Get help from the best in academic writing.

The significance of budgeting in a non-profit organization

Introduction Budgeting is enormously significant in a non-profit making organization. A profit enterprise centralizes on maximum the profits and shareholder value, whereas, a non-profit organization is focus on their goals. Deficient of financial flexibility always appear in a not-for-profit association as they are not undertake an exchange transaction, they just provide social service and their funds is rely on the donation. There will be a disaster for them if the demands for the social service are increased because their resources may be not enough to deal with and it is hard to predict the demand from year to year. Hence, they will emphasis on manage resources, most non-profit making organizations are using zero based budgeting rather than incremental budgeting, because it presents every decision package in detail so that zero based budgeting can “serves as a tool for systematically examining and perhaps abandoning any unproductive projects”(Drury,2008,P.375).
Zero-based budgeting is a method of planning and decision making which seek to overcome the deficiencies in traditional budgeting. In traditional budgeting, the organization will take the existing operations as a base to prepare a new budgeting (what has been already spent is automatically allowed). The base will alter for the changes that forecast to happen in the next period and plus changes for the inflation. By contrast, zero-based budgeting begins with zero bases in every period as if the activities were beginning like the first time.
This method requires all manager demonstrate the suggest budgets in complete detail such as how many worker are needed, what material will purchase, what difficulties will occur when implement the activities and so on and illustrate why these budgets the organization should be spend on. Then the management ought to prioritize all budget bases on the importance of the needs, it can merge all old and new budgets into one ranking that permit top management to contrast and estimate the needs of each budget and make funding allocation.
Zero-based budgeting helps managers to classify the activities which should continue, which should withdraw and which should concentrate on. Furthermore, zero-based budgeting can compare different departments which can help the management more easily to ranking each activity.
About the Company The Samaritan Befrienders Hong Kong (SBHK) is a non-profit making organization. During 1960, it was established and using the name of Suicide Prevention Society. It was no other similar organization established in Asian, they are the fist one. They renamed the organization as The Samaritan Befrienders Hong Kong in 1963. During 70s, SBHK offered services by two languages which are Cantonese and English. SBHK is non-religious in nature. Their missions are on humanitarian basis, to befriend, people that are facing difficulties or are forlorn and disheartened, and then help them to rebuild their confidence. In addition, they will organize seminars, talks, education programme to publicize and further the spirit of their service in the society. Furthermore, they will help South East Asia and near region to set up organizations with a character and mission similar to them.
How zero based budgeting could be used at the organization? The objective of the activity The objectives of suicide crisis intervention centre are to provide 24 hours core services to those have high and moderate suicide intention people. Also, they will offer intensive counseling, arrange different types of therapeutic and support volunteer teams. Furthermore, they will share the experience to public and via the training, media and advisory service to develop the awareness of knowledge that how to identify and handle the suicide problems.
What extent are objective achieved We can see that from the annual reports that the objective achieve is successful, their organization is become more big each year, and the figures of using the service is increase every year which means that their effort is success, because many suicide people look for them to asking a help, it may decrease the number of suicide.
How is the achievement measured There are some measure methods to evaluate the achievement. For instance, the overall statistics of services which can show how many people have used the service during the year, we can see that the main user group is by phone call, it almost have around 70% of total services. The other main measurement is the figures about suicide in Hong Kong. Because their aim is to reduce suicide in Hong Kong, the figures can illustrate that how many people committed suicide each year. It is easy to see that if the figures are decreased within the year, the activities were successful and vice versa.
Alternative ways to meet objective They also have other way to achieve the objective which is life education centre. The works of life education is organize the education programmes such as workshops, talks, follow-up groups, volunteers training course, publications and suicide prevention resources library to reduce and prevent suicide and broadcast the message of life cherishment to public.
Also, there are some other organizations that have work on the same objective, for example, International Association for Suicide Prevention, Befrienders International and etc.
Most cost effective alternative This is a non-profit making organization, the funding is limited, and therefore cost effective is very important. The most cost effective method is to recruit more volunteer workers which are free workers, it can save much money.
Impact of discontinuing the activity If discontinuing this activity, it will be some problems appear. Some people may have already use this service for a long time, but suddenly closing the activity will make them loss the support, then may suicide again. Moreover, discontinuing the activity will lead the existing user change to other organization to look for help, but it may make other organization overload, therefore, they can not help all people, it will result in increase the suicide numbers.
