THE EFFECTS OF BUDGETARY CONTROLS IN AN

ORGANIZATION'S PERFORMANCE
A CASE STUDY OF ACTION AID UGANDA IN KUMI BRANCH

BY:
OKIROR JOSEPH
BBA/41674/91/DU

A RESEARCH REPORT SUBMITTED IN PARTIAL FULFILLMENT OF BACHELORS DEGREE

DECEMBER, 2012
 DEDICATION

. This special study paper is dedicated it to my mother NAHAMBO ROSE and to my late beloved

father ODEYA GIDION who basically sacrificed his life to make certain that I got a head start.

May his soul rest in internal peace.

ii
 DECLARATION

I OKIROR JOSEPH declare that this research dissertation is the original and has never been

presented anyw:here for any other degree award or qualification.

Signed ...... ~ . ................................·....... .

5.-t..\.~9..\ .~~ Y?:-: ..........................

iii
 APPROVAL

The research dissertation title "the effects of budgetary control on organizational performance"

has been under my supervision is now ready for submission to the School of Business

Administration with my approval.

Sign

MR. RUTEGANDA MICHEAL

Supervisor

Date ..3. '.".. \ I '.') _\ \'.l:-....................... .

iv
 ACKNOWLEGEMENT

I wish to express my gratitude to the various people who supported me during the time I carried

out this research. I may not be able to mention each one by name but I sincerely acknowledge the

cont1ibution of each one of you.

I acknowledge with sincere appreciation the valuable guidance given by my supervisor, MR

RUTEGANDA MICHAEL, for his time, patience and advice. Despite his busy schedule, he was

always available whenever I needed help.

Special thanks go to my brothers, ODEYA ROBERT, ODELOK BALAAM, and to lastly

ARIKO DAN sister, AKALANGHE SARAH, my lovely father the Late ODEYA GIDION and

to my mother MRS NAHAMBO ROSE for the financial and moral support. Without them, I

would not have gone through this course in the first place.

Lastly, I would like to thank all my friends MR ODUDI SHADRACK, Miss KWOONA BEESI

I'vfr W ANAND A ANTHONY and others for the encouragement and support in fonn of team

work and company throughout the disse1iation period and report writing process.

Above all, I thank the almighty GOD for allowing me complete my dissertation program

smoothly.

V
 LIST OF ABBREVIATION

BBA Bachelor of Business Administration

AAU Action Aid Uganda

SWOT Strengths, Weaknesses, Opportunities, and Threats

vi
 TABLE OF CONTENTS

DEDICATION ............................................................................................... .ii

DECLARATION ............................................................................................. .iii

APPROVAL .................................................................................................. .iv

ACKNOWLEDGEMENT ................................................................................... v

LIST OF ABBREVIATION ................................................................................ vi

TABLE OF CONTENTS ................................................................................... vii

LIST OF TABLES .............................................................................................. x

LIST OF FIGURES .......................................................................................... xi

ABSTRACT ................................................................................................... xii

CHAPTER ONE

1.0 Introduction ............................................................................................... 1

1.1 Background of the Study ....................................................................... 1

1.2 Statement of the Problem ....................................................................... 2

1.3 Purpose of the Study ............................................................................ 3

1.4 Objectives of the Study ........................................................................ 3

1.5 Research question ............................................................................... 3

1.6 Scope of the Study .............................................................................. 4

1.7 Significance of the Study ...................................................................... .4

CHAPTER TWO

2.0 Literature Review ........................................................................................ 5

2.1 Introduction ....................................................................................... 5

2.2 Budget Control ................................................................................... 5

vii
 2.3 Budgetary Control ............................................................................. 5

2.4 Control .......................................................................................... 6

2.5 Principle of Control ............................................................................ 6

2.6 Benefits of Budgetary Control ................................................................ 7

2. 7 Performance ...................................................................................... 7

2.8 Budgets and Performance Evaluation ...................................................... 8

2.9 Managerial Style ................................................................................. 8

2.10 Ideal Budgetary Formulation Process ..................................................... 9

CHAPTER THREE

3.0 METHODOLOGY .................................................................................... 11

3 .1 Introduction .................................................................................... 11

3 .2 Research Design ............................................................................... 11

3.3 Area of Study ................................................................................... 11

3.4 Source of Data ................................................................................. 11

3 .4.1 Pri1nary Data ....................................................................... 11

3.4.2 Secondary Data ................................................................... 12

3.5 Study Population .............................................................................. 12

3.6 Sample Selection and Size .................................................................... 13

3.7 Methods of Data Collection .................................................................. 13

3.8 Data Analysis ................................................................................... 14

CHAPTER FOUR

4.0 RESEARCH FINDINGS, ANALYSIS AND DISCUSSION .................................. 15

4.1 Introduction ................................................................................... 15

viii
 4.2 Expenditure of AAU on the Budget ........................................................ 15

4.3 Demographic and Personal Data ............................................................. 16

4.4 Budgeting ....................................................................................... 18

4.4.1 Source of Funds .................................................................. 19

4.4.2 Application of Funds ............................................................. 20

4.5 Alternative Plans of Income and Expenditure Besides Budgeting ...................... .24

4.6 Amount Given as Interest .................................................................... 25

4.6.1 Office Administration .......................................................... .26

4.6.2 Deposits for Projected Programs .............................................. .29

4.7 The Effects of Budgetary Controls on Organizational Performance of AAU ........ 30

4.8 If AAU has not achieved its objectives, do you think budgetary controls would help it

perform better? .................................................................................. 32

4.9 Are there other tools besides budgeting which would help AAU to achieve its

objectives? ................................................................................................................. 3 3

