Budgeting Basics and Beyond

24.9. Budgetary Control

Cost controls should be implemented to save on costs. This approach may allow the expansion of services and increased user services. Many cost items are of a discretionary nature. Because there is no "bottom line" in nonprofit entities, identifying objectives is more difficult for nonprofits than for profit-making businesses. Therefore, control systems are not used as much in nonprofits for several reasons. First, organizational goals are less clear and are often multiple, necessitating trade-offs. Second, professionals (such as physicians, lawyers, and teachers) typically dominate nonprofit organizations and are less receptive to control systems and measures. Third, measurement is more difficult because there is no profit to determine; a heavy amount of discretionary fixed costs exists; and the relationship between inputs and outputs is difficult to specify. Thus, the budget process in the public sector is related to playing bargaining games with higher authorities to obtain the largest authorization of discretionary fixed costs.

When budgetary outlays for a unit are approved, they are appropriated for the individual items in the budget. Management can spend appropriable funds up to the amount provided in the budget for each item. Typically, any expenditure over the prescribed amount must receive authorization. The term appropriation control can be used to describe the mechanism used to regulate the amount of resources that can be expended for salaries, ...