BAHIR DAR UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

DETERMINANTS OF BUDGET UTILIZATION EFFECTIVENESS

IN BAHIR -DAR University

BY
BIRTUIKAN AGENAGNEW
A RESEARCH PROPOSAL SUBMITTED TO DEPARTMENT OF ACCOUNTING
AND FINANCE IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR
MASTER OF SCIENCE IN ACCOUNTING AND FINANCE (MSC)

ADVISOR:

AGUMAS ALAMIREW (PhD)

FEBRUARY, 2023
BAHIR DAR, ETHIOPIA

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Table of Contents
Table of Contents..................................................................................................................................................ii
CHAPTER ONE........................................................................................................................................................1
INTRODUCTION.....................................................................................................................................................1
1.1 Background of the Study.................................................................................................................................1
1.2 Statement of the Problem.............................................................................................................................3
1.3 Objectives of the study...................................................................................................................................6
1.3.2 General objective......................................................................................................................................6
1.3.2 Specific objectives.....................................................................................................................................6
1.4 Significance of the Study.................................................................................................................................6
1.5 Scope of the Study..........................................................................................................................................7
1.6 Organization of the Study...............................................................................................................................7
CHAPTER TWO.......................................................................................................................................................8
REVIEW OF RELATED LITERATURE........................................................................................................................8
2.1. Theoretical Review.........................................................................................................................................8
2.1.1. Definition and Concept of Budget............................................................................................................8
2.1.2 Types of budget......................................................................................................................................11
2.1.3 Purpose of Budget..................................................................................................................................12
2.1.4. Effective Budget Management...............................................................................................................13
2.2. Theories of Public Budgeting.......................................................................................................................22
2.2.1. Agency Theory.......................................................................................................................................22
2.2.2. Public Interest Theory............................................................................................................................23
2.2.3. Accounting Theory.................................................................................................................................24
2.3. Determinants of Budget Utilization Effectiveness.......................................................................................24
2.4. Empirical Literature......................................................................................................................................28
2.5. Research Gap................................................................................................................................................30
2.6 Conceptual framework.................................................................................................................................31
2.7 Hypothesis Testing.....................................................................................................................................32
CHAPTER THREE..................................................................................................................................................33
METHODOLOGY OF THE STUDY..........................................................................................................................33
3.1 Research Approach.......................................................................................................................................33
3.2.Research Design............................................................................................................................................33

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3.3 Source of Data and Collection Procedure....................................................................................................33
3.4 Population and Sampling..............................................................................................................................34
3.4.1 Population...............................................................................................................................................34
3.4.2 Sampling Technique and Sample Size....................................................................................................34
3.5 Measurement of Variables...........................................................................................................................35
3.5.1 Measurement of Independent Variables................................................................................................35
3.5.2 Measurement of Dependent Variable....................................................................................................36
3.6 Data Analysis Technique..............................................................................................................................36
3.7 Reliability and Validity of Instruments.........................................................................................................37
3.7.1 Validity....................................................................................................................................................37
3.7.2 Reliability test.........................................................................................................................................38
References..........................................................................................................................................................39

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 CHAPTER ONE
INTRODUCTION

1.1 Background of the Study

Budgeting involves the establishment of predetermined goals, the reporting of actual performance
results and evaluation of performance in terms of the predetermined goals (Geletaw, 2017). Budgeting
involves the establishment of predetermined goals, the reporting of actual
performance results and evaluation of performance in terms of the predetermined goals.
Budgetary control systems are universal and have been considered an essential tool for financial
planning. The purpose of budgetary control is to provide a forecast of revenues and expenditures this is
achieved through constructing a model of how our business might perform financially speaking if
certain strategies, events and plans are carried out (Nyambura, 2014).

Budgeting is a key policy instrument for public management and management of the firm; it is a
familiar activity to many as it is practiced in private lives as well as in businesses,
government and voluntary groups. In the stable economic environment of the
period before the world wars, few large companies particularly in the U.S.A and U.K used
budgets for variety of purposes. The use of budgets created its own conflicts, as some pioneer
companies reported budgeting as a significant tool to management, while others reported same as
having an ill or even a negative effect on efficiency and productivity. However, the world depression
of the 1920s and its attendant negative effects that created “business worries and troubles” made the
use of budgeting imperative in order to plan the overall growth of an economy and the enterprise
(Theresa, 2014).

The Public Budget is a process by which government sets levels of expenditure, allocates the
spending of resources among all sectors to meet national objectives. It is the financial plan of
action for the year reflecting government priorities on expenditure, revenue, and overall
macroeconomic policy. Policies, programs, and projects would remain as wishful aspirations of
government unless they receive the required funding to translate them into practice. For these reasons,
the public budget is considered as an important process that attracts the attention and consideration of
the public at large. The government needs to prepare a budget since it has to plan the extent of its
expenditure and revenue (Esayas, 2014).
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Ethiopia started the practice of government budget early at the regime of Hailesilase I. However, at the
beginning, it was not structured in such a way as to permit efficient financial
administration, but through time period continuous modification of the budget system was made before
it attained its present status (Miju and Girma, 2014).

Ethiopia has a dual budgeting system in which recurrent and capital expenditure are considered
separately. Until recently these two budgets were prepared separately by the Ministry of Finance(MoF)
and the Ministry of Economic Development and Cooperation(MoEDaC), respectively. It is this
macroeconomic framework that, when approved by the Council of Ministers and the Office of the
Prime Minister, forms the background to the budgetary process in Ethiopia (FDREP, 2017). It can
make changes in the budget allocation of line ministries after review and analysis of the budget
estimate submitted by the ministries. It decides the level of the budget to be recommended to the
Council of Ministers. During implementation, it has the power to disburse funds. Through the monthly
accounting reports, it scrutinizes the performance of the ministries in budget implementation, and it
can decide on the level of funding to be authorized for disbursement. It can also approve transfers and
recommend supplementary allocations (MoFED, 2019).

Budget is an important component in a country’s government planning and decision making and it is
central to realize the national objectives, goals and programs. Almost every organization, regardless of
size, complexity or sector relies heavily on budget and budgetary system to achieve strategic goals
(Oketa, 2013).

A weak budget management and control system affects the provision of social service such as
education service, health service, etc. Moreover, even, where budgets are allocated to reach the poor
and vulnerable groups, the funds may not reach the targeted beneficiaries due to weak budget
management and control system. Thus, these factors reflect the need for effective budget management
and control in an organization (Mathur, 2016).

In Ethiopia, public budget management and control is part of the public body which is partly or wholly
financed by government budget and concerned with providing basic government services to the whole
society which is achieved through controlling public finance and, controls are mainly in-built in the
public financial management system. Public financial management includes the legal and
organizational framework for supervising all phases of the budget cycle, including the preparation of
the budget, internal control and audit, procurement, monitoring and reporting arrangements, and
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external audit. The broad objectives of public financial management and control are to achieve overall
fiscal discipline, allocation of resources to priority needs, and efficient and effective provision of
public services (MoFED, 2009).

The compositions of the public sectors are varied by their function and purposes, but in most cases,
they are designed in order to enable the public sectors to achieve their goals through control of budget.
Because of this Ethiopian government introduce program budgeting (PB) system for the intention to
bring about the effectiveness in budget control and utilization which led to show the outcomes of
budget on public organization (Fenta and Abebe 2012). In this regard, the Ethiopian government has
reformed the budget structure since 2004 under the government’s civil service reform program with the
intention of changing the process and structure of budgeting with the aim of improving budget
management and control within the government body. There are several elements included in the
process of the reform such as new chart of accounts, budget classification system, and coding of
budget transactions for an activity (Peterson, 2015).
From the perspectives of public policy and budgetary process, the government is responsible to
provide public goods and service to its citizens in an efficient and effective manner. The citizens of a
country should get benefit from a public sector that they are tax payers for the government, hence
citizens expect public goods and services from a government (MoFED, 2019). In this respect, Bahir-
Dar university, the budget management and control system is not different from the management and
control of budget for other government sectors rather it is responsible to set rules and regulations on
the utilization and management of public budget.

Therefore, this research focuses on the factors that influence effective budget management and control
system in Bahir-Dar university.

1.2 Statement of the Problem

Budgetary control is a technique applied to the control of total expenditure on materials, wages and
overhead by comparing actual performance with planned performance. This technique is also believed
to be another valuable aid in cost control and coordination (Mkrue, 2013).

