Oklahoma City’s Budgetary Variance Report

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Table of Contents

Introduction
Revenue and Expenditure Statement Summary
The Monthly Budget Allocations
The Monthly Actual Amounts Spent
Problematic Areas of the Agency
References

Introduction

Budget variance reports comprise of statistics of the revenues and expenses. They show the budgetary allocations, actual results, encumbrance allocations, and the percent variance. The financial task of explaining the variances between actual performance and the budgetary allocations follows the implementation and establishment of the projects. The Oklahoma City budgetary variance report is a very critical component that will help in understanding the financial position of the city (Dowler, Ferbrache, McSpadden, Stroope, Fike, & Kelly, 2012). The actual revenues and expenses are compared between the current budget and the budget of the previous financial year. In this view, the research paper prepares a variance report of the revenues and expenditures of Oklahoma City.

Revenue and Expenditure Statement Summary

Oklahoma City

Revenue and expenditure statement summary

For the financial year 2013 through 2014

(25% of the fiscal year completed)

	Annual budget ($)	Monthly budget ($)	Actual –first month ($)	Actual-third month ($)	Actual monthly average
Revenues Federal aid State aid Local aid Total	30,000,000 80,000,000 20,000,000 130,000,000	2,500,000 6,666,667 1,666,667 10,833,334	2,000,000 8,000,000 1,700,000 11,700,000	6,000,000 30,000,000 5,400,000 41,400,000	4,000,000 19,000,000 3,550,000 26,550,000

Expenses
Central fleet maintenance
Public works & transportation
Public works department
Snow removal
Transportation department
Total

2,267,72

1,606,402

86,176,802
12,292,072
27,618,759
129,961,759

188,977

133,867

7,181,400
1,024,339
2,301,563
10,830,146

180,000

130,000

7,300,000
–
2,300,000
9,910,000

530,000

390,000

22,000,000
–
2,100,000
25,020,000

355,000

260,000

14,650,000
–
2,200,000
17,465,000

The Monthly Budget Allocations

The monthly budget allocations are calculated from the annual budget. While the budgetary allocations for each month may not be equal, an average monthly allocation would work in generating the budget variance report.

The monthly revenue from federal aid, for example, is calculated as 30,000,000/12 = 2,500,000, while the monthly expenditure allocations for Central fleet maintenance allocation are calculated as 2,267,724/12 = 188,977

The Monthly Actual Amounts Spent

The average of the actual amounts given for the first and third months act as estimates for actual amounts received and spent every month. The average of the two months will stand-in for the actual amounts spent every month (Fallin, M., 2013). For example, the average revenue from federal aid is calculated as (2,000,000+6,000,000)/2 = 4,000,000; the average expenditure on central fleet maintenance is calculated as (180,000+530,000)/2= 355,000.

In the calculation of variance for both revenue and expenditure, the table below shows the calculated monthly budget and the average actual monthly revenues and expenditures.

Revenue and Expenditure

Monthly budget ($)

Actual monthly average

Variance

Percentage variance

Revenues
Federal aid
State aid
Local aid
Total

Expenses
Central fleet maintenance
Public works & transportation
Public works department
Snow removal
Transportation department
Total

2,500,000
6,666,667
1,666,667
10,833,334

188,977
133,867
7,181,400
1,024,339
2,301,563
10,830,146

4,000,000
19,000,000
3,550,000
26,550,000

355,000
260,000
14,650,000
–
2,200,000
17,465,000

(1,500,000)
(12,333,333)
(1,883,333)
(15,716,666)

(166,023)
(126,133)
(7,468,600)
1,024,339
101,563
(6,634,854)

60%
185%
113%
145%

88%
94%
104%
100%
4.41%
61%

One can calculate the variance amount by subtracting the actual amount from the budgetary allocation. The budgetary allocation of revenues from the federal aid, for example, was 2,500,000, while the actual amount received was 4,000,000. This means that the variance amount is -1,500,000 (2,500,000 – 4,000,000). In the table, figures in brackets indicate negative figures.

Moreover, one can calculate the variance percentage by dividing the absolute variance value by the budget, and not the actual amount. For example the percentage variance for revenues from federal aid is calculated as (1,500,000/2,500,000)*100 = 60%.

A negative variance in the revenue expectations reflects a favorable variance. The negative variance indicates that the amount of money received is more than the anticipated amount of money. In Oklahoma City, the variance report indicates that the revenues received are higher than anticipated.

A negative variance in the expenditure allocations reflects unfavorable variance. This is because more monies are spent than allocated in the budget. Typically, a 10% variance is somewhat negligible; however, any variance above 10% calls for explanation.

Problematic Areas of the Agency

Firstly, the budgetary allocations for Oklahoma City will require explanations because all anticipated revenues and allocations on expenditures have variances surpassing 10% (The City of Oklahoma, 2013). The variance report clearly shows shoddy work in budgetary allocations. The two policy actions for the above problematic area include:

To guarantee competency, qualifications of the budgetary allocation committee require verification. The committee members are probably unqualified and should be replaced with a qualified lot.
Comparison of figures from the previous year’s budget allocations would give a clear indication of the anticipated revenues and expenditure allocations

Secondly, the variance report presented for Oklahoma City would bring in a major problem in determining the exact period of the financial period that has passed. The information presented for the first month the third month does not communicate efficiently. Predicting the future variances from the first quarter results is infeasible. It is difficult to determine if the given percentage is appropriate at that point of the year. It is also impossible to predict unexpected variances and abnormal balances in the months to follow. The two policy actions for the above problematic area include:

In making a feasible variance report, it is necessary to compile a clear report indicating how the fiscal year that has passed. A monthly report should show actual revenues and expenditures for every month, while the quarterly report should show actual revenues and expenditures for every quarter. Thus, if one concludes that the third month has passed, then the first quarter of the year is complete.
The variance reports should be generated after the collapse of the second or third quarter. Early generation of variance reports would enhance clarity of outcomes in predicting the unexpected variances.

Thirdly, the expenditure on public works and transportation, public works department, and transportation department are not clearly defined. These budgetary allocations present a lot of ambiguity and an auditor would generate a negative report in the allocation of funds to a single entity using different ambiguous names. Snow removal has also been allocated a substantial amount of money, yet in reality, no single amount has been spent on the same for the first and the third month. It would be difficult to calculate the actual amount allocated to the expense of snow removal, as the spending pattern is not clearly defined. Probably, during the first and third months, winter was not experienced. During the rest of the year, winter would come and snow experience. The two policy actions for the above problematic area include:

There should be notes that clearly describe the allocations of the expenditure. In the budgetary allocations for public works and transportation, for example, detailed notes should explain the ambiguity in the expenditure allocations.
In the expenditure of snow removal, the spending pattern throughout the year should be clear. Data from previous years should be used in the prediction of the monthly allocations for snow removal.

In conclusion, we could say that budget allocation is very important. The project managers should be answerable to any form of questionable variations in a budget. The notes are important as the variance report. The Oklahoma City variance report without notes is difficult to understand and interpret. To show professionalism and provide better explanations of variances, all budgets should be well documented, sensible, and self-explanatory.

References

Dowler, D., Ferbrache, J., McSpadden, J., Stroope, M., Fike, D., & Kelly, L. (2012). Proposed Budget Focused on Priorities: The City of Oklahoma City. Web.

Fallin, M. (2013). State of Oklahoma: Executive Budget for Fiscal Year Ending 2013. Web.

The City of Oklahoma (2013). Your City Budget: FY 2012- 2013 Annual Report. Web.

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