The types of activities in this non-profit making organization that is best suited to a zero-based budgeting approach. Decision Packages:
There is several decision packages that are now undertake in this activity seeks to win the funding. We are taking two of them to discuss.
We can see that the case counseling service will be the best, because it is more matches with the activity objective and more directly reach the goal which is offering intensive counseling. The second package has achieved the goal too, but it is indirectly reach the goal, and it may take a long period to achieve the objective. Therefore, the decision packages ranking is that Case counseling service is the first one and Professional talks/Workshops/forum is the second.
The advantages that a zero-based budgeting system may offer to the organization that over an incremental system The main advantage of the zero based budgeting over an incremental system is that it combine budgeting and planning into one process which is focused on analysis of needs, objectives and priorities. In incremental system, the organization tends to use existing budget as a base, then adjust for changes that they predict happen in the next period. But, zero based budgeting requires manager justify all budgets in detail which can help the top management efficient distribution of funds by organization needs, objectives and priorities.
Furthermore, it can detect inflated budgets and eliminate wasteful and outdated activities because those activities are not cost-effective operation and it will not be allocated funds. This can encourage manager to detect a cost-effective ways to amend the operations, not like incremental budgeting system that previous activities are automatically allowed. Also, it increase subordinate staff responsibility and initiative for decision-making since not only the manager involves in decision process but also include the lower level staff which can improve coordination and communication in the association. In additional, zero based budgeting capable to discover the chances for outsourcing and helpful to measure achievement of results for service departments rather than incremental system.
The problems that might be faced by the introduction of zero-based budgeting The main problems of zero-based budgeting is that deal with vast amount of work and time consuming as it need to collect and analysis a lot of information and demand managers must distinctly realize the operation at different level for prepare budgeting which will increase the training cost. Apart from time consuming, the other problems arise to management is that it is really difficult to judging and prioritize decision package since they have to read numerous packages source, if compress the data down to a acceptable size the significant information may be removed, and have to follow the internal politics, sometimes, they might use personal sense to estimate therefore it is not truly objective.
Moreover, the organization may face dishonesty managers who might overstate the results or understate the expenditures. In addition, it is costly to operate because of this budgeting is really complexity and it may focus on short term benefits rather than long term planning. There are more managers participate in the operation as a result of difficult to communicate and manage.
Conclusions Zero based budgeting requires a huge resource and staff to run and prepare the budgeting because of the workload is vast. But this method creates a positive outcome such as better management and allocation of resource. The management cans appraise the operation from the viewpoint of in depth study of productivity, output, and cost and so forth. It encourages manager at all levels in the organization to participate in the budgeting progress. Zero based budgeting is focus on efficient of allocation resource and it depends on the manager capacity of persuasion which has to persuade the other management to support.
At the end, although zero based budgeting has a lot of benefit when it implement, in this organization. But they do not have that much resource to apply full set of zero based budgeting since they are non-profit organization and the resource is limited, hence, the optimum suggestion is that they can exercise part of incremental budgeting and part of zero based budgeting or just partial implementation of zero based budgeting to solve the resource allocation problems.

The cost and benefits of an internal audit

Every internal audit role should be established with a charter approved and reviewed annually at board level. The internal audit charter should describe the internal audit role in the organization it serves, including its purpose, authority, responsibility, and relationships with external organizations. The internal audit charter should be promoted across the organization at all levels and as appropriate across its supply chains and to its stakeholders. Internal audit should have measures in place to demonstrate its level of performance to the organization. Expectation gaps at organization and individual customer levels should be identified, and all performance measures continuously monitored if the full added value of the internal audit role is to be achieved. New dimensions of the internal audit role in an organization should be continuously explored to ensure that it is at the cutting edge of its professional attributes and in its performance.
Chapter 1 Cost of internal audit There are two types of internal audit cost
Financial cost
Operational cost
Financial cost
Financial cost of internal audit is those cost that would pay to employees. Organization gives some pays to his employees who conduct internal audit.
Operational cost
Company spend some operational cost when internal audit conducted in the organization e.g stationery documentation
Cost/benefits analysis While the cost of internal audit is easily quantifiable, measuring its benefits is less straightforward since internal audit may have both direct and indirect effects .
The relevant benefits of internal audit often main fest themselves on several levels and may not be immediately visible
Cost savings are easier to allocated directly than other benefits.