Nyambura (2014) in Kenya using correlations and regression methods determined that the effects of
information and communication technology on controlling and managing public budget has a positive

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significant relationship. Lambe (2014) indicated that, in his systematic review of budgeting and
Budgetary Control in Government Owned Organizations and concluded that budgeting and budgetary
control of management commitment leads to effective performance of an organization.

Zayol (2017) carried out a study on budgeting and budgetary control in the public sector using
literature review and personal observations as the main source of data and found out that budget
planning on has failed because of inappropriate budget utilization effectiveness to budgetary control
measures. A study conducted by Akeem (2014) in relation to budget and budgetary control in Nigeria
and found out that the participation of higher officials, employees and other stakeholders has a positive
effect in proper budget utilization effectiveness.

Ethiopia has reformed the budget structure and introduced program budget system, unfortunately,
Ethiopia has remained unsatisfactory in the achievement of the country’s policies and programs
particularly in the achievement of mega projects because of poor budget management and control
system that the allocated budget does not achieve the desired goals and objectives (Peterson, 2015).

Yesuf (2015) studied the practice of budgeting and budget monitoring as a

management tool for managing variances in public operating in Ethiopia. According to the
result, the overall budgeting system in the sample organizations misses the important
participation of concerned staffs. Tilahun (2010) in his study on budget management and control in
Ethiopia ministry of defense found that there were inefficiencies in budget
implementation due to problems of experienced information technology on budget utilization
effectiveness.

It is clear that controlling theft, waste, excessive use of budget are crucial elements to minimize cost
and to enhance effective budget management and control in an organization and these in turn reduce
the gap between expenditure planning and annual budget allocation in an organization. But as various
studies indicated that budget management and control is not tight in many public organizations, use of
the allocated budget by other items or urgent issues by transferring the budget to the required budget
code, poor recording and reporting mechanism, lack of reasonable cost estimation, violation of rules
particularly at the time of procurement and bids for public projects, lack of strict accountability, lack of
linkage in the work plan with expenditure preparation and has lead rush expenditure toward the end of
the budget year in Ethiopia as stated by Adbdu and Melesse(2014) in their study that emphasized on
expenditure management.
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Tilahun (2010) conducted a study on budget utilization effectiveness by emphasizing on ministry of
national defense by using descriptive and qualitative research approach and come up with that budget
of the ministry of defense was prepared without considering reasonable cost estimation and current
market price. He also revealed that there is low information technology used in the ministry of defense
due to the lack of consistent purchase program which lead to rush expenditure toward the end of
budget year.

Birhanu (2011) done a study on evaluation of budget practice of Ethiopia in comparison with two east
African countries (Kenya and Uganda) focusing on budget utilization effectiveness by using qualitative
research approach and revealed that the level of monitoring and evaluation with regard to full
disclosure of all relevant budget information is very poor in Ethiopia, Kenya and Uganda. And he also
recommends that the need to increase budget utilization effectiveness is important in each budget cycle
so as to increase citizens‟ participation in the budget decision.

Similarly, Abera (2014) study on budget preparation and utilization of educational finance in public
secondary schools of Shashemene town, Oromiya region by employing descriptive survey and the
study revealed that the level of planning in budget process and effectiveness and efficiency in
utilization of budget is more or less positively related.

From the review of past research, most studies have concentrated on budget preparation, practice,
transparency and accountability in the public sectors, but as best of the researcher knowledge, little
studies on determinants of budget utilization effectiveness in the public sectors of Ethiopia. Thus, in
this study, the researcher is initiated to assess the factors affecting effectiveness of budget utilization
in Bahir-Dar university.

In this regard, this study aims to contribute to the existing research gap of budget planning, top
management commitment, employees’ participation, information technology , monitoring and
evaluation on budget utilization effectiveness in Bahir-Dar university . Therefore, the above indicated
reasons represent the powerful forces for conducting this study and to set the grounds for the
development of future study in the research context.

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1.3 Objectives of the study

1.3.2 General objective

The general objective of the study is to investigate determinants of budget utilization effectiveness in
Bahir-Dar university.

1.3.2 Specific objectives

To achieve the general objective of the study, the researcher has designed the following specific
objectives as follows.

 To investigate the effect of budget planning on budget utilization effectiveness in Bahir-Dar

university.
 To examine the effect of top management commitment on budget utilization effectiveness in
Bahir-Dar university..
 To examine the effect of employees’ participation on budget utilization effectiveness in Bahir-
Dar university.
 To examine the effect of information technology on budget utilization effectiveness in Bahir-
Dar university.
 To assess the effect of monitoring and evaluation on budget utilization effectiveness in Bahir-
Dar university.

1.4 Significance of the Study

The result of this research is proposed to have the following contributions. An investigation of
determinant factors affect budget utilization effectiveness is not widely researched area in Ethiopia in
general and Bahir-Dar university in particular. Therefore, examining problems associated with budget
utilization effectiveness in the context of this study is paramount importance.

This investigation is estimated to dig out such factors by searching not entirely covered such as budget
planning, top management commitment, employees’ participation, information technology ,
monitoring and evaluation. It also provides information regard to the factors influencing effective
management and control of budget and possible solutions for Bahir-Dar university. The study will be
used for other researchers for further studies on budget utilization effectiveness.
Most findings in the area of examining determinant factors of budget utilization effectiveness
accompanied in the framework of the developed countries which is not appropriate for developing

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countries. For this reason, the researcher perceives that this study can be conducted for the first time in
Bahir-Dar university which initiates others for future studies.
Finally, it is dedicated to provide references for policy makers to use it as a direction for making
decision about budget utilization effectiveness. Therefore, the study will have a contribution to the
academicians and practitioners (policy makers).

1.5 Scope of the Study

The study will be more comprehensive since it covers the public sector in Ethiopia particularly Bahir-
Dar university. But, due to different constraints and to make the study more manageable, thus, the
study will be delimited to factors influencing budget utilization effectiveness Bahir-Dar university. The
title in this university is selected due to the reason that the researcher is familiar in the financial
management area; and Bahir-Dar university is selected because of its familiarity and responsibility in
setting rules and regulations regard to the management and control of budget than other public sectors
in Ethiopia.

Conceptually, the study focuses on determinants of budget planning, top management commitment,
employees’ participation, information technology , monitoring and evaluation on budget utilization
effectiveness.

1.6 Organization of the Study

This study contains five chapters. Chapter one explains background of the study, statement of the
problem, objective of the study, hypotheses of the study, significance of the study and scope of the
study. In the second chapter, review of related literature will be demonstrated. The third chapter
describes the research methodology such as research design, target population, sample and sampling
technique, source of data and collection instruments, reliability and validity of instruments. In the
fourth chapter, data analysis and discussion will be presented. The last chapter briefly expresses the
major findings, conclusions, recommendations, limitations and directions for future study.

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 CHAPTER TWO

REVIEW OF RELATED LITERATURE

This chapter describes the review of related literature regard to factors influencing effective budget
management and control; it discussed the theoretical literature, empirical literature and conceptual
framework of the study. For this reason, budget management and control related literature will be
reviewed in its chronological and theoretical circumstances.

2.1. Theoretical Review

2.1.1. Definition and Concept of Budget

As it is known the term budget has been derived from the old French work ‘Bougette’ which referred
to the long leather pouch in which the treasury of the kingdom carried funds to defray the expenses of
the court (James, 1973). Later the term came to popular that denote a statement of revenue and
expenditure of an individual or an organization particularly that of the government. In this modern
time, budget systems originate from the rise of the modern state in Western Europe in the 16 th and 17th
centuries when the rising cost of warfare were leading to an increase in taxation. Great Britain firstly
adopted the practice of an annual national budget in 1980s. Budgeting at the early stage of its
development was concerned with preparing and permitting correct performance evaluation. In the
1970s performance improvement was based on meeting financial targets in organizations that operate
within the budget (Bourne et al., 2003).

