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Theses
5-2015
Zero Based Budgeting in KCS Implementing Zero Based Zero Based Budgeting in KCS Implementing Zero Based
Budgeting Method in Kosovo Correctional Service Budgeting Method in Kosovo Correctional Service
Burim N. Haxholli
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Haxholli, Burim N., "Zero Based Budgeting in KCS Implementing Zero Based Budgeting Method in Kosovo
Correctional Service" (2015). Thesis. Rochester Institute of Technology. Accessed from
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Capstone Project: Zero Based Budgeting in KCS
Implementing Zero Based Budgeting Method in Kosovo Correctional Service
Burim N. Haxholli
May 2015
“Submitted as a draft Capstone Project Proposal in partial fulfillment
of a Master of Science Degree in Professional Studies
at the American University in Kosovo”
Zero Based Budgeting for KCS 2
Acknowledgements
I would like to express my special thanks to my Mom and Dad
and family for always supporting me and always being there for
me.
Secondly I would like to thank USAID for scholarship award
to attend the master program in this prestigious university and
giving us young Kosovars the possibility to enhance our education,
to contribute in our newly established country and improve the
Public Administration Sector.
Another special thanks of gratitude to my professor Dr.
Vernon Hayes, who helped me in doing a lot of Research from which
I learned many new things and I am really thankful.
In the end, I would like to thank all of my friends and
colleagues for their willingness and readiness to help me achieve my
goals.
Zero Based Budgeting for KCS 3
Abstract ...................................................................................................................................7
1. CHAPTER ONE ..............................................................................................................8
1.1. Kosovo Budgeting Practices .............................................................................................8
Description: Officials of Public Financial Management ...............................................................9
1.1.0. Article 10. Chief administrative officer. .............................................................................9
1.1.1. Article 11. Internal Auditor................................................................................................9
1.1.2. Article 12. Chief Financial Officer.....................................................................................9
1.1.3. Article 13. Procurement Officer ....................................................................................... 10
1.1.4. Article 14. Certifying Officer........................................................................................... 10
1.2. Role and the Mission of the Ministry of Justice .................................................................. 10
1.2.1 Kosovo Correctional Service ............................................................................................ 11
1.3. Methodology ...................................................................................................................... 12
2. CHAPTER TWO .................................................................................................................. 15
2.0. What is Zero Based Budgeting? .......................................................................................... 15
SWOT - Zero Base Budgeting Strength and Weaknesses .......................................................... 16
2.2. The Planning and Budgeting Process in Perspective ........................................................... 16
2.3. Where Zero Based Budgeting Can Be Used? ...................................................................... 20
2.3.0. Industry and Government ................................................................................................ 20
2.3.1. Zero Based Budgeting and Planning Program Budgeting ................................................. 20
2.3.2. Defining the Objectives of ZBB....................................................................................... 23
2.3.4. Responsibility .................................................................................................................. 24
2.4. What is its history? Who used it? 2. Why did it fail? ......................................................... 24
3. CHAPTER THREE ............................................................................................................... 25
3.0. Rebirth of ZBB ................................................................................................................... 25
3.1. FY 2016 Zero-Based Budget Analysis Georgia Department of Corrections ZBB Program:. 26
3.1.2 Results of Analysis ........................................................................................................... 27
Zero Based Budgeting for KCS 4
3.1.3 Program Operations: ......................................................................................................... 27
3.1.5 Georgia Department of Corrections .................................................................................. 29
3.1.7 Implementing Program Budgeting and Zero Base Budgeting in EU Countries .................. 31
3.2. Lessons for Serbia .............................................................................................................. 31
3.3. State of Idaho Budget Process ............................................................................................ 32
3.4. Idaho Zero-Base Budget (ZBB) Initiative ........................................................................... 33
3.4.1 Idaho Department of Correction ....................................................................................... 36
4. CHAPTER FOUR ................................................................................................................. 38
