MAKERERE UNIVERSITY
QAULITY OF BUDGETARY CONTROL AND EFFICIENCY OF PUBLIC ENTERPRISES
CASE STUDY: NATIONAL WATER AND SEWARAGE CORPORATION.
Bwaise branch.
BY
NAKABUYE SWAIBATU
07/U/11822/EXT
SUPERVISOR
MR NZIBONERA ERIC
A RESEARCH REPORTSUBMITTED TO MAKERERE UNIVERSITY IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE A WARD OF A BACHELOR OF COMMERCE DEGREE OF MAKERERE UNIVERSITY
JUNE 2011
1
DECLARATION
I Nakabuye Swaibatu declare that the work contained in this research report is my original work, to the best of my knowledge and has never been presented any where by another person for academic purposes. Where the work of other people has been used due acknowledgement has been made.
Signed……………………………………………………………..
Date…………………………………………………………………..
APPROVAL
This report has been submitted with the approval of a university supervisor and is worth for the award of bachelor of commerce degree of Makerere University.
Signed……………………………………….. Date…………………………………………….
Mr.Nzibonera Eric
DEDICATION
This work is dedicated to the family of the Late Hajj Isa Kyemwa and Mr. &Mrs.Matovu for the entire effort during my academic career
ACKOWLEDGEMENTS
Writing this report has involved people and an organization whose contributions are greatly acknowledged. I acknowledge the following people for the support given to me. Mrs. Habiba Kyemwa, Mr. Yasin Sewaya, my friends Narigis, Fatuma, Jane, Doreen, Sempala, Rehema, Ishaq, Suzan and all that helped in the typing of the research.
Iam grateful to my supervisor Mr. Nzibonera Eric for the advice, comments, guidance and constructive ideas he gave me during the course of typing this report. May the good Lord reward them abundantly.
ABBREVIATIONSAND ACKRONYMS
CIMA Chartered Institute Of Management Accounts
NWSC National Water And Sewerage Corporation
GOU Government of Uganda
IGG Inspector General of Government
BBC British Broadcasting Corporation
GBEs Government Business Enterprises
TABLE OF CONTENTS
DECLARATION...... i
APPROVAL...... ii
DEDICATIONiii
ACKNOWLEDGEMENT...... iv
ABBREVIATIONS AND ACRONYMS...... v
TABLE OF CONTENTS
LIST OF TABLES
LIST OF FIGURES
ABSTRACT
CHAPTER ONE
1.1 Background
1.2 Statement of the problem
1.3 Purpose of the study
1.4 Objectives of the study
1.5 Research questions
1.6 Scope of the study
1.6.1 Subject scope
1.6.2 Geographical scope
1.7 Significance of the study
CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
2.1 Meaning of a budget
2.2 Meaning of budgetary control
2.3 Budgetary control involves the following steps;
2.3.2 Lack of Budgetary Theory
2.4 The qualities of budgetary control
2.5 Objectives of budgetary control
2.6 Role of budgetary control
2.6 Public Enterprises
2.6.1 Classification by Source of Control
2.6.2 Classification by Property Rights
2.6.3 Classification by Source of Revenue
2.7 Efficiency of public enterprises.
2.8 The relationship between quality of budgetary control and efficiency of public enterprises.
CHAPTER THREE
METHODOLOGY
3.1.Research design.
3.2.Study population
3.3.Sample size and sampling procedure
3.4Study Variables
3.5 Data source
3.6.Data collection instruments.
3.6.1.A questionnaire
3.7. Data processing and analysis method.
3.7.1. Data processing:
3.7.2. Data analysis
3.8. Limitations to the study
CHAPTER FOUR
PRESENTATION, ANALYSIS AND INTERPRETATION OF THE FINDINGS
4.0 Introduction
4.1 Presentation of the findings
CHAPTER FIVE
Summary of major findings, conclusions and recommendations.