Different scholars define budget in different ways, for example, according to Maher and Deakin
(1994), budget is viewed as a blue print for operation much like architect blue print for construction of
building like architects blue print master helps an organization plan and coordination activities
determine the means of achieving goals and establish same norms against which it measures its
performance.
According to Brown and Atkinson (2001), budget as a plan quantified in monetary terms prepared and
approved prior to defined period of time, usually shows planned income to be generated and

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expenditure to be incurred during that period and the capital to be employed to attack a given
objective.
Lucey (1993) defined budget as a plan expressed in quantitative term that reflects the objective of
management and encompasses the operating and financial activities of an organization that a budget
form and content on the information that accountants want to convey. On the same vein, according to
Armstrong (2006), budgeting is defined as the process of creation of a budget as a statement of
quantitative and it is usually expressed as financial terms of planned allocation and use of company’s
resources; it can be one year, five years or even longer terms. As Armstrong expressed budgeting is the
process of preparing a detailed statement of financial results that expected for a given period of in the
future.
Similarly, Herath and Indrani (2007) stated that budget is a financial plan used to execute various
public policies and programs in which government has several policies to implement in the overall task
of performing its functions to meet the objectives of social and economic growth. For implementing
these policies, it has to spend huge amount of funds on defense, administration, and development,
welfare projects and various other relief operations. It is therefore necessary to find out all possible
sources of getting funds so that sufficient revenue can be generated to meet the expected expenditure.
Budget is an operational tool for both private and public organizations. Budgeting is a complete and
coordinated plan which is compiled by the management of an organization, and expressed in numerical
terms for the operations and resources of an organization for a specific period of time (Isaac et al.,
2015); and Carreras et al. (2011) explained that budgeting is simply a tool that can help management
plan and control resources. A budget is a comprehensive document that reflects economic and non-
economic activities that a government wants to accomplish with special focus on policies, objectives
and strategies for the achievement of the stated objectives that are substantiated with revenue and
expenditure projections (Ugoh et al., 2009).

Indeed, budget is most important information document of a government; one part of a government’s
budget is similar to company’s annual report. This part presents the overall picture of the financial
performance of the government. The second part of the budget presents government’s financial plans
for the period up to its next budget. So, every citizen of a nation from the common man to the
politician is eager to know about the budget as they would like to get an idea of (Mahar and Setto,
2000; Herath and Indrani, 2007):
a) Financial performance of the government over the past one year.
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 b) To know about the financial programs and policies of the government for the next one year.
c) To know how their standard of living will be affected by the financial policies of the
government in the next year.
Budget is an important channel of communicating certain type of information that will enable
managers in different parts of the organization to be fully informed of the plan and policies, and
constraints, to which the organization is expected to conform. Through the budgeting process, top
management communicates its expectations to the lower level management, so that members of the
organization may understand these expectations and can coordinate their activities to attain them
(Drury, 2001).
A budget is where all the financial components of an organization (individual units, divisions
and departments) are assembled into a coherent master picture that expresses the organization’s overall
operational objectives and strategic goals. Therefore, co-ordination is necessary to avoid sub-
optimality. A well co-ordinate budgeting system enhances the skills of operating managers not only by
educating them about how the company functions but also by giving them the opportunity to manage
their subordinates in a more professional manner. This is because budgets delegate responsibility to the
manager who assumes authority for a specified set of resources and activities. In this way budget
emphasize even more the existing organizational structure within the company (Matthew, 2014).
Chukwuka, (2009) concluded that the sound budget formulation and implementation must be part of
organizational culture and cooperate strategies because it is when organization goals and as a privation
are achieve that is the only time societal need can be met. Budget target setting is an effective
management tool for performance evaluation on individuals and units. The adoption of this
recommendation could lead to increase in subordinate’s efforts and task performance (Nma
Mohammed, 2013)
John Leslie and Theodore, (2002) stated that Budgets serve a critical role in managing any business,
from the smallest sole proprietor to the largest multinational corporation. Businesses cannot operate
effectively without estimating the financial implications of their strategic plans and monitoring their
progress throughout the year. During preparation, budgets require managers to make resource
allocation decisions and, as a result, to reaffirm their core operating strategy by requiring each business
unit to justify its part of the overall business plans. During the subsequent year, variances of actual
results from expectations serve to direct management to the areas that may deserve a greater allocation
of capital and those that may need adjustments to retain their viability. A budget is a comprehensive
formal plan, expressed in quantitative terms, describing the expected operations of an organization
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over some future time period. Thus, the characteristics of a budget are that it deals with a specific
entity, covers a specific future time period, and is expressed in quantitative terms.

According to the Institute of Company Secretaries of India, (2013) the budget is a blue-print of the
projected plan of action expressed in quantitative terms and for a specified period of time The budgets
put the plan in a concrete from and follow up action to see that plan is adhere to complete the system
of control. In other words, while budgeting is the art of planning, budgetary control is the act of
adhering to the plan. In fact, budgetary control involves continuous comparison of actual results with
the budgets and taking appropriate remedial action promptly. A budget is (a) the quantitative
expression of a proposed plan of action by management for a specified period and (b) an aid to
coordinate what needs to be done to implement that plan. A budget generally includes both financial
and nonfinancial aspects of the plan, and it serves as a blueprint for the company to follow in an
upcoming period.
The major processes and techniques have been designed by organizations to facilitate planning and
control functions. One of the most important and widely used of these processes is budgeting.
Budgeting involves the establishment of predetermined goals, the reporting of actual performance
results and evaluation of performance in terms of the predetermined goals
(Geletaw, 2017).

2.1.2 Types of budget

Larry M. (2010) described the types of budgets as follows:

Operating budgets are plans that provide definition of the anticipated revenues and expenses of an
organization and more. These operating budgets can become fairly detailed, to the level of mapping
specific inventory purchases, staffing plans, and so forth. The budgets oftentimes delineate allowable
levels of expenditures for various departments.
Capital budgets are budgets that reveal the need for capital expenditure relating to new facilities and
equipment. These longer term expenditure decisions must be evaluated logically to determine whether
an investment can be justified and what rate and duration of payback is likely to occur.

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Financial budgets are a company must assess financing needs, including an evaluation of
potential cash shortages these tools enable companies to meet with lenders and demonstrate why and
when additional support may be needed.

2.1.3 Purpose of Budget

Kaplan (1992) stated that budget brings about improvement and efficiency in the working
conditions of the organization by setting out target of the organization and providing resources to work
towards achieving these targets thus everybody knows what they are working for and given the
necessary resources which will ensure efficiency.

A budget, if created and used properly, can provide valuable information about the direction,
resources and expectations of the organization. Budget is described as an integral part of
management control systems that aims at promoting coordination and communication among subunits
within the company, provides a framework for judging performance and finally
motivating managers and other employees (Horngren, 2006).

The idea of multiple uses of budgets in organizations is not new. To serve as an effective tool, budget
pursues different tasks such as planning, forecasting, controlling, coordinating,
communicating, instructing, authorizing, motivating, delegating, educating, evaluating
performance, facilitating decision making and managing subordinates .

Channel for Communication and Coordination: Evidently, budgets are an important channel of
communicating certain type of information that will enable managers in different parts of the
organization to be fully informed of the plan and policies, and constraints, to which the organization is
expected to conform. In essence, preparation of the budgets facilitates the transfer of vital information
among all levels in the organization and thus, levels of interaction are more enhance during the
budgeting process (Drury, 2001).

Cost Awareness: Accountants and financial managers are concerned daily about the cost
implications of decisions and activities, but many other managers are not. Production supervisors focus
on output, marketing managers on sales, and so forth. It is easy for people to overlook costs and cost-
benefit relationships. At budgeting time, however, all managers with budget responsibility must
convert their plans for projects and activities to costs and benefits. This cost awareness provides a

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common ground for communication among the various functional areas of the organization (John
Leslie and Theodore, 2002).

The co-ordination of business activities will be aided through the budgeting process.
Considering that all actions of the different parts of the organization are brought together and
reconciled into a common plan, the budgeting process assist to bind an organization together
towards the achievement the organization’s goal. Without any guidance, managers may each
make their own decisions, believing that they are working in the best interest of the organization
(Drury, 2001).

Motivational Device: The budget provides a standard which managers will evaluate their
performance with. If they meet their targets regularly, they may be motivated to go for a higher target.
If budget are dictated from above and imposed on those who are to implement the plan, it will rather
not motivate worker and may be resisted (Brook Son, 2000).
Means of Performance Evaluation and Control: Budgets serve as estimates of acceptable
performance. Managerial effectiveness in each budgeting entity is appraised by comparing actual
performance with budgeted projections. Most managers want to know what is expected of them so that
they can monitor their own performance. Budgets help to provide that information. Of course,
managers can also be evaluated on other criteria, but it is valuable to have some quantifiable measure
of performance (John Leslie and Theodore, 2002). Planned activities can be compared to the actual so
that effort will be concentrated on ascertaining the reason behind the differences. By investigating the
reasons for the differences, managers may be able to identify inefficiencies such as the purchases of
inferior quality materials. Appropriate control action will then be taken when reasons for inefficiencies
have been found (Brook Son, 2000).