4.1. Audit Report on the Financial Statements of the Ministry Of Justice for the Year Ended 31
December 2013. ........................................................................................................................ 38
4.2. Audit Report on the Financial Statements of the Ministry Of Justice for the Year Ended 31
December 2012 ......................................................................................................................... 40
4.3. Audit Report on the Financial Statements of the Ministry Of Justice for the Year Ended 31
December 2011 ......................................................................................................................... 41
5. FIVE YEAR SCENARIO (INCREMENTAL VS. ZBB) ....................................................... 43
6. Potential Use in Kosovo ........................................................................................................ 47
5.1. Would it truly benefit Kosovo Departments? ...................................................................... 48
Works Cited .............................................................................................................................. 49
Annex 51
Questionnaire: Zero Based Budgeting New Budgeting Approach to Kosovo Public Services .... 51
Zero Based Budgeting for KCS 5
LIST OF TABLES
TABLE 1.MOJ BUDGET FOR YEAR 2015 - SPENDING OF FUNDS BROKEN DOWN BY ECONOMIC CATEGORIES .............. 11
TABLE 2. STRENGTHS AND WEAKNESSES OF ZBB .................................................................................................. 16
TABLE 3. DECISION PACKAGES .............................................................................................................................. 20
TABLE 4. ZERO BASED BUDGETING SAMPLE FORM ................................................................................................ 22
TABLE 5. ZBB PROGRAM: PRIVATE PRISONS (KEY ACTIVITIES AND ALTERNATIVE APPROACH ................................ 28
TABLE 6. ZBB PROGRAM: PRIVATE PRISONS: FINANCIAL SUMMARY ...................................................................... 29
TABLE 7. PERFORMANCE MEASURES GEORGIA DEPARTMENT OF CORRECTIONS ...................................................... 30
TABLE 8.IDAHO POPULATION ................................................................................................................................ 32
TABLE 9.MOJ FINANCIAL STATEMENTS AS OF 31-DEC-2013 .................................................................................. 38
TABLE 10. MOJ BUDGET 2012: SPENDING OF FUNDS BY ECONOMIC CATEGORIES- OUTTURN AGAINST THE BUDGET (IN
€) ................................................................................................................................................................ 40
TABLE 11. MOJ BUDGET 2011: SPENDING OF FUNDS BROKEN DOWN BY ECONOMIC CATEGORIES- OUTTURN AGAINST
THE BUDGET
(IN €) ....................................................................................................................................... 41
TABLE 12. CORRECTIONAL SERVICES FY2014 BUDGET COMPARISON BETWEEN KOSOVA AND STATE OF IDAHO (USA)
................................................................................................................................................................... 47
LIST OF FIGURES
F
IGURE 1. PRESENTING BUDGET FORECAST EVALUATION ...................................................................................... 12
FIGURE 2. SURVEY RESPONDS ON BUDGET CATEGORIES .......................................................................................... 13
FIGURE 3. SURVEY ON TRADITIONAL VS. ZBB BUDGETING .................................................................................... 14
FIGURE 4. ZERO BASED BUDGETING PROCESS ........................................................................................................ 17
FIGURE 5.DECISION PACKAGES SAMPLE ................................................................................................................ 18
FIGURE 6. INCREMENTAL BUDGETING 5YRS SCENARIO ‘000................................................................................... 43
FIGURE 7. INCREMENTAL BUDGETING DEVIATION .................................................................................................. 44
FIGURE 8. ZERO BASED BUDGETING 5YRS SCENARIO ‘000 ..................................................................................... 45
FIGURE 9. ACTUAL INCREMENTAL BUDGET LINE SAMPLE (REPEATED AMOUNT 5YRS IN ROW) ................................ 46
Zero Based Budgeting for KCS 6
ACRONYMS
MOJ Ministry of Justice Kosova
DOJ Department of Justice Kosova
KCS Kosova Correctional Service
ZBB Zero Based Budgeting
PPBS Planning Program Budgeting System
EU European Union
USA Unites State of America
MF Ministry of Finance
CFO Chief Financial Officer
FMC Financial Management
Zero Based Budgeting for KCS 7
Abstract
This project addresses the need on improving performance in budget planning through Zero
Based Budgeting and its implementation in Public Sector. Project will focus on Kosovo
Correctional Service and will expand through its comparison with other local and central
budgeting organizations within Kosovo and therein other countries of EU, USA.
The project starts with the fact that there is an ongoing problem with budget planning in
KCS / MOJ and furthermore the research will be expanded through auditing reports, budget
planning, implementation problems and its tights with strategic planning. In addition, this
project will address through ZBB a role model to improve budget performance and
accountability of well-functioning departmental budgeting, which is crucial for final budget
presentation.
Moreover, it will present similar international practicing of Zero Based Budgeting,
identify similarities and differences between research departments, and present a set of
recommendations to improve the current experience in departmental budgeting, accountability in
performance, governance, capacity, reporting and its effectiveness.