CHAPTER FIVE

5.0 SUMMARY, CONCLUSIONS AND RECOMMENDATIONS ................................ 34

5.1 Summary ofth-; Findings ..................................................................... 34

5.2 Conclusion ...................................................................................... 34

5.3 Recommendations ............................................................................. 35

5.4 Issues of Fmiher Research .................................................................. 37

BIBLIOGRAPHY .......................................................................................... 38

QUESTIONNAIRES ....................................................................................... 39

ix
 LIST OF TABLES

Table 1: Position held and bio-data ..................................................................... 16

Table 2: Period of services for the top and middle manager ......................................... 17

Table 3: Educational levels for the top and middle managers ....................................... 18

Table 4: Table showing the predictions of AAU sources of funds .................................. 20

Table 5: Prep:lration of Budgets by to and middle level managers ................................. .22

Table 6: Budget preparation in AAU ..................................................................... 23

Table 7: Checking and approval of expenditure items ................................................ .27

Table 8: Authorizing expenditure ......................................................................... 28

Table 9: Measure of control ................................................................................ 29

Table 10: The management of AAU funds for its clients .............................................. 30

Table 11: Responses of the AAU achieves its staff and some clients as the whether objectives .. 31

Table 12: Responses of staff as to whether controls would help AAU to achieve its objectives .. 32

Table 13: Responses about other tools besides budgetary control tools that would help AAU

achieve its objectives ....................................................................................... 33

X
 LIST OF FIGURES

Figure 1: Pie chart showing the expenditure of AAU on the budget ................................. 15

Figure 2: Pie chart showing Sources of funds ............................................................ 19

Figure 3: Pie chart showing application of funds in AAU ............................................. 21

Figure 4: Framework oflnvestment process ............................................................. 25

Figure 5: Pie chart showing the degree of expenditure on specific activities ...................... .26

xi
 ABSTRACT

This is a research report on the effect of budgetary controls in a ''not for profit" organization

called AAU. It is a study on budgetary control as a financial tool in guiding the making of

optimal financial decisions to attain high level performance. It was carried out to investigate on

budgetary practices [budgetary control] in AAU, to evaluate the performance of the organization

and whether there was a relationship between these controls and the organization performance of

AAU.

To achieve the study objectives, the researcher collected data, which included both primary and

secondary data. With primary data, the researcher selected a sample size amounting to 48 and

questionnaires were issued of which only 26 responded to the researcher physical observations as

well as personal interviews were used as primary data by the researcher. While, journals,

newspapers, government publications and research agency resource centers were used as

secondary data. After collecting data, the researcher employed both qualitative and quantitative

methods with the aid of descriptive analysis of perfonnance of AAU were carried out in terms of

activities performed by the organization as well as the challenges and success scored.

The researcher findings are discussed basing on the objectives of the study. The researcher found

out the budgetary control exists in AAU though not fully enhanced by managers who are not

strong enough to commit to these controls and this has resulted in a failure to achieve the

objectives of the organization. Instead of committing funds to planned activities, the funds are

instead directed to the plan and this really leaves AAU with threat ofliquidation.

xii
The researcher recommends that the organization put in place restrictions and strong measures to

make sure that managers strongly commit themselves in enhancing budgetary control policy to

help AAU achieve its objectives. Further recommendations included in the organization gives

short term courses in relevant fields of Accounting, finance and Effective IT Techniques.

xiii
 CHAPTER ONE

1.0 INTRODUCTION

1.1 Background of the study

Companies always get goals to be achieved within a specified period of time. Whenever these

goals are set up, action plans are designed to guide members of the company towards achieving

the set goals. Plan drawn may include a detailed annual financial plan known as budget.

A budget is an action expressed in monetary te1ms. It always expresses management intention of

attaining specific goals in a company. Budgeting could be prepared for the company as a whole

for selected departments within a company or for various activities existing in the company such

as sales and production.

So a budget is an estimated income or expenditure for specific period of time. The purpose of a

budget in a company may among others to compel plaiming and control processes, improve

communication and coo,·dination, classification of staff authority and responsibility, motivation

of employees.

Budget controls on the other hand referred to frequent comparison of the actual performance of

the company in order to take corrective measures. This study was set to examine the effects of

budgetary controls on the organizational performance of Action Aid Uganda (AAU).

Action Aid Uganda is not for profit, Non-government Organization (NGO) working with poor

communities in the various areas known as development areas in the poorest part of the country.

1
These area included Mubende, Bundibujyo, Kalangala, Katakwi, Palillisco, Kurni, Nebi and

Masindi with the head office in Kampala.

Its vision is world without poverty in which every person can exercise his or her rights to a life

of dignity.

The mission statement of AAU was to work with poor men, women, men, boys and girls, the

local civil society and other development partners to eradicate absolute poverty in Uganda.

Budgeting and budgetary controls practices exist in AAU. These among others included; various

reporting, budget preparation and approval, expenditure on activities that were on budget only.

Expenditure authorized by line managers/executives, budget holders explained differences

between actual and budget variances with the company divided into cost centers.

In the management organizational structure the count1y directors, based in Kampala, heads the

following, finance, human resource, programs, administration and infon11ation technology. This

was whc:re the researcher mainly focused in AAU.

1.2 Statement of the problem

Budget controls were usually not effective and efficiently practiced by many organizations as

required. So lack of strong commitment to enforce budgetary organization as required. So

enforce budgetary controls in AAU among other was the key problem. Specifically the problem

included.

2
Failure to explain budgetary variances by managers, managers not paying close attention to

budget details hence producing budgets with slacks, managers not retaining relating plans of

activities to the budget and poor altitudes towards budget controls by managers who what to

operate in a free environment without budgetary controls. The result was poor and inaccurate

financially management reporting in the organization.