Goal Orientation .Resources should be allocated to projects and activities according to organizational
goals and objectives. Logical as this may sound, relating general organizational goals to specific
projects or activities is sometimes difficult. Many general goals are not operational, meaning that
determining the impact of specific projects on the organization’s general goals is difficult (John Leslie
and Theodore, 2002).

2.1.4. Effective Budget Management

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Effective budget management and control is a comprehensive process of the unit activities that is
enforced by both the management and the staff of an organization to ensure the accomplishment of
organizational objectives through: the management of communication and information, the
coordination of the employees, proper planning and control of activities, and enforcement of the rules
and regulations (Robinson and Last, 2009).
Effective budget management is the ability of an organization to formulate, adopt and execute a budget
and also put in place control measures to ensure achievement of both long term and short-term goals
and obligations of the organization (Hashem, 2014).
An effective budget is a budget that leads an organization to meet both its short-term and long-term
goals and obligations. An effective budget management life cycle includes; determining needs of
community being served, set up program/project goals and objectives, to decide strategy to accomplish
the goals, translate strategy into money, prepare the budget, set up budget control process, compare
budget to actual and modify the budget for a realistic scenario (Nebraska, 2015).
Effective management of the budget is one of the critical aspects in determining the success of a
government, a government unit and an organization in which the qualities of an effective budget are; it
should be realistic, consistent with organizational objectives, cost effective and flexible (Nebraska,
2015). As Nebraska stated adjustments in policies in response to changes in economic conditions or
negative reasons such as mismanagement, poor budgetary process, unauthorized expenditures,
inefficiency or fraud can be the reasons for poor management of budget.
2.1.4.1 Budget Planning
In order to carry out budgetary control, it is necessary to formulate a fully co-ordinated detailed plan in
both financial and quantitative terms for a forthcoming period. The duration of the period is usually
one year. The plan needs to be in line with the long term development strategy of the organization,
although in the shorter term of a budget year, conditions may prevail which could dilute this aim. For
example a depressed economy could lead to a temporary departure from the long term plans.
Therefore, before formulating the budgets, the policy to be pursued during the forthcoming trading
period needs to be established (Dunk, et al, 2001).Once budgets are operating throughout an
organization, it is important that feedback is made available to the managers responsible for its
operation. This is often done by means of monthly budget reports. These reports contain comparisons
between the budget and the actual position and throw up differences which are known technically as
variances. The budget plans must be properly co-ordinated in order to eliminate bottlenecks. Individual

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budgets should be coordinated with one another to ensure that the implementation process is conducted
effectively in order to save time and costs (Horngren, Forster and Dater, 1997).

To facilitate proper planning, the management team should define the patterns of expenditure
and revenue over the life of the project or the activity that the organization is undertaking. A
predetermined budget of possible costs that was incurred carrying out the activities planned in project
should be made. Realistic planning of finances is a key to the implementation of a project or
programmed (Joshi and Abdulla, 1996) .

According to Drury, (2001) planning may be defined as the formulation of corporate objectives as well
as the detailed steps that need to be accomplished in order to meet these objectives. Planning is at the
heart of a budgeting process, by employing the budgeting process diligently, companies can plan
extensively on the best course of action to achieve the organization’s goals. As a planning aid, budgets
allows for the refinement and quantification of the long-term business plan into short-term action plans
whereby alternative planning scenarios may be examined and a “what-if” analysis applied. Without the
annual budgeting process, the pressures of day-today operating problems may tempt managers not to
plan for future operations.

Larry, M. (2009) indicated that Planning must occur at all levels. First, it occurs at the high level of
setting strategy. It then moves to broad-based thought about how to establish an optimum position to
maximize the potential for realization of goals. Finally, planning must be understand from the
perspective of thoughtful consideration of financial realities/constraints and anticipated monitory
outcomes (budget). By integrating the budget setting process into the planning process, organizations
are better positioned to determine budgets and allocate resources based on operational needs and
consistent with approved strategies and priorities. Effective integration also promotes better
understanding among managers of how their individual activities and budgets fit into organization
wide responsibilities.

2.1.4.2 Budget Monitoring and Controlling

Monitoring and control of budget process is a determinant of effectiveness, once the budgets
have been implemented they need to be monitored and controlled to ensure effectiveness in
aligning budgets over a defined period of time (Horngrenet al., 1997).

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Despite the laudable benefits of budgeting, its preparation, implementation and execution need to be
controlled and monitored to avoid deviations from the plan and serve as a basis for revising the budget
put in place. Challenge of preparation implementation and human factors that tend to affect budgeting
need to be given serious thought. In the preparation of the budgets, management should give serious
thought to the external environment, emerging technologies, organizational structure and size as well
as culture of the organization and the setting where the timber firms operate (Frimpong, 2013).

A professional and transparent approach to budget planning will help convince investors,
development banks and national or international donors to make financial resources available if the
organization implements proper monitoring and control of budget process. This is achieved through
ensuring that the estimated budget does not deviate from the actual outcome in order to take
appropriate actions where necessary (Otley and Van der Stede, 2003).

2.1.4.3 Monitoring

According to Larry M. (2009) clearly, each action on your part is in response to you having
monitored conditions and adopted an adjusting response. Likewise, business managers must rely on
systematic monitoring tools to maintain awareness of where the business is headed.
Managerial accounting provides these monitoring tools, and establishes a logical basis for
making adjustments to business operations.

Budget monitoring and variance analysis should be made on regular bases in line with the
monthly close of financial system to compare budget versus expenditure by budget holders and finance
who are responsible for managing the projects budget and activities with clear
justification and action points. So that managers are able to prevent over or under spends timely and
take corrective actions (Yesuf A., 2015).

Australian National Audit Office, 2008 indicated that measure budget performance,
organizations monitor the extent to which budget estimates match actual results. This helps
ensure financial control and identify where change is required. Monitoring budget accuracy is
theresponsibility of all managers.Effective monitoring of budget performance requires that managers
are provided with relevant, timely and accurate information appropriate to their level of responsibility.
It also requires managers to provide clear and consistent feedback in a timely manner about underlying

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causes and effects of budget variations, as well as planned actions to manage variations for which they
are accountable.

2.1.4.4 Budget Control

As McCue (2002) expressed, organizations have an important role in our daily lives in which
successful organizations represent a key ingredient for developing nations. Thus, many economists
consider organizations and institutions similar to an engine in determining the economic, social and
political progress. In relation to this, budgetary control in an organization involves the preparation of a
budget, recording of actual achievements, ascertaining and investigating the differences between actual
and budgeted performance and taking suitable remedial action so that budgeted performance may be
achieved effectively (Hashem, 2014). Budgetary control is the system of controlling costs through
budgets. It involves comparison of actual performance with the budgeted with the view of ascertaining
whether what was planned agrees with actual performance.

Abokun and Fagbemi (2012), argued that another use of budget for control purpose is in evaluating
performance. They explained that organizational plans are carried out by people, thus, control is
exercise not over operations, revenue, costs, but over the persons responsible for those operations and
the related revenue and expenses. Then the accounting for all sub-programs will be governed by
respective government accounting policies and procedures. To sum up, budget control can be
explained as the process of using budgets as control mechanism to evaluate managers as well as
organization performance by considering deviations from budgeted figures to actual figures. It is also
noted that budgetary control is a system that uses budgets as a controlling and planning tool (Baker,
2013).

Dyson (2004) describes the budget control process as comparing the actual budget against the planned
budget after which corrective actions are taken if significant variances occur. Conversely, corrective
actions are not required if the evaluation shows that the actual results match with the budgeted results
or a variance amount is favorable; andthe budget control is carried out to improve financial
accountability of budget holders and financial sustainability of organizations (Hansen and Mowen,
2000; Yuen, 2006).

Emeka (2009) emphasized on the importance of budgets, and noted that the assessment of budget is
only one of the comprehensive system of budgetary control that the scholar viewed that no matter how

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carefully budgets are comprised; it will be largely ineffective run less an efficient routine is in
operation form comparing result with the budget and explaining the cause variations.

Ama (2003) explained budget control as a tool for planning while budgetary control services as the
yardstick for measuring actual performance with that budgeted through the analysis of variance. For
budgetary process to be effective the participation of top management is not only required but the true
participation, cooperation and understanding of the middle and lower management is also comparative.

