Finance Assignment: Kariba Case Study: Financial Management Analysis

This finance assignment delves into the Kariba case study, examining critical issues in public expenditure and revenue allocation. It identifies key problems within the current system, such as moving to a cash budget, uneven expenditure allocation, gaps between budgeting processes, and lack of accountability. The assignment then proposes solutions for Philips, emphasizing the need for improved fiscal discipline, transparent budgeting, and increased accountability. Recommendations include cabinet responsibility, strict professional approaches by permanent secretaries, fostering mutual trust, revamping the budgeting process, using participative budgeting techniques, and prioritizing high-priority areas. The analysis also touches upon the importance of strategic planning, breaking down large spending targets, overhauling public spending, and reducing public sector size. By addressing these issues, the assignment suggests that Philips can improve the financial situation in Kariba.

FINANCE ASSIGNMENT

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By student name
Professor
University
Date: 25 October 2017.
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Contents
Keys Problems with the current system............……..……………………………………….3
How Philips should approach the issue..……………………………………………………......5
Refrences.....………………………………………………………………......................................7
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Keys Problems with the current system
The Kariba case is an excellent example of wrong management of public wealth and
expenditure and thereby revenue allocation. It shows that the resources haven’t been allocated
well. A well-defined and functioning public expenditure system should include within itself
some of the traits like transparency, optimum allocation of the available resources, accuracy,
timeliness, focused and strategic efforts, accountability, flexibility, efficiency in the utilization of
resources, etc. (Alexander, 2016). Some of the key problems with the current system in Kariba
are listed below:
1. Moving to the cash budget: Under the well-managed systems, there is an approved and
well-planned expenditure budget and the finance ministry should not over exceed its
budget, expectations or forecasted amounts. The government should follow discipline in
its fiscal policy without being relying heavily on the availability and transfer of cash.
Thus, in order to avoid moving to cash budget, it should be properly prepared and
followed.
2. Uneven allocation of expenditures not in line with the priorities: The government has
defined objectives at the start. It aims to increase the share in social, economic, law and
order and reduce the allocation to defence and administration sector in terms of
intersectoral distribution, whereas it is aiming to increase the share for primary
schooling and health care and decreasing the share for tertiary sector in the
intrasectoral allocation. Even after these priorities, resources are not being spent and
distributed consciously as planned (Boccia & Leonardi, 2016).
3. Huge gap between the official and actual process of budgeting: This is one of the major
shortcoming and fundamental issue in Kariba system as it lacks credibility and
accountability due to which officers do not take the budgeting process seriously and
often end up delegating the same to the inexperienced junior people. This makes the
budget and expenditure planning wag and the objectives are not being met and hence,
the resources are wasted.
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4. Inability to get the timely, accurate and comprehensive reports on public expenditure
and revenue allocation: For the respective government departments to function
effectively and efficiently, they should have access to the timely and accurate reports on
expenditures which will help them to analyse the variations and deviations and help
them to take the corrective action, but the same is not available (Dichev, 2017).
5. Failure to put the accountability on one single person or department: Because of the
fragmentation between the departments and the central and line agencies, the
responsibility for managing the budget is not fixed on any single department. This makes
it difficult to make the spending officers liable and accountable for not meetings their
targets.
6. Lack of incentives: This is one of the major problems which hinders the appropriate,
effective and efficient use of the public resources, as there is no incentive for such an
action and meeting the targets.
7. Lack of trust among the agencies involved in the budgeting process: There is huge
tension and suspicion among the teams and members in the central and local agencies
who are involved in the budgeting process (Goldmann, 2016). The mutual collaboration
is missing in the Kariba budgeting process without which it cannot be a success.
There are many other small and big reasons for the failure of current system beyond what is
stated above in the points.
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How Philips should approach the issue
The above-mentioned problems of public expenditure and revenue allocation needs to be
redressed on priority and there are few ways in which the same can be normalised. Incentive is
the most effective scheme which can help the people to look more seriously into the public
resources system and proper allocation of the same. The disbursements of the funds take place
arbitrarily and in a non-transparent fashion which makes it vulnerable to the political
intervention and manipulation because of which departments like defence get fewer resources
at the expense of cabinet officer’s priorities. Here are some of the ways that Philips should try
out:
1. Cabinet must take the responsibility of proper allocation of the duties and budget to the
line ministries and should agree to the fiscal agenda and thereafter do a proper
accounting, recording, monitoring and dissemination of the resources and duties to the
respective divisions (Trieu, 2017).
2. Permanent secretaries should follow more strict and professional approach and should
be made directly accountable to the secretary of the cabinet rather than their individual
ministers.
3. A sense of mutual trust and better understanding and collaboration should develop
amongst the cabinet department and operating ministries their responsibilities should
be clearly defined and segregated with no overlapping.
4. The whole budgeting process should be reinstated and revamped by increasing the
accuracy of the forecasting of budgeting estimates, by ensuring that Ministry of Finance
takes the process more seriously and a transparent approach is being followed with
more involvement of the senior leaders (Kew & Stredwick, 2017). Use of the
participative budgeting technique instead of the imposed budgeting technique which
will help the line ministries to work more independently and set up their own budgets
with flexibility such that they are remain within the ambit of the fiscal parameters.
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5. The actual and planned disbursements of funds should be co related and the process
should be strengthened so that the resources are first being utilised for the high priority
areas. This will call for strategic planning within the cabinet ministry and
implementation of the same. The larger spending targets should be broken down into
smaller time to ensure more accuracy and focused efforts.
6. Public spending which should be a serious capital budgeting procedure is currently a
wish list or just a shopping list activity for the donors. The same should be overhauled
and the priority projects should first receive the funds. The long hanging projects and
even the future ones should be analysed for their rate of returns and the extent to
which they meet the current government priorities (Kew & Stredwick, 2017). Post
proper scrutiny, the amount should be allocated for the public investment program and
accountability must be defined.
7. The election in any country poses serious problems within any country from structural
point of view. Therefore, for the Karibaian government to progress, it should reduce the
public sector size so that amount and resources can be equally distributed among the
skilled staff salaries and funding of the basic requirements (Visinescu, Jones, &
Sidorova, 2017).
Thus, Philips through informal accountability system and collective pressure on the ministry can
get the above points into consideration to improve the current situation in Kariba.
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References
Alexander, F. (2016). The Changing Face of Accountability. The Journal of Higher Education, 71(4), 411-
431.
Boccia, F., & Leonardi, R. (2016). The Challenge of the Digital Economy. Markets, Taxation and
Appropriate Economic Models, 1-16.
Dichev, I. (2017). On the conceptual foundations of financial reporting. Accounting and Business
Research, 47(6), 617-632.
Goldmann, K. (2016). Financial Liquidity and Profitability Management in Practice of Polish Business.
Financial Environment and Business Development, 4, 103-112.
Kew, J., & Stredwick, J. (2017). Business Environment: Managing in a Strategic Context (second ed.).
London: Chartered Institute of Personnel and Development.
Trieu, V. (2017). Getting value from Business Intelligence systems: A review and research agenda.
Decision Support Systems, 93, 111-124.
Visinescu, L., Jones, M., & Sidorova, A. (2017). Improving Decision Quality: The Role of Business
Intelligence. Journal of Computer Information Systems, 57(1), 58-66.
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