Enhancing The Role Of The Budget Division
1.1 WORKING TITLE
Understanding and enhancing the role of the Budget Division, Ministry of Finance in the context of the capital expenditure processes for the promotion the Public Sector Investment Programme.
The Budget Division, Ministry of Finance is legislatively mandated to provide systems that facilitate the conversion of government policy decisions into public goods.
The budget division is part of the process that allocates resources for the implementation of policy directives. These deliverables incorporate provision for investment opportunities, national security, healthcare and social services. It provides stimulant activities that enhance the marketability and development of equitable returns for the citizens.
The division is aware its role and responsibilities remains cognizant of the impact of the global recessionary. This has placed additional emphasis on the need to ensure maximization of resources in the face of accelerated demands and future sustainability.
A national budget is the process used to allocate resources for the provision of public goods based on the identifiable requirements of the population and given priority by the government of the day.
1.3 PROBLEM OUTLINE
According to the BCD  “the budget is a forecast of governmental expenditures and revenues for the ensuing fiscal year.”
There exists several subcategories within the budget framework, these are descriptive assignments relative to the sources of revenue; oil, natural gas, personal income taxes. The expenditure component of the budget is sub divided into recurrent spending and capital or investment expenditure.
In Trinidad and Tobago there are several indicators that returns from the public sector investment programmes have not been in line with the scheduled rate of delivery and cost. Within the budget division, performance data on resource allocation and actual expenditure reflect several trends that are of concern. These include a lack of spending or the need for additional resources which translate to cost overruns.
Intended for capital expenditure, resources are allocated in the current fiscal year and committed for the remaining lifetime of the capital programme. Should projects within these programmes experience cost overruns beyond acceptable margins it could result in the introduction of constraints on the government’s ability to meet the cost of additional projects. This brings into focus the cost benefit analysis component whereby existing call on the exchequer limits the government’s ability to initiate additional capital programmes and by extension projects.
Government’s capital expenditure is the long term plan for national economic development. These incorporate the creation of investment opportunities through upgrading of infrastructure, the provision of healthcare and education. These reflect some of the major focal areas of good governance. The division is aware of the ramifications concerned with the delivery of capital stock and is receptive to the studies. That it may lead to recommendations that call for an improved budget application model or suggest the need for a paradigm shift are legitimate possibilities.
1.4 RESEARCH QUESTIONS
In today’s current global economic environment, it is essential that the government maximizes its returns in the face of increasing demand for the provision of public goods. In addition, good governance requires the creation of wealth through long term investments in such areas as infrastructure, education and health.
To aid in the process, the Budget Division, as one of the participating government agencies is mandated to aid in the attainment of wealth creation through long-term investment.
To achieve such, the division must critically review its current procedures for the allocation of financial resources; the processes applied to the disbursement funds inclusive of justifications and conduct an analysis of the systems.
Presented hereunder are three questions that will provide for the attainment of the research objectives.
What effect does the current system of resources allocation have on the delivery of capital project outcomes?
What influence does the Budget Division have with regards to the inclusion, resources allocations and implementation of capital based projects?
What can the Division contribute to increase the level of efficiency and effectiveness in the delivery of capital based outputs.
To determine whether a paradigm shift or less invasive changes within in the current budget structure will be required to improve the deliverables form capital based expenditure.
Curristine, et al., (2007 p. 2) states that citizens of OECD countries are demanding that governments be made more accountable for what they achieve with public resources.
In an environment that highlights such factors as aging populations, increasing health care costs and an accelerated demand for housing. Government’s are in pursuit of mechanisms that would improve public sector outputs.
Governments are held responsible for the generation of long term investment opportunities and the provision of capital asset based solutions to ensue the delivery of acceptable quality of life for the citizens.
From the selected perspective of public sector investment, this entails the provision of such tangible assets as infrastructure, schools, hospitals and housing.
