Question

Participatory budgeting can sometimes lead to negative consequences. From the following list of outcomes that can arise from participatory budgeting, identify those with potentially negative consequences.

1. Budgetary slack will not be available to meet budgeted results.
2. Employees might understate expense budgets.
3. Employees might commit unethical or fraudulent acts to meet budgeted results.
4. Employees set sales targets too high.
5. Employees always spend budgeted amounts, even if on unnecessary items.
6. Employees might understate sales budgets and overstate expense budgets.

Short answer

1. No
2. No
3. Yes
4. No
5. Yes
6. Yes

Step-by-step solution

Meaning of Participatory budgeting

In participatory budgeting,top-level management involves the bottom-level management in budget creation so that they have a better grasp of the actual situation at the field level, including resource availability, the time required to prepare the budget, and hindrances related to specific aspects, etc.

Identifying Participatory budgeting’s potential negative consequences

S.no.	List of outcomes	Explanation
a	Budgetary slack will not be available to meet budgeted results.	Because budgetary slack refers to underestimating or overestimating planned revenues and costs, it won't affect participatory budgeting if it's not accessible to meet budgeted outcomes.
b	Employees might understate expense budgets.	Employees understating expenditure budgets will have no negative implications because undervaluing expense budgets will reduce actual spending. So, it does not have potentially adverse consequences.
c	Employees might commit unethical or fraudulent acts to meet budgeted results.	Yes, it is possible; the organization would undoubtedly suffer if employees do unethical or fraudulent behavior to attain budgeted outcomes. Budgets should be met by honest and ethical behavior.
d	Employees set sales targets too high.	No, even if employees establish sales expectations that are overly high, there will be no adverse effects since high sales targets would eventually push employees to meet the targets.
e	Employees always spend budgeted amounts, even if on unnecessary items.	Yes, it will have obvious negative consequences if employees spend allotted amounts on unneeded products. They should spend budgeted amounts on the assigned item and should not make any excessive expenses.
f	Employees might understate sales budgets and overstate expense budgets.	Yes, workers who understate the sales budget and inflate expenditure budgets will have adverse effects since employees should set high sales and as low expense budgets as feasible for the company's advantage.