Zero Based Budgeting for KCS 8
1. CHAPTER ONE
1.1. Kosovo Budgeting Practices
Budget process and the institutions involved in this process The Ministry of Finance in
coordination with budgetary organizations prepares the Kosovo Budget, which is approved by
the end of the year, by the Assembly of Kosovo. The budget for the next year is prepared during
the current year through a number of actions known as the budget process. Until it reaches a final
form as the Draft-law on budget, and before it is submitted for approval in Assembly, the budget
process is usually conducted between the Ministry of Finance and budgetary organizations. The
latter, according to MF guidelines, submit their budgetary proposals according to plans and
objectives defined by the work plans. (GAP, 2013)
According to the Law on Public Financial Management and Accountability, "budget
organization means any authority or public undertaking that directly receives an appropriation."
(Assembly of the Republic of Kosovo, 2008).
In the process of drafting the budget, the Ministry of Finance and budget organizations
interact with each other in two directions: from bottom-up – when budget organizations have the
freedom of planning the expenses and requests for budget depending on their plans; and, from
top-down – when budget organizations are allocated the budget taking into account the budget
and expenditure of that organization from the previous year, but not by taking into account the
budget needs of these organizations. As in many countries, Kosovo applies a mixed system of
the two directions, which means that budget organizations prepare or propose their budget for
expenditure within one year (bottom-up direction) but are limited in this preparation because of
the budget ceilings, as it is known in this field (top-down direction). (GAP, 2013)
Zero Based Budgeting for KCS 9
Description: Officials of Public Financial Management
1.1.0. Article 10. Chief administrative officer.
10.1 A chief Administrative Office shall have principal legal responsibility for ensuring
that his/her budget organization, autonomous executive agency or public undertaking, and its
personnel, thoroughly and adequately comply with, observe and implement all applicable
provisions of the present law and the FMC Rules. (Assembly of the Republic of Kosovo, 2008,
p. 14)
1.1.1. Article 11. Internal Auditor
11.1 Every budget organization, autonomous executive agency and public undertaking
shall comply with all applicable requirement of the Law on Internal Audit, including these
provision imposing a requirement to establish and maintain an Internal Audit Unit or to
otherwise procure the services of and Internal Auditor. (Assembly of the Republic of Kosovo,
2008, p. 14)
1.1.2. Article 12. Chief Financial Officer
In the case of CFO of budget organization or a autonomous executive agency, such CFO
shall have the authority and responsibility for : (i) developing the proposed budget and
appropriations request of the budget organization or autonomous executive agency; (ii) ensuring
that all transactions are accurately recorded in the Treasury Accounting Record; (iii) ensuring
that all legitimate invoice received are promptly submitted for payment through the Treasury
system; (iv) overseeing and supervising all aspects of budget reporting ; and (v) any function
delegated to the CFO in accordance with the FMC Rules. All Work of the CFO must strictly
comply with the FMC Rules. (Assembly of the Republic of Kosovo, 2008, p. 14)
Zero Based Budgeting for KCS 10
1.1.3. Article 13. Procurement Officer
13.1 Each budget organization, autonomous executive agency and public undertaking
shall have a Procurement Officer, who shall be responsible for conducting the budget
organizations procurement activities in accordance with the Law on Public Procurement.
(Assembly of the Republic of Kosovo, 2008, p. 14)
1.1.4. Article 14. Certifying Officer
14.4 The certifying Officer shall be responsible for a) ensuring that the applicable terms
of public contract have been fulfilled before any payment under such contract is made or
authorized; and b) ensuring that the expenditure of public money under any public contract is
one in accordance with the FMC Rules. The Certifying Officer shall also perform any other task
required of a Certifying Officer under the FMC Rules.
