MANAGING EXPENDITURE AGAINST A BUDGET

ASSESSMENT WORKBOOK

Qualification ID and Title: 61595

Further Education and Training Certificate: Business
Administration Services Level 04

Exit Level Outcomes : 3. Improve organisational effectiveness, by being

able to:
• Manage all Administration records him/herself
• Assist others in the organisation to do so

4. Present information that is routinely and regularly

required, as well as specific information that is
requested from time-to-time:
• Appropriate report format
• On time
• Using listening, reading and writing skills.

Unit Standard ID and Title 242810

: Manage Expenditure against a budget
Level : 04 Credits : 6

13941
Apply the budget function in a business
unit Level : 04 Credits : 5

Full Name of participant Sizwe Mongadi

: __________________________

Date for Submission : __________________________

ASSESSMENT PLAN

I will be assessed against:

ID Unit Standard Title Level Credits

242810 Manage Expenditure against a budget 4 6

13941 Apply the budget function in a business unit 4 5

Formative Assessments To be completed by :

Activity 1

Activity 2

Activity 3

Summative Assessment To be completed by :

Summative Assessment 1

Summative Assessment 2

Summative Assessment 3

Candidate Assessor Moderator

Name Sizwe Mongadi

ID / Registration 0002065764082

Signature

Date
Assessment Task 1 Formative Assessment
[US 242810 : SO 1 – AC 1] [ US 13941 : SO
1 – AC 1]
1.1 Referring to your area of responsibility, explain the concept of budgeting.
[US 242810 : SO 1 – AC 1] [ US 13941 : SO 1 – AC 1]

Budgeting is the process of creating a financial plan that estimates revenue and expenses over
a specified period. In my area of responsibility, it involves forecasting costs, allocating resources
efficiently, and ensuring that expenditures align with the organization's financial objectives.
Budgeting helps in maintaining financial control, planning for future growth, and ensuring
sustainability.

1.2 Explain the difference between budgeting based on historic data and zero based
budgeting (ZBB).
[US 242810 : SO 1 – AC 1] [ US 13941 : SO 1 – AC 1]

Historic Data Budgeting: This method uses previous years' financial data as a baseline for future
budgets. Adjustments are made to account for expected changes, such as inflation or business
growth. It is straightforward but may perpetuate inefficiencies.

Zero-Based Budgeting (ZBB): This method requires starting from zero for each budgeting cycle.
Every expense must be justified in relation to current objectives, regardless of past expenditures.
While more resource-intensive, it encourages efficiency and aligns spending with priorities.

1.3 How would an organisation decide which budgeting technique to use?

Complexity of operations: Historic data budgeting suits stable operations, while ZBB is ideal for
dynamic or growing organizations.

Time and resources available: Historic budgeting is less time-consuming, while ZBB requires
detailed analysis and justification

Strategic objectives: If the goal is cost-cutting or realignment with strategic goals, ZBB is
preferred.

1.4 Name at least three types of budgets and discuss the objectives each would be
designed to meet.
[US 242810 : SO 1 – AC 3]
 Type of Budget Objective of Budget

Plans for day-to-day operations, covering

Operating Budget revenue and expenses. Objective: Maintain
operational efficiency.

Capital Budget Allocates resources for long-term investments

like equipment or property. Objective: Facilitate
growth and infrastructure.

Cash Flow Budget Tracks cash inflows and outflows to ensure

liquidity. Objective: Prevent cash shortages and
manage working capital.

Meets criteria Does not meet criteria

Assessment Task 2 Formative Assessment

[US 242810 : SO 1 –AC 2, SO 2 – AC 1; SO 3 – AC 1, AC 2] ; [US 13491 : SO 1 – AC2, AC31SO 2 – AC5; SO 4 – AC 1]

Shiny Fruit : Annual Cash Flow Budget

Receipts : Annual : Monthly :

Debtors R352 380 R29,365

Cash R151 020 R12,585

Total receipts R503 400 R41,950

Less : Payments

Direct material R90 000 R7,500

Direct labour R192 000 R16,000

Rent R18 000 R1,500

 Telephone R3 600 R300

Administration R4 200 R350

Repairs and maintenance R6 600 R550

Marketing R36 000 R3,000

Purchase of second-hand delivery R4,100

R49 200
vehicle
Interest R1 800 R150

Current costs R14 400 R1,200

Tax R36 000 R3,000

Total payments R451 800 R37,650

Net inflow / outflow R51 600 R4,300

Opening cash balance R 48 200

Closing cash balance R 99 800

2.1 Fill in the totals that Shiny Fruit should budget for each month: -

Totals J F M A M J J A S O N D

Net inflow / R4,3 R4,3 R4,3 R4,3 R4,3 R4,3 R4,3 R4,3 R4,3 R4,3 R4,3 R4,3
outflow 00 00 00 00 00 00 00 00 00 00 00 00

Opening cash R48, R52, R56, R61, R65, R69, R74, R78, R82, R86, R91, R95,
balance 200 500 800 100 400 700 000 300 600 900 200 500

Closing cash R52, R56, R61, R65, R69, R74, R78, R82, R86, R91, R95, R99,
balance 500 800 100 400 700 000 300 600 900 200 500 800

2.2 Imagine that Shiny Fruit manages to stick exactly to its budget every month, with the
following exceptions:

• In January, Shiny Fruit collects debtors worth R 28 000

• One of the machines breaks during March and the business has to pay R 800 for
repairs
• During May, Shiny Fruit runs an extensive advertising campaign that costs R 6 000.
Sales for the month are R 30 000 worth of credit sales (to be paid in June) and R 18
000 cash sales.