5.0. Introduction
5.1.1. The quality of budgetary control in NWSC
5.1.2. Finding on efficiency of NWSC
5.1.3. Findings on the relationship between quality of budgetary control and efficiency of public enterprises.
Conclusion
5.3. Recommendations
5.3.1. Recommendation on quality of budgetary control
5.3.2. Recommendation on the efficiency
5.3.3. Recommendation on relationship between quality budgetary control and efficiency of public enterprises.
5.3.4. Areas of further research.
REFERENCES
Research Questionnaire
LIST OF TABLES
Table 1:Response rate...... 20
Table 2:Response on the gender of respondents...... 21
Table 3: Findings on the age of the respondents...... 22
Table 4: Response on the academic level of respondents...... 23
Table 5: Response on the working experience...... 24
Table 6: Response on whether budgets are prepared in NWSC...... 26
Table 7: Response on whether the organization prepares budgets yearly...... 27
Table 8.Response on whether the organization has a budget committee...... 28
Table 9:Response on whether the budgets prepared are revised...... 29
Table 10: Response on whether the budget is comprehensive, realistic and forward looking...30
Table 11: Response on whether budget circulars are prepared basing on strict costing of existing standards of services. 31
Table 12:Response on whether there is provision of clean, piped and safe water for the population of Kawempe Bwaise. 32
Table 13. Response on whether there is an effective cash management system to contain the gaps between the resources and spending requests. 33
Table 14: Response on whether it takes NWSC reception a short period to answer...... 34
Table 15: Response on whether the staff of NWSC takes a short while to repair pipes in case they are broken in an area. 35
Table 16: Response on whether the staff responsible for connecting and reconnecting customers does it in a short time. 36
T able 17: Response on whether the budgets prepared are often revised which has led to achieving of the goals that are set. 37
Table 18: Response on whether the budget circulars prepared basing on strict costing of existing standards of services has led to making of realistic budget can be fully funded. 38
Table 19: The relationship between the qayulity of budgetary control and efficiency of public enterprises. 40
LIST OF FIGURES
Figure 1: The response of respondents in percentage...... 21
Figure 2: A pie chart showing the gender of the respondents...... 22
Figure 3: A pie chart showing the age of the respondents...... 23
Figure 4: A pie chart showing the academic level of the respondents …………………….……24
Figure 5 : A pie chart showing working experience...... 25
Figure 6: A graph showing response on whether the organization prepares a budget...... 26
Figure 7: A bar graph showing response on whether the budgets are prepared yearly...... 27
Figure 8: A bar graph showing whether the organization has a budget committee...... 28
Figure 9: A bar graph showing the response on whether the budgets prepared are revised.....29
Figure 10: A bar graph showing the response on whether the budget is comprehensive , realistic and forward looking 30
Figure 11: A bar graph showing the response on whether budget circulars are prepared basing on strict costing of existing standards of services. 31
Figure 12: A bar graph showing the response on whether there is provision of clean, piped and safe water for the population of Kawempe Bwaise. 33
Figure 13: A bar graph showing the response on whether there is an effective cash management system to contain the gaps between the resources and spending requests 34
Figure 14: A bar graph showing the response on whether the staff of NWSC takes a short while to repair pipes in case they are broken in an area. 35
Figure 15: A bar graph showing the response on whether the staff of NWSC takes a short while to repair pipes in case they are broken in an area. 36
Figure 16: A bar graph showing response on whether the staff responsible for connecting and reconnecting customers does it in a short time. 37
Figure 17: A bar graph showing the response on whether the budgets prepared are often revised which has led to achieving of the goals that are set. 38
Figure 18: A bar graph showing the. Response on whether the budget circulars prepared basing on strict costing of existing standards of services has led to making of realistic budget can be fully funded 39
ABSTRACT
This study was about quality budgeting control and efficiency of public enterprise. A case study on National Water and Sewerage Corporation. The study was guided by the following objectives;
to evaluate quality of budgetary control of publish enterprises in Uganda, to evaluate the efficiency of public enterprises and to establish the relationship between quality of budgetary control and efficiency in National Water and Sewerage Corporation.
The study design was cross sectional and existing literature used. During the study data was collected from both primary and secondary sources using questionnaires to collect primary data from a sample size of 25 respondents using special package for social scientist (SPSS) and presented using frequencies and percentages to draw the relationship and meaning full conclusion about the study.
