Budgetary Control and the Financial Performance of Councils (Case of Tubah Council, North West Region of Cameroon)

Abstract

Local councils as development partners to the central government need to mobilize enough revenue locally to support the central government’s development agenda. Inadequate financial resources can undermine the effective implementation of developmental projects in these councils.

Budgets are important as they prudently manage scarce financial resources and at the same time serve as a means of expenditure authorization, control and evaluation base. Local councils in Cameroon prepare budgets but are not very prudent in their implementation, unlike the profit-making organizations which consider the budget and budgetary controls as an important element in their policies. 

It is against this background that this study was carried out to find ways by which local councils especially Tubah council can use budgeting and budgetary controls as management tools to prudently enhance their financial performance for local development. The case study approach was used in the study to identify the link between Budgeting, budgetary control and financial performance.

To achieve this objective, secondary data was collected from the Finance department of Tubah council from the year 2000 to 2016 which included Tubah council’s annual budgets, Administrative accounts and discussions with key staff members. The data was analyzed using the Ordinary Least Square (OLS). The research found out among other things that local councils prepare budgets and control the budgets. 

The research data evidently prove that in the case of the Tubah council, this is true. Moreover, the study proved that budget preparation and control has a positive effect on the financial performance of Tubah council.

However, poor budget formulation and implementation and low revenue generation base make it difficult for local councils to live up to their responsibility as partners to the central government in national development. Recommendations and suggestions have accordingly been made to improve upon budgeting and budgetary controls in local councils and the nation as a whole.                            

Background of the Study

Central governments over the world have made human and environmental development their primary objective and have therefore used decentralization as a method of sharing development responsibilities with para-state agencies such as the local/municipal councils.

Rodinell (1981) defines decentralization as the transfer of authority to plan, make decisions and manage public functions from a higher level of government to an individual, organization or agency at a lower level. Aryee (1999) identifies four forms of decentralization. These are administrative, economic, political and fiscal.

Law No 2004/17 of 22 July 2004 on the Orientation of Decentralization defines Decentralization as “the basic driving force for the promotion of development, democracy and good governance at the local level.” Local councils in Cameroon were established with the sole aim of generating good contacts with the citizens and to bring decision making to the level where development generally takes place.

Councils were also created to help strengthen the democratic process and lay the basis for the upsurge of autonomous institutions of governance within the structure of the nation-state. According to Aryee and Amponsah (2003), the Councils have added potential advantage such as spreading development skills throughout society.

To ensure decentralization and development, the government of Cameroon through a series of decrees and laws has created 360 councils and 14 city councils over the National territory. MIINATD, (2013)

There are massive responsibilities spelt out specifying the functions, and responsibilities of Local Councils in Cameroon. Local councils shall be responsible for the overall development of their council area and the preparation and submission of development plans. Local councils are charged by the local government law with responsibilities in the following domains:

• Economic development
• Environment and natural resources management
• Planning, Territorial Development, Town planning and Housing
• Health and social welfare
• Education, Literacy and professional training
• Sports and leisure
• Culture and development of national Languages

By implication, the physical responsibilities of the council will include the following:

1. Ensure legal arbitration;
2. Register birth, death marriage and divorce;
3. Give building permits to ensure proper spatial development;
4. Build schools, provide books and furniture;
5. Maintain law and order
6. Establish and maintain parks and gardens;
7. Provide street lights;
8. Provide health, sanitation and waste management service;
9. Provide social services;
   10. Provide firefighting services;
   11. Provide markets

These functions of the Local councils cannot be achieved without adequate financial resources to support them and appropriate control to ensure the effective use of these resources. Inadequate financial resources can undermine the effective implementation of developmental projects in the councils. It is against this background that the new local government system has made provision for the financing of the councils.

Fiscal decentralization is the transfer of responsibilities, power and resources to the lower-level public authority to mobilize funds for development that is autonomous and fully independent from the devolving authority when narrowed down to devolution. Local authorities are given responsibilities and financial means within the national level determining the scope and quality of services to be provided and the number of funds needed to deliver these services.

Kessey and Diaw (2002) called for vigorous revenue mobilization drive and control if the local councils are to perform better. They mention that the effectiveness of revenue mobilization depends on factors such as fiscal policy, revenue administration monitoring operations and performance assessments or control.

Unfortunately, most local councils do not generate enough revenue and are not effectively controlled. The main reasons for their inability to mobilize enough revenue include corrupt practices, poor mobilization strategies, ineffective decentralization, poor financial management and poor budgetary control.

