BUDGETING IN THE PUBLIC SECTOR;

ABUDGET; It is a financial plan that serves as a formal statement of revenue and expenditure of
an organization.

It can also be defined as an annual plan of a local government’s income from council’s revenue,
government grants and all other revenue sources and how such total revenue could be spent
according to the set objectives needs and priorities.

According to the Chartered Institute of Management Accounting (CIMA) a Budget is “ a plan

quantified in monetary terms, prepared and approved prior to a defined period usually showing
planned income to be generated and expenditure to be incurred during that period”.

A budget is a powerful tool for allocating limited resources (funds) among competing priorities
(expenditures) within the community.

BUDGETING; Budgeting means making choices between limited resources to satisfy unlimited
needs. The art of budgeting in government is essentially a process of allocating limited resources
to services and activities in a manner that will most effectively meet the needs of the citizens.

THE ROLE OF A BUDGET OR BUDGETING;

i) A budget serves as a financial control mechanism; It is a means to define and

assign responsibility for financial control i.e provides strong control over
departmental expenditures and reduces the administrative discretion of departmental
heads.
ii) It serves as a Plan; It includes detailed specifications of what objectives are to be
achieved by the proposed expenditures and can suggest alternative methods of
achieving these objectives.
iii) Serves as a communication tool; A budget is a mechanism by which citizens, public
officials, policy makers, potential investors and other stakeholders are informed about
community budgetary issues and choices addressed in the budget.
iv) It serves as an operations guide; Budget estimates describe proposed activities,
services or functions that government institutions will carry out. It therefore identifies
qualitative and quantitative measures or outputs by which program performance and
results will be evaluated.
v) It is an instrument of democracy; It reflects the will of the citizens and acts as a
means of exercising popular control over public money.
vi) It serves as a contract; A budget is a contract between the policy makers and
government departments through which the government promises to provide funds to
a department for agreed upon purposes. It is also viewed as a contract between the
citizens and the government.
 vii) It is a management tool; A budget serves as a statement of the decisions and
responsibilities that translate into specific programs and activities. A properly
designed budget can help to achieve administrative efficiency, economy and honesty
which increases management responsibility and accountability.
viii) A budget serves as a motivator; It motivates departments by setting certain targets
against which actual outcomes are compared to planned outcomes. Government
employees are also likely to be effective and satisfied if they have a clear sense
program purpose that enables them to better understand where they are going and
how they will get there.

APPROACHES TO BUDGETING;

There are Four approaches to budgeting namely;

 Zero based budgeting (ZBB)

 Incremental budgeting
 Line item budgeting
 Planning Programming budgeting system (PPBS)

NB Emphasis is only put on the first Two.

A) ZERO BASED BUDGETING;

This is a budgeting approach where the budget starts from a zero base i.e. budget items are
included in the budget as if they are being included for the first time. Under zero based managers
are required to justify all budgeted expenditures, not just making changes in the budget from the
previous year.

Advantages/Benefits of ZBB;

a) There is efficient allocation of resources, as it is based on the needs and benefits of an

organization.
b) It drives managers to find cost effective ways of improving operations because it’s based
on needs.
c) It helps to detect inflated budgets i.e. those with high figures.
d) It is useful for service departments where the output is difficult to identify.
e) It increases staff motivation and coordination within the organization because it allocates
money where there is need.
f) It helps to identify and eliminate wasteful operations and unnecessary expenditures.
g) It forces cost centers to identify their mission and their relationship to overall goals.
 Disadvantages of ZBB;
a) It makes it difficult to define decision units and packages, hence time consuming and
exhaustive.
b) Mangers are forced to justify every related expenditure; hence the research and
development department is at risk.
c) It requires all managers to be trained. ZBB must be clearly understood by all managers at
all levels for it to be successfully implemented.
d) In large organizations the volume of forms may be so large that no one person could read
it all. Compressing the information down to usable size might remove some important
details.
e) It requires uniformity and reliability of managers and department heads to get good
results, which may not be the case.

