Budgeting is an essential element of the financial planning, control, and evaluation processes of governments. Every governmental unit should prepare a comprehensive budget covering all governmental, proprietary, and fiduciary funds for each annual (or, in some states, biennial) fiscal period.

Budgets are intended to carry out at least three broad functions:

  • Planning.
    In a broad sense, planning comprises programming (determining the activities that the entity will undertake), resource acquisition, and resource allocation. Planning is concerned with specifying the type, quantity, and quality of services that will be provided to constituents, estimating service costs, and determining how to pay for the services.
  • Controlling and administering.
    Budgets help ensure that resources are obtained and expended as planned. Managers use budgets to monitor resource flows and point to the need for operational adjustments. Legislative bodies—such as city councils or boards of trustees— use budgets to impose spending authority over executives (such as city managers or executive directors), who in turn use them to impose authority over their subordinates (such as department heads).
  • Reporting and evaluating.
    Budgets lay the foundation for end-of-period reports and evaluations. Budget-to-actual comparisons reveal whether revenue and spending mandates were carried out. More important, when tied to an organization’s objectives, budgets can facilitate assessments of efficiency and effectiveness. The benefits of the budgetary process cannot be fully achieved by a single budget or type of budget. A well-managed government or not-for-profit—just like a well-managed business— should prepare budgets for varying periods of time from multiple perspectives. These include:
  • Appropriation budgets, which are concerned mainly with current operating revenues and expenditures
  • Capital budgets, which focus on the acquisition and construction of long-term assets
  • Flexible budgets, which relate costs to outputs and are thereby intended to help control costs, especially those of business-type activities In addition, many governments and not-for-profits prepare performance budgets


  • Granof, Michael H., Saleha B. Khumawala, Thad D. Calabrese, and Daniel L. Smith. Government and not-for-profit accounting: Concepts and practices. John Wiley & Sons, 2016.
  • Cardinaels, E. (2009). Governance in non-for-profit hospitals: Effects of board members’ remuneration and expertise on CEO compensation. Health Policy93(1), 64-75.