Lessons · Accounting · the budget as an authorisation rather than a forecast
The budget is an authorisation, not a forecast
In a company the budget is a plan and exceeding it is a management problem. In a government the budget is passed by people entitled to decide, and the amounts in it are limits on what may be spent. Exceeding one is not poor forecasting; it is spending money nobody authorised.
Hone is a place to practise a career, one idea a day. This is one of its lessons, written out in full and free to read without an account.
In beta. This lesson was written for Hone and has not yet been checked by a qualified accountant. Practice material, not professional advice. What that means.
What it is for
It is the biggest adjustment for somebody arriving from the commercial world, and it changes what the accounting is for. A commercial variance report explains what happened. A public sector budget report demonstrates that spending stayed inside what was permitted, and is read by people checking exactly that.
How to think about it
Read a public budget line as a ceiling rather than an estimate. Where more is genuinely needed, the answer is to go back and have the limit changed, not to overspend and explain.
Worked example
A company budgetA plan. Exceeding it is discussed.
A government appropriationA limit. Exceeding it is not permitted.
Needing more than was authorisedAsk for the authorisation to be changed.
Underspending can also be a findingMoney was authorised for something that did not happen.
Your turn
Name what a public sector budget amount is, given it is not a forecast.
A budget amount is a on what may be spent
Solve one, graded on the server
The trap
Explaining an overspend the way a commercial variance is explained. The explanation may be perfectly good and it does not address the problem, which is that money was spent without authority.