Budget Cost Controls for the Smaller Company
by MAURICE S. NEWMAN Partner, Executive Office
Presented before the Saint Louis Chapter of the National Association of Accountants — November 1963
ALL of you, of course, are generally familiar with budgets and their
purposes, and as you know, budget preparation and budget administration
require taking many things into account and much reflection.
Budgetary control reaches into all branches of the organization
and operation of the business. It is not easy to do a worth-while budgeting job. In many companies it is a highly complex process.
Budgeting is a very effective instrument of internal control. The degree of control is certainly greater where there is an organized system
of accountability for results. Under such a system people must do more than approve expenditures. They must do more than take other actions affecting the business position. They must also account for the results of their actions in some formal and organized way.
It does not necessarily follow, however, merely because a company has what it calls a budget system, that the internal control is better than it would otherwise be. A company may go through certain procedures and prepare certain reports that are collectively described as budgetary control. The so-called system may be nothing more than a rough forecast not intended to control. It may be too loosely constituted
to provide an effective basis of control.
What is a company attempting to do when it employs budgetary control? Fundamentally, it is attempting to make better decisions and to make them more promptly. It is seeking to conserve the time, and thus improve the effectiveness, of the important people in the business.
There are two ways to run a business: by plan, or by chance. The first way, management appraises the situation and the problems of the business at appropriate intervals. It decides what it is going to do and reviews the performance. It revises its decisions if there are unexpected developments. This way, management is always on top of of the situation. It knows, and the organization knows, where the business is trying to go and how it plans to get there. The whole posture of the organization inclines forward. Future conditions and problems are anticipated insofar as advance observation and action are possible. People are given definite goals to strive for. This