Fill in the actual totals for Shiny Fruit:

Totals J F M A M J J A S O N D

Net inflow / R32, R4,3 R3,5 R4,3 R16, R4,3 R4,3 R4,3 R4,3 R4,3 R4,3 R4,3
outflow 300 00 00 00 300 00 00 00 00 00 00 00
Opening cash R48, R80, R84, R88, R92, R108 R113 R117 R121 R126 R130 R134
balance 200 500 800 300 600 ,900 ,200 ,500 ,800 ,100 ,400 ,700
Closing cash R80, R84, R88, R92, R108 R113 R117 R121 R126 R130 R134 R139
balance 500 800 300 600 ,900 ,200 ,500 ,800 ,100 ,400 ,700 ,000
2.3 Analyse the table. What does this mean to the manager?

1. Cash Flow Management

The adjustments demonstrate the importance of monitoring and managing cash inflows and
outflows regularly:

● January: The additional debtor collection provided a significant cash buffer early in the
year. This highlights the impact of efficient debtor management on liquidity.
● March: The unplanned repair expense slightly reduced the inflow but was manageable
due to the existing cash reserves.
● May: While the advertising campaign increased expenses, it was offset by additional cash
sales, indicating the value of strategic spending when tied to revenue-generating
activities.

2. Liquidity and Financial Stability

● The closing cash balance grows steadily each month, reflecting strong liquidity. This
ensures the company can cover both planned and unplanned expenses without financial
strain.
● The growing cash reserves (from R48,200 in January to R139,000 in December) allow the
company to potentially reinvest or explore growth opportunities

3. Decision-Making Insights

The table underscores the importance of:

● Proactive Budget Adjustments: Accounting for unexpected changes such as repairs

and marketing expenses ensures financial stability without jeopardizing operations.
● Strategic Investments: The May marketing campaign, despite its cost, demonstrated a
positive ROI through increased sales. This encourages future investments in similar
initiatives.

4. Risk Management

● The table emphasizes the value of maintaining a cash buffer for unexpected events, such
as repairs. Without sufficient reserves, these costs could have disrupted operations.
● It also highlights the need to monitor trends in inflows and outflows to anticipate and
mitigate potential cash shortages.

Conclusion
The analysis shows that Shiny Fruit’s financial management is robust, with adequate cash flow
planning and responsiveness to variances. The manager should continue regular cash flow
monitoring, focus on collecting outstanding debt promptly, and allocate funds for strategic
opportunities and contingency plans.

Adapted from: Financial Management, Linell van Hoepen, Juta 2009

Meets criteria Does not meet criteria

Assessment Task 3 Formative Assessment

[US 242810: SO 1 – AC 2]

Deneo has to draw up next year’s budget for her business. She got the following information
from this year’s and last year’s income statements:

Last year Next year

This year (R)
(R) (R)

Sales 300 000 360 000 R432,000

Cost of sales (156 000) (187 200) R224,640

Gross profit 144 000 172 800 R207,360

Operating expenses (60 000) (67 200) R77,280

Current income 84 000 105 600

Interest paid (5 000) (5 000) R7,000

Other income - 1 500 R1,650

Income before tax 79 000 102 100 R124,730

Tax (23 700) (30 630) R34,924.40

55 300 71 470 R89,805.60

Net income

For the next year, Deneo expects that her sales will increase by 20%, like they have done in the
past few years. The cost of sales will be 52%. Her current expenses will probably increase by
15% due to the higher inflation rate, while higher interest rates mean that she will have to pay R 7
000 in interest on her loans. However, she has decided to increase the rental income of R 1 500
she got this year, by 10% for next year. Also, taxes have decreased to 28%.

3.1 Using the above information, work out the amounts that Deneo has to budget for next
year. Fill these amounts into the appropriate place in her budget.
3.2 Explain what “costs of sales” means. Is this an income or expense?

Cost of Sales refers to the direct costs associated with producing or purchasing the goods sold
by a business. It includes expenses such as raw materials, direct labor, and manufacturing
overhead.

Classification: It is an expense, as it reduces the gross revenue to calculate the gross profit.

3.3 How should Deneo calculate her gross revenue? Explain and show the calculations.

Gross Revenue is the total income generated from sales before deducting the cost of sales or
any other expenses.

