Chapter 12 – Budgeting and Performance Measurement
12-1
CHAPTER 12: BUDGETING AND PERFORMANCE MEASUREMENT
OUTLINE
Number
Topic
Type/Task
Status
(re: 18/e)
Questions:
12-1
Government vs. corporate budgeting
Compare
12-3
12-2
Government budgeting approaches
Compare
New
12-3
Budget calendar
Describe
New
12-4
Stakeholders in budgeting process
Identify
Same
12-5
Budget process and performance measurement
Explain
New
12-6
Balanced scorecards
Describe
Same
12-7
SEA reporting and GASB
Describe
Same
12-8
Service efforts and accomplishments
Define
Same
12-9
Enterprise risk management in government
Identify
New
12-10
Federal grant accounting and allowable costs
Describe
Same
Cases:
12-11
GFOA Distinguished Budget Award
Internet research
Same
12-12
Budgeting for outcomes
Evaluate
Revised
12-13
Budget calendars
Compare
Same
12-14
Performance measurement
Analyze
New
12-15
Fiscal transparency
Examine
New
12-16
Federal grant accounting and allowable costs
Evaluate, report
12-14
Exercises/Problems:
12-17
Examine the budget
Examine
12-15
12-18
Various budgeting issues
Multiple choice
Items 2, 6, 7,
and 8 are new
12-19
Police department budget
Evaluate
12-17
12-20
Illustrations within a budget document
Examine, evaluate
12-18
updated
12-21
SEA reporting
Analyze
New
12-22
Activity-based costing
Evaluate
12-20
12-23
SEA reporting
Analyze
New
12-24
Allowable Costs under Federal Grants
Examine, evaluate
12-22
Chapter 12 – Budgeting and Performance Measurement
12-2
CHAPTER 12: BUDGETING AND PERFORMANCE MEASUREMENT
Answers to Questions
12-1. Although the underlying budget concepts are similar for corporations and governments,
there are a number of nuances unique to governments. Government budgets are legally
required. They are also integrated into a government’s accounting system and play a role
12-2. The oldest and simplest budget approach is the line-item approach which facilitates
budgetary control by adopting specific expenditures by classification that cannot be
exceeded. During the late 1940s and 1950s, performance budgeting was developed
whereby proposed expenditures of each government subdivision were linked to the
programs and activities to be accomplished by that subdivision during the budget period.
In the late 1960s, a planning-programming-budgeting system (PPBS) with statistical
General Problem Information: Government budgeting approaches
Learning Objective: 12-2
Topic: Budgeting Approaches
Bloom’s Taxonomy: Evaluate
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Hard
12-3. The budget process requires coordination of departments and administrators throughout
the government. After preparing initial budget targets and projections, there must be time
for integration of department or functional budgets, budget meetings, and preparation of
Chapter 12 – Budgeting and Performance Measurement
Ch. 12, Answers, Question 12-3 (Cont’d)
General Problem Information: Budget calendar
Learning Objective: 12-3
Topic: Budgeting Process in a State or Local Government
12-4. Illustration 12-3 includes the following sets of potential conflict: advocates vs.
conservers; accuracy vs. political expediency; special interests vs. collective interests;
bureaucracy vs. democracy; the budget office vs. departments; and public will vs. public
welfare. As noted in the chapter, department heads and interest groups may advocate for
more funding than they know the budget officials will approve; the public may want
something different than officials believe is needed; or special interest groups may
command a louder voice than the collective interests of the whole. Instructors may wish
to discuss any local budget conflicts that have taken place. Conflicts are generally
mediated by the government’s chief executive officer and resolved through the extensive
budget process described in the chapter.
General Problem Information: Stakeholders in budgeting process
Learning Objective: 12-3
12-5. In a number of budgeting approaches, the budget is presented along with performance
measures of outputs and outcomes that the governing body can use in determining
whether or not to recommend approval of the budget. These same performance measures
or targets can be used to evaluate the performance of a program, department, or function.
For example, a fire department might request approval for an additional firefighter or an
General Problem Information: Budget process and performance measurement
Learning Objective: 12-4
Topic: Integration of Planning, Budgeting, and Performance Measurement
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Hard
12-4
12-6. Balanced scorecards typically report on performance measures that fall into four
categories: financial, customer, internal business processes, and learning and growth (of
the employees or the organization). This management tool was designed for the business
sector, so governments must adapt these categories to include performance goals
appropriate to government, such as the following: (1) Financial—The city will not burden
the next generation with the cost for services provided today. (2) Customer—Citizens
will be able to conveniently travel from any point in the county to the downtown district.