1.3 Purpose of the study

The purpose of this study was to examine the effect of budgetary controls on the organizational

performance of AAU

1.4 Objectives of the study

The study was set to satisfy the following objectives

1. To assess budgetary practices in AAU

11. To evaluate the perf01mance of the organization[AAU]

111. To determine whether there was a relationship between budgetary controls and

organizational performance in AAU

1.5 Research question

In order to address the study objectives, the researcher was guided by the following question

1. Was there a budgetary practice in AAU

11. How effective was the performance of AAU

lll. Was there any relationship between budgetary controls and organizational

performance of AAU

3
 1.6 Scope of the study

This study focused on budgetary controls on organizational performance. Study will cover a

period between 2012-2011 being carried out in AAUs head office in Kampala

1. 7 Significance of the study

The researcher undertook the study in order to establish the following

1. The effects of budgetary on the organizational performance in AAU

11. Existing gap in budgetary controls on purpose best practices to help managers and

decision makers make improvements where it lacks

iii. Preferred principles of budgetary controls to enable the organization achieve the set

objectives by the use of budgets

1v. To show how participation in budget process and discussions of the results lead to a

better perf01mance of organization

v. Findings generated more literature and hypothesis for fmiher researchers in this atea

v1. And as a pmiial fuifillment of th(: award of a bachelor of business Administration degree

of Kampala International University

4
 CHAPTER TWO

2.0 LITERATURE REVIEW

2.1 Introduction

In this chapter, the researcher looked at the existing literature, document from previous

researcher, publications that are related and relevant to the research topic. This review has been

used to give more insight to the study topic and help in analysis and discussion of the findings.

2.2 Budget Control

It was a team that involves the uses of budgets and performance reports throughout the period to

coordinate evaluate and control day to day operation in accordance with the specified in the

profit considerable valve to the average concern, but its maximum and coordination and control

during the period.

Budget control involves constant checks and evaluation of actual results against budget goals,

resulting in cmrective action indicated in 2 edition by Glen A.W.J.

2.3 Budg~tary control

Annstrong [ 1995] defines budgetary control as the process of comparing actual cost, revenues

and perfonnances of the organization with the budget so that if necessary, collective action could

be take or revisions made.

5
2.4 Control

It was the action necessary to ensure that objectives, policies and standards were being attained.

Control purpose feed forward, that objectives, plans, policies and standards have been developed

and communicated to those managers who have performance responsibility for their

accomplishment. Consequently, effective control necessary must rest upon firm foundation of

management planning.

Thus, effective control must be exercised at a point of action or at the time of commitment. This

concept implies that the manager responsible for certain action must engage in a form of prior

control; to do this, the predetermined objectives, plans, policies and standards must have been

communicated to the manager and fully understood by the manager in advance. With such

communication in hand the manager was in a position to exercise control at the point of action

(decision point). This fact emphasized why the concept of feed forward was so fundamental

(Glenn A. Welsh: Budgeting: Profit Planning and Control).

2.5 Principles of Control

Thete were five principles of budgetary controls, for instance:

1. A budget for each cast center, which sets our under each, cost heading (to which costs

would have been attached) the budget expenditure against whatever activity levels have

built into the budget.

11. A system of measurement or recording which allocated all expenditure to the cunent cost

code and cost centers and records the activity level achieved.

6
 m. A system for comparison or reporting which sets out actual against budget and indicates

the positive variances that have occurred.

1v. Procedure for acting on the information received. This required report to higher

management on what is being done to deal with variances.

v. A procedure for feeding back changes in activity or performance levels or revised

forecast so that the budget guidelines can be amended and budgets updated.

2.6 Benefits of Budgetary Control

Budgetary control was the only basis on which performance can be monitored and consequently

improved. It would not work effectively unless;

1. The budget was based on adequate assumptions and forecast.

11. The budget was realistic, i.e. the targets were not so high as to unattainable or so low as

to be meaningless.

m. Control infonnation clearly specified deviations or variances.

1v. Control information went to the right people, who were responsible for 1he results and

analyzed variances and took collective action.

v. Steps were by higher management to ensure that variances were analyzed and repo1ied on

and that corrective action was planned and successful.

2.7 Performance

According to the Cecily A. Raibom (1992), Managerial Accounting, performance evaluation was

the process of dete1mining the degree of success in accomplishing a task; equates to both

effectiveness and efficiency.

7
2.8 Budget and Performance Evaluation

Further use of budget was a basis for setting performance standards and rewards, for example,

bonus, status or enhanced prospects were often linked to budget attainment. Organizations were

complex, tasks were interdependent, and there were many dimensions of performance and these

were not all easily qualified and ce1iainly not in financial terms. Problems could occur here

because the budgets were not quite naITow specification of what were desired organization

outcomes.

Placing emphasis on budget achievements can have repercussions on other, perhaps long term,

and aspects of organizational perfonnance. Management might not place emphasis on other

important aspects of their jobs such as maintaining quality or staff morel if as a consequence;

they run a 1isk of not achieving the financial budget. Alternatively, stressing the need to achieve

budget results may result in the budget being met but this may be as a result of manipulation of

managers of both the managers of the budget and actual results.

2.9 Managerial Style

The use of budgets in evaluation and control was also influenced by the way they are used by

managers. Some would argue that any used information that is entered into the budget. That was,

budgets have implications on human behavior. For many psychological studies it was pointed out

that better than weak ones. This was up to a point; totally unattainable targets tend to be

countering production. An individual does not accept the precision, which was applied, and then

poorer performance may result from that person's "withdrawal" from the task than would apply

if a less demanding target has been set. Then it was also important that managers achieve their

8
targets frequently enough to give a positive reinforcement in their efforts. A practical

consequence of this is that a budget was likely to be achieved most of the time. It was not

therefore a useful forecast of actual out tum. Conversely, a budget that was an accurate forecast

of what was likely to be achieved would only motivate a modest level of performance. Different

management styles of budget use have been observed, for instance;

Budget Constrained: Placing considerable emphasis on meeting budget targets.