Similarly, budgetary control is the establishment of budgets relating to the responsibilities of

executives to the requirements of a policy and the continuous comparison of actual with the budgeted
results, either to secure objectives of an organization by individual actions or to provide a basis for its
revision (Abogun et al., 2012). It is a system which uses budget as a planning in controlling all aspects
of services that preplanning is a cardinal factor of budgeting control in which budget control enables
management to consider only items that do not go according to plan and to concentrate on exceptions
(Frederick, 2001; Robinson and Last, 2009).

By implementing proper budgetary control planning, an organization is able to reduce costs and
improve on quality of its services based on its budgetary allocations. This helps to reduce on costs and
achievement of goals is enhanced and thus organizational effectiveness can be achieved (Mathis,
1989). Thus, by budgeting, managers coordinate their efforts so that objectives of an organization
harmonize with the objectives of its parts and control ensures that objectives as laid down in the
budgets can be achieved.

Budget control is also defined by CIMA, (2005) as the establishment of budgets relating the
responsibilities of executives to the requirements 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. Budgetary control is a system of controlling costs and resources which includes
comparing actual performance with the budgeted performance and subsequently acting upon the actual
results to minimize variance and achieve maximum returns. In essence, budgetary control is purported
to ensure that the activities carried out are providing the desired results.
According to Rufus (2008), managers and business operators (not only in the manufacturing
industry) to pay more attention to their budgetary control systems, while those without any
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should endeavor to ensure the set-up of a result-oriented system as it goes a long way in
repositioning businesses and organizations from their creeping performance level to an improved and
high capacity utilization point. Budget and Budgetary control, both at management and operational
level looks at the future and lays down what has to be achieved.

Ngozika,U.(2009) stated that Budgeting and budgetary control contribute in the improvement of
management efficiency and high productivity, the budget committee should be educated in the
implementation of budget. This would enable them to understand the importance of adhering to budget
and the minimization of loses. Thus a budget education should be conducted at least once a year by the
financial or an independent accounting or management consulting firm. Its usefulness cannot be
questioned or over emphasized. The process of budgetary control should not only consider sector
needs in the planning stage but also parameters within implementing organizations in order to facilitate
sound financial standing. It is important not to over subject the process of budgetary control to political
scrutiny as this may divert the core purposes of a budget. Budgets should not only be used as tool for
management and indicators of management,they should also be viewed as practical tools within which
organizations should use to enhance their financial goals (Odour and Jagongo, 2013).

According to Frimpong, (2013) Budgeting and budgeting control measures are an integral part of any
organization including timber firms. It serves as a basis of planning, controlling cost of operations and
evaluating performance of workers of the organization. For a budget to be an effective one, sound
organizational structure, research and analysis as well as management acceptance should be
considered. Budgeting thus, serves as a blueprint for any organization to follow in an up-coming
period usually for one year period at most.

Drury, (2001) described Control as the continuous comparison of actual performance with
budgets or standards. The comparison of actual results to budgets with enables the analyst to
draw conclusions concerning the efficiency of operations, product probability and pinpoint
problem areas. Control is the process of ensuring that a firm's activities conform to its plan and that its
objectives are achieved. There can be no control without objectives and plans, since these predetermine
and specify the desirable behavior and set out the procedures that should be followed by members of
the organization to ensure that a firm is operated in a desiredmanner.

Drucker (1964) distinguishes between controls and control. Controls are measurement and
information, whereas control means direction. In other words, 'controls' are purely a means to an end;
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the end is control. Control is the function that makes sure that actual work is done to fulfill the original
intention, and 'controls' are used to provide information to assist in determining the control action to be
taken. Controls are indicates that costs exceed budget and that this may be because the purchase of
inferior quality materials causes excessive wastage. 'Control' is the action that is taken to purchase the
correct quality materials in the future to reduce excessive wastage

Larry, M. Walther, (2009) stated that things rarely go exactly as planned; management must
make a concerted effort to monitor and adjust for deviations. The managerial accountant is a
major facilitator of this control process, including exploration of alternative corrective strategies to
remedy unfavorable situations. In addition, recent trend (brought about in the USA byfinancial
legislation most commonly known as Sarbanes-Oxley or SOX) is for enhanced internal ontrols and
mandatory certifications by CEOs (chief executive officer) and CFOs (chief financial officer) as to the
accuracy of financial reports..

Controls are encompasses all the methods and procedures that direct employees towards
achieving the organization objectives. Many different control mechanisms are used in
organizations and the management accounting control system represents only one aspect of the various
control mechanisms that companies use to control their managers and employees. To fully understand
the role that management accounting control systems play in the control
process, it is necessary to be aware of how they relate to the entire array of control mechanisms used
by organizations (Drucker, 1964)

2.1.4.5. Evaluation
Evaluation is a key determinant for effectiveness, through an evaluation plan, the firm can clarify what
direction the evaluation should take based on priorities, resources, time, and skills needed to
accomplish the evaluation. To enhance effectiveness and transparency the management team should be
actively involved in the process of monitoring and evaluation of budgetary control processes and
procedures (Hancock, 2009).

Evaluations are systematic and objective assessment of an ongoing or completed project, program or
policy, its design, implementation and results. The aim is to determine the relevance and fulfillment of
objectives, development efficiency, effectiveness, impact and sustainability. An evaluation should
provide information that is credible and useful, enabling the incorporation of lessons learned into the
decision– making process of both recipients and donors. Evaluation also refers to the process of
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determining the worth or significance of an activity, policy or program. Australian National Audit
Office, (2008) indicated that Organizations monitor and evaluate actual results against approved
budgets to guide current and future decision-making and hold manager's accountable for performance.

According to Hancock (2009) Evaluation is a key determinant for effectiveness, through an evaluation
plan, the firm can clarify what direction the evaluation should take based on priorities, resources, time,
and skills needed to accomplish the evaluation. To enhance effectiveness and transparency the
management team should be actively involved in the process of monitoring and evaluation of
budgetary control processes and procedures.

The process of developing an evaluation plan in cooperation with an evaluation workgroup of

stakeholders will foster collaboration and a sense of shared purpose this highly contributes towards
achieving an effective budgetary control (Simiyu, 2002). Australian National Audit Office (2008)
indicated that Organizations monitor and evaluate actual results against approved budgets to guide
current and future decision-making and hold manager's accountable for performance. Evaluations are
systematic and objective assessment of an ongoing or completed project, program or policy, its design,
implementation and results. The aim is to determine the relevance and fulfillment of objectives,
development efficiency, effectiveness, impact and sustainability.

Participating of budget CIMA (2005) defines participative budgeting as „a budgeting system in which
all budget holders are given the opportunity to participate in setting their own budgets‟. This may also
be referred to as „bottom-up budgeting‟. It contrasts with imposed or top-down budgets where the
ultimate budget holder does not have the opportunity to participate in the budgeting process.

The advantages of participative budgeting are as follows: [

Improved quality of forecasts to use as the basis for the budget. Managers who are doing a job on a
day-to-day basis are likely to have a better idea of what is achievable, what is likely to happen in the
forthcoming period, local trading conditions, etc.

Improved motivation. Budget holders are more likely to want to work to achieve a budget that they
have been involved in setting themselves, rather than one that has been imposed on them from above.
They will own the budget and accept responsibility for the achievement of the targets contained
therein.

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All individuals responsible for achieving results should be consulted in the formulation of budgets. No
system of budgetary control can succeed without the mutual understanding of superiors and
subordinates. The organization should communicate the outcome of budget decisions to all the relevant
staff. Budgets have an important part to play in the communication of objectives, targets and
responsibilities throughout the organization. Carried out properly, this can have considerable benefits
in promoting co-operation at all levels (Callahan and Waymire, 2007). Participation assures full co-
operation and commitment for making budgets successful. Participation also makes budgets realistic
and workable (Simiyu, 2002).

Participation assures full co-operation and commitment for making budgets successful. Participation
also makes budgets realistic and workable (Simiyu, 2002). To ensure that the process of implementing
the budget is successful, the management and the employees should work together to ensure that the
interests of all stakeholders are fully represented when making key decisions involving budgetary
allocations in key projects

2.2. Theories of Public Budgeting

Public budgeting, as a field of study, has grown tremendously in recent years both in form and
substance. There is a need to have a coherent theory or body of theories that allows one to understand
the field, its essential core that guides its development, and its scope for dealing with real world
problems (Forester, 2002).

2.2.1. Agency Theory

An agency relationship is a contract under with one or more persons; the principal (s) engage another
person (the agent) to perform some service on their behalf which involves delegating some decision-
making authority to the agent (Jensen, 1976).