(3) Internal business processes—The state will register vehicles in an efficient and
convenient manner. (4) Learning and growth—The school district will support its
teachers in maintaining and advancing their academic credentials. (Student examples will
vary.)
General Problem Information: Balanced scorecards
Learning Objective: 12-5
12-7. While the GASB has not issued standards for service efforts and accomplishments (SEA)
reporting, it has sponsored and conducted extensive research on SEA measures and
provides guidance for governments that voluntarily choose to produce such reports.
Concepts Statement No. 2, “Service Efforts and Accomplishments Reporting” (1994) was
General Problem Information: SEA reporting and GASB
Learning Objective: 12-4
Topic: Service Efforts and Accomplishments
12-8. Service efforts and accomplishments (SEA) measures include:
(1) input measures⎯measures of service efforts,
(2) output and outcome measures⎯measures of service accomplishments, and
Chapter 12 – Budgeting and Performance Measurement
12-5
Ch. 12, Answers, Question 12-8 (Cont’d)
Examples for a police department might include financial resources dedicated to police
services (input measure), number of monthly responses to community calls to the
department (output measure), and community satisfaction with police services or average
response time after a call is placed (efficiency measure).
12-9. According to the GFOA’s best practices website on enterprise risk management (ERM),
governments face risks in the following areas: physical environment (natural or man-
made disasters and infrastructure), legal and ethical environment (laws and legal
precedents), operational environment (day-to-day activities and actions within the local
General Problem Information: Enterprise risk management in government
Learning Objective: 12-5
Topic: Enterprise Risk Management
Bloom’s Taxonomy: Understand
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy
12-10. The Office of Management and Budget (OMB) issues guidance on cost principles for
federal grants in Uniform Administrative Requirements, Cost Principles, and Audit
Requirements for Federal Awards. The “super circular,” termed as such since it
consolidated and replaced eight circulars previously issued by the OMB, lists allowable
and unallowable costs for federal grants and contracts. For example, governments will
find that depreciation on equipment used on the grant is an allowable cost, alcoholic
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy
Chapter 12 – Budgeting and Performance Measurement
12-6
Solutions to Cases
12-11. a. There is a list of all state and local governments that are Distinguished Budget
Presentation Award winners for the most recent year in the GFOA’s annual
report, posted on its website at www.gfoa.org under the “Award Programs” tab
and “Distinguished Budget Presentation Award Program” link. Readers will find
at least one award-winning municipality for most states and dozens in the largest
states. The number of years that the municipality won the award is indicated next
to its name, some for all 30+ years that the award program has been in existence.
c. Student responses will vary. This requirement emphasizes that the students are
users of the budget document and their opinions are important. Encourage
students to share the feature of the budget presentation that they considered
noteworthy and explain why.
General Problem Information: GFOA Distinguished Budget Award
Learning Objective: 12-1
Learning Objective: 12-3
Topic: Objectives of Budgeting in the Public Sector
12-12. The City of Fort Collins budget website is available at
http://www.fcgov.com/citymanager/budget.php. The following answers were obtained for
the 2019–2020 biennial budget.
a. Under the “Budget Process” tab, the website includes the following responses to
“Why are we doing it (i.e., budgeting for outcomes)?”
• The Fort Collins economy is changing—the times of rapid, double-digit
revenue growth are over.
b. City council, using citizen input, determines the desired community outcomes.
Chapter 12 – Budgeting and Performance Measurement
12-7
Ch. 12, Solutions, Case 12–12 (Cont’d)
c. For the 2019–20 budget cycle, the City of Fort Collins has the following target
outcomes:
• Neighborhood Livability & Social Health – Fort Collins provides a high-quality-
built environment, supports quality, diverse neighborhoods, and fosters the social
health of citizens.
• Environmental Health – Fort Collins promotes, protects, and enhances a healthy
and sustainable environment.
• Safe Community – Fort Collins provides a safe place to live, work, learn, and
play.
d. Since Fort Collins adopts a two-year (biennial) budget the outcomes are reexamined
every two years.
