Table of Contents
Summary
Ann Paxton is a manager of the waste treatment facility located in Columbus Park, Illinois. She is responsible for the budgeting process and the ultimate budget for the entire facility. Her current task is to try to balance the future expenses with potential revenues. The manager is afraid that, in case the budget exceeds the cost limit, she will lose her chance for a promotion.
The budgeting process is one of the most controversial in terms of ethics. Numerous ethical issues crop up in capital budgeting. In case of a waste treatment facility, any ethical issues that emerge in budgeting may readily result in problems and conflicts with the community and stakeholders.
The budgeting process is associated with numerous problems. Budget variances have far-reaching implications for the municipal facilities. The problem facing the manager of the waste treatment facility is that of budget variances. Ann Paxton expects that the amount of waste to be treated in the coming year will increase. Taxes may grow. The manager must decide whether it is ethical to submit a budget for an amount higher than the cost.
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Submitting a budget that exceeds the cost limit is ethical for many reasons. First, it will work in the interests of stakeholders and the entire community: the waste treatment facility must have the financial capabilities needed to cope with the growing amount of waste. Second, it will help the manager to resolve the conflict of the planning and control functions: the waste treatment facility is still at the planning stage of the budgeting process, which means that the municipality has time and space to adjust the proposed costs and revenues and develop a budget that meets the basic community needs.
Ethics Case: Columbus Park-Waste Treatment Facility [ILO 4]
Budgeting is one of the most painful and problematic processes for managers. Numerous financial, accounting, managerial, and ethical considerations are involved in this process. Managers have to consider all fixed and variable costs, anticipate changes in the economic conditions and taxation systems, suggest possible ways to reduce the costs, and make sure that the final budget works for the benefit of all stakeholders. Unfortunately, ethical issues and conflicts constantly crop up in managerial budgeting (Keown, 2003). Consequently, managers face the risks of losing their positive reputation and business confidence. Ethical conflicts faced by managers during budgeting can negatively impact shareholder wealth (Keown, 2003). In the case of a waste treatment facility, such ethical conflicts may easily lead to problems with stakeholders and the entire community. In these facilities, sound budgeting is actually a matter of health, wellbeing, sustainability, and environmental protection in the local community. Given the importance of these values, it is absolutely ethical for the manager to submit a budget for an amount higher than the cost.
As manager of the waste treatment facility in Columbus, Illinois, Ann Paxton is facing a difficult situation. Her main task is to plan the budget for the coming year, while considering possible changes in the economic conditions, the taxation system, and the amount of waste treatment services to be provided to the community. Inherent in the process of any capital budgeting is the problem of balancing revenues with costs. The manager anticipates that the amount of waste to be treated in the coming year will be higher than planned. Taxes continue to grow. Most probably, the city controller will reduce the proposed budget by another 10 percent. The ethical issue to be resolved is whether the manager has the ethical right to submit a budget for an amount higher than the cost.
Basically, the problem the manager is facing is that of budget variances (Jiambalvo, 2009). Budget variances are considerable deviations from the planned budget (Jiambalvo, 2009). Budget variances may have three different causes: (1) the budget might have not been conceived; (2) conditions of budgeting might have changed; or (3) managers might not have been good coping with their primary obligations (Jiambalvo, 2009). None of these causes is relevant in the discussed case. On the contrary, bearing in mind the role which the municipal waste treatment facility plays in maintaining the due level of environmental protection and the contribution it makes to the community’s sustainable development, there is no way to cope with its financial obligations and ensure continuous operation other than submitting the budget for an amount higher than the cost.
Submitting a budget higher than the cost is ethical, since it will work in the stakeholders’ interests. The discussed variation in cost is an “unfavorable budget variance”, but the actions generated by this variance will eventually result in increased social and environmental wellbeing of the community stakeholders (Jiambalvo, 2009). Actually, these are the main considerations that should govern the manager’s decision. Whether or not the city controller reduces the budget is a matter of secondary importance, as long as the manager pursues the interests of the facility and the stakeholders using its waste treatment services. The manager’s striving to get a promotion should not govern her budgeting actions and decisions. By submitting a budget for an amount higher than the cost, the manager will be able to avoid the conflict of the planning and control functions, which is characteristic of many budgeting processes (Jiambalvo, 2009). As of now, the goal of the budgeting process is to plan rather than control, which means that Ann Paxton should be honest and objective in her vision of the future expenses. The present budget is merely a budget plan of everything that should be accomplished in the coming year. Therefore, there is nothing unethical in submitting a budget that exceeds the cost limit.
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Conclusion
The process of budgeting is one of the most problematic for managers. The budgeting process is associated with numerous ethical issues. The results of this analysis suggest that there is nothing unethical in submitting a budget that exceeds the cost limit as long as it works in the interests of stakeholders. The discussed budget variance is negative but favorable, as it helps to resolve the existing conflict between the planning and control functions of budget.