The objective in agency theory is to structure the contractual relationship between these groups so that
agents take actions to maximize the welfare of principals. At the heart of public budgeting are
relationships among those who provide agency services and those who allocate resources to service
providers (Forrester, 2002). In other words, those who make claims on governmental resources are
agents and those who allocate the resources are principals. In this relationship, the principal contract

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with agents to provide services to the public and the main focus for all those involved is the contract
(the budget) itself.

It was also important to point out that currently, the information asymmetry between the principals and
agents in countries are being addressed by increased recognition of the role country assemblies, civic
budget groups and the general public in the budget formulation process (Mutuma, 2016).

Financial accountability asserted that the implementation of public budgets was based on the interest of
the people, as who provide the mandate to the government to plan and implement the budget. Budget
in favor of the people is the budget not only in terms of expenditure, which meets the allocation of the
public services as expected, but also from the revenue side. Governments can be seen as agents of the
people (the principal) because they are required to produce a certain level of public output including
the quality of government expenditure returns in exchange for taxes paid by the people and is required
to serve the interest of the public (Jensen, 1976; Mutuma, 2016).

In view of the above explanation of the agency relationship, failure of the agent to act in the best
interest of the principal could be one of the reasons of not attaining effective budget management.
Public participation and strict adherence to government regulations should be applied to ensure that the
agents act in the best interest of the principals who are the citizens. This will ensure an effective
management of the budget and the staff should also be capacity built to a high competence level of
understanding the law in regard to budgetary provisions.

2.2.2. Public Interest Theory

Public interest theory is an economic theory stated that regulation is supplied in response to the
demand of the public for the correction of inefficient or inequitable market practices (Christensen,
2010). It is believed that the regulations are prepared in the public interest when they are demanded by
the public for correcting inefficient practices. Regulations are understood to do good to the whole
society rather than any individual’s interest. Regulation is one of the state’s core functions. It is also
one of its classical functions. In a historical perspective that state engaged in regulation long before
government also took upon it to provide welfare services to its citizens. Regulation defines the border
between state and society, government and market. Therefore, regulation represents government’s
attempt to set limits to the scope of private activities (Christensen, 2010). In relation to this study, the
employees in an organization should be in a position to understand the rules and regulations which
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clearly outline the functions of government that will eventually determine what should be in the
budget. This demonstrate that application of public interest theory would lead to effective budget
management and control; and the application of public interest theory also would ensure that the
budget would be implemented according to the laid down regulations.

2.2.3. Accounting Theory

Accounting theory is aimed towards the provision of a coherent set of logical principles that form the
general frame of reference for the evaluation and development of sound accounting practices and
policy development; and establishing a standard for judging the acceptability of accounting methods
(Kaplan and Norton, 1996; Outley and Pollanen, 2000).

The accounting theory in budget management and control has come up with different models of
analysis, for instance, cost volume profit analysis and standard costing which serve as a standard
setting in budgeting. The theory has an important normative role in the evaluation of budget and
control procedures to be adopted that the theory has the role of making predictions of the likely
outcome of budget action in a given set of circumstance and used as a tool for effective budget
management (Horngren et al., 2005). Thus, as the theory suggested, following accounting standards
and principles helps an organization to manage and control the budget effectively and to achieve its
stated objectives.

2.3. Determinants of Budget Utilization Effectiveness

Even though there are a number of factors that affect Budget Utilization Effectiveness of an
organization, the researcher will focus only on the following stated factors as identified by (Diamond
and Khemani, 2006; Dunk et al., 2001; Frederick, 2001; Raghunandan et al.,2012; Uraia, 2012).

2.3.1. budget planning

Planning is concerned with internal resource allocation to achieve certain objectives. Organizations
often use three formal, distinguishable, sequenced planning cycles called strategic planning, capital
budgeting and operational budgeting (Merchant & van der Stede, 2007). Strategic planning is an
organizational process for defining the strategy and to decide on the allocation of resources in order to
pursue the strategy. Planning also involves communication of information between the several layers
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of the organization. Effective budget management and control requires proper planning (formulation)
of the activities to be accomplished and consistent follow up and monitoring the accomplishment of
activities with the allocated resources. The plan should consider the long-term and short-term strategy
of an organization (Dunk et al., 2001).

According to McCue (2002), budget planning and monitoring is a key determinant for effectiveness,
through and evaluation and monitoring, an organization can clarify what direction the evaluation
should take based on priorities, resources, time and skills needed to accomplish the evaluation. To
enhance effectiveness and transparency of budget, the management team should be actively involved
in the process of planning and monitoring process of budget.An organization is required to evaluate the
actual performance and re-appraise the company’s future plans in which budgeting is one of the most
important processes in management accounting. It facilitated the effectiveness and implementation of
management functions. It contributed to the planning, control, communication and performance
evaluation (Weetman, 2006).

2.3.2. top management commitment

The management of an organization need to have a close relationship with budget department and
support to use the allocated budget properly for the achievement of organizational objectives.
Management support is expressed in terms of supporting the effective budget management and control
system by providing the necessary resources, training, new technology, encouraging the auditor of
his/her organization and other facilities that facilitate the effective management and control of budget
in an organization (Frederick, 2001; Raghunandan et al., 2012).

According to Amoako and Acquaah (2008), for budgetary management and control system to be
effective, it must be initiated and supported by management which means an organization will be able
to its budget plans efficiently if the management of an organization has a positive attitude towards
budgeting and provides direction for budget management and control.

2.3.3. Employees’ participation

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It is noted that the success of controlling an organization depend largely on the actions of top
management and their gratitude of the importance of thorough interpersonal relationships and
participation of the public in the different levels of the hierarchy (Raghunandan et al., 2012).
As Garrison and Noreen (2003), stated in their analysis public participation in the budgeting process
has twofold. On the one hand employees take part in reviewing budget options. On the other hand,
employees play an important role in deciding on the preferred budget option. They argued that a
participative approach to the budgeting process, known as self-imposed budgeting, allows the
involvement of all stakeholders in developing a budget. During this activity tough negotiations ensue
to arrive at the most beneficial budget. The negotiation should be characterized by openness and
fairness in order to alleviate suspicions and uncertainties commonly associated with a budgeting
process (Garrison and Noreen, 2003).

Khadafi (2015) in his study, the effect of budget participation and budget adequacy on individual
performance with job satisfaction as an intervening variable at the government institution of Aceh
Utara district in the United Kingdom using purposive sampling technique showed that budgetary
participation significantly influence individual performance.

Pandeya (2015) also conducted a study entitled “does citizen participation in all local government
decision-making contribute to strengthening local planning and accountability in Nepal? The study
used exploratory interview with 35 individuals who have had five years of work experience through
the use of purposive and snow ball sampling technique. The results of the study indicated that citizen
participation in local government decision-making has significant contribution in strengthening local
planning and accountability.

2.3.4. monitoring and evaluation

The budget process is a technical process that requires people with expertise and experience to execute.
It would first involve setting realistic goals, planning on how to execute the goals and also conducting
budgetary review. This process requires a lot of accuracy in estimations and serious accountability at
execution in a sense these states affairs clearly demonstrated that competent employees are required to
execute the budget(Aketch and Karanja, 2013 as cited in Apiyo, 2014).
monitoring and evaluation in which their abilities, commitment, knowledge and skills enable an
organization to act efficiently in a job or situation and effective budget management and control

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requires expertise and employees with technical skills (Frederick, 2001). Similarly, competent and
independent internal audit plays a vital role to avoid mismanagement, error and abuse in the budget
implementation and control systems (MoFED, 2004). As Apiyo (2014) explored in his research,
factors that affect procurement planning in county Government in Kenya, using descriptive case study,
monitoring and evaluation and procurement planning have positive relationship.

2.3.5 Information Technology

Information and communication Technology is becoming an increasingly important component in the

operation of an organization (Mousa and Schware, 2009). Technology is more than just equipment and
also incorporates a surrounding shell of infrastructural requirements, technical and managerial skills
that are needed in order to operate it.

Effective budgeting process requires communication of budget plans which further enhances the
effectiveness with which the budgeting process is implemented. Setting out the strategy should involve
all senior managers from the various functions. The leading and lagging indicators in respect of budget
plans are identified through an ongoing communication among budget holders after which they should
be communicated to all employees and stakeholders in an organization (Hansen &Mowen, 2000). In
general, information and communication technology is a vital part of creating a sense of teamwork and
ensuring that all key players understand the role they play in achieving budget targets (Guy et al.,
1999).