Profit Conscious: where a balanced view is taken because budget targets, long term goals and

general effectiveness

Non-accounting: where accounting data is relatively an important aspect in the evaluation of

subordinates

The style is suggested to influence, in some cases, the superior/subordinate relationship, the

degree of stress and tension involved and livelihood of budget attainment. Note also, the style

adopted. and its implications are affected in the environment in which management is taking

place. For example, the degree of interdependence betweeu areas of responsibility, the

uncertainty of the enviromnent and the extent to which individuals feel they influence results; are

all factors to consider in relation to the management style adopted and its outcomes.

2.10 Ideal Budgetary F011nulation Process

It is often suggested that paiticipation in the budget process and discussion of how results are to

be measured as benefits in te11ns of budget attitudes and performance of the budgetee. Vies of

this point are valued however, and the personality of the individuals paiticipating the nature of

the task (narrowly defined or flexible) and the organization culture influence the success of

9
participation. But the budget, when carefully and approximately established, can naturally extract

a better performance from the budgetee than one in which these considerations are ignored.

An interesting implication of the findings on budget targets in the budget level that motivates the

best performance is likely to be achieved in time. However, a budget that is usually achieved will

motivate individuals of performance. If budgets are to be set at a level that will motivate

individuals to achieve maximum performance, adverse budget variances are to be expected. In

such as situation it is essential that adverse budgets variances are to be used by management as a

punitive devise since this is likely to encourage budget to attempt to obtain looser budgets. As

either under performing or deliberately negotiating easily attainable budgets. This may lead to

fewer adverse variances but also poorer overall performances (Drnry, 1992).

To motivate the best perfonnance demanding budgets should be set and small adverse variances

should be regarded as healthy sign and not something to be avoided. If budgets are always

achieved, with no adverse variances, this indicates that th~ standards are not too loose to

motivate the best possible results (Drnry, 1992).

To crown it all, a relationship between budgetary controls and organization performance really

exists as seen above and without proper adaptation of budgetary control practices, performance

can never be motivated and consequently improved upon, control infonnation clearly specifies

deviations or variances, this information goes to the people who are responsible for the results

and will analyze variances and take collective action this leading to a: better effective and

efficient organizational perfonnance.

10
 CHAPTER THREE

3.0 METHODOLOGY

3.1 Introduction

This chapter explains the research design, area of study, population of the study, sample size and

sample selection and method of data collection and analysis.

3.2 Research Design

The study will employ both quantitative and qualitative methods with the aid of descriptive

analytical study where the analysis of the performance of AAU will can-y out in terms of

activities performed by the organization as well as the challenges and success scored.

3.3 Area of Study

Action Aid Uganda operates in ten districts of Uganda namely; Mubende, Bundibugyo,

Kalangala, Katakwi, Pallisa, Kumi, Apach, Kitugum, Nebbi, Masindi, with the head office in

Kampala.

3.4 Sources of Data

The study used both primary and secondary sources of data.

3.4.1 Primary Data

This was data collection for the first time from the field in its original nature. The data was

collected through physical observations, interviews and questionnaires.

11
3.4.2 Secondary Data

This is data which is already published and is in use. The data was obtained from government

publications, research agency resource centers, book magazines, newspapers and journals.

3.5 Study Population

The respondents included staff of AAU based in the head office in Kampala. The respondents

were mainly managers and staff of the finance department. This staff was selected for the study

because they deal directly with financial matters of the organization.

Study Respondents

Category Expected Respondents Actual Respondents

Frequency % out of 48

l. Finance Director l '/

,.,.
-'-· Finance Manager '/
,t,,

3. Human Resource Director 2

4. Ac~onntant !
' 4

5. Assistant Chief

Accountant 15 4 7

6. Assistant Transport

J\,fanager 10 6 1l

7
7. Assistant Officers 4 I

8. Office Messengers 3 (,)

9. Program officers 7 7 7

TOTAL 48 26 48
-~-Vi__,,,,--

12
3.6 Sample Selection and Size

Purposive sampling technique was used to select respondents from the study. Purposive

sampling was chosen to help select respondents who are relevant to the topic of the study. These

are mainly staff at AAU who work with finances of the organization and therefore are more

knowledgeable about budgetary controls.

3.7 Methods of Data Collection

The data for the study was collected using the following instructions:

1. Questionnaire

Open and close-ended questionnaire was designed and distributed to selected study respondents.

The researcher personally collected and filled in the questionnaires for coding and analysis.

11. Intervi{;;W Guide

This is a research instrument designed to enable a researcher conduct personal interview with

key respondent interview guide was used in the study to help the researcher obtain firsthand

information and make clarifications on issues that was not easily understood by the respondents.

m. Document Search

This is the use of secondary sources of information or literature, documents and publications

relevant to the study. Review of literature was used by the researcher on related topics of the

study.

13
3.8 Data Analysis

Since the study was mainly qualitative in nature and design, data collection from the respondents

using the various instruments were grouped into themes emerging from the study and then

analyzed. Graphs were also used by the researcher to develop the themes and sub-themes from

the data collected and then interpreted the findings.

14
 CHAPTER FOUR

4.0 RESEARCH FINDINGS, ANALYSIS AND DISCUSSION

4.1 Introduction

This chapter presents the research findings based on the responses from the questionnaire,

document search and the personal interpretation of the information given during the informal

interviews held with the different staff of the organization.

