Budgeting Basics and Beyond

3.5. Budget Audit

A budget audit examines whether the budgeting process is operating effectively. It is an evaluation of the budgeting effort. The budget audit examines techniques, procedures, motivation, and budget effectiveness. Effective budgeting should be dynamic.

A budget audit detects problems in the budgeting process. It should be conducted every two to three years by an independent party not a part of the budget staff. The budget auditor should report to upper management, who can take appropriate action. An outside consultant should be independent and objective, and should provide fresh ideas.

An audit plan assists in arriving at corrective action. The budget audit considers:

• Cost trends and controls

• Budget revisions

• How adequately costs were analyzed

• How costs were identified and classified

• Looseness or tightness of budget allowances

• Completeness of budget documentation, records, and schedules

• Degree of participation by managers and workers

• Quality of supportive data

• Degree of subjectivity involved