Objectives of this study:
Evaluation of capital based allocation system
Assessment of the implementation processes
Identification of weaknesses within the current system of allocation and expenditures and
Formulation of recommendations based on the findings from the aforelisted objectives.
2. LITERATURE REVIEW
2.1 CHAPTER OVERVIEW
By the late 20th century the role of government in the operation of the economy gained recognition. Hogye (2002 p.5) states that “the public budget generally reflects the policy of the government towards the economy”. That policy is presented in many different translations but ultimately refers to the utilization of revenue to provide for the citizens in the short to long term. Politicians have seen their governments collapse or thrive based on their pursuance of credible economic policy decisions.
The literature reviewed will form the basis which will enable the identification of key structural elements of the prospective topical area, these include:
Private vs. public sector budgets; comparative analysis of the systems for monitoring and analysis
Measurability of output; provision of public goods and services
Economic efficiency and equity; the relationship between resource inputs and resultant outputs
Legal Issues; legislature and financial regulations
Private vs. Public sector budgets; comparative analysis of the systems for monitoring and analysis.
“Commercial practice is governed by a series of well-defined rules, and business entities are required to produce a balance sheet, a profit and loss account and to monitor their cash flow carefully.” Hogye (2002, p.5). Within the private sector the existence of shareholders and financial monitoring agencies ensure performance monitoring and accountability to stakeholders. The primary impetus is the utilization of funds from investors and the lending agencies that require returns on investment with credible justification for any gains or shortfalls in expectations.
Hogye (2002, p. 6) expressed the view that governments’, even those in a well developed democracy remain unable to achieve the level of transparency as that of the private sector. Its stakeholders are not participatory driven as the private sector. The concept of returns is in most cases not monetary but services orientated, output does not follow a fixed time line or declaration of returns on investment but entails on demand delivery of public goods or services.
Within the private sector environment, output is geared towards the generation of maximum returns; in contrast, public sector yield is the transference of government’s policy decisions geared primarily to the enhancement of citizen living circumstances and the creation of sustainable growth opportunities.
In addition, governments would prefer to present a surplus or balanced budget but are constrained by the responsibility established with its citizens that depend on the government to meet reasonable expectations.
The government may have to provide supplementary funding to reduce the level of exposure of local industry and individuals to the adverse international market conditions, to make provisions for the occurrence of catastrophic events and the acceptance of opportunities to development long term investments.
In essence, one of any government’s major roles and functions is to fill the gap between private and public sector provision of goods and services. Whereby private industry will not meet the need of the public if that need is not a profitable venture but its provision is important enough that the government will assume the responsibility of fulfilling the need.
2.3 Measurability of output; provision of public goods and services
Studies have shown that increased emphasis is being placed on the measurability of output from governments’ resource allocation and spending. In the context of public sector investment initiatives, it is the delivery of capital based public goods that require the long term commitment of resources. In relation to cost benefit analysis, measurable outcomes in accordance with predetermined schedules and costing are required to determine the success or failure of the incurrence of capital expenditure.
The traditional framework of an input based budget system is being challenged by the performance information based budgetary initiative. In contrast to the input based system where resources allocation is based mainly on the requests and recommendations of the client government agencies. Under the performance based systems resources are made available subject the conditionalities that emphasize the following elements:
Increased focus on results
Enhanced information on government’s goals and priorities
Highlights the linkages between government programme initiatives
Places greater emphasis on planning and accountability and
Improves transparency by making available performance data to stakeholders
Critics of this approach point to a number of challenges faced by countries implementing the Performance Information system, these include:
Inefficiencies with the methodology for the measurement of outputs
Quality issues on information generated and
Resistance from the political directorate to use the data generated in decision making processes.
2.4 Economic efficiency and equity; the relationship
between resource inputs and resultant outputs
Musgrave’s (1959) approach to public budgeting and finance where he summarizes that sound public finance requires economic efficiency and equity remains as valid today as it was in 1959. More recent, theorists such as Anderson (2004) reaffirmed Musgrave’s approach by stating that “in public finance, our objective is to advance the goals of economic efficiency and equity through the appropriate design of public sector programmes and financing.”
