Transcript Budgeting
By Lisette T. Jacobson, MPA, MA, PHR University of Kansas School of Medicine - Wichita 2011 Kansas Public Health Association Fall Conference Importance of a budget and its functions Legal requirements, budget content, and structure Elements of a budget Types of budgets Types of budget format ◦ Line-item ◦ Program-based ◦ Performance-based Budget analysis ◦ Variance ◦ Percent change (including Annual Compound Growth Rate) ◦ Budget shares A spending plan based on expected revenue and the setting of priorities for the quantity and quality of services to be provided (Ulbrich, 2003) Development of budget depends on: ◦ A revenue plan – includes forecast of revenues available from existing sources and proposed changes to the revenue system ◦ Expenditures – forecasts and requests from departments for continuing funding and new projects ◦ A procedure for dealing with gaps between revenues and expenditures (e.g. how best to use a surplus or address a deficit) Budgeting – to allocate resources Accounting – to assemble, analyze, classify, and record data affecting an organization’s financial position Financial reporting – to make accounting data available to users in a timely format Auditing – to ensure accounting and financial reporting elements are operating properly Fiscal year – the 12-month period of time after which we determine financial position and results The Balance Sheet/Statement of Net Assets ◦ Shows elements of a “snapshot” of resources (for example, as of the last day, 12/31, of FY11) Assets - what is owned (e.g., cash, receivables, fixed assets) Liabilities – what is owed to outsiders (e.g., payables, debt) Equity – what is owned without claim The Flow Statement ◦ A “flow” statement is needed to show all financial activity during the reporting period (e.g., Jan. 1 to Dec. 31): Statement of Revenues, Expenditures, and Changes in Fund Balance (e.g., surplus or deficit) In government, may also be referred to as “Statement of Activities” In business, is referred to as “Income Statement” Plan – sets out a design with price tags Economics – influences economic behavior Decision process – requires choices Behavior – (stressful) goal-directed behavior Contract – involves mutual obligations Culture – taps into organizational preferences Politics – expressions of power Four primary functions (as defined by the Government Finance Officers Association (GFOA) Distinguished Budget Presentation Awards Program criteria, www.gfoa.org) ◦ A policy document ◦ A financial plan ◦ An operations guide ◦ A communications device Policy document ◦ Requires an executive budget summary; long-term financial policies and priority issues for upcoming fiscal year; definition of a balanced budget; budget message should describe changes in priorities, issues facing the organization, and actions taken Financial plan – ◦ Requires a summary (an overview of all funds, revenues, and expenditures); each fund specifies revenues and expenditures; projected changes in fund balance; debt policy; basis of accounting and budgeting; description of each major fund; and capital expenditures (must be a separate section) Operations guide ◦ Requires description of each department’s function and service; includes departmental performance indicators and how well these line up against their goals and accomplishments over prior, current, and upcoming years; includes org. chart and schedule of personnel Communications device ◦ Requires overview of the budget process and amendment procedures; includes letter of transmittal; illustrates complex financial and statistical information in charts, graphs, and tables; executive summary includes major budgetary resources, issues, and trends; includes a glossary of specific terminology, statistical data regarding demographics of the organization/community, current state of economy, education, local history, etc. The GFOA Distinguished Budget Presentation Award has been awarded to: ◦ Sedgwick County – each year over the last 26 years ◦ City of Wichita – each year over the last 22 years ◦ Wichita Public Schools (USD 259) – each year over the last 16 years What is the point of all this? So, now that we know why becoming familiar with the budgeting process is important, what all does a budget entail and how do we analyze it? A budget document must conform to the law Some state governments require specific financial information in the budget and may provide forms on which local budgets are to be filled out Requirements included in state laws have served mainly as a minimum for budget documents Once local governments have complied with state law, they are free to set up more sophisticated budget systems if they wish Letter of transmittal or a budget message Table of contents Introduction Summary tables showing the balance of revenues and expenditures for each fund A detailed section on expenditures