Department of Internal Audit and Compliance

Finance and Accounting -Budgeting

Effectiveness and efficiency of operations

A. Activity-based budgeting and activity-based costing are used to link costs to key drivers.

  1. Are flexible budgets created based on activity costs? (Flexible budgets use input data rather than output data to provide more accurate analyses of volume, efficiency, and expenditure variances.)
  2. Are overhead or University-controlled costs, such as telephones and IT, charged to the individual business units only if cost drivers are influenced at the business unit level?

B. Budgets are used to monitor performance.

  1. Are specific business units and departments assigned their responsibility for tracking budget to actual variances and variances reported to senior management when they rise above a predetermined threshold?
  2. Have cost drivers been identified for each major budgeted area and those drivers used, rather than just the variances in budgets themselves, to monitor performance? For example, is head count managed rather than payroll costs because head count drives payroll?
  3. Are variances between budget and actual results prioritized when presenting to management so that the lower-priority activities can be revised or eliminated?
  4. Has a "plan, do, check, act" process been implemented for budgeted items? (Budget, execute with the goal of staying on budget, analyze performance, and use the results to redirect activities.)
  5. Is a post-project appraisal conducted for capital budgeted projects to assess the project's purpose, link to strategy, actual versus projected cost, and actual versus projected performance, such as increased revenue or cost reduction?

C. Budgets that accommodate contingency planning and changes in assumptions are developed.

  1. Are strategic reserves (money set aside at the business unit level to meet competitive opportunities or threats) earmarked for unplanned contingencies?

D. Capital and operating budgets are linked and both are tied to the University’s strategic plan.

  1. Are capital and operating budget horizons set for planning purposes? (For example, is a two to three year plan set for projects with longer payback periods?)

Reliability of financial reporting 

A. Reliable budgets and short-term plans are prepared.

  1. Is an internally consistent document utilized to synthesize, evaluate, and summarize all relevant inputs in the preparation of management's short-term plans?
  2. Have managers and employees involved in the budget preparation process been trained in appropriate budgeting techniques and in complying with budgeting policies and procedures?

B. Accurate and complete variance and trend analyses are generated.

  1. Have standard analysis formats been implemented that specify which information inputs are required to perform evaluation as well as which analytical procedures must be applied to that information?
  2. Is an analysis of financial trends tracked, including key performance indicators (inventory turnover, sales, cost of sales, market share, expense levels, days outstanding, and capital expenditures), and significant variations between budgeted and actual performance reported as exceptions?

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Last Updated: 1/3/23