THE IMPACT OF BUDGETING AND BUDGETARY CONTROL SYSTEM IN THE BANKING INDUSTRY (A CASE STUDY OF FIRST BANK OF NIG PLC)
ABSTRACT
The research topic The Impact of Budgeting and Budgetary Control System in the Banking Industry: A Case Study of First Bank of Nigeria Plc was critically examined during the research work from the data obtained so far analysis has shown that budgeting and budgetary control system cannot be overlook in the banking industry.
It is well known that decision making· determines the life span of any organization and the ability of management to take the right decision will steer it to the peak of success. The banking industry has witnessed in recent times a drastic change in some of the banking activities resulting from' economic meltdown and from bad management decision making. This study sought to analyze the situation so as to determine the effect of budgetary control in place by the management.
The staff of first bank Pic 'Was the sample population of the study. The sample population constituted of 70 staff of the bank but only 67 returned their questionnaires, which was used for the analysis.
The chi-square test was applied to the data obtained' from the questionnaire administered. It was gathered from the results that budgeting and budgetary control requires the support of top management which shows poor implementation of budgeting and budgetary control should rest on management of such organization.
Moreso, it has been shown that adequate measures should be taken by any bank before formulating, evaluating and implementing the buggetting and budgetary control system. The measure shall include syndication, synergy and benchmarking.
In addition, safety, suitability, profitability, method and techniques and SWOT analyses must be considered. Apart from the aforementioned, the banks also assist in growth and development to establish efficient management structures and controls. They also provide corporate financial advice such as capital restructuring and project financing services.
It was mainly recommended that there should be clear cut definition of corporate objectives arid appropriate' accounting and information system, which can help companies in the private sectors to have effective budgetary system.
TABLE OF CONTENTS
CHAPTER ONE
INTRODUCTION
1.0 Background of the Study
1.1 Statement of Problems
1.2 Objectives of the Study
1.3 Significance of the Study
1.4 Research Questions
1.5 Research Hypothesis
1.6 Scope and Limitation of the Study
1.7 Research Methodology
1.8 Organization of the Study
1.9 Definition of Operational Terms
References
CHAPTER TWO
LITERATURE
2.1 Introduction
2.2 Budgetary Control
2.3 Budgetary Control
2.4 Conditions for Successful Budgeting
2.5 Limitations of Budgeting
2.6 The Generally Recognized Objectives of Budgets
2.7 Planning Budgetary Control
2.8 Budgetary Improvement Techniques
2.8.1 Flexible Budget
2.8.2 Continuous or Rolling Budget
2.9 Responsibility for Preparing Budget
2.9.1 Budget Committee
2.9.2 Budget Officer
2.10 Budget Manual
2.11 Behavioural Aspects of the Budget
2.12 Financial Control in Budget
2.14 Summary of Chapter
References
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
3.2 Research Design
3.3 Methods of Data Collection
3.4 Sampling Procedure
3.5 Techniques of Data Analysis.
3.6 Sample Size
References
CHAPTER FOUR
PRESENATTIONS AND ANALYSIS OF DATA
4.1 Introduction
4.2 Data Analysis
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Introduction
5.2 Summary of Findings
5.3 Conclusions
5.4 Recommendations
Bibliography
Appendix 1
Appendix II
CHAPTER ONE
INTRODUCTION
1.0 Background of the Study
The issue of budgeting and budgetary control in the banking industries has become topical since the bank consolidation; which is changing the capital base from 5 billion to 25 billion. The management function of planning and control are perhaps equally important to the long and short run success of a business.
Nevertheless, most failure arises as a result of inadequate planning countless pitfalls can be avoided if the management of an organization can carefully anticipate the future conditions within which the business will operate and prepare a detailed plan of the activities the organization should pursue.
A budgetary system is made up of both budgetary planning as well as the budgetary control. Budgetary planning is the process of preparing detailed short- term plans (known as budgets) for the functions, activities and departments of an organization, activities and departments of an organization (Laurit, 1993). A budget is a future plan of action either for the whole organization or a section thereof.
A budget could also be defined as a financial or quantitative statement prepared and approved prior to a defined period of time of the policies to be pursued during those periods. While budgetary control on the other hand emphasis the control of plans by comparing actual results against plans to identify variances upon which corrective actions can take place.
This study will examine the impact of budgeting and budgetary control system in the Banking Industry. Banking is the .act of trading in monetary and 'financial matters in order to make profit. A bank is engage in baking. Therefore a bank is a financial institution approve by law to trade in money and financial confidence like me "Ukaegbu C" to see that budgeting has been the of government survival.
Budgeting is a vital management function which us a
Plan of action Link between financial resources and human behaviour to accomplish policy objectives. Mechanical for making choice among alternative expenditures.
An important aspect of budgeting which orders to the act of its preparation is that it looks at situation in advance, thinks about .the impact and implications of things in advance and attempts to take care of situations in advance.
Budgeting control is the analysis of what the organization did and did not do correctly, any variations from, these plans.
The banking industry budgeting and budgetary controls are seen as an important task.
There are major aspects of financial planning and co-ordination carried out in the financial control system in every organization. The banks want to know how much income will be for them and whether there will be any leftover. Thus, in the process of finding answers to the questions, the financial control unit is assigned the duty of preparing budgets of the financial year. When it comes to bank and every organization, they prefer to leave cash inflows and outflows look after themselves. First Bank P1c will be used as a case study for the generations of relevant information.
1.1 Statement of Problems
Budgeting and budgetary is not without shortcomings. It is a short-term technique, which must not be used as substitute for properly reasoned corporate objectives or strategic planning (Adams, 2005). There are difficulties in administering a budget and increased: cost in times of rapid economic, social and political changes in an economy. Since budget directly affects the people working for the company and rely on them to bring the plans into actual activities.