4.2 Expenditure of AAU on the Budget

Under its Director, Assistant Director and 11 other employees, AAU handles the funds, mainly

for:

1. Direct Program Costs (50%)

ii. Staff Costs (29%)

111. Office Costs (12%)

1v. Transport and Travel Costs (9%)

Figure 1: Pie Chait showing the expenditure of AAU on the budget

0 Office Cos ts

Ei Direct Program
Costs

□ Staff Costs

0 Transport and
Travel Costs

Source: Piimary Data

15
The above chart shows that AAU spends mainly on direct program costs as it takes the greatest

percentage of 50% and this is due to the fact that AAU is a "not-for-profit" organization. Direct

programs may include; serving HN/AIDS units, relief supplies by AAU. However, staff costs

take 29%, office costs 12% and transport and travel costs taking 9%.

4.3 Demographic and Personal Data

Table 1: Position held and bio-data:

Male and female

. RespQndent Category · Frequency · % out of 100

I'
Finance Manager 6

Accountant 5 10
I
Other (middle manager) 7 15

Not bothered

Total
33

48
69

100
I
Source: Primary Data
!
The table above shows the percentage of male staff against the female and their positions in the
I
I

organization. Financial managers include both male and female staff in all taking 6%. There is

more female staff in the accountant position (7%), while male staff taking 3%. According to the II
researcher, the above table really shows that AAU is an organization that does not discriminate at !

all as it hires both male and female in its management functions. Of the 48 respondents, only 15

responded to the researcher, and the rest 33 did not bother at all. The researcher found out that

16
out of the 15 managers who responded to the researcher, 3 are in the Finance Management

position, 5 accountants and 7 in the middle managers position.

Table 2: Period of service for the top and middle managers

Question: For how long have you worked in Action Aid Uganda?

Top Managers and Middle Managers

Response €ategory · Frequency % out of 100

Below 3 years 10 21

Bety;een 3-5 years 18 38

Between 5-10 years 4 8

Above 10 years 3 6

Not bothered 27

Total 48 100

Source: Primary Data

Table 2 shows that all managers in both middle and top level categories have been in the

company for less than three years and only one middle manger has served in AAU for more than

five years. Of the 48 respondents, only 35 responded and 13 never attempted to respond to the

researcher at all. These included 12 top-level manager category while 23 werefrom middle level

manager categories. According to the researcher, 21 % of the top and middle managers are very

new to the organization, as they have stayed for a period below 3 years, 38% have been in the

organization for up to 5 years, 8% from 5 to 10 years and 27% middle managers have been in

AAU for a period of more than 10 year<;.

17
Table 3: Education levels for the top and middle managers

Table showing educational levels for top and middle managers in percentages

Respondent Frequency % out of 100

Dqree: 12 ~ ..
:'/:'.i~tl)\/;,
Diploma 10 20.8

Certificate ,' · · ·

Not bothered 22 45.8

Total:.;· 48 100

Source: Primary Data

The table above shows that the 9 respondents, 4 are degree holders, 2 diplomas and 3 certificate

holders. This is an indication of a well-developed human resource division at AAU. The table

below shows that a greater percentage of staff (50%) are university graduates with degrees, 30%

diplomas and only 20% are certificate holders. The researcher was really impressed with the staff

qualifications and this shows that AAU has the required skilled human resources to run the

organization.

4.4 Budgeting

One of the objectives of the study was to assess whether effective budgeting was being carried

out in AAU. Before arriving to this objective, the researcher tried to find out the sources and

application of funds and whether the sources were predictable or not.

18
4.4.1 Sources of Funds

AAU depends for its source of funds mainly on:

1. Donations from various agencies from abroad

11. Fundraising

111. Grants from different projects and programs

1v. Investments

v. Sponsorship

Figure 2: Sources of Funds

Pie Chart showing sources of funds for AAU

El sponsorship

ii Donations

□ Grants

□ Fundraising and
lnvestr,1ent

Source: Primary Data

The above figure shows that AAU is really a "not-for-profit" organization as indicated by a

bigger percentage of the source coming through sponsorship and donations (45% and 20%

respectively). Othe:· sources include interests from investments, which brings in only 18%. AAU

needs to work so hard so as to impress the donors and sponsors who seem to be its financier;

otherwise without hard work, donor withdrawal might put the smooth running of the

organization injeopardy.

19
Table 4: Table showing the predictions of AAU sources of funds

Question: Are these funds predictable?

Response Frequency % out of 100

Yes 0 0

0
No 4 ()

Not sure 44 92

Tota! 48 100

Source: Primary Data

The above table represents the percentages of respondents about how predictable the sources of

funds are. 92% ofrespondents say the funds used by AAU are unpredictable and 44% were not

sure at all. The above table clearly indicates that sources of fund in AAU are quite unpredictable

as they are mainly from sponsorship and donations and in reality, no one can really predict the

funds to be received from the donors or even sponsors at all.

4.4.2 Application of funds

These funds, once received are applied in the different activities, which include:

1. Staff costs

11. Office costs

111. Deposit into account (direct program costs)

1v. Investment

v. Financial costs

20
Figure 3: Pie Chart showing application of funds in AAU

□ Administration

!ill Deposit into

□ Investment

□ Anancial costs

Source: Primary Data

From the above pie chart, it is clear that the biggest percentage is applied into administration.

11 % is into direct program, 10% is invested and 4% deposited. The administration of AAU

comprises a lot of activities, which really require a lot of funding. These activities include:

monitoring areas occupied by the poor to try and curb up poverty within these areas. Direct

programs include serving those areas occupied by HIV/Aids. Investment and deposition take a

smaller percentage, as AAU is mainly not for profit making according to the researcher.