for each fund A detailed section on projected revenues A section on capital outlays and debt Supporting material Revenues – who pays Expenditures – who benefits Result – ◦ ◦ ◦ ◦ Balance: yearly revenues equal expenditures Deficit: yearly shortfall of revenues to expenditures Debt: cumulative deficits covered by borrowing Surplus: yearly excess of revenues Annual operating budget ◦ Yearly plan for regular and recurring expenditures (consumption) Capital budget ◦ The first year of a plan for non-recurring outlays providing benefits for several years (investment) Unified budget Line-item budget Program-based budget Performance-based budget A budget format where departmental expenditures are grouped according to the items that will be purchased, with one item or group of items on each line Allows for the comparison of items’ cost to the cost of similar items purchased elsewhere, which helps determine whether a funding request was too high Detailed line items have often given way to aggregated functional categories such as personnel services, supplies and materials, capital expenditures, internal services, etc. Health Department Personnel Services Supplies Services Capital outlays Total Focus: Category of spending $ 50,000 $ 20,000 $ 25,000 $ 5,000 $100,000 Organizes budgetary information and allocates funds along program rather than departmental lines Emphasizes quality and cost of services – focus is on program outputs/outcomes and maintenance Is often accompanied by performance measures When program budgeting and performance measures are linked this way, then a “work plan” is incorporated into the budget! Health Department Administration/leadership Preventive Health Services Family Health Health Education Total Focus: Task to be accomplished $ 10,000 $ 25,000 $ 60,000 $ 5,000 $100,000 Includes performance goals and objectives Includes demand, workload, efficiency, and outcome/impact measures for each program Provides a basis for comparing cost and quality of services Provides a “running” check on whether programs achieve their goals Uses performance measures Negotiates objectives using MBO philosophy Ties and ranks objectives to strategic plan Line managers may have more discretion Types of performance indicators ◦ Inputs (resources used): dollars, staffing, materials ◦ Demand for service: number of flu shots given ◦ Workload: number of nurses involved with giving flu shots ◦ Productivity: cost per flu shot, labor cost per flu shot ◦ Effectiveness (impact/outcome): fewer people admitted to hospital because of flu symptoms Health Department Year 1 Year 2 Budget $26,000 $37,000 $35,000 Number of shots 12,000 10,000 10,000 $3.70 $3.50 Total cost Unit cost/shot $2.17 Focus: Cost of performance “Budget format influences budget deliberations that influence budget allocations that, in turn, influence program outcomes” (Gloria A. Grizzle, 1986) Expenditure (cost) analysis – metrics to use: ◦ Variance analysis ◦ Percent change analysis ◦ Budget shares analysis Revenue analysis ◦ May use similar types of metrics as in the expenditure analysis From service provision to cost of provision From budget compliance to cost of service Variance analysis – assesses how much the actual utilization of funds varies from the budgeted amount → It tells you whether you are over or under budget! Formula: Actual Amount Budgeted *100% Attempts to answer the following questions: ◦ Is the difference consistent across time? ◦ Does the difference appear to be related to particular activities? Percent change – assesses how much the budgeted amount varies from previous years → It tells you whether you have an upward or downward trend! Formula: Current Budget – Previous Budget Previous Budget *100% Can also be analyzed through calculation of the Annual Compound Growth Rate (ACGR) Formula: Most recent time period divided by Oldest time period Raised to the power of (1/t) Minus 1 Or (recent/oldest)(1/t) - 1 Where t is the time period or “book ends” Compound Growth X Y Total Period 1 $100 $210 $310 Period 3 $120 $200 $320 Growth Rate 9.54%* -2.41% 1.60% Formula: (recent/oldest)(1/t) – 1 • With t = 2, then (120/100)(1/2)-1; then (1.2)(.5)-1; then (1.0954)-1 = 0.0954; then 0.0954 times 100% = 9.5445% as the yearly growth rate Budget shares – assesses how much of the budget is allocated to each cost center → It tells you what cost center “carves out” the largest or smallest piece of your total budget! Formula: Individual expenditure by program/division Total amount of expenditures *100% To determine trends (upward or downward) Expenditures ◦ To determine whether we are over/under budget ◦ To determine what takes up the largest/smallest piece of the budget Used to forecast revenues Remember the 4 functions that budget documents serve: ◦ ◦ ◦ ◦ A policy document A financial plan An operations guide A communications device Questions? Thank you!!