Learning Objective: 12-3
Topic: Budgeting Approaches
Bloom’s Taxonomy: Apply
Accreditation Skills tag: AACSB: Reflective thinking, AICPA: FN Reporting
Level of Difficulty: Medium
12-13. Student memo contents will vary. Some of the similarities and differences between
Manhattan’s 2019 budget calendar (for the 2020 fiscal year) and Chesapeake’s 2019–20
budget calendar (for the 2020–21 fiscal year) are noted here. The City of Manhattan has a
December 31 fiscal year-end, while the City of Chesapeake has a June 30 year-end, so
that must be taken into consideration when comparing the budgets. Planning at the
Chapter 12 – Budgeting and Performance Measurement
12-8
Ch. 12, Solutions, Case 12–13 (Cont’d)
calendar also mentions reading, certifying, and publishing the budget. Manhattan
numerates work sessions. Chesapeake mentions human resource requirements and real
estate assessments. In general, the objectives are similar, but the level of detail and timing
differs.
Bloom’s Taxonomy: Compare
Accreditation Skills tag: AACSB: Reflective thinking, AICPA: FN Reporting
Level of Difficulty: Medium
12-14. The instructor may wish to assign each student a different department from the City of
Austin and ask the students to share their memos with the class. Each memo will differ
but should address the key indicators or performance measures for their department. As
an example, Austin had the following performance measures listed under Emergency
FY 2017 Actual
FY 2019 Actual
FY 2020 Target
2520
3463
3750
The student might note that the department has substantially increased the number of
alarms installed over time, and that the department previously did not report an annual
goal. The results of this measure would be added to the results of the other four measures
to reach an overall assessment of the fire department’s success.
General Problem Information: Performance measurement
Learning Objective: 12-4
Topic: Integration of Planning, Budgeting, and Performance Measurement
Chapter 12 – Budgeting and Performance Measurement
12-9
12-15. Answers will vary depending upon the date information is accessed. The instructor may
wish to visit the Commonwealth’s website and present additional questions or simply
peruse the website in class to share an example of open data in a large state government.
It may also be interesting to compare to a smaller government with an open data portal.
a. As of May 16, 2020, the Commonwealth of Massachusetts has spent $55.57 billion
dollars on 2.32 million transactions for fiscal year (FY) 2020. The top spending
department was the executive office of health and human services. The top vendor was
the UMS – summary trust payment for $2.85 billion.
c. In FY 2019 total expenses were $45,228,519,717.40, while the total available for
spending was $46,086,392,519.37. Year to date (5/16/2020) FY 2020 expenses totaled
$40,695,198,920.92, while available for spending totaled $47,249,200,781.21.
Topic: Data Analytics
Bloom’s Taxonomy: Examine
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Easy
12-16. a. The appropriate document to research the allowability of costs charged to federal
grants for a local government is the Uniform Administrative Requirements, Cost
b. From the list, items 1, 5 and 6 are allowable. Some are not straightforward, as
discussed below:
1. According to Section 200.432, costs of meetings and conferences, the primary
purpose of which is the dissemination of technical information, are allowable;
however, under Section 200.474, some travel costs are allowable only when the
traveler has received prior approval of the awarding agency.
Chapter 12 – Budgeting and Performance Measurement
12-10
Ch. 12, Solutions, Case 12–16 (Cont’d)
3. According to Section 200.442, costs of investment counsel and staff, and similar
expenses incurred to enhance income from investments are unallowable except
when associated with investments covering pension, self-insurance, or other funds
that include specified federal participation.
5. Under Section 200.454 costs of membership in business, technical, and professional
organizations are allowable.
General Problem Information: Federal grant accounting and allowable costs
Learning Objective: 12-6
Topic: Budget and Cost Issues in Grant Accounting
Solutions to Exercises and Problems
12-17. Each student should have a different budget, so answers will vary. For those students who
chose a municipality that received the GFOA’s Distinguished Budget Presentation
Award, they will find each of the budget documents include, at a minimum, the required
criteria noted on the GFOA’s website (and indicated by as asterisk in Illustration 12-1).
General Problem Information: Examine the budget
Learning Objective: 12-1
Learning Objective: 12-2
Learning Objective: 12-3
Topic: Various
Bloom’s Taxonomy: Apply
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium
2. d. 7. b. 12. d.