Computerization of public budget management is used to integrate budget formulation, execution and
controlling, and used to secure integration and communication with other relevant information system
(Diamond and Khemani, 2006). In Ethiopian context, the government uses integrated budget and
expenditure system (IBEXS) for tracing revenue and expenditure of all federal and regional budgetary
institutions. This integrated budget and expenditure system capture the accountants to record the
financial transactions of the budgetary institutions and their aggregated monthly accounting reports and
provides accounting reports for ledgers, financial statements, management reports, transactions,
expenditure and revenue. This allows the generation of regional and national consolidating report
(MoFED, 2009). Hence, this study considers the role of this system in the management and control of
budget in the selected Bureau.

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2.4. Empirical Literature
2.4.1 Related empirical studies Out Side Ethiopia

This section involves the various studies conducted by different scholars in different countries related
to budget implementation, evaluation, management, control, and budget performance.
Joshi and Abdulla (2016) investigated some aspect of budgetary control and performance valuation
systems by utilizing data based through the use of a questionnaire survey of 42 medium and large size
companies located in the State of Bahrain. From the study, it is found that the conventional form of
budget control principle was practiced to a great extent.

Chemweno (2009) focused on an evaluation of how the firm has employed an operational budget as a
management tool in Kenya. It set out to determine how operational budgeting practice is actually done,
the basis of budget formulation and to what extent the budgets are used as a management and control
tool. The data was collected mainly through questionnaire survey and analyzed using descriptive
statistics by way of summary statistics, tables and percentages. The study revealed that budgets are
normally prepared on an annual basis. It was found that all the major Kenyan mortgage financing
institutions have an operational budgeting process which they considered extremely important since it
is outlined in the organization’s objectives, targets, means of achievements, cost of achievement and
responsibilities.

Badu (2011) conducted an investigation of budgeting and budgetary Control at Ernest Chemist Laurea.
The aim of this study was to conduct research concerning the budgeting practice in Ernest Chemist, a
pharmaceutical company based in Ghana, and identify the perception of the budgeting experts in the
company and assess their views towards the current status of the company. A self-designed interview
questionnaire was sent to a member of staff in the company to seek their view on the problems and
concerns regarding budgeting and budgetary control in the organization. The results of the study
indicated that the appropriate system of budgeting and budgetary control had been adopted and used to
prepare the pharmacy’s budgets but there were a few problems associated with ethical issues which
need further investigation.

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Marcormick and Hardcastle (2011) carried out a study on budgetary control and organizational
performance in government parastatals in Europe. A sample of 40 government parastatals were used
for establishing the relationship between budgetary control and organizational performance, secondary
data was used and a period of ten years was reviewed. A regression model was used for data analysis
and the results of data analysis revealed a positive relationship between budgetary control and
organizational performance of government parastatals.

In their study, Nickson and Mears (2012) examined the relationship between budgetary control and
performance of state ministries in Boston Massachusetts, a sample of five ministries were examined to
test the relationship between budgetary control and performance of state ministries, secondary data was
used and a review of 10 years was used, a regression model was used for data analysis and a statistical
positive relationship was found between budgetary control and performance of state ministries. The
results of the regression analysis concluded that proper budgetary control measures led to performance
of state ministries.

2.4.2. Related empirical studies in Ethiopia

As the researcher’s knowledge, there are few studies conducted in related to budget management and
control, budget evaluation, budget implementation, and preparation and utilization in different sectors.
Some of these studies are the following.
Tilahun (2010) conducted a study on budget management and control with special emphasis on
Ethiopia ministry of defense for his thesis in Addis Ababa University. The aim of the study was on the
process by which military budgets are developed, implemented, recorded and monitored. The
researcher targeted all budget holders in the ministry of defense for his study. The researcher
concluded the following points based on his analysis. Even if Ministry of national defense issued
budget guideline, the concerned body did not follow the guidelines in the management and control of
budget. The researcher concluded that the causes for idle cash are mainly due to the lack of consistent
purchase programs which lead to rush expenditure towards the end of the budget year. Although the
nature of the institution forces to consider unforeseen situations, additional duties of budget users are
not usually backed up by supplementary budget Planning and Budget department does not arrange
regular workshops and short-term training to improve the skill of budget personnel engaged in budget
holders. Apart from accountability of the specific budget users, the department takes the lion’s share of
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responsibility for budget preparation and implementation problems. Although much deviation has not
been observed in budgetary records, the adoption of modified cash basis of accounting system has not
been implemented fully. There is no carrot-and-stick strategy. No incentive mechanism is employed
for good performers, and punishment as well for poor achievements unlike what is observed in other
counterparts. Audit opinions given by Office of Federal Auditor general are signals of the institution’s
weak compliance with the rules and regulations of the country as stated by Tilahun (2010).
Birhanu (2011) did a research on evaluation of budget practices of Ethiopia in comparison with two
east African countries. The aim of the study was to assess similarities and differences between Ethiopia
and two east African countries with respect to budget practice and procedures. Lack of involvement of
citizens in the budget process would minimize a way of improving budget formulation, efficiency in
resources allocation and better oversight of the budget process. There is a legal stand for transparency
such as the constitution however, budget information is no available for citizens in accessible, timely
and clear and easy to use manner. The researcher concluded that government has a duty to make an
effort to increase budget transparency because; it allows citizens to properly assess government
financial position and performance. Scarcity of budget information might decrease the level of public
participation in the budget decision process.

Abdu and Melesse (2014) assessed government expenditure management and control in Ethiopia. The
objective of the research was reviewing public expenditure management and controlling of financial
resources as it is crucial because society’s needs and demands are unlimited whereas resources are
limited in nature. Therefore, the result showed that there is a problem of linking the work plan with
expenditure budget preparation. It is also revealed that purchasing of goods and services is not based
on the annual action plan by sectors. In other word, this indicated that there is a problem of budget
preparation and execution. On the other hand, in relation to budget approval, the result indicated that
legislature has effective systems of check and balance on public expenditure. The test was also
undertaken to check auditor’s satisfaction in relation to the support they get from management to
conduct their task. The test result indicated that auditors have a problem of motivation with the
financial and material support to carry out audit work to achieve their objectives for the
accomplishment of organizational goals.

2.5. Research Gap

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Nickson and Mears (2012) based on the review of related literature; the researcher identified the
following research gaps. 1st) as far as the researcher’s knowledge, there is no research that is done on
the factors influencing effective budget management and control; and as one can understand from the
above empirical literature review, the studies did not focus on the factors that determine the
effectiveness of budget management and control system rather they emphasized on the utilization of
budget, implementation of budget, budget control system and budget practice. 2nd) Even if there are
researches done on the factors influencing effective budget management and control in other
organizations either in Ethiopia or in other country, there is contextual difference that all sectors in a
country have not the same context rather organizational culture different.

2.6 Conceptual framework

The conceptual framework of this study is prepared based on the objectives of the study and the
statement of the problem. In this study, the five determinant factors (budget planning, top management
commitment, employees’ participation, information technology , monitoring and evaluation) and the
relationship between these factors on improving budget utilization effectiveness under the study is
considered.

Independent variables dependent variable

Budget Planning

Management Commitment
Budget Utilization
Employees’ Participation Effectiveness

Information Technology

Monitoring and Evaluation

Figure 1 Conceptual framework

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2.7 Hypothesis Testing
In order to find out the relationship and effect of determinant factors on Budget Utilization
Effectiveness

Ha1. Budget planning has a positive and significant effect on budget utilization effectiveness in
Bahir-Dar University.
Ha2. Management commitment has a positive and significant effect on budget utilization
effectiveness in Bahir-Dar University.
Ha3. Employees’ participation has a positive and significant effect on budget utilization
effectiveness in Bahir-Dar University.
Ha4. Information technology has a positive and significant effect on budget utilization
effectiveness in Bahir-Dar University.
Ha5.Monitoring and evaluation has a positive and significant effect on budget utilization
effectiveness in Bahir-Dar University.

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 CHAPTER THREE
METHODOLOGY OF THE STUDY
This section contains research approach, the research design, Sources and Data collection tools,
population and sampling technique ,measurement of Variables, data analysis, Validity and Reliability
and Ethical Considerations.

3.1 Research Approach

Creswell (2009) stated that quantitative research describes the phenomenon of collecting numerical
data that can be analyzed using mathematical methods; because the developed propositions should be
inspected with the relationship between a diversity of variables; using numerical techniques is suitable
to test the strength of relationships.