B) INCREMENTAL BUDGETING;

This is a budgeting approach/process where the current year’s estimates of revenue and
expenditure are used as a starting point for the proceeding years estimates. This approach to
drawing a budget starts with the estimated amounts for the current financial year or the
provisional accounts of actual expenditure of the previous year. Small amounts (increments) are
added or subtracted to accommodate budget increases or cuts for the coming financial year.

Advantages of Incremental Budgeting;

a) It is to understand and the calculations required are relatively simple and straight forward.
b) It has the advantage of producing budgets that are relatively stable, with gradual changes
from year to year.
c) Where activities have been planned for more than one year, incremental budgeting
provides assurance that funds will be available in future.
d) Moreover if all departments within the ministry are treated the same way (same
incremental increases and cut backs), it can reduce interdepartmental conflicts.

Disadvantages of Incremental Budgeting;

a) In incremental budgeting, the allocation of resources is based on the existing pattern of

activities. When the levels or types of activities are subject to significant change, for
example, through the introduction of a new course, this may pose a challenge.
b) It can create disincentives to developing new programs or courses, because the spending
in the next financial year is based on the current spending.
c) Another drawback of incremental budgeting is that it encourages managers to adopt a
“use it or lose it attitude”, spending money towards the end of the financial year because
it is there.
 d) Overall, incremental budgeting is based on the assumption that the existing level of
funding is right, whereas in fact it may be too high for the current level of activity or too
low to sustain these activities in the long-term

Annual Estimates of Revenue and Expenditure.

All public entities have the right and obligation to formulate, approve and execute their budgets
and plans provided they are balanced. Annual estimates of revenue and expenditure usually give
full information covering the policy which the administration intends to persue during the year of
estimate which forms the background to the budget.

Annual estimates are both estimates of revenue and estimates of expenditure. Expenditure
estimates are categorized into parts namely, Revenue expenditure and the capital expenditure
estimates.

Detailed Revenue(recurrent) expenditure estimates and items are divided into programmes and
subprogrammes to cater for subordinate departments. These programmes are subdivided
between; Employee costs and other charges which inturn are divided using codes.

Capital expenditure budget estimates for the first year has to take into account a three year
approved development plan following the accounting regulations on budgeting.

Illustration.

Estimates of Revenue;

CODES DETAILS AMOUNT (UGX)

200 Property Tax
201 Land fees 17,000,000
202 Rent and Rates 18,000,000 35,000,000
300 User fees
301 Market fees 21,000,000
302 Parking fees 5,000,000
303 Visa fees 10,000,000
304 Brewing fees 13,000,000 49,000,000
Total Revenue 84,000,000

Estimates of Expenditure;

CODES DETAILS AMOUNT (UGX)

400 Employee Costs
401 Salaries 6,000,000
402 Wages 4,000,000
403 Staff welfare 7,000,000 17,000,000
420 Other Charges
 421 Garbage collection 3,700,000
422 Utilities 3,300,000 7,000,000
500 Capital Expenditure
501 Construction 34,000,000
Materials
502 Road Equipments 26,000,000 60,000,000
Total Expenditure 84,000,000

Revision of Estimates:

Where the estimates are not approved by the local government council or any other body before
the commencement of the financial year to which they relate, a vote on account has to be passed
by a resolution authorizing expenditure on established services provided for in the estimates up
to an amount not exceeding 25% of its actual revenue for the preceding year.

When annual estimates are not yet approved or even after approval, may be revisited and revised
to suit the organizational needs and priorities. Revision of estimates is essentially divided into
three categories which include;

a) Virement estimates
b) Re-allocation estimates
c) Supplimentary estimates

Virement estimates; This is the transfer of approved funds between votes (items) under the
same program of expenditure e.g between Wages and staff welfare. It cannot be used to transfer
funds let say between Employee costs and other charges. Virement is done by a virement warrant
which is made by the vate controller to the chief executive showing the amount to be transferred
and the votes under the same program affected. Viremaent estimates should not be used to create
a new post or change the approved salary scale or to change a pettern of expenditure as approved
in the estimates.

Re-allocation estimates; This is the transfer of approved funds between votes under the
different programs of expenditure e.g between employee costs and other charges. A re-allocation
warrant has to be made by the vote controller showing the amount to be transferred from one
program to another and the votes affected. Re-allocation estimates are normally used to create a
new post or change an approved salary scale or change a pattern of expenditure approved by the
council.

