In private organizations, shareholders often have a say in budget allocation. Spending occurs in ways that shareholders and upper management think will benefit the organization. Budgeting in public administration works differently.
In the public sector, an entity’s top priority is the people it serves, and budget allocation should represent their needs. For instance, the Department of Transportation (DOT) is a government entity responsible for making sure roads, bridges and highways are safe and efficient.
Proper management of budgeting in public administration is important to ensure that public entities run well.
Determining a Budget
There are a number of ways to approach public budgeting:
- Line Item Budgeting: This is one of the oldest, most common forms of building a budget. Line-item budgets are exactly what they sound like — line-by-line budgets based on an organization’s itemized needs. For instance, a school might need a number of items like computers, new desks, books, etc. These items and their costs appear in the budget as line items.
- Performance Budgeting: The performance analysis of specific programs determines this type of budgeting. For example, one program may work really well within the community, but another program is not very popular. The more successful program might receive a larger portion of the budget, or the failing program might receive more funds for revitalization.
- Site-Based Budgeting: This style of budgeting emphasizes a specific entity within the public sector, like a single school. This method has its advantages because it gives more power to individual entities rather than relying on a remote committee to determine their needs. The reasoning behind this kind of budgeting is that the individual entity has more direct knowledge of its budgetary needs than an outside committee or group would.
Allocating a Budget
The board members of a nonprofit or the legislative officials for a government entity must review and approve a proposed budget before allocation.
Since budgeting in public administration uses public funds, the approval process exists to ensure that spending aligns with the needs and desires of the community. After approval, the appropriate public entities receive the funds, usually over a period of time, to complete projects and purchase necessary equipment.
Who Is Responsible for the Budget?
The type of public entity involved determines the responsible party. Depending on the size of a nonprofit, its financial manager or CEO could be responsible for the budget. The board is responsible for approving the budget, but the finance manager is responsible for ensuring that funds disburse as budgeted. In a government setting, the chief financial officer or the office of the chief financial officer oversees proper use of budgetary funds.
A great deal of planning and preparation goes into creating and allocating a budget. This is why it is important to have the proper skills and knowledge to effectively execute a budget in the public realm.
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