21
Table 5: Preparation of budgets by top and middle level managers

Question: Do you prepare budgets in your department?

Top Managers and middle managers

Response %outof100 ·

Yes 5 10

Not Sure 42 88

Total.

Source: P1imary Data

The table above shows that 10% of the top managers participate in preparation of budgets while

2% do not paiiicipate in budget preparation and 88% were not sure whether budgets are being

prepared at AAU. 5 middle level managers however confomed that budgeting is done. In

summary, budgeting is really practiced in AAU as suppo1ied by a greater percentage (10%) of

the top level managers who were confinned as compared to only 2% who did not agree with the

idea. Furthermore, all the respondents in the middle management position (10%) confirmed that

they participate in budget preparation.

22
Table 6: Budget preparation in AAU

Question: If you prepare budgets in your departments, how often do you do this?

Response Frequency %out of 100

10

Semi-annually 0 0

Quarterly

Others (specify) 43 90

Total 48 100. ..

Source: Primary Data

The table shows that 10% of the top managers participate in the preparation of budgets while 2%

do not participate in budget preparation and 88% were not sure whether budgets are being

prepared in AAU. 5 middle managers however confirm that budgeting is done. In summary,

budgeting is really practiced in AAU as supported by a greater percentage ( 10%) of the top-level

managers who were confirmed as compared to only 2% who did not agree with idea.

Furthermore, all the respondents in the middle managements position ( 10%) confirmed that they

that they paiticipate in budget preparation.

23
Table 6: Budget preparations in AAU

Question: If you prepare budgets in your departments, how often do you do this?

Response Frequency % out of 100

Semi-annually 0 0

Total 48 100

Source: P1imary Data

Figure 5 shows that budget in AAU are prepared annually. This is shown by 10% of the

responses supporting annual budget preparation and the majority 90% never bothered to answer.

4.5 Alternative plans of incomes and expenditure, besides budgeting

From the data collected through document search in AAU, the following is a summary of the

investment option, which according to the staff, works as a pian for income and expenditure in

AAU.

24
Figure 4 is the pictorial framework of investment process in AAU.

The above investment process, which involves getting percentage from the funds given by the

donors and puffing it in the common pool, is meant to show the plans made by managers as a

tool for (both long and short tenn) planning for both income and expenditure.

4.6 Amount give11 as interest

At the begi1ming, the investment option shown in figure 4, worked well and the accounts holders

were happy to find an additional amount on their accouats. However, as time went by, the capital

that had been invested became lower and lower.

The statement by the auditors, which is refeffed to in chapter one: statement of the problem

shows that "there were no strong commitments by the managers to enforce budgetary controls in

the company" thus no pmiicular formulae for determining distribution of interest. When, in the

25
study, the researcher tried to find out how these managers were not strong enough to enforce

budgetary controls through a discussion, the following were answers obtained:

1. Managers could fail to explain budget variances

n. Managers not paying close attention to budget details hence producing budgets with

slacks

111. Not relati;.1g plans of activities to the budget

4.6.1 Office Administration

The departments in the AAU carry out different duties but also share most of the expenditure on

the different activities. The individual staff approach showed concern on how spending is high

for some of these items.

Figure 5: Pie Chart showing the degree of expenditure on specific activities

□ Direct Problems

El Office Stationery

D Salaries for Staff

□ Transport and
Travel

Source: Primary Data

Above pie chati shows the percentage of the degree of the expenditure for AAU for different

items as shown. The pie chart shows that 40% goes to the direct programs, 20% office stationery,

26
30% salaries of staff, and 10% to transport and travel. As seen from figure 5 by the researcher,

AAU mainly spends a lot in its direct programs than it has to pay its staff and the rest expenses.

Table 7: Checking and approval of expenditure items

Question: Is the expenditure being checked and approved by a responsible officer?

Response Frequency % out of 100

Strongly agree 1

Disagree 0 0

Strongly disagree l 2

Not sure 44 92

Total 48 lOO

Source: Primary Data

Table 7 shows that at least 2% disagree about checking and approval of expenditure caITied out

in AAU, 6% agree and the rest, 92%, were not sure whether expenditure is checked and

approved before it is spent. This was really appreciated by the researcher as expenditure is

supposed to be checked and approved before it is spent.

27
Table 8: Authorizing expenditure

Question: Is expenditure being authorized by the responsible manager?

Response Frequency % out of 100

Strongly agree 0 0

Strongly disagree 1 2

Not sure 44 92

Total 48 100

Source: Primary Data

Table 8 above shows that of the 48 respondents, 4% say that a responsible manager always

authorizes their expenditure while 4% disagree about the ideal and 92% were not sure at all.

According to the researcher, as seen from the above, at least a responsible manager, auth01izes

expenditure in AAU.

I
II
I
l
i
rt
'I
28
Table 9: Measure of control

Question: Given the amount of expenditure checking, approval and authorization practiced, is

there a good measure of control?

Response Frequency %, out of 100

S'irongly agree 1 2

Strongly disagree 2 4

Not sure.· 44 92

Total 48 100

Source: Primary Data

Tabie 9 above shows that 4% strongly disagree that control is not being practiced in AAU and

4% supp01is control practice. According to the researcher, as seen from chapter one in the

statement problem, controls do exist in AAU though managers lack strong commitment to

enhance them in the organization and that's why only 4% disagreed on the control practice when

asked.

4.6.2 Deposits for projected and programs

This area is concerned mainly with the services rendered to the clients. 8 respondents were

approached in an informal interview so as to find out whether they were happy about services

rendered to them by AAU. The aim was to find out whether they were properly handled or

managed.