Formula: Gross Revenue=Sales

For next year:

Gross Revenue=R432,000

3.4 Which items in Deneo’s basic budget form part of expenditure?

The following items are classified as expenditure:

1. Cost of Sales: R224,640.

2. Operating Expenses: R77,280

3. Interest Paid: R7,000.

4. Tax: R34,924.40.

Adapted from : Financial Management, Linell van Hoepen, Juta 2009

 Meets criteria Does not meet criteria

Summative Assessment Task 1 Workplace Project

Task 1.1
File a copy of the standard operating procedure (SOP) for budgeting in your
organisation.
[US 242810 : SO 2] [US 13941 : SO 4 – AC 1]

Standard Operating Procedure (SOP) for Budgeting

Organization: VitalAire - Oxygen Solutions
Location: Bedfordview

1. Purpose

This SOP establishes a standardized approach to budgeting for VitalAire to ensure efficient
allocation of financial resources, effective cost management, and alignment with the company’s
goals in providing home oxygen solutions.

2. Scope

This procedure applies to all departments within VitalAire, including Call Center Operations, Home
Health Services, and Administrative Divisions, for managing the annual, quarterly, and monthly
budgets.

3. Definitions
 ● Budget: A detailed financial plan that outlines expected revenues and expenditures
over a specific period.
● Variance: The difference between budgeted and actual financial performance.
● Capital Expenditure: Costs for long-term investments like equipment and facilities.
● Operating Expenditure: Day-to-day costs of running the business, such as salaries and
utilities.

4. Procedure

Step 1: Budget Preparation

1. Set Objectives: Define financial and operational goals for the upcoming period (e.g.,
expanding patient services, upgrading equipment).
2. Data Gathering:
○ Review historical financial data, such as sales, patient service costs, and
equipment maintenance.
○ Forecast revenues based on patient service contracts and expected growth.
3. Draft Budget:
○ List all revenue streams, including home oxygen services and related equipment
sales.
○ Categorize expenditures into operating costs (e.g., salaries, utilities) and capital
investments (e.g., oxygen equipment).
4. Departmental Input: Collaborate with team leaders to identify specific departmental
needs and constraints.

Step 2: Approval Process

1. Internal Review: Submit the draft budget to the Finance Department for review. Ensure
accuracy and alignment with company objectives.
2. Management Approval: Present the budget to senior management for approval. Address
feedback and make necessary adjustments.

Step 3: Implementation

1. Distribute Allocations: Provide finalized budgets to each department and ensure

understanding of allocated resources.
2. Communication: Share spending guidelines and emphasize adherence to the approved
budget.

Step 4: Monitoring and Variance Analysis

1. Regular Monitoring: Track expenditures and revenues using financial software or

tracking sheets.
2. Monthly Variance Reports: Compare actual expenses with budgeted amounts and
investigate significant variances.
○ Example: Increased oxygen equipment repair costs.
3. Corrective Actions: Implement changes such as cost-cutting or reallocation of funds to
address variances.

Step 5: Reporting
 1. Monthly Reports: Submit detailed financial performance reports to management. Include
insights on variances and recommendations.
2. Year-End Review: Evaluate the overall performance of the budget. Use findings to
improve the next cycle’s budgeting process.

5. Roles and Responsibilities

● Finance Team:
○ Prepare and monitor budgets.
○ Generate monthly and annual variance reports.
● Department Managers:
○ Provide accurate projections for departmental needs.
○ Adhere to allocated budgets and justify any deviations.
● Executive Team:
○ Approve budgets and provide strategic direction.
● Call Center Team:
○ Track patient-related costs and report any financial concerns promptly.

6. Review and Updates

This SOP will be reviewed annually or when significant operational changes occur. Updates will
be made to reflect new financial policies or business goals.

7. Documentation

1. Budget planning templates.

2. Monthly variance analysis reports.
3. Year-end financial summary.

This SOP ensures VitalAire maintains financial control while achieving its mission of delivering
reliable home oxygen solutions.

Task 1.2
Explain how expenses are monitored and controlled according to the SOP.
[US 242810 : SO 23 – AC 1]

In the VitalAire SOP for Budgeting, expenses are monitored and controlled through the
following systematic processes:

1. Establishing Expense Categories

All expenses are categorized at the beginning of the budget cycle, including:

● Operating Expenses: Salaries, utilities, office supplies.

● Capital Expenditures: Equipment purchases, infrastructure upgrades.
● Variable Expenses: Marketing, packaging, and repairs.

This categorization ensures clarity in tracking and allocation.

2. Expense Monitoring Mechanisms

1. Regular Financial Tracking:

○ Expenses are recorded daily or weekly using financial software.
○ Reports are generated monthly to compare actual spending against budgeted
amounts.
2. Variance Analysis:
○ Differences between budgeted and actual expenses (variances) are identified.
○ Variances are classified as favorable (expenses under budget) or adverse
(expenses over budget).
3. Approval Workflows:
○ All expenditures, especially those exceeding pre-set thresholds, require
managerial approval.
○ Example: Purchases above R10,000 must be approved by senior management.

