Monday 15 January 2018

The impact of zero-based budgeting system in Nigeria (a case study of Kaduna north local government.)

CHAPTER ONE
INTRODUCTION
1.1         BACKGROUND TO THE STUDY
Zero-based budgeting system arises from the criticism of the traditional budgeting system, it is an approach to budgetary planning which rejects the customary views of the incrementalist. It is a systematic approach/process by which management takes careful examination of the basis for allocating resources in accordance with the formation of budget requirements and programme planning. It is a budgeting system which requires every provisional head, manager, etc to justify his entire budget from the scratch (zero-based), any item that cannot be justified will automatically be eliminated. The manager shall ignore what had been done in the past and shall attempt to justify the futurist items. Zero-based budgeting is a cost benefit approach to budgeting, which ensures value for money activities, it however involves the use of decision packages.
When using zero-based budgeting system, government should build a budget from the ground up, starting from zero. Though the apex of zero-based budgeting popularity in the late 1970’s is long past, there has been renewed interest in zero-based budgeting in today’s environments of fiscal constrain not least because  the ‘zero’ in  zero-based budgeting  sends a powerful message that taxes and spending will be held in check. However, the time lapse between the zenith of zero-based budgeting and the present, as well as the political rhetoric surrounding it, has obscured the theory and practice of zero-based budgeting for many.
Zero-based budgeting can only work effectively in the public sector if budget decisions are made on the basis of decision packages oriented towards targets, and not in the usual manner on the basis of cost types. Zero-based budgeting is a technique for making efficient decisions which results in a way that making budgets and planning is not the sole responsibility of the budget officer and controller but it is shifted to other key members also.
It gives top management better insights into the detailed workings of department s. in theory, zero- based budgeting clearly differentiates service level options, and the impact of different service level is on what the community will receive from government (through performance measures), and a detailed plan for the input necessary to provide those service level option.   
1.2   Statement of the Problem
Governments adopt zero-based budgeting to move away from incremental budgeting, where last year’s budget is the starting point. Instead, the starting point becomes zero, with the implication that past patterns of spending are no longer taken as are given.
Zero-based budgeting promises to move budgeting away from the use of across the ‘board cuts’, a budget reduction method that does not differentiate the value of one service versus another.
The researcher came up with some problems that are associated with zero-based budgeting such as, work associated with generating the decision package and then reviewing them. Conceivably, an organization could develop hundreds of decision packages, requiring substantial time commitments from every level of management to develop, review and rank them. Another important drawback is the reluctance of managers to suggest decision packages below current spending. Under zero-based budgeting, the whole budget is on the line and managers are in fact, expected to actively provide far reaching options for how their budget can be cut back, including revealing the absolute minimum level of funding they can accept.
Finally, theoretical drawback is that zero-based budgeting is not associated with an explicit planning process that is separated from the budget process. This has two primary implications, first is that zero-based budgeting does not provide a structured method for taking account of the community is or elected officials views and long term priorities. The second implication is that the participants in the zero-based budgeting process will necessarily be pre occupied with putting together the numbers of various decision packages, they will not be able to focus on considering significant changes to how service is provided.
1.2  Objectives of the Study
To measure the extent of the impact of zero-based budgeting system as a device for Kaduna north local government budget implementation. Specifically, the secondary objectives of the study are;
1.     To determine the level of effectiveness in the application of zero-based budgeting for Kaduna north local government budget implementation.
2.     To find out the factors which inhibit effective zero-based budgeting application for government.
3.     To ascertain the identification of cost centers.
4.     To determine how effective the zero-based budgeting system is in allocating resource within government department.
5.     To determine why government move away from incremental budgeting.
6.     To determine whether zero-based budgeting system will enhance transparency and accountability in the management of local government resources.
7.     To measure the kind of training to accounting staff in the implementation of zero-based budgeting.
1.3  Research Question
1.     What is the level of effectiveness in the application of zero-based budgeting for Kaduna north local government?
2.     What factors inhibit effective zero-based budgeting for government implementation?
3.     What are the important cost centers of Kaduna north local government?
4.     How effective is the zero-based budgeting system is in allocating resource within government department?
5.     Why government moves away from incremental system?
6.     Does zero-based budgeting enhance transparency and accountability in managing local government resources?
7.     What kind of training is required to accounting staff to match with the implementation of zero-based budgeting?
1.4  Significance of the Study
Zero-based budgeting allows top-level strategic goals to be implemented into the budgeting process by trying them to specific functional areas of the government, where costs can be first grouped, then measured previous results and current expectation. Zero-based budgeting is budgeting and financial management strategies which help policy makers achieve more cost effective delivery of public services.
Zero-based budgeting focus mainly on the actual resources that are required to achieve a desired level of output, rather than increasing or decreasing in the past trends. This technique is more helpful for the operational managers to work in an efficient way, the technique creates a link between the finance and budget department.
Budgeters can apply zero-based budgeting to any type of cost, capital expenditure, operating expenses, sales, general and administrative costs, marketing cost, variable distribution or cost of goods sold.
1.5   Scope of the Study
This research project is limited to finding out the impact of zero-based budgeting system in Nigeria. Beside, the project is restricted to Kaduna north local government as the case study, it is hope that required data and information shall be gathered from it.
This research work covers from 2015-2019 which is a period of 60 months. 
1.6    Historical Background of the Case Study ( Kaduna North                                                    Local Government )
The history of Kaduna stated dated back to the 19th century. Kaduna is used to refer to crocodiles in the Hausa language. Before the advent of the Europeans, it was under the influence of Zaria province.
The earliest inhabitants of Kaduna were the Hausa, Fulani’s, and Gbagis. The then political system was based in Kaduna but was transferred to zungeru by lord lugard in 1916.
In 1937, zaria native authority took over control and was administered by ‘Magajin-Gari’ an appointee of the emir of Zazzau. It remained like that until the creation of the defunct north central state which made it a separate division. It was split to form Kaduna south and Kaduna north local government not quite long ago.
Kaduna north is a state capital of the state, the city located on the Kaduna river, it is a trade center and a major transportation hub for the surrounding agricultural area with its rail and road junction. The symbol of Kaduna is a crocodile called ‘KADA’ in the native Hausa language, Kaduna north is a local government area in Kaduna state of Nigeria.
Its headquarters is in the town of Doka, it has an area of 72km2 and a population of 364575 of the 2006 census.
The state is the successor to the old northern region of Nigeria which had its capital at Kaduna. In 1967 this was split up into six states, one of which was the north central state, whose name was changed to Kaduna state in 1976.
This was further divided in 1987, losing the area now part of katsina state. Under the government of Kaduna is the ancient city of Zaria known as Zazzau emirate, the emirate was under the council of powerful native authority up to 1930.
Commerce
As the capital of Kaduna state, there are many small and large scale companies and industries, there are immense commercial activities in various forms.
Education
There are many educational institutions both private and government, there are 162 primary  schools belonging to private individuals and bodies while 40 belong to local government which summed up to 202 primary schools. There are 12 private secondary schools while government schools are 13 in number. There are 3 post secondary institutions in the local government, Kaduna polytechnic, Kaduna state university and Advance College of animal science.


