How to Handle the Requester's BudgetsDate: 09/01/2021
Companies establish and control budgets in different ways. General management usually sets a company budget. Individual department budgets may be assigned in part by the department manager with the accounting function’s input. Accounting may establish the budget amounts, but then consult with each function to revise the suggested amount. Accounting is usually responsible for budget record keeping and reporting of actual performance compared with the budget. Department managers assign some responsibility to their employees. They also control what will be spent to prevent exceeding the budget.
There may be a budget for the number of employees, for salary levels, and for products and service expenses. Buyers may help establish a budget for the products and services they purchase. The buyers may be required to explain why their budget has been exceeded or how they spent less than the budget planned for. Arbitrary budget amounts are sometimes established for purchased items without the buyer’s input.
Many companies hold requesters responsible for staying within budget without the involvement of the purchasing operation. Other companies hold buyers responsible for only buying products or services that are within the budget. It is up to those buyers to inform the requester that the purchase cannot be made until sufficient budget is authorized.
Buyers are placed in an impossible situation when they are responsible to control the budget, and yet the product must be purchased to meet inventory requirements or to obtain a product needed for an emergency. Rules must be established to handle emergencies regardless of budget. Budget amounts should be variable for sales volume.
Buyers should question purchases that exceed the approved budget. The requester may not be aware of the cost or the budget variance. Sometimes, the purchase can be postponed until sufficient budget becomes available. Alternatively, the requester may obtain an approved budget change.