Supplementary estimates; This refers to additional funds required for the recurrent or
development expenditure which involves an increase in the total approved estimated expenditure
for the year. The vote controller will apply to the chief executive for supplementary provisions if
additional funds are needed over and above the approved budget which cannot be meet by
virement or re-allocation. The application for supplementary estimates has to clearly show;
savings from other votes, identify additional revenue or external funds to cover the cost of
additional requirements.

Circumstances under which a supplementary budget may be required;

i) When need arises for an activity for which money was not allocated.
ii) In case of an emergency situation that needs extra funding e.g Floods, Drought, or
unforeseen situation such as the Covid 19 pendamic.
iii) When there is need to support the implementation of various programs and projects
that best promote development of a country.
iv) In case of new developments that may have come up and were not foreseen during
budget making.

Reasons For Preparing a revenue Budget;

i) Determining the income and expenditure i.e a country or entity is able to anticipate
the income it will realize and expenditure to be incurred.
ii) To assist in policy making and planning i.e acts as a policy document.
iii) To authorize future expenditures which are shown in the budget.
iv) To provide a basis for controlling the income and expenditure.
v) To set a stardard for evaluating performance by a comparing the estimated revenue
and expenditure with actual revenue and expenditure’
vi) To motivate managers and employees in achieving the set targets.
vii) To coordinate the activities under different departments or units in an organization or
departments of the government.

STATEMENTS OF REVENUE AND EXPENDITURE:

1) Statement of Revenue: This shows the estimated and actual receipts in respect of a
specific revenue head of the government.
The differences between estimated and actual receipts are explained by accounting
officers in form of footnotes to the revenue statement.
Illustration:
The following information relates tp the revenues earned by Moyo district local
government for the year ended 30th June 2022.
Revenue Head 167-23

Code Particulars Estimated Receipts Actual Receipts

Ugx(000) Ugx(000)
254 Rent for Equipments 1,050,000 1,070,000
 255 Trading Licence 630,000 600,000
256 Parking Fees 940,000 980,000
257 Other receipts 435,000 410,000

Additional Information:
Cash balance on hand 1st July 2021 was Ugx 447,000,000. At the end of the financial
year the cashier was supposed to remain with cash to the tune of Ugx 360,000,000.
Required: Prepare a statement of revenue for Moyo district and show how much money
was paid to the exchequer.

Moyo District Local Government

A Statement of a Revenue for the financial year ended 3oth June 2022.
Revenue Head 167-23

Code Particulars Estimated Actual

receipts receipts
Ugx Ugx Ugx
254 Rent for equipment 1,050,000 1,070,000 Pay’t to exchequer 3,147,000
255 Trading licence 630,000 600,000 Balance c/d 360,000
256 Parking fees 940,000 980,000
257 Other receipts 435,000 410,000
3,055,000 3,060,000
Balance b/f 447,000
3,507,000 3,507,000

Factors that may cause differences between estimated revenue and actual revenue are;
 Collection procedure efficiency (competence in collection)
 Attitude of tax payers and willingness to pay
 Level of trading and business
 Government policy on taxation
 Corruption and embezzlement in the community
 Political stability
 Political interference
2) Statement of Expenditure/ Appropriation Account:
This is a statement showing estimated expenditure, actual expenditure, amounts under
spent and amounts over spent for a particular year.
It’s main purpose is to analyse the differences between estimated and actual expenditure
and the accounting officer has to explain the reasons for over spending or under spending
on form of footnotes.
Illustration:
The following estimates of expenditure relates to the Ministry of Internal affairs as at 30 th
June 2023.
 Code Particulars Estimated Actual expenditure
expenditure
Ugx(000) Ugx(000)
101 Personal emolments 79,000 89,000
201 Housing allowance 14,000 12,000
301 Passages and leave 4,000 3,500
401 Travel expenses 21,000 22,000
501 Electricity & water 5,000 5,500
601 Purchase of plant & equipment 49,000 39,000
Additional information:
i) The government had approved and authorized the ministry to use ugx 14,000,000
as Appropriations in aid, but actual appropriations in aid funds were Ugx
11,000,000.
ii) Supplementary estimates(authorized) during the year were;
101 Personal emoluments Ugx 8,000,000
401 Travel expenses Ugx (2,000,000)

Required:
i) Prepare an appropriation account for the year ended 30th June 2023.
ii) Determine the Surplus/deficit to be reported to the treasury.