Tracking capital expenditure over the life span of long term project will inform this researcher as to what elements affect the output. A comparative analysis of the actual versus projected outcome will form part of the study. In house variance reports on the various projects will be used to isolate weaknesses in performance delivery if any emanating from the budget division and the client agency.
2.5 Legal issues; legislature and financial regulations
McGee (2007, p. 8) state the “framing a budget is a political act and its preparation will reflect the political climate.”
The availability of resources contributes to the economic circumstances of the budgetary preparation and implementation. The authority affecting the budget is based on the legal framework of any sovereign state.
In Trinidad and Tobago, the existence of the parliamentary system provides for the responsibility of the budgetary exercise to be carried out by the executive. Formulation of the budget is the responsibility of relevant governmental agencies such as the Ministries of Finance and Planning.
Budgetary approval follows the legislative process that work from the presentation in the upper and lower houses of parliament, debated in both houses and assented to by the President of the Republic.
In the majority of democratic states, the passage of the budget document is processed through a formalized predetermined outcome. The procedure is facilitated by the members of the both houses that are pre disposed due to political affiliations to agree to the policy directives of executive.
The literature review concludes that the process of measuring government capital expenditure starts with the policy decisions presented by the executive based on the evaluation of the needs of the population, incorporated with the long term goals of the government’s policies.
That transference into public deliverables is the commencement phase of monitoring and evaluation of the budgetary system. In addition, levels of expenditure are dependant on factors such as resources allocated, timing of activities and mechanisms used to evaluate and quantify outputs.
Research must be conducted systematical and is required to keep in focus the objectives and constraints that relate to the project to ensure a valid outcome. Saunders et al. (2009) designed a pictorial layout that offers a structure or frame of reference for the conduct of the research process.
The research ‘onion’
A diagrammatic explanation of the generally accepted philosophies and related procedures required to complete a body of research.
Figure 3.1 the research ‘onion’
Source: Adapted from Mark Saunders, Philip Lewis and Adrian Thornhill 2006 4th Ed., (p.132)
3.2 RESEARCH PHILOSOPHY
The first step of the research design is to align the study with the relevant approach, According to Saunders et al., (2009, p.109) there are two approaches for the conduct of research that dominate the field of research design. Their alternate selection depends on the philosophical position of the researcher in the pursuit of the research aim objectives. These philosophical perspectives are the epistemology and the ontology viewpoints.
Saunders et al. (2009, p.112) states that “epistemology concerns what constitutes acceptable knowledge in a field of study. “ He goes on to explain that the very existence of the knowledge informs the research. This researcher suggests that the existence of physical data informs the process. It takes on measurability and observational frameworks lending itself to an objective form of analysis. Ontology according to Saunders et al. (2009, p.110) “is concerned with nature of reality.”
3.4 RESEARCH APPROACH
The philosophy underpinning the positivistic approach addresses the preference of this researcher that data capturing will be determined through an application of observations within a controlled environment supplemented with an extraction of secondary data from public access sources
The objectives of this research will be facilitated by the required analysis of financial based data that support the quantitative approach to the exercise. The application of a questionnaire will introduce a minimal component of the qualitative approach to solicit staff recommendations on system weaknesses.
A major component of the research undertakes a critical analysis of the current system within the Budget Division which facilitates the release and expenditure for capital based projects. That system entails the extraction of financial data from secondary sources within the organization. Existing reports will be used to cross reference the financial reports with performance review reports.
This reinforces the theoretical process that the positivistic perspective directs the selection of the more scientific observational structure that which is of a deductive approach construct.
By contrast, the inductive approach relates to the phenomenological perspective; which has significant opinion based data and hinges on the attitude of the researcher. Considered subjective in nature, its data collection techniques is of quantitative construct based heavily on interviews and basically speaks to the accumulation of qualitative based data.