14.5 The Certifying Officer shall identify and promptly report in writing all of non-
compliances to the Chief Administrative Officer, the CFO and any other senior official of the
budget organization, autonomous executive agency or public undertaking. (Assembly of the
Republic of Kosovo, 2008, p. 14)
1.2. Role and the Mission of the Ministry of Justice
To ensure efficient, independent and impartial judicial and prosecutorial system, safe and
equal for all the citizens. Ministry of Justice according to the international standards ensures
professional treatment of the detainees, sentenced prisoners, victims of violence, and victims of
trafficking and protected witnesses. Ministry of Justice drafts the legislation in accordance with
the constitution of the Republic of Kosova and harmonizes the laws with the EU standards,
Zero Based Budgeting for KCS 11
develop international legal cooperation, and ensure easier access in the justice institutions for the
minorities. (Justice M. o., 2015)
Departments within MOJ: Kosovo Correctional Service, Kosovo Probation Service,
Forensic Department, Department of Legal Affairs, Department for International Legal
Cooperation, Department of Finance and General Services, Department for European Integration
and Policy Coordination, Department of Procurement, Office for Statistics. (Justice M. o., 2015)
1.2.1 Kosovo Correctional Service
KCS is responsible for the administration of prisoners, detainees, minors under the laws
of the Republic of Kosovo and European conventions and other regulations issued in the
respective institutions. KCS is responsible for the supervision and management of correctional
institutions (6 detention centers, 3 Correctional Centers and High Security Prison) in different
levels of security and supervision of persons under the care of KCS and staff in working (Justice
M. o., Kosovo Correctional Service, 2015)
Table 1.MOJ Budget for Year 2015 - Spending of funds broken down by economic categories
Spending of funds broken down by economic
categories
Amount €
%
Wages and Salaries
9,762,594
62.59%
Goods and Services
3,807,527
24.41%
Utilities
605,313
3.88%
Subsidies and Transfers
0
0%
Capital Investments
1,422,500
9.12%
Total 15,597,934
100%
*Employees
1,626
*Prisoners *1500
(Finance, 2015 Budgeting, 2015) * Prisoners number is of FY2013.
Zero Based Budgeting for KCS 12
1.3. Methodology
This study uses method research designed to determine whether current budgeting
method has positive or negative impact in KCS/MOJ through current financial method in
government of Kosova activity indictors.
The quantitative piece of this research involves budget and financial authorities to clarify
their opinion about gaps of current budgeting and to answer a question; can it be improved
through a ZBB process? An online survey was sent to public administration finance directors and
budget managers consisting of 11 questions examining the budget preparation level, the other
questions directly addressed whether zero-based budgeting is better than incremental budgeting,
and which budget categories are weaker due to a lack of budget preparation. Survey measure was
prepared with simple questions, and responds were calculated immediately through Google form
application. (See Figure 1.1, 1.2 and 1.3 below for statistical data).
Statistical data of the respondents from online questionnaire on evaluating the degree of
budget forecast for main budget categories in Republic of Kosova.
Figure 1. Presenting Budget Forecast Evaluation
47%
31%
26%
35%
18%
40%
43%
31%
41%
53%
13%
26%
43%
24%
29%
0%
10%
20%
30%
40%
50%
60%
Captial Budgeting Wages & Salaries Goods and
Services
Utilities Subsidies and
Transfers
Evaluate a degree in bugdet forecasting and
expenditures for following categories
Poor Medium Excellent
Zero Based Budgeting for KCS 13
Figure 1. The survey shows measurement of what are the main categories effected by weak
budgeting preparation and those are: Capital budgeting; b) Wages and Salaries; c) Utilities; d)
Goods and Services; e) Subsidies and Transfers.
Figure 2. Survey responds on budget categories
Figure 2. Statistical data of the respondent from online questionnaire on evaluating the level of
budget preparation in Republic of Kosova
On Figure 2. The questionnaire shows that only 12% are happy with current level of budget
preparation in Kosovo and others 47% says its good and 41% believe that budget preparation
needs improvement.
0%
10%
20%
30%
40%
50%
Excellent Good Poor
12%
47%
41%
Evaluate Level of budget Preparation in Republic of Kosovo
Excellent Good Poor
Zero Based Budgeting for KCS 14
Figure 3. Survey on Traditional vs. ZBB Budgeting
On Figure 3. The questionnaire shows that only 53% of budget professionals in Kosova support
traditional budgeting and the rest of 47% think that through ZBB can be adopted to our
government services. A lack of this questionnaire remains at responds of those that never heard
of ZBB before.
53%
47%
Traditional Budgeting vs ZBB
Traditional Budgeting ( Incremental Budgeting)
Zero Based Budgeting ( Starting from Scratch)
Zero Based Budgeting for KCS 15
2. CHAPTER TWO
2.0. What is Zero Based Budgeting?
ZBB begins with a zero balance and formulates objectives to be achieved. All activities
are analyzed for the current year. The manager may decide to fund an existing project at the
same level as last year after the review. However, it is most likely that funding will be increased
or decreased, based on new information. It is also possible that an alternative way may be used
for that project, based on current cost or time considerations. The ZBB approach sets minimum
funding amounts for each major activity (e.g., product, service). Amounts above the minimum
level must be fully justified in order to be approved by upper management. Each program,
product, or service is looked at each year to determine its benefit. If an activity cannot be
supported as having value, it is not funded. The manager is not concerned with the past but rather
looks at the current and future viability. The manager, in effect, discards the deadwood.