Ministry of Internal affairs

Appropriation A/C for the year ended 30th June 2023.

Code Particulars Estimated exp Actual Exp Under Over

Ugx(000) Ugx(000) Ugx(000) Ugx(000)
101 Personal emoluments
Original 79,000
Supplementary 8,000 87,000 89,000 2,000
201 Housing allowance 14,000 12,000 2,000
301 Passage & leave 4,000 3,500 500
401 Travel expenses
Original 21,000
Supplementary (2,000) 19,000 22,000 3,000
501 Electricity&water 5,000 5,500 500
601 Perchase of plant& 49,000 39,000 10,000
equip
Gross Total 178,000 171,000 12,500 5,500
Approp in aid (14,000) (11,000)
Net Total(from Gov’t) 164,000 160,000

Proving whether there was a surplus or deficit.

Surplus of gross estimated expenditure over actual 178,000-171,000 = 7,000

Deficiency of Appropriations in aid 11,000-14,000 = (3,000)

Net surplus to be surrendered to treasury 4,000

BUDGETARY CONTROL:

The process of budgeting is always controlled by the central budget committee (Budget desk)
which is composed of budget desk officers.

The chief finance officer, the accountant or sub accountant should therefore be responsible for
supervising and coordinating the budget desk officers (budget team) in preparation of annual
estimates (budget estimates).

Each department through the budget desk officer should be able to prepare it’s estimates which
have to be consolidated into the draft estimates of the council.

In accordance with Section 78 of the local government act, all public institutions and entities
have the right and obligation to formulate and execute their budgets.

All local government councils should therefore have a budget desk (central budget committee)
that is composed of the following officers.

 Chief finance officer

 Planning officer
 District statistician
 Population officer

In case some of the above officers are not in place, these other officers can serve on the budget
desk.

 Agricultural officer
 Medical officer
 Works supervisor/District engineer
 Any other appointed by the chief executive or CAO.

Duties/Roles of the Budget Desk:

1) Coordinating the departments to produce annual plans and budgets for submission to
the chief executive.
2) Following up the budget cycle issued by the minister and the chief executive
committee and the council on the progress of the budgeting process.
 3) Ensuring that the council departments produce realistic budget estimates and
development plans.
4) Ensuring that planning is linked to budgeting.

The Budget Process;

The budget process involves consultations and negotiations between the local council and
various relevant parties, compilation of planning and budgetary inputs from lower local
government councils, preparation of the budget framework paper, public hearings, the
prioritization process, reading and approval of the next financial year’s budget, budget
implementation and evaluation.

The process of budgeting shall start in September with consultation between local governments
and the central government. All local governments must lay their budget before council not later
than 15th day of June as per local governments Act.

Local Government Budgeting Procedure;

a) Objectives setting by a central budget committee. The objectives must be set in relation
to budget instructions and work plans of any public organization.
b) Departmental budget committees prepare budgets according to the set objectives and
after preparations, the budgets are forwarded to the central budget committee for analysis.
c) Then various heads of departments will be called upon by the central budget committee
to present and defend their respective departmental budgets.
d) After presentation, the departmental budgets may possibly be amended according to the
set objectives and work plans.
e) After amending the budgets, the central budget committee will then approve the budget
and thereafter recommends various departments to put into effect their budgets.
f) After approval, the budget will then be implemented through monitoring, supervision and
controlling the approved activities of the council.
g) When budgets are implemented, the process of budget evaluation must take place to
assess whether value for money has been realized or to assess whether the project has
been a success or a failure towards the set objectives and finances.