3. Expense Control Measures

1. Authorization Levels:
○ Expenses are controlled by assigning approval levels based on staff roles.
○ Example: Department managers can approve minor expenses, while major
purchases require executive authorization.
2. Budget Limits:
○ Each department has a defined expense limit to prevent overspending.
○ Alerts are set in the financial system to flag when spending approaches the limit.
3. Procurement Policies:
○ Centralized procurement ensures cost efficiency by standardizing purchases and
negotiating bulk discounts.
4. Contingency Planning:
○ A contingency fund is included in the budget to handle unexpected costs, like
emergency repairs.

4. Regular Review and Reporting

1. Monthly Reports:
○ Departments submit monthly expense reports to the finance team, including
justifications for any variances.
2. Management Reviews:
○ Senior management reviews overall expenditure to identify trends and adjust
allocations if necessary.
 3. Corrective Actions:
○ For adverse variances, measures such as cost-cutting, resource reallocation, or
deferred spending are implemented.

5. Fraud Prevention

To prevent unauthorized or fraudulent expenses:

● Financial records are regularly audited.

● Duties like procurement, payment approval, and expense reporting are segregated among
staff.

Task 1.3
Explain, according to the SOP, what corrective measures are taken to manage variances in the
budget.
[US 242810 : SO 3 – AC 2] [US 13941 : SO 4 – AC 2, AC 3, AC 5]

According to the Standard Operating Procedure (SOP) for Budgeting, VitalAire takes the
following corrective measures to address variances between the budgeted and actual financial
performance:

1. Identification and Analysis of Variances

● Regular Monitoring: Monthly financial reports are generated to track actual revenues
and expenditures against the approved budget.
● Variance Analysis: Variances are categorized as favorable (when actual performance
exceeds expectations) or unfavorable (when actual results are below expectations).
○ Example: Higher-than-expected oxygen equipment repair costs are flagged as
unfavorable.

2. Investigation of Root Causes

For each significant variance:

● Engage Departments: Collaborate with the affected department to understand the

reasons behind the deviation (e.g., unexpected equipment failures or delayed payments
from patients).
● Classify Issues: Determine whether the variance is due to controllable factors (e.g.,
inefficiencies) or uncontrollable factors (e.g., inflation or market changes).

3. Implementation of Corrective Measures

Once the root cause is identified, the following measures are implemented:

A. For Expenditure Variances

1. Cost Containment:
○ Postpone non-essential spending until the variance is resolved.
○ Optimize procurement processes to secure better prices for supplies.
2. Reallocation of Funds:
○ Reassign unused funds from other budget areas to cover essential overruns (e.g.,
reallocating from the marketing budget to cover increased maintenance costs).
3. Efficiency Improvements:
○ Introduce process improvements to reduce waste or inefficiency.
○ Train staff on cost-saving practices.

B. For Revenue Variances

1. Debtor Follow-Up:
○ Expedite collection of outstanding payments from patients or insurance
companies.
○ Offer payment plans for overdue accounts to improve cash flow.
2. Revenue Boosting:
○ Run targeted campaigns to increase service uptake, such as offering promotional
discounts on oxygen equipment rentals.

4. Communication and Approval

● Report to Management: Present a detailed variance report with proposed corrective

actions to the finance team and executive management for approval.
● Stakeholder Updates: Keep relevant departments informed of the changes and their
impact on operations.

5. Long-Term Adjustments

● Forecast Revision: Update financial forecasts based on trends identified during variance
analysis.
● Policy Changes: Adjust financial policies to prevent recurring variances (e.g., increasing
the buffer for unexpected repairs in future budgets).

Example Application

If oxygen equipment repairs exceeded the budget in March due to unexpected breakdowns:

1. Investigate why repairs were higher than planned.

2. Postpone non-critical marketing campaigns to free up funds.
3. Update the maintenance schedule to prevent similar issues in the future.
 Task 1.4

In my current role at VitalAire, my area of responsibility is focused on the Call Center

Department. The budgets I compile and monitor include:

1. Operating Budget

● Purpose: To manage day-to-day expenses incurred in running the call center.

● Key Components:
○ Salaries for call center staff.
○ Communication costs (telephone and internet).
○ Office supplies (stationery and consumables).
○ Equipment maintenance (telephony systems and computers).

2. Marketing Budget

● Purpose: To support campaigns that promote VitalAire’s services to existing and potential
patients.
● Key Components:
○ Advertising materials.
○ Customer outreach programs.

3. Training Budget

● Purpose: To upskill employees and ensure compliance with service standards.

● Key Components:
○ Costs for training sessions.
○ Materials and external facilitators.

Budgeting Method Used

I use Incremental Budgeting for these budgets. This approach is practical for my area because:
 ● Historical Stability: Costs such as salaries, communication, and equipment maintenance
tend to follow predictable patterns.
● Efficiency: It saves time by using the previous period’s budget as a baseline, with
adjustments for inflation, growth, or known changes.

Example of Incremental Budget

Call Center Operating Budget for October 2024

Category Last Year’s Budget Adjustment (+/-) New Budget (R)

(R)

Salaries 20,000 +2,000 (annual 22,000

increase)

Communication Costs 4,000 0 4,000

Office Supplies 5,000 +500 (increased 5,500

usage)

Equipment 6,000 +1,000 (higher 7,000

Maintenance repairs)

Total 35,000 38,500

+3,500

Why Incremental Budgeting?

