What is Budgetary Accountability?

Budgetary accountability is the linkage between the numbers in an approved budget and the managers who are responsible for ensuring that the budget is achieved. Thus, if a subsequent budget-to-actual comparison is unfavorable, this reflects poorly on the performance of the person to whom that budget line item was assigned. Ideally, poor budget performance by a manager will trigger a poor performance review for that person. When senior management imposes a high degree of budget accountability, it is more likely that the organization as a whole will closely monitor how it performs against the budget document.

Without budgetary accountability, it is unlikely that a budget will be achieved, since no one is responsible for it. Instead, managers will probably ignore the document. In this situation, they will tend to view the budget as an annoying exercise that must be completed near the end of the fiscal year, and which can then be put aside.

Example of Budgetary Accountability

A company’s marketing department is allocated a budget of $120,000 for the year, with the marketing manager responsible for managing all associated spending. At year-end, a budget-to-actual comparison reveals that the department spent $150,000, exceeding the budget by $30,000 without prior approval or a justified return on investment.

Because the marketing manager was accountable for staying within budget, this unfavorable variance reflects poorly on his performance. Senior management may question his planning and control practices, and this outcome could influence the manager’s future responsibilities, performance reviews, or bonus eligibility.