Central Government Budgeting Procedure;

i. Discussion of the budget frame work paper. Important issues are discussed at this stage
such as financial strategies of government regarding management as may be introduced
by the ministry of finance and national priorities.
 ii. The minister of finance issues a circular to the public sector or heads of departments
informing them of the ministry budget ceilings, national objectives and national
priorities.
iii. Ministerial budgets are then prepared.
iv. Ministerial budgets are presented to the ministry of finance for discussion and some
necessary adjustments may be made in these budgets and thereafter ministerial budgets
are presented into the national budget.
v. The budget is then presented to the parliament. This is normally on the national budget
day.
vi. Different sectoral committees of parliament will then discuss the budget. At this point,
the ministers are required to give statements which must be in line with the budget.
vii. There after the sectoral committee will put the discussed budget to the parliament for
approval.
viii. Implementation of the budget. Here the central government releases the money in respect
to the approved budget to specific ministries and departments.
ix. Continuous monitoring and review of the budget performances.

NB A Budget Frame work paper is a document prepared by the minister of finance showing
government priorities i.e setting out how the government intends to achieve it’s policy objectives
over the medium term through the budget. It is a key link between the government overall
policies and national budget.

General Principles of Budgeting:

1) Budget estimates should reflect revenue that can be realized under anticipated conditions
and expenditure which is to be incurred under efficient financial management and
control.
2) Budget estimates should be divided into Capital budgets and recurrent budgets.
3) Departmental heads that are responsible for the execution of their estimates should be
allowed in the preparation and formulation of the budget.
4) All estimates must be prepared in sufficient details to permit proper monitoring and to
support explanation of variations and adjustments.
5) All estimates of revenue and expenditure must be organized and assigned codes in
accordance with programmes or with responsibility at all levels.
6) Work plans and approved estimates have to form the basis of annual estimates.
7) The prevailing factors and circumstances which are likely to affect future operations must
be taken into account when preparing the estimates.
8) All amounts in the estimates must be expressed in Uganda shillings (UGX).
9) In accordance with local government act section 78, council budgets must be balanced to
cater for all amounts in the department or ministry.
NB A balanced budget is one whose estimates of revenue and expenditure are equal.
 PRE-LIQUISITES FOR SUCCESSFUL BUDGETING:
1) The preparation process has to be consultative and participatory in order to ensure
ownership to both processes and the approved budget.
2) A systematic process of prioritization of programmes and expenditures which is based on
informed choices must take place.
3) Planned outputs, activities and expenditure allocations in the annual workplan and budget
estimates must be realistic and achievable.
4) Sufficient time must be reserved for participation and dialogue between the relevant
stakeholders and for public hearing.
5) There must be realistic revenue forecasts.

PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS IN PUBLIC

SECTOR;

All local Government councils and other public Entities are required to prepare financial
statements to show their performances at the end of the financial period in terms of Net earnings,
financial position and the net cash position of the enterprise.

Financial statements are usually prepared under the following categories. i.e.

 Statements prepared by accounting officers

 Statements prepared by the accountant general.
 Statements prepared by other government units e.g local gov’ts, public institutions, public
corporations etc.

Statements prepared by accounting officers:

Within three months after the end of a financial year, accounting officers usually prepare and
submit to the minister, the auditor general and a copy to the accountant general the following
signed statements.

 An appropriation account showing the services for which money spent were
voted, how much actually spent on each and the state of each vote compared with
the amount appropriated to the vote by parliament.
 A statement containing the amount of commitments outstanding for the supply of
goods and services at the end of the financial year.
  A statement of revenue received showing the estimated revenue for each source,
amounts actually collected and an explanation for the variation between the
revenues actually collected and amounts estimated.
 A statement of arrears of revenue showing amounts outstanding at the end of the
year for each source of revenue.
 A statement of assets containing details and values of unallocated stores under
his/her control at the end of the financial year, and details of any other classes of
assets.

Statements prepared by the Accountant general:

Within Four months after the end of the financial year, the accountant general prepares and
submits to the auditor general and the minister of finance the following documents.

 A balance sheet showing the consolidated assets and liabilities of all public funds
and other entities funded through the consolidated fund.
 A statement of the source and application of funds for the consolidated fund
showing the revenue, expenditures and financing for the fund.
 A statement of amounts outstanding at the end of the year in respect of the public
debt.
 A summary statement of revenue and expenditures, being a summary of all the
statements submitted by accounting officers.