29
Table 10: The management of AAU funds for its clients

Response Frequency %, out of 100

Very \vell managed. 1 2

Well managed 2 4

Fairly ma~1aged 5 10:3

Poorly managed 0 0

Not sure 40 83:3

Total 48 100

Source: Primary Data

Table 10 above shows the biggest percentage having the idea that AAU fairly manages well the

funds of its clients, compared to the 16.3% of the respondents who say the funds are well

managed respectively though 83.3 were not sure. This could be an indication that AAU has

qualified staff are knowledgeable in financial management and are managing fund& in an

appropriate manner as seen from table 3.

4.7 The effects ofbudgetaiy controls on organizational perfonnance of AAU

The third objective was to detennine whether there was a relationship between the two variables

(budgetary controls and organizational performance) of AAU. To an-ive at this objective, the

researcher presented questions to the staff and some clients, concerning achievements of

objectives through these tools and application of other tools besides budgeting as a measure of

performance.

30
Table 11: Responses of the AAU achieves its staff and some clients as to whether objectives

Question: In your opinion, do you think AAU has achieved its objectives?

Response Frequency % outoflOO

Strongly yes 5 10.4

Total 48 100

Source: Primary Data

The above table shows that at least 4.4% of the respondents claim that AAU has achieved its

objectives compared to 2% who say it has not successfully achieved the objectives; although

83.3% never attempted to answer the researcher. This could be due to the fact that managers in

AAU iack strong commitment to enforce budgetary controls so as to enable the organization

achieve its objectives fully according to the researcher.

31
4.8 If AAU has not achieved its objectives, do you think budgetary controls would help it

perform better?

Table 12: Responses of staff as to whether controls would help AAU to achieve its

objectives

Response Frequency 0
/., out of 100

Yes I ')

A strong yes 3 6

No 2

Strong no {) 0

Not sure 90

'I'otnl 48 100

Source: Primary Data

Table 12 shows 8% response to budgetary control being tools to achieve objectives by AAU,

compared to 2% who say they are not tools for successful performance although 90% were not

sure at all. The 8% respondents who agree with budgetary controls suggest that:

1. There is no need for monitoring procedure to be put in place, especially as far as

spending on vehicles is concerned

11. If budgetary control policy measures are put in place and a follow up is done, then the

corresponding problem and ad hoc payments would be reduced

As stated in chapter 3 by the researcher, budgetary controls are really tools that take action to

correct deviations from the plan and feedback results to amend the plan as required.

32
4.9 Are there other tools besides budgeting, which would help AAU to achieve its objectives?

Table 13: Responses about other tools besides budgetary control tools that would help AAU

achieve its objectives

Respon~e Frequency % out of 100

No 0 0

Not bothered 43 90

Source: Primary Data

From the table above, 6% of the respondents say there are other tools that would help AAU to

achieve its objectives. However, 4% are not sure and 90% did not answer the researcher at all on

this question. Other tools suggested include:

1. Training the staff under the importance of budgetary controls

11. Improve on the delivery structure of programs i.e. cost efficiency, effectiveness and

economical

m. Enhancing the fundraising department to raise more finance and meet their planned

targets

33
 CHAPTER FIVE

5.0 SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5. l Summary of the findings

The study was about the effects of budgetary controls on organizational performance of AAU.

According to the research findings, AAU's expenditure is mostly on direct program costs, which

takes 50%, and the rest, which may include staff costs take 29%, office costs 12% and transport

costs 9%. Its sources of funds are mainly through fundraising and sponsorship that's why AAU' s

sources of funds were not predictable at all. Basing on table 3(a), AAU has got the required

human resources to rnn the organization, as the majorities were degree holder and diploma.

Further still, budgets in AAU are prepared annually, authorization of expenditure do exist as well

as checking and approval of expenditure items by a responsible manager and some controls are

being practiced which has enabled AAU to achieve some of its objectives as stated in table 10.

Lastly, the performance of AAU really depends on budgetary control practices to achieve

organizational objecfrves though its managers lack strong commitment to enforce these controls

in the organizations day-to-day activities. And this is an indication that a relationship between

budgetary controls and organizational performance lists.

5 .2 Conclusions

Basing on the responses from the study respondents, the study draws the following conclusions:

1. Budgeting exists in AAU but it is not effective enough as sometimes budgetary

controls are not attended to leading to preparation of budgets with slacks, thus poor

34
 performance of the organization due to inadequate participation of managers in

producing information for preparation of budgets.

11. There is lack of performance monitoring, in terms of checking the actual results with

the budgeted amounts. This is worsened by the fact that management's repo1i on

activities is not clear to even 50% of the administration team.

iii. Managers lack skills to enhance budgetary controls so as to lead to a better

performance of the organization. Element of budgetary control needs to be revised in

the organization for a better perfonnance.

1v. Because of unclear planning and absence of strong control practice, the expenditures

are high. This is also as a result of lack of participation by Heads of Departments or

sections in the budgeting process. Individuals have no direction in spending.

Although table 11 shows that lack of strong controls have contributed to poor perfonnance by

80% responses, table 12 shows that other variables have contributed to the present performance

of the organization. At least 60% of the managers interviewed think that, other tools could be

employed in order to improve the perfonnance of AAU.

5.J Recommendations

Recommendations given below are based on the findings and conclusions presented by the

researcher in this research.

By looking at the initial objectives of the organization (as shown in the historical background)

which was based on achieving a world without poverty in which every person can exercise his or

her rights to life of dignity. So, in order to achieve and remain relevant to this objective (based

35
from the vision of AAU) AAU's management should revisit and reset its vision, mission and

objectives.

