Question

Both the budget process and budgets themselves can impact management actions, both positively and negatively. For instance, a common practice among not-for-profit organizations and government agencies is for management to spend any amounts remaining in a budget at the end of the budget period, a practice often called “use it or lose it.” The view is that if a department manager does not spend the budgeted amount, top management will reduce next year’s budget by the amount not spent. To avoid losing budget dollars, department managers often spend all budgeted amounts regardless of the value added to products or services. All of us pay for the costs associated with this budget system

Required

Write a half-page report to a local not-for-profit organization or government agency offering a solution to the “use it or lose it” budgeting problem.

Short answer

If government agencies follow the solutions to use or lose it, they may not face as many challenges in budgeting.

Step-by-step solution

Meaning of Use it or lose it Budget

Use it or lose it means that management will reduce the budget for next yearif a particular department cannot spend the budgeted management money.Managers of departments often use or spend all budgeted funds, regardless of whether or not they have to use them.

Writing a report to a local not-for-profit organization or government

To: Board of XYZ Government/Organization

From: Accounting Department

Re: Budgeting Process

A vital component of the operation's strategic management is the budgeting process. As commitments fluctuate throughout the year, the process is variable. The operation's vision is guided by the overall budget, promoting growth and resilience. A government or non-profit organization has to have faith in the budgeting process since it may influence donations from other entities. Without this assurance, they could jeopardize the organization's overall mission.

Given the importance of budgeting, many people inside the trade should include in forming the method. By involving front-line managers within the budget-development handle, managers understand the whole strategy and the significance of the other offices in the process. The front-line managers' cooperation and the organization's requirements can impact how assets are apportioned. A quarterly distribution of the organization's needs after the period is conceivable. The budget may carry over to another quarter if extra funds are accessible. Any leftover cash could be given to an organization as a reward or if one of the departments needs to advance the neighborhood or the organization's mission. Management can screen each department's operations monthly to determine if stores are utilized more intensely at the end of the year than the usual months. In case so, higher management can conversation with front-line directors about more effective solutions to serve the operation's overall objective.

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