Geographical features
The river Kaduna is a major geographical feature in the local government, Kaduna north falls within the sudan savannah region, the land is characterized by rainy and dry season with a little period harmatan.
Therefore, since it falls or lies in the savannah grass land, only a few swamp areas are found in the local government area except during the rainy season, there are areas high above sea level swamping.
This local government is not a plateau area, through there are some scattered rocky mountains fund in some parts of the local government, malali, unguwar gwari, badarawa, and unguwar dosa villages all in kawo district.
Most of the areas in Kaduna north lay plainly due to lack of high land area, and as a result, the plain area have been of vital importance to the inhabitants of such areas for one reason or another.
Government Agencies
There are many governmental agencies such as NNPC, NIPOST, NITEL etc, indeed being a state capital, the government agencies are too numerous to be mentioned.
Headquarters
It is located at Magajin-Gari in the heart of Kaduna town

Health facilities
Kaduna north local government has the following hospitals;
                            I.               Barau Dikko teaching hospital
                         II.               Kawo General Hospital
                      III.               Psychiatrist Hospital
                     IV.               National Ear center
                        V.               National Eye center
Industries
Most of the industries are based in Kaduna south local government albeit some small scale industries could be in this local government area
Judiciary
There are many courts given the metropolitan nature of Kaduna, there are two customary law courts, one high court and a sharia court of appeal all located in the township.
Population
364575 people inhabit the local government area
People
Kaduna north local government is inhabited by four different ethnic or language groups, namely; Hausa, Fulani, gwari and strangers of diverse backgrounds.
Recreational facilities
There are many of such given the cosmopolitan nature of Kaduna, there are two stadiums, Ahmadu bello stadium and Ranchers bees stadium, there are many hotels with recreational facilities.
Towns and villages
There are three districts which are Doka district, Kawo district and Gabasawa district.
Doka district = U/shaba, U/liman, U/maiburji dadi rivers, kabala.
Kawo district = kawo, hayin banki, malali, badarawa, U/shanu.
Gabasawa = U/rimi, U/sarki, kabala
1.7   Defination of Terms
Budget: A budget is a financial and/or quantitative statement prepared and approved prior to a defined period of time for the purpose of attaining a given objective, a budget is normally for a year,
Traditional/line items/incremental budgeting: The traditional budgeting method which is also often called incremental budgeting involves picking last year’s figures and adding a percentage to arrive at this year’s budget.
Planning: The establishment of objectives and the formulation, evaluation and selection of the policies, strategies, tactics and actions required to achieve these objectives.
Decision unit: This means subdividing the organization into discrete sub-units where operations can be meaningfully and individually identified and evaluated.
Cost center: Cost centers is defined as a location, function, department or section in respect of which cost may be ascertained and related to cost units for control purpose only, (CIMA)
Cost benefit analysis: Cost benefit analysis sometimes called benefit-cost analysis is a systematic approach to estimating the strengths and weaknesses of alternatives that satisfy transactions, activities or functional requirements for an organization.
Government: A group of people that governs a community or unit. it   sets and administers public policy and exercises executive, political and sovereign power through customs institutions, and laws within a state.
Decision package: A decision package is a document which identifies a discrete activity, function or operation within a decision unit for evaluation and comparison with other activities.
Prioritization: Is to organize things so that the most important thing is done or dealt with first.
Management: It is an act of planning, organizing, staffing, leading or directing the activities of an organization to accomplish it goal or target objective.
Department: A division of a large organization into parts with specific responsibility.
Zero: Zero is the lowest possible amount or level, it is denote as 0.
Based: The bottom support of anything, that on which a thing stands or rest.
Revenue: Is the money that government received from taxes, oil and other sources.