To do this the researcher recommends that:

1. AAU should carry out SWOT analysis, which looks at the strengths, weaknesses,

opportunities, and threats.

ii. Further still, without proper corporate control practice and that the overall plans of the

organization are not clear, then the activities which take place in the organization are not

properly specified and related to plan and expenditure as in the case of AAU, even if the

objectives were clear, it would be difficult to achieve them without a proper guide (plans)

and proposed controls (budgetary controls).

111. AAU should look at its overall budgetary control process; its strategies and activities for

achieving the objectives then draw up a properly guided budget. This would lead to

positive results thus improving the performance of AAU. Thus, the paiticipation in

budgetary control practices by the managers at all levels would partly help AAU to

achieve its objectives.

1v. AAU should involve middle managers in budgeting process for better performance

v. Control policy to be strongly enhanced and instituted in order to control expenditure and

maintain the organization's existence. Having regular monitoring could do this and

evaluation of expenditure against budgeted for figures. A habit for strict authorization of

expenditure could control to reduce ad hoc expenses

v1. The researcher further recommends that AAU acquire appropriate accounting software

that could facilitate its budgeting process

36
vii. Besides budgetary control practices, there are other factors that affect performance in the

organization. Setting up clear objectives, which are appropriate, so precise to the needs of

AAU would result into smooth tinning of AAU.

v111. The management needs to have an appropriate feasibility study carried out to establish

the liability of AAU

1x. A staff development plan to upgrade their knowledge of present day financial practices as

modem Computer Based Accounting be unde1iaken

5.4 Issues of further research

Given this researcher experienced significant limitations and did not sample sufficient AAU

related organizations; further research should be done to establish a more comprehensive picture

of budgetary control in such related organizations and how this influences decision-making and

control for their performance.

AAU's source of funding is dependent on sponsorship and donor goodwill. With donor fatigue

and continued call for self-reliance, the donors who are AAU's lifeline might lessen or even stop

their funding so as to make AAU and other related organizations more sustainable.

37
 BIBLIOGRAPHY

1. Drury J. Colin (1992) Management and Cost Accounting (3rd Ed.) Chapman and Hall

2. Harvey, Mike and Fred Knees (1978) Financial Accounting Theory, Prentice Hall London

3. Brech (1963) Strategic Management (4th Ed.)

4. Frank Wood (1995) Business Accounting (5th Ed.), Pitman

5. Lutaaya Busuulwa (1997) External effects of inadequacy of budgetary resources on

achievement of objective and performance in Government departments. Research Paper.

6. Kakuru Julis (2000) Finance Decision and the Business (1st Ed) The Evaluation of

Budgeting. Business Publishing Group.

7. Koontz H. & Weibrich. Management. McGraw Hill (1988)

8. Ojur Francis (1997) Process and Budgetary Control of Local Government. Research Repo1is,

Makerere University

9. Pike W. Sunday Vision May 5, 2002

10. Omunuk Ben Joseph (1999) Fundamental Accounting for Business (18th Ed.)

11. Stoner A. F. James (1992) Management (5th Ed,)

12. Cecily A. Raibom ( 1992) Managerial Accounting. West Publishing Company, New York.

13. Pauline Weetinan (1999) Financial and Management Accounting. An introduction (2nd Ed.)

Prentice Hall

14. Charles T. Homgren (1993) Introduction to Management Accounting (9th Ed.) Prentice Hall

15. Pandey I. M. (1995) Financial Management (revised edition) Vikas Publishing House PVT

Ltd

16. William E.Thornas (1983) Cost Accounting, Reading in Budgeting and Control.

17. Wel (1991) Budgeting: Profit, Planning and Control

38
 QUESTIONNAIRES

DEMOGRAPHIC AND PERSONAL DATA

1. Position

2. Sex Male [] Female []

3. Educational level (qualification)

a. Degree []

b. Diploma []

C. Certificate []

d. Others []

4. Area of Specialization

a. Accounting []

b. Marketing []

C. Human Resource [ ]

d. Auditing []

e. Finance []

5. Briefly state your job description

6. For how long have you worked at Action Aid Uganda (AAU)?

a. Below 3 years []

b. 3-5 years []

39
 c. 5-10 years []

d. Above 10 years []

BUDGETING

7. What are the main sources of funds used in AAU?

a. Donations []

b. Grants []

C. Contributions []

d. Others []

8. Are these funds predictable?

9. What are the implications of these funds?

10. How often do you prepare budget in your department?

a. Annually []

b. Semi-annually []

c. Quarterly []

d. Others []

40
11. Are all heads of departments/sections included in making budgets?

a. Agree []

b. Disagree []

c. I don't know []

BUDGETARY CONTROL EVALUATION

12. Are budgetary controls being practiced in AAU?

a. Yes []

b. No []

c. Not sure []

13. What controls? (State them briefly)

14. Are they being properly followed when making budgets?

a. Yes []

b. No []

c. Not sure []

15. Is the expenditure being checked and approved by responsible officer in your department

a. Agree []

b. Strongly Agree []

c. Disagree []

d. Strongly Disagree [ ]

41
16. Is expenditure being authorized by a responsible manager?

a. Agree []

b. Strongly Agree []

c. Disagree []

d. Strongly Disagree [ ]

17. Given the amount of checking, approval and authorization of expenditure is good measure of

control being shown?

a. Agree []

b. Strongly Agree []

C. Disagree []

d. Strongly Disagree [ ]

18. In your opinion, do you think AAU has achieved its budgetary control objectives?

19. If the organization (AAU) has not yet achieved its objectives, do you think budgeting

controls would help it to perform better?

a. Yes []

b. Strongly Yes []

C. No []

d. Strongly No []

42
20. Do you think budgeting and budgeting control are important to AAU?

21. Are there other tools besides budgetary control AAU can use to achieve its organization

objectives?

43