The origin of the concept of budgeting can be traced as far as the beginning of the industrial revolution (1760 to 1820 and 1840). During this period, the industrialist was concerned about bringing out new and more performing technologies that could meet up with the present and future needs, thereby trying to solve both present and future needs.

However, when the term budget is mentioned, it is referred to as a detailed plan which sets out, in monetary terms, the plans for income and expenditure in respect of a future period of time. It is prepared in advance of that time period and is based on the agreed objectives for that period of time, together with the strategy planned to achieve those objectives (Weetman, 2010).

In order words, a budget is a comprehensive, formal plan that estimates the probable expenditures and income for an organization over a specific period. Budgeting describes the overall process of preparing and using a budget. Since budgets are such valuable tools for planning and control of finances, budgeting affects nearly every type of organization—from governments and large corporations to small businesses—as well as families and individuals.

Budgeting can help an organization use its limited financial and human resources in a manner which best exploit existing business opportunities. In this light, intelligent budgeting is one that incorporates good business judgment in the review and analysis of past trends and data pertinent to the business.

On the other hand, control consists of the steps taken by management to see that planned objectives are met. Budgetary control is therefore the use of budgets to control the operations of an entity. Such control takes place by means of budget reports that compare actual results with planned objectives, monitoring and supervision.

Statement of the Problem

Local councils as development partners to the central government need to generate sufficient revenue locally to support the central government’s development agenda. Budgets are necessary to prudently manage scarce financial resources and at the same time serve as means of expenditure authorization, control and evaluation base (Anohene, 2011).

Profit-making organizations consider budgets and budgetary controls as important elements in their policymaking. The success of their organizations depends largely on good budget preparation and effective budgetary controls. In Cameroon, Local councils prepare budgets but the degree and extent to which budgets are prepared and formulated into performance budgets vary from each other.

The failure of many businesses nowadays erupts from the fact that budgets and budgetary control which are the bedrock of any successful business organizations are weak or absent as reported by Bradstreet, (2004). Such organizations or businesses are characterized by financial, administrative, production, managerial etc, constraints. Budgets should be prepared based on the availability of resources.

Local councils should ensure that they generate enough resources to complement central government grants which are always inadequate. They can also look elsewhere for resources to support their budgets. Tubah council prepares budget but most times the budgeted amounts always exceed the actual amounts realized resulting in budget deficits.

As a result, some of its projects captured in the budget are only realized partially or otherwise left untouched. In line with the argument put in place that budgeting is not the ideal managers’ tool which has encouraged numerous academicians to try to discover appropriate solutions for budget slacking (an intentional allowance for extra expenditures in a future cash flow either by underestimating the revenue or overestimating the expenditure that will come in over a period of time.), budget gaming, budget bias and other problems that managers had to deal with, Harper (1995), the study looks at whether local councils in Cameroon can achieve their objectives with or without effective budget and budgetary control systems.

It is to find out reasons for budget failure and deficits at the Tubah Council where poor budgetary control could be seen as a cause for poor performance in the development process. The problem is that most local councils do not have effective financial control. They often experience budget deficits. The budget deficits could occur because:

• There is a poor database for planning and budgeting;
• There is poor budgetary control resulting in embezzlements, misappropriations and misapplication of funds culminating in over expenditures;
• There is a lack of ownership and responsibility when it comes to budgetary control.
• Poor database for planning and budgeting also have other consequences which include:
• Revenues may be over-estimated to the extent that the estimated revenue is higher than the actual revenue;

• Expenditures may be underestimated to the extent that the actual expenditure is higher than the estimated expenditure.
• Some other rate and property ratepayers may fail to fulfil their legitimate obligations in rate payment. This may also result in situations where actual revenue may be lower than the estimated revenue. Revenue deficits may also occur as a result of the dishonesty of revenue collectors. While useful revenue cannot be collected, expenditures go on without adequate controls resulting in excess expenditures over-revenue.
• When these happen, local councils cannot live up to their responsibility of being partners to the central government in the development effort. The citizens are also denied facilities and economic services for their business take-offs

Objectives of the Study

 Generally, this study sought to investigate the relationship between budgeting, budgetary control and financial performance of councils with reference to Tubah Council.

Specifically, the study seeks:

• To determine the link between the budgeting and financial performance of Tubah council
• To determine the link between budgetary control and the financial performance of Tubah council.
• To evaluate the effect of budgeting and budgetary control on financial performance

Research Questions

The following research questions are posed to achieve the objectives of the study:             

1. What is the link between budgeting and the financial performance of Tubah council?
2. What is the link between budgetary control and the financial performance of Tubah council?
3. What is the impact of Budgeting, budgetary control on the financial performance of Tubah council?

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