Transcript Budgeting

By Lisette T. Jacobson, MPA, MA, PHR
University of Kansas School of Medicine - Wichita
2011 Kansas Public Health Association
Fall Conference
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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
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Budget analysis
◦ Variance
◦ Percent change (including Annual Compound Growth Rate)
◦ Budget shares
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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)
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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
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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
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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”
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Plan – sets out a design with price tags
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Economics – influences economic behavior
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Decision process – requires choices
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Behavior – (stressful) goal-directed behavior
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Contract – involves mutual obligations
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Culture – taps into organizational preferences
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Politics – expressions of power
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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
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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
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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)
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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
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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.
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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
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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?
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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
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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
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Revenues – who pays
Expenditures – who benefits
Result –
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Balance: yearly revenues equal expenditures
Deficit: yearly shortfall of revenues to expenditures
Debt: cumulative deficits covered by borrowing
Surplus: yearly excess of revenues
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Annual operating budget
◦ Yearly plan for regular and recurring expenditures
(consumption)
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Capital budget
◦ The first year of a plan for non-recurring outlays providing
benefits for several years (investment)
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Unified budget
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Line-item budget
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Program-based budget
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Performance-based budget
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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
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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
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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
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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)
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Expenditure (cost) analysis – metrics to use:
◦ Variance analysis
◦ Percent change analysis
◦ Budget shares analysis
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Revenue analysis
◦ May use similar types of metrics as in the expenditure
analysis
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From service provision to cost of provision
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From budget compliance to cost of service
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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!
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Formula:
Actual Amount
Budgeted
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*100%
Attempts to answer the following questions:
◦ Is the difference consistent across time?
◦ Does the difference appear to be related to particular activities?
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Percent change – assesses how much the budgeted
amount varies from previous years → It tells you
whether you have an upward or downward trend!
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Formula:
Current Budget – Previous Budget
Previous Budget
*100%
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Can also be analyzed through calculation of the
Annual Compound Growth Rate (ACGR)
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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
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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!
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Formula:
Individual expenditure by program/division
Total amount of expenditures
*100%
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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:
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A policy document
A financial plan
An operations guide
A communications device
Questions?
Thank you!!