“Studies that establish causal relationships between variables maybe termed explanatory research.” Saunders et al., (2009, p. 140). The objectives of the study highlight a need to identify linkages between numerical data and stated outcomes. Enabling the evaluation of the implementation processes and any systemic weaknesses within the system. Constraints on the system would impede the deliver of output, resources would not be consider employed in the most effective and efficient manner.
The subject matter in question informs the use of explanatory studies with the application of survey technique. That the survey strategy is usually associated with the deductive approach which and allows for the collection of quantitative data that can be analyzed through several mechanisms of established statistical frameworks. The application of secondary data in the form of performance review reports and primary data from staff issued questionnaires will form the base elements of the study.
According to Saunders et al (2009, p.144) “the survey strategy allows you to collect quantitative data which you can analyze quantitatively using descriptive and inferential statistics.
It is proposed that a series of capital based projects under the pre-investment segment of the development programme will form the basis of the study. In addition, this researcher has unlimited access to the various official budgetary documents which include the financial and performance review data.
Comparative analysis will require access to online international reports from the International Monetary Fund, Standards and Poor’s and the United Nations. In house at the Ministry’s library, the Central Bank of Trinidad and Tobago and the Central Statistical Office.
3.5.4 METHODOLOGY ROLLOUT
Scheduled Tasks include:
Construction of data relevant spreadsheet for secondary data input
Design and publish questionnaires
Select sample size
Conduct preliminary analysis of the secondary data sourced from budget publications
Update the spreadsheet with linkages from performance review report available in-house.
Draft analytical reports
Incorporate into the body of the draft dissertation
Continuous Tasks include:
Revision of theoretical information and
3.5.5 TIME HORIZON
The objectives and methodology will inform the time horizon proposed for the study. Taking into consideration the time constraints involved, this study is conducive to a ‘snap shot ‘situation. The conditionalities set for the selection includes:
The phenomena – underperformance within the PSIP  , this researcher proposes to work within the cross-sectional or ‘snapshot’ time horizon Saunders et al. (2009).
3.5.6 RESEARCH METHOD
22.214.171.124 Data Collection
126.96.36.199.1 Primary data
A sample of the specialist personnel at the Budget division will be issued a brief questionnaire to solicit input on current performance of the capital based projects, interdepartmental issues and recommendations for improving performance.
Issuance of the questionnaire will be after the passage of the next budget, consensus of staff is they are unwilling to complete the exercise until they have evaluated the budget preparation currently underway.
188.8.131.52.2. Secondary data
In keeping with the research methodology data collection will be the extraction of secondary data from government financial reports; financial and performance
For secondary data financial publications are available in house at the Ministry of Finance. Internet access to the website of the IMF  , S&P  and OECD  is free. Additional publications are available at the Ministry’s library.
184.108.40.206.3 Sample selection
In was envisaged that a sample would be the required to extract information from the budget staff. Refinement of the topic area has resulted in the construction of very specific qualifying criteria for inclusion in the exercise, they are as follows:
Director of Budget (1)
Deputy Direct of Budget (1)
Budget Supervisors (4)
Budget Analysts I and II whose portfolios include pre-investments in the public sector investment programme. (12)
To ensure exposure to the statistical software; this researcher will utilize the software in the development of statistical analysis of the financial data.
220.127.116.11 DATA ANALYSIS AND PRESENTATION
The analytical framework will entail the extraction of secondary sourced data onto a relevant subject relevant spread sheet. The criteria will be to establish a trend analysis based on resource allocation, type of capital pre-investment projects, projected life span of the segment; allocation and expenditure year on year, originally projected cost and actual cost.
Type of Project
Project Total Cost
Project Life Span
Table 1: Sample layout for extraction and tabulation of data from the Budget
Source: Performance reports generated by Ministry of Finance, Project Planning and Reconstruction Division.
