenues and expenditure. This means that, it may happen that LGAs practices proper budgeting and effective budgetary control but still perfom poor due to the weak correlation between projected targets and actual amounts.

However, the empirical research on informational impacts of budgetary control has, in general produced consistent results. Kren (1992) argued that budgetary control was associated with greater job-relevant information, which, in turn, was associated with higher job performance. Chong and Chong (2002) argued that, the act of control provides an opportunity for subordinates to gather, exchange, and disseminate job-relevant information to facilitate their decision making process, which in turn improves performance.

Calahan and Waymire (2007) find that tight budgetary control may not be as effective in improving performance as assumed both in public sector and private entities. They suggest that it will be premature to conclude that tight budgetary control is not related to performance. It can be concluded that the effective level of budgetary control will vary based on contextual factors. They suggest that this area need additional studies to gain better understanding of the effects of budgetary control on performance.

After reviewing the different literature on the concepts of budgeting and budgetary control practices in connection with organization performance which is key in to this study, it shows that, the above studies were mainly conducted in developed countries and most of them in merchandize business. This explain that there very few evidences which are available in developing countries like Tanzania and mostly in LGAs. Therefore, it shows that further study need to be conducted to analyses the connection between soundness of budgeting and budgetary control system with LGAs performance.

Figure 2: Schematic diagrams showing conceptual framework

Effective budgeting


Effective budgetary control

Fund allocation

Independent variables Dependent variable

Moderating Variables

Source: Researcher (2012)

Figure 2.5 above illustrates the relationship between the independent variables (budgeting and budgetary control, and dependent variables LGA's performance) as moderated by the moderating variables (fund allocation)

From Figure 2.5, it is projected that proper budgeting and budgetary control will contribute to the organization performance. In the above scenario, organizational performance is dependent variable which is positively influenced by budgeting and budgetary controls which are independent variable. However, the organization management should make sure funds are allocated as per budget.

In other words, proper allocation of fund to different projects and programs will enhance the organization to perform better as the misallocation of fund will results to poor budgetary control hence poor performance. This allocation of fund then becomes a moderating variable. Serakan (1992, p.67) "defined moderating variable is the one which has a strong contingent effect on the independent variable-dependent variable relationship".


Research Design and Methods

3.0 Introduction

This chapter focused primarily on the research design and methods adopted during the study. Basic procedures and methods followed during the research are considered in this chapter such as research design (section 3.1); sampling techniques (section 3.2); sample size selected (section 3.3); research site and population of the study (section 3.4); data collection instruments used (section 3.5); data analysis and reporting (section 3.6); limitations of the data collected (section 3.7); validity and reliability of data collected (section 3.8) and ethics followed (section 3.9).

3.1 Research design

Mainly, the study was quantitative study because it endeavours at finding and constructing theories that will attempt to establish the relationship between budgeting and budgetary control in relation to Local Government performance. As the study was also organizational based, the researcher applies case study method. Case study refers to a "strategy of doing research which involves empirical investigation of a particular contemporary phenomenon within its real life context using multiple sources of evidence" (Robson 2002). Case study method was used because it allows the researcher to make generalizations based on the findings on Nachingwea District Council as the case study Council.

3.2 Sampling techniques

The researcher used convenient judgement sampling and judgemental sampling in order to obtain appropriate information. Where-by through convenient sampling, the researcher was able to obtain sample as quickly as possible depending on the research questions and objectives of the study. While through judgemental sampling, a researcher was able to use judgement to select cases that will enable to answer research questions (Saunders 2003).Figure 3.1 portrays the sampling techniques used;

Sampling techniques

Convenient sampling

Judgmental sampling

Figure 3: Sampling techniques

Source: Study findings (2012)

3.3 Sample size

This refers to the number of items to be selected from the universe to constitute a sample (Kothari 2008). The sample size for this study comprises of representative sample of thirty four (34) employees in total. The researcher selected the employees who are able to provide relevant information on budgeting and budgetary control practices in relation to performance to meet the objectives of the study. The distribution of the sample was as in Table 3.1

Table 3: Population of the study

Category of respondents

Sample size

% of sample size

Sampling method

Head of departments




Finance department




Internal audit department




Policy and planning department




Community Development department




Procurement and Supply department







Source: Study findings (2012)

3.4 Research site and population of the study

This study was conducted at Nachingwea District Council, which is located,in South East of Tanzania mainland and is one of the six districts forming Lindi region. The district lies between latitude 100-110 South of Equator and Longitude 380-390 East of Greenwich and it boarders with Ruangwa District to the North-East; Masasi District to the South-East; Tunduru District to the South-West and Liwale District to the North-West.Administratively, Nachingwea District is composed of 5 divisions; 32 wards and 126 villages with total population of 194,418 whereby 92,347 are men and 102,071 are women with 48,441 households.

The district economy depends highly on the production of cash and food crops. Major crops grown are maize, cassava, rice, millet, pigeon peas, cashew nuts and sesame. The sector contributes 90% to the district economy and it is leading a sector that employs over 85% of the population and therefore people earn their living through agriculture and it contributes to 90% to the district Growth Domestic Product and also more than 70% of the districts exports earnings. The targeted population was the staffs of NDC and the sample to be chosen was all NDC Head of Departments, Sections and the staff of District Finance department, Planning and Policy department and Internal Auditing department. The respondent selection was a good representative sample of the population.

3.5 Data Collection Instruments

The study employed three types of data collection methods to collect both primary data and secondary data. These instruments include questionnaires, personal observation and documentary reviews. The reason for using more than one method of data collection

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