By establishing a correlation between the potential benefits and the costs in cured by the internal audit .Internal audit Department and approximation of the profitability can be obtained .
Efficiency measurement. It can be very important to measure the efficiency of internal audit work. It involves examining the ratio of costs incurred by internal, Audit during the course of a specific audit, or the cost of the entire internal audit deparment, compared with the actual benefits achieved for lthe company as a whole,
The following criteria can b e used to analyze each audit with regard to the benefits it delivers in the short, medium, and long term.
Cost related benefits (reducing, avoiding, or limiting costs),
Monetary and non monetary benefits ( increased sales, improved operating profits, motivations, reputation,).
Impact on cost. Generally, the cost impact of an audit can be seen in the short to medium term. Costs normally respond linearly and usually correlate very clearly and closely with their drivers. The can be quantified, for example on the basis of effective payments made, although direct perception declines as the time between implementing the recommendation and the time of payment increases.In addition, imputed costs can be used as part of the analysis. Normally, Imputed costs increase the impacxt of audit findings in area more prone to inducing costs, because ineffective internal controls also lead to costs and expenses that jcould otherwise have been avoided.
Benefits While the cost related to internal audits kland the resulting recommendation are relatively straightforward to determine, the benefits are much more difficult to quantify. First, the benefits often continue over long periods of time. Secondly, it is often difficult to measure beenefits and attribute them directly to the process that have brought them about .Benefits are frequently abstract and the interdependencies between cause and effect are often obscure.A complicating factor is that the effects of qualitative and quantitative benefits sometimes overlap and can thus either reinforce or detract from each other. The more geneal the benefit analysis, the more difficult itg will be to reliably assign indicators that map and explain the casual relationship between an audit activity and itgs findings on the one hand and the perceptible benefits on the others.
Deriving Benefits. Before it is possible to quantify and benefits, representative benchmarks must be defined for each audit field , applying either direct or indirect measures. Quite possibly, audit recommendation will lead to tangible b enefits, such as an improved working atmosphere, greater motivation, or error reduction, which will in turn enhance each employees understanding of values. There may also be a change in the way effects are perceived externally. An improved position in the market place, easier access to finance, and a different public perception, for example, it negative factors are eliminated quickly and with determination and their recurrence is prevented by implementing adequate measures. It is important to recognize that there may be both short term cost savings and longer term benefits gained from internal audit and the implementation on the resulting jcontrol recommendations. Both benefits shold be considered when performing cost/ benefits analysis, even though they may overlap sometimes.
Quantifiable Benefits.
Including quantifiable benefits in the analysis brings up the most difficult aspect of measuring internal Audits efficiency. The main purpose of examining these benefits is to establish a casual link between an audit finding land increased b benefits values for a business unit or the company as a whole. A key challenge in this regard is to extrapolate the quantified benefit created by eliminating a process weakness, thus making it visible.
Organizational and Time delays
With regard to the implementation of audit results organizational effort and time delays should not be ignored. Since each audit field has different c ontent, each must be considered in detail. In business audits for example, linear correlations between audit result and increased jprofits can be established, because there is a direct link between the audit object and the success driver.
Cost Benefit Relationship.
Often, the benefit derived from internal audits is unclear, without a direct link to the measurable benefit related units. Therefore, equivalents must be established by using auxiliary variables to quantify the cost impact and the benefits related to the audit findings.
Standard Cost benefit analysis
To define a standard cost /benefit analysis for each audit field, internal Audit must define and categorize separate bench marks .Thus, Internal Audit is integrated into the business control and decision processes, which results in interdependencies with other disciplines, such as capital investment appraisal, management accounting, and planning.Reduced operating costs through better effic
Benefits of an effective internal audit process
There are number benefits of an effective internal audit process.
They include the following;
Reduced operating costs Reduced operating costs through better efficiency increased
Productivity, better planning, and reduced scrap and rework.
Some organizations have planned actual revisit on venture on audit conclusion that have totaled well into six and seven information in annual proceeds. Calculating revisit on venture for internal audit conclusion is auxiliary discussed in Chapter 2.
Better safety concert. Though ISO 9001;2008 does not exclusively address worker health and protection, the necessities
of ISO 9001;2008 and the internal audit course can have a positive collision on safety routine.A good worker instruction process and well-written in service commands supply to an successful professional health and safety supervision arrangement. When these have been joint with the accountability that audits present, many organization have seen significant improvement in their safety routine presently from implement an ISO 9001-based classification.