4. a. 9. c.
Chapter 12 – Budgeting and Performance Measurement
12-11
Ch. 12, Solutions, Exercise 12-18 (Cont’d)
General Problem Information: Various budgeting issues
Learning Objective: 12-1
Learning Objective: 12-2
Learning Objective: 12-3
Bloom’s Taxonomy: Remember
Accreditation Skills tag: AACSB: Communication, AICPA: FN Reporting
Level of Difficulty: Medium
12-19.
a. This is a classic example of incremental budgeting. From the perspective of the new town
manager, who apparently is interested in applying zero-based budgeting concepts, the police
chief’s argument that last year’s budget should be the base, without further justification, is
weak and not likely to be accepted.
c. As discussed in part b, the town manager would be naive to undertake budgetary reform
without the backing of a majority of the town council. If the police chief has held office for a
long period and is well respected in the community, the town council may direct the town
manager to back off. In this case, the new town manager not only will have lost some
credibility with the council but will be less effective in dealing with the police chief, and
other town officials as well.
General Problem Information: Police department budget
Learning Objective: 12-1
Chapter 12 – Budgeting and Performance Measurement
12-12
Ch. 12, Solutions, Exercise 12-19 (Cont’d)
Topic: Objectives of Budgeting in the Public Sector, Budgeting Process in a State or
Local Government
Bloom’s Taxonomy: Apply
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: Critical Thinking
Level of Difficulty: Hard
12-20.
a. Average city tax bills have increased approximately 7% or $76 over a two-year period. The
area of greatest percentage increase has been the fire equipment reserve at 90%. On a dollar
basis, the General Fund increased taxes by $27 over the two-year period, while the Employee
Benefit Fund accounted for a $26 increase. The $15 or 42% decrease in the Kansas police
b. As would be expected at the city government level, most revenues come from taxes (state
and local, property) and user fees and licenses. The greatest expenditures for Manhattan are
related to utilities, public safety, and debt service. The data explain that utilities involve
water, wastewater, and stormwater operations. It is interesting that the utility user fees are
combined with license fees in the revenue categorization. Separate presentation of utility
revenue might prove useful to budget document users, as it might indicate whether the utility
is self-sustaining. Debt service is surprisingly high at 15.9% of expenditures, and it
approximates public safety amounts. Aside from high debt costs, citizens are generally
willing to pay for the public services included in this diagram.
c. Answers will vary according to individual preferences and the number of other budget
documents that the students have examined.
Chapter 12 – Budgeting and Performance Measurement
12-13
Ch. 12, Solutions, Exercise 12-20 (Cont’d)
General Problem Information: Illustrations within a budget document
Learning Objective: 12-1
Learning Objective: 12-3
12-21.
a. The City of Bancroft spends approximately $1,500,000, $1,600,000, and $1,650,000
(calculated as population x cost per capita or total visitations x cost per visit) in the years
b. The City of Bancroft has a decreasing population and fewer registered cardholders, but the
City has provided increased library funding each year. This has led to significant cost per
capita increases. Changes to book versus multimedia circulation have also been significant.
It appears that additional multimedia circulation in 2021-22 brought the cost per circulation
down; however, the cost of electronic versus hard copy library items is unknown. The
c. Citizens and administrators would require additional information regarding library usage.
Why was the annual survey not administered? Is customer satisfaction increasing or
decreasing? What is the average age of users? Are reference and other noncirculating
materials being used? Does the library provide programs to the public? Are they being
attended? Should future (limited) resources focus on multimedia items? Do many citizens
General Problem Information: SEA Reporting
Learning Objective: 12-4
Topic: Service Efforts and Accomplishments
Bloom’s Taxonomy: Apply
Chapter 12 – Budgeting and Performance Measurement
12-14
Ch. 12, Solutions, Exercise 12-21 (Cont’d)
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: Critical Thinking
Level of Difficulty: Medium
12-22.
a. The primary activities of the Orangeville Animal Control Program are complaint
response, impounding of dogs, care of dogs that are returned to owners, and care of
dogs that are adopted. The activities, resources and cost drivers are shown below.