Programs with inefficiencies, waste, and anything that no longer makes financial sense are
dropped. (Shim, 2011, p. 322)
The ZBB process involves:
1. Developing assumptions
2. Ranking proposals
3. Appraising and controlling
4. Preparing the budget
5. Identifying and evaluating decision units (Shim, 2011, p. 322)
Zero Based Budgeting for KCS 16
SWOT - Zero Base Budgeting Strength and Weaknesses
Table 2. Strengths and Weaknesses of ZBB
Strength
Weakness
Efficient Allocation Of Resources
Detects Inflated Budget
Drives Managers To Find Cost Effective
Way To Improve Operations
It Is Adaptable
It Is Based On Need Rather Than On
Historical Data
Encourages Cost Reduction
Motivational
Decentralized
Communicative
Easy To Check
Only really applicable to a service
environment
Time consuming
Difficulty in creating the budget
Requires additional training for staff and
managers
Causes dissatisfaction
May cause budget triggering deficit (if
it’s not able to cover the planned budget)
May cause budget increase for certain
categories
May lead to lost continuity of action and
short term planning
2.2. The Planning and Budgeting Process in Perspective
Many managers have suggested that zero base budgeting be renamed “zero-base
planning” or “zero-base planning and budgeting” because the process required effective planning
and immediately shows up any lack of planning. The planning and budgeting process can be
contrasted as follows: (Pyhrr, 1973, p. 2)
• Planning identifies the output desired.
• Budgeting identified the input required. (Pyhrr, 1973, p. 2)
Zero Based Budgeting for KCS 17
Figure 4. Zero Based Budgeting Process
(Pyhrr, 1973, p. 3)
Raking is Simple 5 Step Process:
1. Given agreement on the standard to be used (ROL, DCF etc.).
2. Rank all programs from top to bottom based on that standard.
3. Determine the cutoff point, considered available resources or affordability.
4. Approve and fund all programs above the cutoff level and defer or eliminate all others.
5. Communicate the decision to the upper management. (Shim, 2011, pp. 61,62)
Some other methods or processes are by voting, using multiple standards, matching
ranking with strategic planning of the organization. (Shim, 2011, p. 62)
Planning
Establishing plans
and programms
Setting goals and
objectives
Making basic policy
decesions
Zero Base Budgeting
Detail indentification
and evaluation of
activities, alternatives,
and costs to achieve
planns.
Evaluation
Test budget against
plan Determine
tradeoff between
goals and cost
Budget and
Operating
Plan
Zero Based Budgeting for KCS 18
Figure 5.Decision Packages Sample
(Pyhrr, 1973, p. 16)
There are two basic steps of zero-base budgeting:
1. Developing “decision packages.” This step involves analyzing and describing each
discrete activity – current as well as new in one or more decision packages.
2. Ranking “decision packaged.” This step involves evaluating and ranking these
packages in order of importance through cost/benefit analysis object.
(Pyhrr, 1973, p. 5)
A
(165 packages)
B1
(38 packages)
B2
(65 packages)
C1
(10 Pakacges)
C2
(28 packages)
D1
(5 packages)
D2
(8 packages)
D3
(15 pakages)
C3
(17 pakages)
B3
(75 packages)
Final consolidated
ranking reviewed
at top.
Upper Level
Consolidation
Level.
Lower Level
Consolidation
Level.
Organizational
level where
decision packages
developed (cost
center).
One ranking
for entire
organization
Zero Based Budgeting for KCS 19
Step 1. Developing Decision Packages
A decision package identifies a discrete activity, function or operation in a definitive
manner for management evaluation and comparison with other activities. This identification
includes:
• Purpose ( or goal and objectives)
• Consequences of not performing activity.
• Measures of performance.
• Alternative courses of action.
• Costs and benefits. (Pyhrr, 1973, p. 6)
Step 2. Ranking. Developing Decision Packages
The ranking process provides management with a technique for allocating its limited
resources by making it concentrate on these questions: “How much should we spend?”, “Where
should we spend it? (Pyhrr, 1973, p. 15)
In ranking proposals, upper management will rely heavily on the recommendations made
by managers who have a keen knowledge of their decision units. Quantitative and qualitative
factors must be considered. A cost/benefit analysis should be performed for each decision unit.