● Simplicity: It is easier to adjust previous budgets for predictable changes than to justify
every expense as in zero-based budgeting (ZBB).
● Suitability: The call center’s expenses are consistent and do not often require drastic
changes.

Example of Monitoring the Budget

In October 2024, I tracked the above operating budget. Variance analysis revealed the following:
 Category Budgeted Actual Amount Variance (R) Result
Amount (R) (R)

Salaries 22,000 22,000 0 Neutral

Communication 4,000 3,800 -200 Favorable

Costs

Office Supplies 5,500 6,000 +500 Adverse

Equipment 7,000 8,000 +1,000 Adverse

Maintenance

Total 38,500 39,800 +1,300 Adverse

Actions Taken:

● Reviewed office supply orders to identify overuse and implemented a tighter inventory
policy.
● Scheduled preventive maintenance for equipment to reduce unplanned repairs

Task 1.5
Provide evidence of a budget you have compiled and show how you monitor
expenditure against the budget.
[US 242810 : SO 3 – AC 1, AC 2; SO 3 – AC 1, AC 2] [US 13941 : SO 2 – AC 5, AC 6, AC ; SO 4 – AC 2, AC 3]

Category Budgeted Actual Variance (R) Variance Notes

Amount (R) Amount (R) Type

Revenue 50,000 48,000 -2,000 Unfavorable Delayed payments

from some clients.

Expenses

Salaries 20,000 20,000 0 Neutral Salaries were

consistent.

Office 5,000 6,000 +1,000 Unfavorable Higher usage due to

Supplies increased patient
 queries.

Communicati 4,000 3,500 -500 Favorable Negotiated lower

on Costs rates with service
(Phones) provider.

Maintenance 6,000 8,000 +2,000 Unfavorable Unexpected

(Equipment) breakdown of
telephony system.

Training and 5,000 4,000 -1,000 Favorable Postponed

Development training session to
next month.

Total 40,000 41,500 +1,500 Unfavorable

Expenses

Net Income 10,000 6,500 Unfavorable

-3,500

Monitoring Expenditure Against the Budget

To ensure effective monitoring, the following steps are implemented:

1. Regular Reporting:
○ Expenditure reports are generated weekly to track actual spending against
budgeted figures.
○ Monthly variance reports are created to highlight deviations and assess their
impact.
2. Variance Analysis:
○ Variances are categorized as favorable (cost savings) or unfavorable
(over-budget spending).
○ Example: Office supplies exceeded the budget due to increased patient demand,
requiring reallocation of funds.
3. Corrective Actions:
○ Adjustments are made to mitigate variances:
■ For the telephony system repair (unfavorable variance), funds were
reallocated from postponed training sessions.
■ Communication costs were reduced by renegotiating contracts with the
service provider.
4. Monthly Review Meetings:
○ Conducted with department heads to review financial performance and plan for
the upcoming month.
○ Strategies are developed to address unfavorable variances, such as improving
payment collection for revenue delays.
 Supporting Documentation:

● Budget Planning Template: Shows the initial allocation of resources.

● Monthly Variance Reports: Details the differences between budgeted and actual figures.
● Invoices/Receipts: Provide evidence of actual expenditures for verification purposes.

Task 1.6
Provide a variance report on an actual budget for your unit/department
[US 13941 : SO 2]

Category Budgeted Actual Variance (R) Variance Reason/Note

Amount (R) Amount (R) Type s

Revenue 50,000 47,000 -3,000 Unfavorable Delayed payments

from two key clients.

Expenses

Salaries 20,000 20,000 0 Neutral Salaries were

consistent.

Office Supplies 5,000 6,500 +1,500 Unfavorable Increased patient

scripts required extra
materials.

Communication 4,000 3,800 -200 Favorable Reduced phone usage

Costs (Phones) through efficient
scheduling.

Maintenance 6,000 7,000 +1,000 Unfavorable Additional repair costs

(Equipment) for a faulty oxygen
device system.

Training and 5,000 4,500 -500 Favorable A planned training

Development session was partially
postponed.

Total Expenses 40,000 41,800 +1,800 Unfavorable

Net Income 5,200 -4,800 Unfavorable
10,000

Analysis of Variances

Revenue Variance

● Variance Type: Unfavorable

● Reason: Delayed client payments reduced actual revenue.
● Corrective Action:
○ Follow-up reminders sent to clients with outstanding balances.
○ Implement stricter payment terms for future contracts.

Expense Variances

1. Office Supplies (Unfavorable):

○ Increased demand due to a higher volume of patient scripts and data entries.
○ Action: Review inventory management processes to optimize supply usage.
2. Communication Costs (Favorable):
○ Savings achieved through effective call scheduling and increased use of email
communications.
○ Action: Continue monitoring communication patterns for additional savings.
3. Maintenance (Unfavorable):
○ Repairs were higher than anticipated for oxygen device systems.
○ Action: Allocate additional funds for maintenance in the next budget cycle and
consider preventive maintenance contracts.
4. Training and Development (Favorable):
○ A postponed training session reduced expenses for the current month.
○ Action: Reallocate unused funds to address other areas of overspending.

