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.