Budgeting process is central to any administration be it local, state or federal public or

private because control of the purse is perhaps the most effective tool of coordination. The
scope and nature of the entire governmental operations is determined by the allocation of
appropriation to the various programs. Oshisamic (1992), sees a budget as a plan expressed
in quantitative and usually monetary terms, covering a specified period of time. Normally,
the period covered is one year and this makes it a short-term plan. Practically, all large
organizations, both in the private and public sectors prepare annual budgets.
A local government budget is a comprehensive financial plan of its income and expenditure
within a specified period of time which serves as the basis for government operations
during the period. It is a systematically designed plan of proposed financial allocations to
various services and programs with detailed and carefully calculated projections of income
from all its revenue sources. The local government budget is generally for a period of
twelve months, hence it is commonly known as Annual Estimate. An annual budget is both
financial plan as well as a political document.
The local government budget in Nigeria is made up of revenue and expenditure estimates.
A local government budget should contain the following six elements; the first is the
objectives. The objectives govern the entire contents of the budget and guide the official's
behavior during its implementation. The second is brief review of the previous year's
budget performance. This should include the summary of actual revenue and expenditure
in relation to their estimates. The third is a detailed estimate of revenue (recurrent and
capital). The revenue estimates should provide details of expected receipts from all sources
and arranged in Heads and sub-Heads.
The Chief Executive's recommendations on revenue measures which are needed to finance
the projected expenditure should be embodied. The fourth is detailed estimates of
expenditure. The proposed financial allocations to services and programmes are
categorized under Heads and sub-Heads. Capital Expenditure estimates are made on
sectorial (departmental) basis. Comparison between the past and current years expenditure
should be made. Fifth, the budget should also contain detailed information about the
proposed level of expenditure with precise explanation which seeks to justify the deviation
from previous levels of expenditure of past annual budgets. Sixth, a well-planned budget
should contain an Appendix containing supplementary schedules designed to facilitate
quick and proper understanding of the inter-relationships of the various components of the
estimates.
The systems approach to management is a way to understand a local government’s annual
budget process. This approach recognizes the interdependence of all major activities within
an organization, especially public ones like local governments. Systems theory views an
organization as an organism made up of numerous parts (subsystems) that must work
together in harmony for the larger system to function. It could be that local government
managers think of this systems approach in terms of piecemeal parts, when in fact they are
all related to the development, approval, implementation, and feedback processes.
A public organization such as the local government is viewed as an open system that
includes six basic sub-systems, which are highlighted and explained here as they relate to
the annual budget process:
1. Input. This includes available revenues to finance public services for the coming fiscal
year. A local government's revenues typically include non-restricted funds, restricted
funds, and other possible funding sources as allocated and approved by its elected officials.
The services provided by a public organization are based on the available revenues from
all sources as approved in its annual budget, which is a result of the annual budget
development process that is explained below.
2. Preparation. The budget preparation process includes four typical steps followed by
public officials, both elected and appointed. These steps include administrative
preparation, legislative approval, financial implementation, and annual year-end
accounting and financial reporting, which is usually performed by an independent outside
auditor. This process is in the best interest of everyone—residents, their elected officials,
as well as the employees of a public organization.
Though there are several approaches in budgeting, the local government council
finds it more convenient to prepare its budget on line-item budgeting.
Under this approach, homogenous (like) activities are grouped together into a program,
each of which has the following objectives:
a. To become the cost center for collecting details during the preparation of annual budget.
b. To control center during the implementation of the approved annual budget for the
financial accounting purposes.
c. To become reference point during revision of that annual budget and for the purpose of
audit of financial transactions.
During the budget period, usually in the third quarter of the current year it is the
responsibility of the local government Treasurer, as the Chief Budget Officer of the
council, to send call circular letter to the various Departments requesting for their coming
year's budget proposals. The circular letter should indicate council's priorities and also give
detailed guidelines on how the budget proposal should be prepared.
The preparation of local government budget must be in accordance with the
financial memoranda which provides for a uniform classification of revenue and
expenditure to be adopted by all local government councils throughout the country. The
uniform estimates classification will also apply to the accounts of all local government
councils. This will enable comparison to be made at any time, throughout the year between
the provision under the heads and subheads in the estimates and the same heads and sub-
heads in the accounting record. The budgets or Estimates are usually prepared in four
sections:-
a. Recurrent Revenue
b. Recurrent Expenditure including personnel emoluments and allowances.
c. Capital Receipts
d. Capital Expenditure.
When the various estimate proposals have been submitted by the Departments, the
treasurer invites them to come and defend their proposals before the finance and General
purpose committee of the council. That committee has the responsibilities to receive and
consider the annual estimate proposals of all spending committees and departments as
collected by the treasurer and to direct the treasurer in the preparation of the draft annual
estimates of revenue and expenditure proposals which are inconsistent or at variance with
the policy are eliminated. When necessary adjustments have been made, the Treasurer then
prepares a consolidated estimate proposals for the council. The consolidated Budget
proposals are then presented to the council members for consolidation of a draft Budget is
approval.
The preparation of a draft Budget is summarized as follows:
I. Circulation of call letter by the Treasurer to Departments for budget proposals.
ii. Preparation of budget proposals by Departments and submission to finance and general
purpose committee through the treasurer.
iii. Defense of proposal by Department before the Finance and General purpose committee.
iv. Preparation of consolidated draft Budget by the treasurer.
v. Submission of the consolidated draft Budget by the treasurer to the council, when
approved, the budget becomes the approved draft of the council.
3. Output. The output of the budget process is determined based on the available revenues
and approved allocation of these revenues to pay for projected departmental services for
the coming fiscal year. Available funds are allocated to finance the public services
provided by the departments in a local government, as well as its approved capital projects,
for the coming fiscal year.
The common types of public budgets include line-item budgets, program budgets,
performance budgets, zero-based budgets, and other evolving budget formats. Most local
government budgets use a line-item format, with possible program performance
measurements, where they have been developed.
4. Feedback. The financial feedback on the adopted budget is provided to both elected
officials and administrators, based on an annual audit that is typically conducted by an
outside independent auditor.
This is usually required by a city’s charter approved by its voters. This financially objective
feedback is provided to the organization’s major stakeholders for both the operating and
capital budgets, including its elected officials, management staff, and residents.
It is typically placed online on a local government’s public website; copies are also placed
in the public library to accommodate those residents who wish to review a hard copy of
this annual report.
5. Operating Environment. The annual budget process is influenced by several factors
that are composed of a public organization’s operating, or organizational,
environment. These factors include its political environment, its economic environment,
its social environment, and its legal environment.
All of these factors are interrelated and greatly influence all phases of the organization's
annual budget process. While elected officials and their administrators have an influence
on their internal environment, they have little control over their external environment.
6. The Future. Elected officials typically create the political orientation of their
organization, its political environment. While some local governments are liberal and
others are conservative, many represent both political perspectives. Yet others change their
political perspective over time.
While the political portion of a local government’s environment may change, the other
components of a local government’s budget process generally remain the same. They
unfold annually and continually influence the organization’s political, economic, social,
and legal subsystems, all of which influence its annual budget process. Most of these other,
primarily external, sub-systems change slowly over time.
Many aspects of a local government’s environment are influenced by higher levels of
government too, primarily their state government and the federal government. Local public
officials, both elected and appointed, generally have little influence over these levels of
government and usually only react and adapt to their respective mandates, available grants,
and legal requirements.