Recommendations
1. Revenue Collection: Expedite client follow-ups and strengthen credit control measures.
2. Preventive Maintenance: Adopt a regular maintenance schedule to minimize unexpected
repair costs.
3. Inventory Management: Conduct a review of supply procurement and usage patterns to
reduce costs.
4. Budget Adjustments: Reallocate unspent training funds to address critical areas like
maintenance.
At VitalAire, preventing fraud is critical to maintaining trust, operational efficiency, and financial
stability. The following mechanisms are implemented to detect and prevent fraudulent activities:

1. Internal Controls

● Segregation of Duties:
○ Tasks such as financial approvals, record-keeping, and transaction processing are
handled by different individuals to reduce opportunities for fraud.
○ Example: A Call Center employee processes patient scripts, but a separate
finance team handles payments.
● Authorization Levels:
○ Clear limits are set on financial transactions, ensuring only authorized personnel
can approve significant expenditures.
○ Example: Purchases over R10,000 require management approval.

2. Financial Monitoring

● Regular Audits:
○ Internal and external audits are conducted to review financial transactions and
identify anomalies.
● Budget Monitoring:
○ Monthly variance reports are analyzed to detect unusual spending patterns or
discrepancies.
● Reconciliation Processes:
○ Bank statements, invoices, and expense reports are reconciled regularly to ensure
accuracy.

3. Technology and Systems

● Access Control Systems:

○ Financial systems are protected with password authentication, user access levels,
and encryption.
● Expense Tracking Software:
○ Automated tools track spending in real-time, flagging suspicious transactions for
review.
● Surveillance Systems:
○ Physical security measures, like CCTV, monitor areas handling sensitive
documents or assets.
4. Fraud Awareness and Training

● Staff Training:
○ Employees are trained to identify and report fraudulent activities, such as altered
invoices or suspicious supplier behavior.
○ Regular workshops highlight the consequences of fraud and the importance of
ethics.
● Fraud Reporting Channels:
○ An anonymous reporting mechanism (e.g., hotline or email) allows employees to
report suspected fraud without fear of retaliation.

5. Vendor and Client Management

● Vendor Vetting:
○ Suppliers and contractors undergo a thorough background check before being
approved.
● Invoice Verification:
○ All invoices are reviewed for accuracy, duplication, and legitimacy before payment
is processed.

6. Ethical Practices and Policies

● Code of Conduct:
○ Employees are required to adhere to a strict code of conduct that outlines
unacceptable behaviors and penalties for fraud.
● Zero-Tolerance Policy:
○ The organization enforces a zero-tolerance policy for fraudulent actions, ensuring
immediate disciplinary measures or legal action.

7. Preventive Maintenance of Assets

● Inventory Management:
○ Regular checks are conducted to ensure that oxygen equipment and supplies are
accounted for and not misused.
● Asset Tracking:
○ An asset registry tracks the movement and usage of equipment to prevent theft or
misappropriation.

Conclusion
By combining internal controls, technology, regular audits, and fostering a culture of ethics,
VitalAire minimizes the risk of fraud. These mechanisms ensure financial integrity and operational
efficiency while protecting the organization's reputation.
 Meets criteria Does not meet criteria

Summative Assessment Task 2

Question 2.1
Explain what each of the following is : -

2.1.1 Budget

A budget is a financial plan that estimates the expected income and expenditures for a specific
period. It helps organizations allocate resources efficiently, set financial goals, and monitor
progress. Budgets are essential for controlling costs, planning for future activities, and ensuring
financial stability.

2.1.2 Gross revenue

Gross revenue is the total income generated by an organization from its core business activities
before deducting any expenses such as cost of sales, taxes, or operating costs. For example, for
VitalAire, it could include income from oxygen equipment rentals and home health services.

2.1.3 Cost of sales

Cost of Sales (also known as Cost of Goods Sold - COGS) refers to the direct costs incurred in
producing or delivering goods or services. It includes expenses like raw materials, labor, and
equipment maintenance but excludes overhead costs.

● Example: For VitalAire, it could include the costs of oxygen tanks and related supplies.

Continued . . .

2.1.4 Expenditure

Expenditure is the total amount of money spent by an organization to run its operations. It
includes operating costs (e.g., salaries, rent, utilities) and capital costs (e.g., equipment
purchases). Managing expenditures is crucial for maintaining profitability and ensuring financial
health.

2.1.5 Incremental budgeting

Incremental budgeting is a method where the current budget is adjusted by adding or

subtracting a fixed percentage or amount based on previous years' budgets.

Advantages: Simple to implement and useful for stable operations.

Disadvantages: May perpetuate inefficiencies and fail to reflect major changes in business
needs.

