Is an under spending of budget necessarily mean that there is good fiscal discipline in an organization? What are the possible causes and implications of budget under spending ? Is it always taken as favorably and can it be indicator of efficiency ?
I am not an economist but I worked several years in the area of public health policy and had to analyze hospital performance. We should see first if this under spending is just occasional or if it consists in a regular pattern. In principle I would say that, unless there has been an unforeseeable change in the demand for hospital services, under spending does not mean efficiency, because:. 1) Someone made a mistake when estimating demand or costs; and 2) The extra budget allocated to this hospital could have been allocated more efficiently to another hospital that needed it.
Very Helpful, Mr Jose, Thanks! As far as my knowledge is concerned, budget under spending may also be caused by poor initial estimation (i.e. unrealistic budgets or exaggerated budget requests) , initial misallocation between budget items, delays and bottlenecks in budgeting and spending, unplanned change in the volume of activity, unexpected change in prices and change in efficiency levels, reallocation of fund during budget implementation, change in priorities or policies from those originally agreed and inability to implement policies, programmes and projects. In fact, by just looking at the differences between budgeted and actual expenditures of a given organization, it is very difficult to know the exact cause for the under spending, but we can assume some possible causes. Am i right?
Gedion:
Yes, I think all the things you enumerate are possible causes. We would need a little more context to deepen on the issue. Have you seen this problem in a given period or it is a repeated phenomenon? Is it limited to a single hospital or is more general? Could it be influenced by the inflation rate? A high Inflation rate produces all kinds of distortions in the preparation and implementation of budgets. Are you making a theoretical analysis or have some access to accounting information?
I have looked at reasons for budget under spending by schools. The main reasons were: inability of schools to adhere to government regulations when spending, lack of capacity for planning and procurement, late and irregular receipt of funds. You can read more on this in my paper: unesdoc.unesco.org/images/0022/002259/225944E.pdf
Mr Jose,
I have got an access to one public hospital's accounting information, it has been underspending repeatedly by more than 10 percent for the past five consecutive years..One of my research questions is what are the causes for this underspending.
Gedion:
Maybe you should check first if this under spending is seen in some specific items. This could be the first step to start looking for the culprit !! Do you have access to this kind of detailed information ?
Right. I would try to see first how spending at constant prices has evolved in the last five / ten years, discriminating major categories. For example, 1) personnel expenditures (staff). 2) consumable goods (medicines, disposable products -syringes, etc. -, laboratory products and so on; 3) professional and technical services contracts, outsourced services; 4) fixed assets (equipment, etc). 5) others. You can build a time series with the annual spending on each of these items, and see what percentage of the annual budget for each item represents the annual expenditure. on that item. What we are trying to see is whether the sub - executed budget is located in some categories but not in others, and in what proportions. This may give us a more concrete indication of the causes of the under-spending. .
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