Table 1: Performance trend analysis
The data will be presented tabular format to display the trend analysis. Line graphs and bar charts will be constructed to emphasize the shortfall in projected expenditure levels based on the resource allocation at the project level over a set time span of five years.
The cost benefit analysis will be displayed within the comparative structure:
Ministry’s project allocation to total ministry’s capital provision
Ministry’s project allocation to total ministry’s capital and recurrent provisions
The presentation will include comparative data with other countries but based on stringent guidelines, these would include:
Comparative financial resources and
Similar development status
18.104.22.168 ETHICAL ISSUES
This researcher built on the basis that my coworkers are aware of my academic pursuits and for the most part know did understand the requirements for completion this level of tertiary education.
At the start of Trimester three this researcher informed the Director of Budgets that a letter of consent will be required to negate any perceived deception concerning the utilization of data within the division.
This researcher carefully assessed the organization’s confidentiality structure and held pertinent discussions with senior staff. The final consensus determined that sufficient data was accessible to allow the pursuit of the chosen topic area. Assurance was given that all parties will maintain open communication should any concerns arising or clarification required.
22.214.171.124 RELIABILITY AND VALIDATION
(Easterby-Smith et al. 2008 cited in Saunders et al., 2009) suggested that the extent to which research data collection techniques or analytical processes will yield consistent findings can be assessed by posing the following three questions:
Will the measures yield the same results on other occasions?
Will similar observations be reached by other observations?
Is there transparency in how sense was made from the raw data?
The secondary data is compiled at the Ministry of Finance, Budget Division. It is sourced from external agencies in the format determined by the Division. As the performance data is collected on a monthly basis by the Division, this facilitates reconciliation and monitoring of the numerical output.
In the case of the capital based expenditure, agencies are mandated to submit evidence in support of requests for funding. According to the government financial regulations these claims must be approved based on deliverables by the relevant government authorities. Required validation documents include the submission certificates on completion and status reports.
Government financial regulations require that all government revenue and expenditure be reconciled at the close the fiscal term Certification of reconciliation is give by the Auditor General of Trinidad and Tobago. The premise being that the Auditor General has critically analyzed the compiled final accounts of government agencies and completed the reconciliation exercise. It is not a perfect equation but the Auditor General’s report will also address any discrepancies.
126.96.36.199 LIMITATIONS TO THE METHODOLOGY
Availability of detailed performance variance reports
Paucity of information with regards to the rationale for scheduling projects.
International comparative data may require direct communications with the agencies, this may affect time line.
Favorable and timely response from international agencies
This researcher will be permitted to proceed on two months vacation leave after the budget presentation.
Refer Appendix I: Gantt chart of the proposed study
The plan submitted is a follow on from the initial class onset. Two tasks components that will continue long term are the literature review and the review of the research methodology. This researcher intends to follow the guidelines and instructions as accurately as possible.
The plan has been set with ambitious scheduling but allow for considerable flexibility once the process remains ongoing.
The study is heavily dependant on secondary data from in-house reports and online resources. The suspect shortcomings of possible paucity of data may require an expansion into the primary data set by soliciting an interview with the head of the project planning unit. Anticipate no restrictions due to well established professional relations.
The questionnaire will be administered in house and due to the small numbers it will be a population of subject specific budget analysts. This researcher has been requested to administer the questionnaire after the completion of the current budget exercise.
The primary objectives of this study will determine if the application of the increment list  approach to budgeting is sustainable in the framework of shrinking resources, increasing demand for deliverables and accountability.
It will also inform as to whether a new framework for budgeting will increase efficiency within the government’s operations.
It will also address the levels of expenditure as it relates to the types of programmes and projects undertaken by the administration.
The Budget division offers unique insight into the allocation, disbursement and results what is lacking is comprehensive analysis that links these components and that can inform on the performance of the current system.
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