2.1.6 Zero-based budgeting

 Zero-based budgeting (ZBB) is a budgeting approach where all expenses must be justified for
each new period, starting from a zero base. Unlike incremental budgeting, it does not rely on
past budgets.

Advantages: Encourages cost efficiency and aligns spending with strategic goals.

Disadvantages: Time-intensive and requires detailed analysis.

2.1.7 Variance in a budget

Variance is the difference between budgeted and actual figures.

● Favorable Variance: When actual revenues exceed budgeted amounts or expenses are
lower than planned.

Unfavorable Variance: When actual revenues are lower than budgeted or expenses exceed
expectations.

Example: An unexpected repair cost could create an unfavorable expense variance.

2.1.8 Negative cash flow

Negative cash flow occurs when an organization’s cash outflows (expenses) exceed its cash
inflows (revenue) during a specific period. While it can be temporary, persistent negative cash
flow indicates financial instability.

Question 2.2
The following statement shows the budgeted income statement for Laduma Trading as well as
its actual figures, for the month of September:
[US 242810 : SO 3 – AC 2] [US 13941 : SO 4 – AC 1, AC 2, AC 3, AC 5]
 Laduma Trading Budgeted Income Statement for month ended September 2014

Budgeted Actual amount Variance Result

amount
Sales R50 000 R53 000 +3,000 Favorable

Less : Cost of Sales (R33 500) (R32 500) +1,000 Favorable

Opening inventory R3 000 R3 200

Materials R10 000 R 9 900

Labour R25 000 R24 000

Less : Closing inventory R4 500 R4 400

Gross profit R16 500 R20 500 +4,000 Favorable

Operating Expenses R9 750 R11 080 -1,330 Adverse

Rent paid R1 200 R1 200 0 Neutral

Telephone R400 R550 -150 Adverse

Rates and electricity R500 R480 +20 Favorable

Salaries (admin) R1 500 R1 500 0 Neutral

-150 Adverse
Repairs and R100 R250
maintenance
R2 500 R3 000
Marketing -500 Adverse
R800 R1 200
Packaging -400 Adverse
R750 R750
Interest paid 0 Neutral
R2 000 R 2 150
Other expenses -150 Adverse

Net income before tax R6 750 R9420 +2,670 Favorable

Tax R2 000 R3000 -1,000 Adverse

Net income R4 750 R6 420 +1,670 Favorable

a) Fill in the variances between budgeted and actual amounts in the column provided.

b) Write down whether each of these variances is favourable or adverse in the column
provided.

Continued . . .
c) Which of the variances should be addressed and how could the manager address them?
Explain in detail please.

1. Operating Expenses (Adverse Variance: R1,330)

Reason: The overall increase in operating expenses is due to higher-than-expected costs in

marketing, packaging, and repairs.

Actions:

● Monitor and Optimize Costs:

○ Review spending trends to identify inefficiencies.
○ Negotiate better rates with vendors or service providers for recurring expenses
(e.g., marketing and packaging materials).
● Implement Cost Control Measures:
○ Introduce tighter approval processes for high-value expenses.
○ Set monthly limits for variable expenses like marketing.

2. Marketing (Adverse Variance: R500)

Reason: Additional spending on marketing may have been necessary to boost sales but
exceeded the budget.

Actions:

● Analyze Return on Investment (ROI):

○ Evaluate the effectiveness of the campaign. If the sales increase justifies the extra
spending, reallocate funds from favorable variances like cost of sales or gross
profit.
● Plan Future Campaigns:
○ Use insights from this campaign to budget more accurately for future marketing
initiatives.
○ Focus on cost-effective digital marketing strategies.

3. Packaging (Adverse Variance: R400)

Reason: Increased production volume or higher material costs led to over-budget spending.

Actions:

● Bulk Procurement:
○ Negotiate bulk discounts with suppliers to reduce unit costs of packaging
materials.
● Streamline Usage:
 ○ Assess whether packaging can be optimized (e.g., using lighter or simpler
materials).

4. Repairs and Maintenance (Adverse Variance: R150)

Reason: Unplanned maintenance costs exceeded the allocated budget.

Actions:

● Implement Preventive Maintenance:

○ Schedule regular maintenance to prevent unexpected breakdowns.
● Create a Contingency Fund:
○ Set aside funds specifically for emergency repairs in future budgets.

5. Tax (Adverse Variance: R1,000)

Reason: Increased net income resulted in higher taxes. While this reflects better performance, it
impacted cash flow.

Actions:

● Plan for Tax Liabilities:

○ Incorporate potential tax increases into financial forecasts.
○ Explore legal tax-saving opportunities (e.g., deductions for operational expenses).

How the Manager Can Address Variances

1. Improve Monitoring and Reporting:
○ Implement weekly variance reviews to identify deviations early and act proactively.
2. Enhance Budget Accuracy:
○ Use historical data and adjust future budgets to better reflect operational realities
(e.g., higher marketing costs in sales-driven strategies).
3. Engage Departments:
○ Collaborate with department heads to ensure adherence to budgets and explore
ways to cut costs without compromising quality.
4. Reallocate Resources:
○ Use savings from favorable variances (e.g., lower cost of sales) to cover overages
in high-impact areas like marketing and repairs.