Statements prepared by other government units:

Profit and Loss Statement;

This is prepared by all those local government that operate trading activities approved by their
respective councils. This statement is actually a trading account which shows the results of the
operations of the undertaking carried by a local government. Each month the trading profit
reflected in the trading account has to be credited to the income and expenditure account,while a
loss is debited to the income and expenditure account as an expense.

Its Format;

Madi District Local Government’s

Trading Account for the Month of June 2022.

Sales 54,000,000

Less Cost of Sales

Opening Inventory 1,400,000

Purchases 22,300,000

Other direct costs 500,000 22,800,000

24,200,000

Less Closing Inventory 800,000 23,400,000

Gross Profit C/F 30,600,000

Income and Expenditure Account;

This shows details of total revenue and expenditure of a Local Government or any Public
Institution for a particular financial year. The outcome of this account shows either a Surplus or a
Deficit.

Its Format is shown as below;

Madi District Local Government’s

Income and Expenditure Account for the Financial year Ended 30th June 2022

Code Details UGX UGX

Revenue

2000 Government Grants.

2001 Conditional 4,000,000

2002 Unconditional 1,500,000

2003 Equalization 1,500,000 7,000,000

3000 Sale of Old Equipments 3,000,000

4000 Profit b/d 30,600,000

5000 User Fees

5001 Market Fees 500,000

5002 Parking Fees 400,000 900,000

 Total Incomes 41,500,000

Less Expenditure.

6000 Employee Costs

6001 Wages and Salaries 6,500,000

6002 Staff Welfare 1,400,000 7,900,000

7000 Other Expenses

7001 Repairs 3,500,000

7002 Garbage Collection 1,200,000 4,700,000

Total Expenditure 12,600,000

Surplus Income over Expenditure 28,900,000

Revenue Account;

This shows details of total income and expenditure of a state corporation for any particular
financial year. The outcome of this account shows either surplus or deficit which is transferred to
Net revenue account.

Format of Revenue Account;

N W S CO’s

Revenue Account for the Financial Year Ended 30th June 2022.

Revenue; UGX(000) UGX(000)

Sales by Meters 16,000

Sales by Contracts 3,200

Total Incomes/Revenue 19,200

Less Expenditure

Salaries 2,200

Electricity 3,400

Repairs 1,200
Maintenance Costs 800

Transport 1,500

Advertising 1,100

Total Expenses 10,200

Surplus/Deficit 9,000

N W S CO’s

Net Revenue Account for the Financial Year Ended 30th June 2022

Surplus/Deficit 9,000

Add Retained Surplus b/f 800

9,800

Less; Provision for Corporation Tax 1,100

Provision for debenture 3,200 4,300

Surplus C/F 5,500

Statement of Financial Position (Balance Sheet);

The Balance Sheet of Public institutions and Local Governments should be prepared by
comparing the previous year with the current year. It shows the statement of financial position of
such institution. It is prepared under categories of non-current assets, current assets, capital fund,
long term liabilities and current liabilities.

Example;

The Following balances were extracted from the books of National Water and Sewerage
Corporation for the year ended 30th June 2021.

DETAILS DR UGX (000) CR UGX (000)

Sale of services 287,500
Sale by Meter 159,000
Fund Account 800,000
 10% Debenture 540,000
Buildings 480,000
Plant and Machinery 540,000
Computers 312,000
Central Stores 100,500
Electricity 20,000
Insurance Premium 15,000
Salaries to Staff 93,000
Maintenance Costs 12,000
Transport 75,000
Cash at Bank 144,000
Legal Fees 30,000
Sundry Debtors 110,000
Sundry Creditors 89,000
Hire of Security Police 6,000
Retained Surplus B/F 62,000
1,937,500 1,937,500

Additional Information;

 Prepaid salaries amounted to shs 4,000

 Provision for bad debts was 10% of the total debtors.
 Debenture Interest was still accrued.
 Provision for depreciation on all non-current assets was fixed at 5% per annum.
 Accrued electricity amounted to shs 2,000
 Provision for corporate tax shs 6,200

Required; Prepare the following.

i) Revenue Account for the year ended 30th June 2021.

ii) Net Revenue Account for the period.
iii) Statement of Financial Position at that date.