The findings on quality of budgetary control were, budget reviews, budget committee, budget circulars were used as budgetary control and were reviewed annually. Finds on efficiency are that service provided are good like clean and safe water, good customer care service however, the repairing of pipes connecting and reconnecting of customers should be done in the shortest time.Findings on the relationship show a significant positive relationship between quality of budgetary control and efficiency of public enterprises indicated r = 0.829.
Recommendations quality of budgetary control were that, the management should carry out continuous review of budgets approval of budgets by budget committee which in end will assist in formulating a realistic, forward looking budget. This review should be earned and also the strict costing standards of services should be followed to avoid large deviations of the actual expenditure and estimate expenditure. Recommendations of efficiency were that the organization should deliver services to customer at the shortest time possible like connecting and reconnecting customers. Recommendations on the relationship between quality o f budgetary control and efficiency of public enterprises were that the organization needed to improve on the quality of budgetary control any approving of budgets having budget circulars and reviewing of budgets which would enhance the achievement of goals in NWSC Bwaise branch.
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CHAPTER ONE
1.1 Background
By 1990 the government directly or indirectly owned shares in at least 160 enterprises in almost all sectors of the economy. However a relatively big size of public enterprises has not matched expected performance. Over along time, these public enterprises constituted a significant drain on government financial resources instead of generating revenue. Through the budgeting process managers are compelled to think ahead, anticipate and prepare for changing conditions, coordinate the activities of various functions so as to increase efficiency, eliminate waste and control cost (Dury 1992)
Budget control is a system of controlling costs through preparation of budgets. It has been defined by CIMA, Arora (2000) as the establishment of budgets relating to responsibilities of executives of a policy and the continuous comparison of actual with budgeted results, either to secure by individual action the objective of that policy or to provide a basis for its revision. An effective budgetary process creates consciousness and introduces an attitude of mind in which waste and inefficiency cannot thrive Biggs and Benjamin (1990) the objectives of budgetary control are impressive but should not be assumed that budgetary control is a full proof tool. This is because of its limitations: Budgeting is based on estimates, danger of rigidity budgetary control is only a tool of management, and it’s an expensive tool. The installation and operation of a budgetary control system requires employment of expert staff and involves other expenditures.
Government is both the major share holder in enterprises, and generally their principal banker as well. The main link between government and enterprises through the various stages of policy formulation and execution is the government budget. Public enterprises are distinguished from others mainly in terms of their permanent financial relationship with government.
Small concerns may find it difficult to adopt this expensive system. However it is essential that cost of budgetary control system should commensurate with the benefits derived there from.
Although a number of studies have been undertaken to establish the factors associated with poor performance of public enterprises in Uganda, none seems to have examined the budgetary control in the organizations.
1.2 Statement of the problem
Budgetary control aims at controlling financial resources and taking corrective action so as the planned activities and actions are adhered to provide effective and efficient services (Mugabe, 2002).A Prechmand (1990) in his paper argues that structural relationship between government and enterprises in the budgetary area have received proper attention, presumably because these are administrative processes confined to government. NWSC has no control catchments, various inadequately coordinated stake holders. There has been low cost control measures being implemented by each area, major ones created for in 2010/2011 financial year budget (Christopher Kanyesigye AFWA congress Kampala 17th march 2010). In view of the persistent inefficiency of public enterprises in Uganda it is questionable whether the budgetary control system in this organization has been effective in achieving the organizational goals.
1.3 Purpose of the study
The study was to examine the relationship between the quality of budgetary control and efficiency of public enterprises.
1.4 Objectives of the study
The study will was guided by the following objectives;
- To evaluate quality of Budgetary control of public enterprises in Uganda.
- To evaluate the efficiency of public enterprises in Uganda.
- To establish the relationship between quality of budgetary control and efficiency of public enterprises in Uganda.
1.5 Research questions
- How is the budgetary controlled in the public enterprises?
- What indicates the efficiency of public enterprises?
- How is the quality of budgetary control related with the efficiency of public enterprises?
1.6 Scope of the study
1.6.1 Subject scope
The research is going to base on two variables that is quality of budgetary control in which I will look at planning, coordination in the budgeting system. The other variable is efficiency of public enterprises in which I will look at how much does the actual budget deviate from the estimated budget.