Adapted from : Financial Management, Linell van

Hoepen, Juta 2009

Meets criteria Does not meet criteria

Summative Assessment Task 3

3.1 What have you learnt while completing this Module?

Budgeting Fundamentals:

● Understanding the importance of budgeting for financial control and decision-making.

● Differentiating between various budgeting techniques like incremental budgeting and
zero-based budgeting.

Variance Analysis:

● Identifying and calculating variances between budgeted and actual figures.

● Interpreting variances to determine whether they are favorable or adverse and their
implications.

Cost Management:

● Recognizing the significance of controlling expenses and managing resources efficiently.

Fraud Prevention:

● Understanding mechanisms to detect and prevent fraud in financial management.

Practical Applications:

● Developing budgets, monitoring expenditure, and creating variance reports that align with
organizational goals.

3.2 How can you apply this learning in your day-to-day work?

Budget Preparation:

● Developing accurate and realistic budgets for my department, ensuring resource allocation
aligns with operational needs.

Monitoring and Reporting:

 ● Regularly tracking expenditures against the budget to ensure financial control.
● Preparing detailed variance reports to communicate performance and recommend
corrective actions.

Decision-Making:

● Using budget data to support informed decision-making, such as reallocating resources or

addressing unexpected costs.

Collaboration:

● Engaging with team members to ensure compliance with financial policies and alignment
with organizational objectives.

Fraud Awareness:

● Applying fraud detection mechanisms, such as segregation of duties and regular audits, to
safeguard company assets.

3.3 What knowledge and skills relating to this Module do you still need to learn?

Advanced Budgeting Techniques:

● Learning more about predictive analytics and dynamic budgeting methods.

● Exploring tools like rolling forecasts for adapting budgets to changing circumstances.

Financial Software Proficiency:

● Gaining expertise in using advanced budgeting and financial management software for
automation and real-time monitoring.

Strategic Financial Planning:

● Understanding long-term financial planning and its role in organizational growth.

Variance Resolution:
 ● Developing stronger skills in resolving complex variances, especially in scenarios with
overlapping causes

Industry-Specific Practices:

● Deepening knowledge of budgeting practices specific to healthcare or oxygen services, as

applicable to VitalAire.

FEEDBACK FROM THE ASSESSOR Unit Standard : 242810

and 13941

Assessment Plan Signed and dated

1st Assessment Actions to be taken 2nd Assessment

Submission Does
Task Does not
Meets Date Meets not
meet
criteria criteria meet
criteria
criteria
Assessment
Task 1
Assessment
Task 2
Assessment
Task 3
Summative
Task 1
Summative
Task 2
Summative
Task 3
Reflection
Remedial actions required :

Name Date
Candidate Sizwe Mongadi

Assessor

Moderator

ASSESSMENT REPORT Unit Standard : 242810

Unit Standard Manage Expenditure against a budget

ID 242810 Credits 6
NQF Level 04 Type ELECTIVE

Evidence Judgement

SPECIFIC OUTCOME

SO 1 : Explain the concept of budgeting pertinent to an area of responsibility.

SO 2 : Determine the elements of a budget in an area of responsibility.

SO 3 : Monitor and control actual expenses against budget.

Essential Embedded Knowledge

Critical Cross Field Outcomes

Overall Assessment
Recommendation YES / NO Date
Judgement
Competent Award of credit

Insufficient evidence Gather more evidence

Not yet competent Further learning and development

Not yet competent Not yet competent after second round of assessment

Comments and Action Plan

Candidate Feedback Yes No

• I was properly prepared for this assessment Yes

• I have been given detailed feedback on this assessment Yes

• I am satisfied with the result of this assessment Yes

Name ID / Reg Signature Date

Candidate Sizwe Mongadi 0002065764082

1st Assessment
Assessor
2nd Assessment
Assessor
Moderator

ASSESSMENT REPORT Unit Standard : 13941

Unit Standard Apply the budget function in a business unit

ID 13941 Credits 5
NQF Level 04 Type CORE

Evidence Judgement

SPECIFIC OUTCOME

SO 1 : Explain the concept of budgeting in a business unit.

SO 2 : Analyse the budget needs of a business unit.

SO 3 : Present and justify a proposed budget for a business unit.

SO 3 : Monitor and control actual expenses and revenue against projected

expenses and revenue.
Essential Embedded Knowledge

Critical Cross Field Outcomes

Overall Assessment
Recommendation YES / NO Date
Judgement
Competent Award of credit

Insufficient evidence Gather more evidence

Not yet competent Further learning and development

Not yet competent Not yet competent after second round of assessment

Comments and Action Plan

Candidate Feedback Yes No

• I was properly prepared for this assessment Yes

• I have been given detailed feedback on this assessment Yes

• I am satisfied with the result of this assessment Yes

Name ID / Reg Signature Date

Candidate Sizwe mongadi 0002065764082

1st Assessment
Assessor
2nd Assessment
Assessor
Moderator