Better client agreement.
Of course the final ambition of Any excellence administration system is enhanced consumer satisfac-
tion. enhanced customer agreement often leads to an improved customer bottom. Higher levels of consumer happiness also lead to reduction in customer complaint and arrival product, both of which are wealthy to any humanity in provisions of manpower luggage charges, revision and fragment.
better spirits.
Many organization foundation their internal audit course will ask, How do you lay the words’audit’ and
‘better morale’ on the same page exclusive of amused out loud” The answar be simple. When workers are expectant to give To the audit course and see improvement completed base on their participation,
Audits serve to allow the personnel as a substitute of criticism them.
Chapter 2 Introduction Establishing the internal audit role in any organization require formality to ensure that it is understood not only by the board and management but also by its customer across the organization and, where necessary, those external to the organization The internal audit assurance and consulting role should be explained clearly in a charter to minimize any expectation gaps at board and organization level .The institute of internal auditor as the global professional body representing internal audit in every country, has always recommended and now require in its international standards for professional practice of internal auditing (standard) that “the purpose ,authority and responsibility of an internal audit activity … should be formally approved and kept under review at the highest level in an organization ” in some sector this may be also a requirement of one or more of an organization ‘ stakeholder, such as government or a sector’s regulator
Internal audit definition
Auditing regular ASA 610 allowing for the Work of Internal Audit, issued by the Auditing and declaration Standards Board (AUASB) defines internal audit as follows:
“Internal audit” means an evaluation activity recognized within an unit as a service to the entity. Its functions include, between other things, monitoring internal control.
In calculation, the Institute of Internal Auditors (IIA) has residential the globally conventional definition of ‘internal auditing’ as follows:
‘Internal auditing is an self-determining, objective guarantee and consulting activity planned to add value and progress an organization’s operations. It helps an agency achieve its objectives by bringing a systematic, closely controlled approach to estimate and recover the usefulness of risk management, control and governance processes.’ Instruction
The capacity of internal audit action embraces the wider concepts of corporate governance and risk – recognizing that control exists in an organization to manage risk and support successful governance.
The two types of internal audit manner contemplated by the definition have been defined by the IIA as follows
.assertion Services – an purpose assessment of proof for the reason of as long as an self-regulating evaluation of risk management, control or governance processes for the organization.
.Consulting Services – optional and connected customer activities, the scenery and capacity of which are approved upon with the consumer and which are planned to add value and develop an organization’s operations.
During this paper all references to “internal assessment” will include both of these services. Wed by internal audit organization
History of internal audit
The Internal Auditing occupation evolves gradually with the progress of management science after World War II. It is theoretically similar in many ways to financial auditing by public accounting firms, excellence assurance and banking conformity activities. Much of the speculation fundamental internal auditing is resulting from management consulting and public accounting professions. With the completion in the United States of the Sarbanes-Oxley act of 2002, the profession’s expansion accelerated, as many internal auditors take the skills necessary to help companies congregate the necessities of the law
Nature of internal audit activity Based on a risk evaluation of the organization, internal auditors, management and failure to notice Boards resolve where to spotlight internal auditing hard work. Internal auditing activity is usually conducted as one or more isolated projects. A representative internal audit project [7] involves the following steps:
Establish and converse the scope and objectives for the audit to suitable management.
Develop and considerate of the business area under evaluation. This includes objectives, capacity, and key operation types. This involves review of documents and interviews. Flowcharts and narratives may be produced if required.
Explain the key risks opposite the business activities within the scope of the audit.
Identify control events used to make sure each key risk and operation type is correctly restricted and monitored.
Develop and implement a risk-based example and difficult approach to conclude whether the most significant controls are operating as projected.
Report problems recognized and consult action plans with management to talk to the problems.
Follow-up on reported conclusion at proper intervals. Internal audit departments continue a follow-up record for this reason.
Project duration varies based on the difficulty of the activity being audited and Internal Audit possessions presented. Many of the above steps are iterative and may not all occur in the progression indicated.
By analyzing and recommending business improvements in critical areas, auditors help the organization meet its objectives. In addition to assessing business processes, specialists called Information Technology (IT) Auditors review information technology controls.