Problematic Areas Essay Sample

Implementing the budget

Variances
The department has a budget listing the budgeted annual revenues and expenditures. The actual expenditures are given for the first and third months. Given the percentages spent for the first and third month, I obtained the monthly budgeted amounts by multiplying the respective percentages with the annual budget figure. The department received $2 million of federal aid in the first month. According to the percentage spent for the month, the estimated federal aid for the month was $2,490,000. This implies that the department had an adverse variance of $490,000. The variance for the same revenue for the third month was an unfavorable variance of $1,500,000. It received more state aid than the budget for the first month. The variance for state aid for the first month was a favorable variance of $1,360,000. In the third month, the variance for state aid was a favorable variance of $10 million. The department collected $1.7 million as appropriations-in-aid in the first month. This was more than the monthly budget of $1.66 million hence there was a favorable variance of $40,000. In third month, the department had a favorable variance of $400,000 for appropriations–in-aid. The total actual revenues received in both the first and third months were more than the budgeted amounts.
The expenditure for maintenance of equipment had a favorable variance of $8,221 and $36,931 in the first and third months respectively. Expenditure on the purchase of medical equipment had a favorable variance of $3,331 in the first month and $11,601 in the third month. The department, however, had adverse variances for administration expenses in both months. Miscellaneous expenditure had a favorable as no amounts had been spent in the first and third months. In the first month, it spent more than the budgeted research spending. The variance was an adverse one of $7,643. In the third month, however, the expenditure had a favorable variance of $4,804,690.

The department received less federal aid than the budgeted amounts for the first and the third months. An adverse variance on this revenue could lead to budget constraints since the annual budgeted revenue exceeds the annual total estimated expenditure by only $3174 (Davis & Davis, 2012). In the third month, for instance, the variance was high, and this is a concern for the department. The problem is the amount of monthly disbursements from the federal government. The federal government disbursed less than the budgeted amount for the month. The department may not have given the federal government a break-down of the annual budget for monthly figures and indicating the corresponding percentages.
Another area of concern is the expenditure on administrative expenses. The expenditure had an adverse variance in the two months. The department spent $147,325 more than the budgeted amount in the first month and $455,800 more than the budget for the third month. At this rate, the department would be operating on a deficit budget implying that it will be forced to borrow to finance all its expenditures. Without additional funding, overspending on administrative expenses may affect other activities such as research since funds for the activities may be used to cover the deficit on administrative expenses.
The adverse variance on research expenditure in the first month is another area of concern for the department. The department should operate within its budget hence an unfavorable variance of $7,643 could exert pressure on the budget of the department.

Recommendations

The department can correct the adverse federal revenue variance by supplying the federal government with a detailed breakdown of monthly budgeted expenditures. This is will enable the federal government to disburse adequate funds to the department. In addition, the department can lobby for additional allocation from the federal government. This can be done by justify its expenditures or using interest groups to influence budgetary allocations (Swain & Reed, 2014). Interest groups play an important role and can influence policies including budgetary allocations.
The adverse variances on administrative expenses can be resolved by improving efficiency and placing a cap on the expenditure. Training employees of the department will enhance their skills and improve their efficiency (Mowen, Hansen & Heitger, 2014). In addition, the department can use appropriate technology and methods in undertaking its operations. Furthermore, increased supervision will reduce wastage and unnecessary expenditures. Efficiency can also be achieved through outsourcing. The department should, therefore, consider outsourcing some of its administrative activities, especially front office services, to professional firms. These firms can undertake the activities at a lower cost than the department doing the activities itself. These measures to enhance efficiency will reduce the expenditure of the department on administrative expenses thereby reducing the adverse variance (Swain & Reed, 2014).
A cap on expenditure may also be placed on all the sub-units of the department. Each head of a unit must be held fully responsible for any expenditure above the budgeted figures. Such expenditures should only be made upon the authorization of a senior officer. Any payments or expenses must be fully justified by the requesting officer. This will prevent wasteful and unnecessary expenditures thereby cutting the overall administrative expenditure.

References

Davis, C., & Davis, E. (2012). Managerial accounting. Hoboken, N.J.: John Wiley & Sons.
Mowen, M., Hansen, D., & Heitger, D. (2014). Cornerstones of managerial accounting. Mason, OH: South-Western Cengage Learning.
Swain, J., & Reed, B. (2014). Budgeting for public managers. Armonk, N.Y.: M.E. Sharpe.