Aspects of National Budget: How do we go about it Madam Minister? Part 4
In our last article, we further elucidated knowledge- based economy and lamented good empowerment of Batswana owned businesses, especially small ones which the government aspires to see them take off and grow but frustrated by some technocrats at both public sector and state- owned entities ( SOEs) through their wrong attitudinal approach to those initiatives.
We also discussed and suggested one policy on the reduction of financial subventions to both SOEs irrespective of their type or form of their incorporation.
In fact, the suggestion here is that the accountability to all SOEs should be subjected to the same scrutiny since they offer service to the public despite the services diversity or form.
In this article, we would like to give our advice on how to make effective start of a SOE. No SOE should start its business or service claiming to be in financial buoyancy. This applies to both starting or an existing SOE’s reengineering, or transformation.
The main basis of this stage is consideration of the role and responsibilities of the Governing Body as outlined by King IV Report, which comprises the four phases of: steering for strategic plan, planning and approval of the policies for the execution, oversight and monitoring of strategy and guidance by the Governing Body for accountability to stakeholders in all stages of these four phases which are seamlessly interlaced. In other words, they are interwoven; consequently, one cannot find boundaries among them while they are in action. Now, considering phase one, the Governing Body steers the management to carry out a strategic plan. Usually, they will take a retreat to a secluded place of conducive serenity to give the assignment to all.
The strategic plan will find or discover the purpose of the company or state- owned corporation. The purpose will then be directed by the vision, mission statement, goals, objectives. It will determine the scope of the mandate of the SOE, giving the minimum and maximum scope which will give guidance on the size and complexity of the SOE.
The scope of the mandate of the strategic plan would have set boundaries beyond which the SOE should not make unauthorised expansion on a muddling through basis or freewheeling opportunism style of strategy which sometimes becomes a ploy to induce unaccountable financing.
Going forward from this stage, the strategic plan will set effective targets and measures for achievement. The targets and measures should cover both financial and non- financial factors. They will also cover both internal and external factors to assess both their controllable and uncontrollable factors.
The second phase is where the Governing Body facilitates and approves various policies for the purposes of the implementation and execution of the strategy. In addition, there will be the process of planning which includes business planning accompanied by both capital and revenue budgets.
In their oversight, the Governing Body should be mindful of types of budgeting with a view to effectively challenging their assumptions. The former Minister of Finance and Economic Development advocated for the zero- base budgeting approach as opposed to incremental budgeting which was greatly welcome by many who appreciated its multiple virtues.
Zero- base budgeting is where each item of the budget is assessed from scratch independently of the prior figure of the same budget and other items of the budget. It was our hope that the Minister or his successor will also consider the accrual accounting which also has multiple virtues and not only is it effective, but also presents ethical philosophies. Budgets or financial plans are, sometimes fraught with many dysfunctionalities, which could only be revealed by effective oversight of studying them and grilling the management on the assumptions supporting those budgets. One of the most porous and cancerous dysfunctionalities is budget slacking.
Budget slacking is where the management overstates a budget item to cover up its inefficiencies with a view to maintaining reasonable budget control despite maladministration of corporate finances. It should be noted that the purpose of assessing both internal and external factors is to make a trade off between the business opportunities and risks. This brings the awareness that risk management is one main component of the Governing Body oversight indicator The third phase is where the Governing Body’s oversight and monitoring is at its peak. This is where the management is subjected to monitoring and appraisal over its performance as compared to all the items of planning including policy implementation and execution appraisal. The management, here, is called to account for all the financial and non- financial variances and consequently proposed corrective measures. The third phase can also be addressed here, where the Governing Body ensures ethical and effective disclosure in all the phases to build up to accountability to stakeholders who are led by the shareholder( s).
In the next article, we will further give our pieces of advice on how financing should be structured to induce effective oversight and accountability to stakeholders. Once again, we unreservedly thank our readership.