1.6.2Geographical scope
The study will be carried from NWSC offices at bwaise branch.
1.7 Significance of the study
It can act as a basis for further research by academicians and scholars.
The study will help all the staff to ensure quality budgetary control in bid to improve the efficiency in public enterprises.
The study may help to unearth the characteristic of an efficient public enterp
CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
This chapter gives what other scholars have observed on budget control and efficiency in public enterprises and the relationship between budget control and efficiency in public enterprises.
2.1 Meaning of abudget
Lucy(1996) defines a budget as a quantitative expression of a plan prepared in advance of which it is related. The Stoner et al (1996) Budget are formal quantitative statement of resources set aside for carrying out planed activities over a given period of time.
Homgren et al (1993) defined a budget as a formal quantitative expression of plan (whether individual, business or other organization) thatprovidea bench mark against which to measure actual performance.
Budget is a plan expressed in monetary terms relating to specific period of time. A budget according to CIMA London defined budget as a planquantified in monetary terms prepared and approved prior to a defined period of time, usually showingplaned income to be generated or expenditure to be incurred during the period and capital to be employed to attain a given objective (Arora 2000).
According to Brown and Haward, a budget is a predetermined statement of management policy during a period, which provides a statement for comparison with the results actually achieved.
According to Jawaharal (1996), budget is a formal statement of financial resources set aside for carrying out specific activities in a given period of time.
The definition emphasizes the planning and controlling components of the budget. It goes furtherby giving the linkage between the budget and action plan, which has to be
achieved within a specified period of time frame.
The budget is alegal requirement (LGA, 1997; Constitution, 1995) and is ultimate government priorities (Onyach-Olaa,2003). It is one of the most powerful to public expenditure management (PEM) that directly affect the nature, level and effectiveness of public enterprises.
The words of Bruhead (1956), Budgets are merelymatters of arithmetic, but in a thousand go to the roots of prosperity of individuals, and classes, and strength of kingdoms, Brukhead associated the budget with the prosperity of the nation.
In Uganda the implementation of the various programs under decentralization such as; primary health care, water and sanitation and universal primary education, all aimed at poverty eradication and they are all anchored on the government budget. However the importance of the budget depends on the objectives that have been set.
2.2 Meaning of budgetary control
No system of planning can be sucessful withouthavingan efficient and effective system of control. The exercise of control in the organization with the help of the budget is known as budgetary control.
Budgetary control is a process of comparing the actual performance ofan aspecct of organization against planed performance (Kamakama,2006 )
Budgetary control is a system of controlling costs through the preparation of budgets.Budgeting is thus only part of the budgetary control.
Accordingto CIMA (London) budgetary control is the establishment of budgets relating to the responsibilities of the executivesofa policy and continuous comparison of the actual with the budgeted results either to secure by individual action, the objective of the policy or to provide a basis for its revision(Arora,2000).
According to Stone(1996), budgetary control means comparison of the budget with actual performance and addressing performance gaps.
Budgetary control, in Jawaharal, cost accounting pg 921 2ndedition, it a means of control in which the actual state of affairs is compared with regard to any deviations before it is too late.
Summarised as the use of a budget is to control the firms activities.
Budgetary control is a technique used to plan, execute and control operations and activities aimed at achieving set targets within the stipulated time frame.
2.3 Budgetary control involves the following steps;
Preparation of budgets and detailed action plan;
Identification of responsibility centres in the organization to execute or carry out specificactivities;
Adoption of mutually agreed targets for achievement of outputs to serve as milestone orindication of progress in the plan both in financial and physical term;
System of period monitory of performance of activities of every segment or responsibility
Careful comparison of the actual performance and outcome with the corresponding partof the plan.
Assessment of deviation and variation in the actual performance and the activities in relation to the plan and the identification of causes of the deviation Taking of corrective actions to ensure that the planned activities and actions are adhered to as far as possible. It should be noted that the preparation of budgets are often looked at as an annual ritual in which the control aspect is neglected. This renders the budgeting is infective.