Activities, Resources, and Cost Drivers
Activity #1:
Responding to a complaint
Resources required:
Program director
Labor (animal control wardens)
Specially equipped vehicles
Cost driver:
Number of complaints
Activity #2:
Impounding an animal
Resources required:
Labor (animal control wardens)
Specially equipped vehicles
Cost driver:
Number of animals impounded
Activity #3:
Care of impounded animal returned to its owner
Resources required:
Contract-specified fee
Cost drivers:
Number of animals impounded
Length of stay at kennel
Activity #4:
Care of an impounded animal that is adopted
Resources required:
Contract-specified fee
Cost drivers:
Number of animals impounded
Length of stay at kennel
b. When answering this question, it is important to recognize that many factors constrain
what solutions can be implemented. Public relations, humanitarian, political and
regulatory considerations exist; for example, the Orangeville community or the service
provider may not accept the euthanizing of unadopted dogs. It is up to local
government managers to identify these constraints and make sound financial decisions
based on them. Each alternative solution has to be examined carefully and a break-even
analysis or other cost analysis has to be performed to assess the financial impact on the
overall processes.
Chapter 12 – Budgeting and Performance Measurement
12-15
Ch. 12, Solutions, Exercise 12-22, b. (Cont’d)
Although caring for animals that will be adopted (Activity #4) is more costly per
animal than caring for animals that are returned to their owners (Activity #3), expenses
for this activity are likely minimal when compared to salary and administrative costs of
the program. When searching for ways to reduce the cost of Activities #3 and #4, city
officials must remember that Activity #3 is relatively self-funding, given that owners
must pay a fine and reimburse the city for boarding expenses to get their animal back.
c. As noted above, transportation costs account for a small part of the animal control
budget. Renovation and maintenance of a vacant building would likely be much more
substantial an expense and commitment.
General Problem Information: Activity-based costing
Learning Objective: 12-5
Topic: Managerial Tools to Improve Performance
Bloom’s Taxonomy: Apply
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: Critical Thinking
Level of Difficulty: Hard
12-23. Citizens are typically most concerned with safety and response times. San Diego’s
fire rescue meets its goal of 0.25 civilian deaths per 100,000 people; however, their
dispatch and emergency response times are higher than targets. The department aims
Chapter 12 – Budgeting and Performance Measurement
12-16
Ch. 12, Solutions, Exercise 12-23 (Cont’d)
call 74% of the time in 2018 and 67% of the time in 2019 and effective response
force within 10:30 minutes 82% and 81% of the time in 2018 and 2019, respectively.
The percentage of structure fires confined to room of origin had a target of 80% with
actuals of 71% (2018) and 57% (2019). San Diego’s fire rescue met its goals of fatal
drownings and vegetation fire confined to 3 acres or less in both years. It failed to
meet targets for percentage of privately-owned parcels subject to brush management
inspection in both years and met the percentage of inspections completed within 90
days of annual inspection date in 2019, with an actual close to target in 2018.
General Problem Information: SEA Reporting
Learning Objective: 12-4
Topic: Service Efforts and Accomplishments
Bloom’s Taxonomy: Analyze
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: Critical Thinking
Level of Difficulty: Medium
12-24.
1. A, Section 200.461
2. N, Section 200.423
4. N, Section 200.426
6. M, Section 200.474
8. A, Section 200.457
Chapter 12 – Budgeting and Performance Measurement
Ch. 12, Solutions, Exercise 12-24 (Cont’d)
5 – Recruitment costs are allowable, provided that the size of the staff recruited and
maintained is in keeping with workload requirements, costs of ‘‘help wanted’’
advertising, operating costs of an employment office necessary to secure and maintain an
that do not meet the test of reasonableness or do not conform to the established practices
of the nonfederal entity. Also, where relocation costs incurred incident to recruitment of a
new employee have been funded in whole or in part as a direct cost to a federal award,
and the newly hired employee resigns for reasons within the employee’s control within
12 months after hire, the nonfederal entity will be required to refund or credit the federal
share of such relocation costs to the federal government.
6 – While dependent care costs are generally not allowable, Section 200.474 (c)(1)
specifies that temporary dependent care costs above and beyond regular dependent care
General Problem Information: Allowable Costs under Federal Grants
Learning Objective: 12-6
Topic: Budget and Cost Issues in Grant Accounting
Bloom’s Taxonomy: Apply
Accreditation Skills tag: AACSB: Knowledge Application, AICPA: Critical Thinking
Level of Difficulty: Hard