This study employs a quantitative research method which allows collecting numerical data, measuring
variables, predicting and using statistical procedures to analyze and develop inferences (Cooper and
Schilder, 2003). It contributes to collect appropriate data and test the theoretical frameworks so as to
improve overall understanding of the perceived critical issues that determine the budget utilization
effectiveness in Bahir-Dar University.

3.2.Research Design
The research design is a comprehensive plan for data collection in an empirical research project. It
establishes the blueprint for gathering, measurement and analysis of data. It is a set of methods and
procedures that describes research variables. Therefore, design indicates the outlines what the
investigator should achieve from analyzing the hypothesis employed inferences in the final analysis of
the data (Kothari , 2003).

The researcher uses explanatory research design to examine cause and effect relationship between the
independent and dependent variables under the study. This research aims to manipulate the cause and
effect relationship of variables and it serves as linkage between the theoretical and empirical research
(Zikmund, 2003).

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3.3 Source of Data and Collection Procedure
Data collection tools are the instruments which are used to collect the relevant information required to
serve or prove some facts. The researcher uses primary data sources to collect relevant information.
Primary data can be collected through the use of structured questionnaires. A questionnaire is a set of
systematically structured questions used by a researcher to obtain needed information from
respondents (Bhattacherjee, 2012). The researcher uses self-administered questionnaires because it is
easy and cheaper to administer to respondents and is moreover convenient for collecting information
within a short period of time.

3.4 Population and Sampling

3.4.1 Population

According to Creswell (2009) he defined that population is all people or items with the characteristics
that one wishes to investigate.
The target population of study comprises employees who are currently working in Bahir-Dar
university. Employees are considered to know the nature of effective budget management and control
system. According to Bahir-Dar university at December 30/2015 E.C from human resource department
report, there are 2837 academic staff and 4724 administrative staff totally 7561 employees in the
University.
Therefore, the sample frame of this study will be the target population of this studies which are7561
employees of Bahir-Dar University.

3.4.2 Sampling Technique and Sample Size

A sample is a systematic selection of items from a target population for fairly representative of the
population which is the subset of it. The main idea of sampling is that by choosing specific of the
fundamentals in a population, conclusions could be drawn from the total population (Zikmund, 2003).
Stocker (2010) also points out that a sample is used to obtain representatives information in respect of
a population. For the meantime, there are 6502 employees who are working in Bahir-Dar university.

The researcher uses simple random sampling technique to select the respondents who participate in
responding the questionnaire from each category which helps to minimize respondents’ selection bias.

34 | P a g e
According Yamane (1967) formula ,the calculation of minimum sample size of questionnaire that will
be distributed to Bahir-Dar university employees is as follows.
n= _N___ = _7561___ = 380
1+Ne ² 1+ 7561(.05) ²
Where n is the minimum sample size to be drawn
N is the total population from which the required sample population will be drown
e is error term (0.05).
Therefore, the sample size is 380 and the questionnaires will be distributed to 380 employees.

3.5 Measurement of Variables

The independent variables of the study are determinant factors that influence budget utilization
effectiveness in Bahir-Dar university. These variables have five scopes which budget planning, top
management commitment, employees’ participation, information technology , monitoring and
evaluation. Thus, to measure the complete representation of independent variables and dependent
variable of budget utilization effectiveness, the researcher employed by adopting multiple
questionnaires from different authors using the five point Likert scales rate ranging from 5= strongly
agrees, 4=Agree, 3= Neutral, 2= Disagree, 1 = strongly disagree.

3.5.1 Measurement of Independent Variables

In this research, the independent variables are determinant factors that influence budget utilization
effectiveness in Bahir-Dar University. These variables have four components which are listed as
follows.

3.5.1.1 budget planning

To measure the level of budget planning, 5 items will be prepared by adopting Rahim (2004) using
the five point Likert scales rate ranging from 5= strongly agrees, 4=Agree, 3= Neutral, 2= Disagree, 1
= strongly disagree.

3.5.1.2 Top management commitment

To measure the level of top management commitment, 5 items will be prepared by adopting Dunk
(2001) using the five point Likert scales rate ranging from 5= strongly agrees, 4=Agree, 3= Neutral, 2=
Disagree, 1 = strongly disagree.
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3.5.1.3 Employees’ participation

To measure the level of employees’ participation ,4 items will be prepared by adopting

Elizabeth(2005) using the five point Likert scales rate ranging from 5= strongly agrees, 4=Agree, 3=
Neutral, 2= Disagree, 1 = strongly disagree.

3.5.1. 4 Information technology

To measure the level of information technology, 4 items will be prepared by adopting Matthew (2014)
using the five point Likert scales rate ranging from 5= strongly agrees, 4=Agree, 3= Neutral, 2=
Disagree, 1 = strongly disagree.

3.5.1. 5 monitoring and evaluation

To measure the level of monitoring and evaluation, 5 items will be prepared by adopting Rahim
(2004) using the five point Likert scales rate ranging from 5= strongly agrees, 4=Agree, 3= Neutral, 2=
Disagree, 1 = strongly disagree.

3.5.2 Measurement of Dependent Variable

The dependent variable of the study is budget utilization effectiveness. To measure the dependent
variable of this study, 6 items will be prepared by Tilahun (2010) using the five point Likert scales rate
ranging from 5= strongly agree,4=Agree, 3= Neutral , 2= Disagree, 1 = strongly disagree. Thus, the
respondents will be requested to select their own choice of the five point Likert scale alternatives in
order to specify their level of agreement or disagreement on each statement.

3.6 Data Analysis Technique

In order to analyze the quantitative data collected using survey questionnaires, Statistical Package for
Social Sciences (SPSS) will be used to present and analyze the collected data from respondents using
related tables and graphs. The data collected from the field will be stored, edited, coded and entered
into the computer.

36 | P a g e
3.6.1 Descriptive analysis

The descriptive statistical data will be manipulated to present the result using table, frequency
distribution and percentage, to analyze the demographic characteristics of respondents. The statistics of
mean score and standard deviation will be employed to observe the distribution of observations, degree
of consistency and similarity among respondent responses with each independent and dependent
variable under the study (Zikmund, 2003).

3.6.2 Correlation Analysis

The Pearson correlation coefficient will be used to manipulate the relationship between the
independent variables of (budget planning, top management commitment, employees’ participation,
information technology , monitoring and evaluation) and dependent variable of the budget utilization
effectiveness (Field,2009).

3.6.3 Multiple Regression Analysis

The result of regression analysis will be employed to test the finding whether it fulfills basic
assumptions. Multiple regression analysis also used to observe the effect of determinant factors
(budget planning, top management commitment, employees’ participation, information technology ,
monitoring and evaluation) on the dependent variable of budget utilization effectiveness (Kothari,
2004).

3.7 Reliability and Validity of Instruments

3.7.1 Validity

According to Zikmund (2003), validity is the capacity of a scale to measure the planning to be strong-
minded and considered. There will be a better measurement of validity if there is the improved fit
between the conceptual and operational definitions. It shows the relationship between the construct and
its indicators.
In the same way Karpf (2012) stated that external and internal validity shows the accuracy of a
measure or the extent to which a score truthfully represents a concept. The external validity of research
findings refers to whether the observed associations can be generalized from the sample while internal

37 | P a g e
validity examines whether the observed change in a dependent variable is indeed caused by a
corresponding change in a hypothesized independent variable, and not by variables extraneous to the
research context.
Since items were distributed and are prepared by adopting from previous scholars in the area and data
collected from the reliable sources of respondents who are currently working in Bahir-dar University.
This indicates the strengths and weaknesses of the questionnaires. The investigator conducts field pilot
test in order to assure the question format, relevance, wording, clarity and order. The survey
questionnaires is administered for 38 respondents who are currently working in Bahir-dar University.
Based on the pre-test feedback, the investigator revises important amendment, such as, order, clarity,
and sentence structure, editing repetitive questions, and avoided worthlessness questions.

3.7.2 Reliability test

Reliability is the degree that reflects the measure of a construct is consistent of dependable. In other
words, if one uses the scale to measure the same construct multiple times, it should provide the same
result every time, assuming that the underlying phenomenon is not changing (Bhattacherjee, 2012).

In this study, the researcher will test the reliability of the instruments through the use of Cronbach
Alpha. Cronbach’s alpha reliability coefficient normally ranges between 0 (if no variance is consistent)
and 1 (if all variance is consistent). The closer the coefficient to 1.0 the greater the internal consistency
of the items in the scale. An alpha (α) score of 0.70 or higher is considered as the most commonly
accepted level (Cronbach, 1951).

38 | P a g e
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