Consequently, behavioural problem often represent a major obstacle to the successful implementation and operating of a budgetary control system. Some problems are:
i. Imposed problem.
ii. Employee attitude towards budgeting.
iii. If we don't spend it, we shall lose it syndromes.
iv. Some organizations see budget as cost rather than tools to determine performance.
v. There is no standard, which most organizations can use to compare their performance.
The research will .identify factors responsible for the above itemized, its article review and analysis will be examined and steps to help solve the problems will be recommended.
1.2 Objectives of the Study
The purpose of this research is to highlight some of the problems inherent in the preparation of budgeting and budgetary control in the banking industry in relation to First Bank of Nigeria Plc, its effectiveness and impact and to make recommendation capable of solving and identified problems.
The purpose of this research will be:-
v To determine whether budgeting and budgetary control has any impact on the banking industry.
v To advice managers of banks on the usefulness and benefits of budgeting and budgetary control:
v To determine whether the use if budgeting and budgetary control are tools for financial profit planning
v To determine whether budgeting and budgetary control would enhance organization productivity.
v To determine whether budgeting and budgetary control is an effective means of measuring an organization's performance.
v To determine who will prepare the budget and whether budgeting and budgetary control require the support of top management.
v To determine whether budgeting and budgetary has brought about accountability on the part of management.
1.3 Significance of the Study
Many businesses fail to make reasonable profits or to generate sufficient cash at the right .time because management fails to plan ahead. Even where there was a plan, the plan is either ineffective or not fitting into the organization. It's the bankers are only aware, the profit or loss is often known until many months after the end of the financial year, and a cash shortage is only seen when a crises point is reached, that if management could adopt the solution advanced in this project, the problems of budgeting and budgeting control would have been minimized. This research work is also relevant for the following reasons.
• It will help management of banks to know the extent to which budgeting and budgetary control have impacts on banking industry.
• It will provide insight to interested readers who will come across it and who may want to establish a bank.
• It will acknowledge previous contribution to knowledge of past studies in this area of budgeting and budgetary control
• It will provide basis for further research.
1.4 Research Questions
The questions which this research intends to bring answers to area as follows:-
Does budgeting and budgetary control encourage accountability on the part of management? Has budgeting and budgetary brought accountability on the part of management? Is budgeting and budgetary control an effective means of measuring an organization's performance? What is the usefulness of budgeting and budgetary control? Why should managers participate in the preparation of the budget and in the monitoring of its performance? Does budgeting and budgetary control require the support of top management? What types of budgets does First Bank of Nigeria PIc use? Who is responsible for preparation and implementation of budgeting and budgetary control?
1.5 Research Hypothesis·
Hypothesis I
Ho: Budgeting and budgetary control does not require the support of top management.
Hi: Budgeting and budgetary control requires the support of top management.
Hypothesis II
Ho: Budgeting and budgetary control is not an effective means of measuring an organization's performance.
Hi: Budgeting and budgetary control is an effective means of measuring an organization's performance.
Hypothesis III
Ho: Budgeting and budgetary has not brought accountability on the part of management.
Hi: Budgeting and Budgetary has brought accountability on the part of management.
1.6 Scope and Limitation of Study
Due to time and financial constraints, the research project will be limited to budgeting period of only two (2) years. The research will be limited to budgeting techniques, scope, implementation and effectiveness.
The research will cover two branches of First Bank of Nigeria Plc in Lagos West Directorate. Some limitation will be the unwillingness of some of the staff of First Bank Plc to release some needed information. Financial factors a will also create some limitation.
1. 7 Research Methodology
Questionnaire will be distributed to staff to fill as a means of primary data collection; emphasis will also be place on the use of secondary data collected from office files, publications, personal interview and telephone interviews, with some of the highly placed officials of the bank. The research will make effort to know the type of budget in use in First Bank of Nigeria Plc, the budget period, the management committee etc.
1.8 Organization of the Study
This study was organized into five chapters for the purpose of clarity Chapter one focused on e introduction of the study which includes background to the study, statement of problems, objectives of the study, research questions, and significance of the study, statement of hypothesis, methodology of the study, scope and limitation of the study and. definition of terms.
Chapter two contains literature review, conceptual theoretical framework of the study. Chapter three focused on the research methodology containing the methods and instrument of data collection and technique of data analysis.
Chapter four is based on data analysis, interpretation of result and discussion, and chapter five contains the summary, conclusion and recommendations and sometimes suggestion for further readings. project topics final year project topics and research materials
1.9 Definition of Operational Terms
Here is the definition of terms that will be used in this research work.
Budget: A budget is a future plan of action either for the whole organization or a section thereof. Budget can be defined as a financial and or quantitative statement prepared and approved prior to a defined period of time of the policies to be pursued during those period.
Budgetary System: A budgetary system is made up of both budgetary planning as well as the budgeting control.
Budgetary Control: This is the process of comparing actual results against plans, to identify variances upon which corrective actions can take place.
Budget Manual: This is a record, which describes the objectives, and procedures involved in the budgeting process and it will provide a useful reference source for managers responsible for budget preparation and this will be circulated to individuals who are responsible for preparing budgets.
Budgetary Planning: This is the process of preparing detailed short-term plans (known as budgets) for the functions activities and departments of an organization.
Sales Budget: This is a forecast of sales to be achieved in a budget period.
Cash Budget: This represents' the cash requirement if the business during the budget period. It compares estimated cash receipts and estimated cash payments of the organization over the budget period and show the resultant periodical cash position as the budget develops.
References
Adams, R. A. (2005): Public Sector Accounting and Finance. Lagos Corporate Publishers Ventures,
Laurit, J. Mullins (1993): Management and Organizational Behaviour. India Pitman Publishing.
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