The ranking of decision packages goes in the order of decreasing benefit. The manager
must identify those products or services that are the most crucial. The highest priority should be
assigned to the minimum increment of service below which the unit cannot operate effectively.
Zero Based Budgeting for KCS 20
Top management performs the final ranking after obtaining initial recommendations of
managers within the company’s divisions, departments, and cost centers. If a manager’s
recommendations are rejected, he or she should be notified why. (Shim, 2011, p. 324)
Table 3. Decision Packages
Product A–Decision Package
Alternative A $200,000 1 Year
Recommended Way $250,000 6 Months
Alternative B $350,000 2 Months
(Shim, 2011, p. 325)
2.3. Where Zero Based Budgeting Can Be Used?
2.3.0. Industry and Government
The Zero-based budgeting process consists of identifying decision packages and then
ranking them in order of importance through a cost/benefit analysis. Therefore, zero-base
budgeting can be used on any activities, function, or operations where a cost/benefit relationship
can be identified- even if this evaluation is highly subjective. (Pyhrr, 1973, p. 19)
2.3.1. Zero Based Budgeting and Planning Program Budgeting
Zero base budgeting reinforces PPB efforts because it provides a solid foundation of
information about functions and operations. This foundation can reinforce and improve PPB
efforts in several ways, through Program structure, Issue identification, Special analysis,
Program and financial plans (projections, financial data, and program measures). (Pyhrr, 1973, p.
154)
Zero Based Budgeting for KCS 21
Based on Peter Phyrr chapter regarding ZBB and PPB:
• Zero-base budgeting and PPB are compatible.
• Zero-base budgeting fills the critical gaps in PPB.
• Zero-base budgeting reinforces PPB.
• PPB can provide the planning and policy framework required to effectively
implement zero-base budgeting. (Pyhrr, 1973, p. 152)
Zero-based budgeting has been identified as:
An operating planning and budgeting process which requires each managers to justify his
entire budget requests in detail from scratch (Hence zero base) and shifts the burden of proof to
each manager to justify why he should spend money at all. This approach requires that all
activities be identified in “the decision packages” which will be evaluated by systematic analysis
and ranked in the order of importance. (Cheek, 1977, p. 12)
With ZBB, every line item in the budget must be approved with no preferences to
previous expenses but based on the priorities of this budget year. The ZBB requires a thorough
evaluation and starts from zero and then we move towards the ultimate goals based on what we
have in terms of revenues and expenses. Comparing to traditional budgeting, which is based on
the last year’s figures almost similar to the previous fiscal year history, whereas ZBB is budget,
is increase either decreased based on the priority packages. (Cheek, 1977)
Zero Based Budgeting for KCS 22
Table 4. Zero Based Budgeting Sample Form
Agency:
Code:
Cost center description
Priority ranking
is necessary:
1. Why this cost center necessary and what does the taxpayer get in return?
2. How does this cost center and its base level of funding support your agency's strategic plan
and fulfill legal mandates (cite the legal mandates it fulfills)?
3. What adjustments would be made if this cost center (or some portion of it) was eliminated?
4. What are the performance measures and outcomes for this cost center?
Alternatives
Cost description
Benefit description
base according to what is absolutely needed to fulfill your agency's legal requirements in the most
efficient and effective way. Critical to this step is the identification and analysis of alternative
approaches to how business is currently undertaken within this cost center (please identify
opportunities to do the job differently and better). This reconstruction should reflect the preferred
alternative (from the alternative box below) to the current structure. Alternatives may include the
need to, for example, propose legislation to eliminate low value or out-of-date mandates,
reorganize or re-engineer work processes, further exploit information technology applications,
including system consolidation, outsource services to contractors, share or transfer work
responsibilities to other cost centers, programs, or agencies.
Merely developing and compiling decision packages detailing what organization is up to
accomplishes no useful purpose other than providing information. What is required is to focus
and direct the organization resources towards pre-agreed needs or objectives. (Shim, 2011, p. 54)
Zero base budgeting (ZBB) can be used by non-financial managers to identify, plan and
control project and programs. It enhances effectiveness and efficiency and matches services level
to available resources. Each manager must justify a budget detail, beginning zero balance. It can
lower production, service and operating costs. (Shim, 2011, p. 321)
ZBB is a priority form of budgeting, ranking activities such as products and services. It
may be used by managers to review and analyze programs, proposals, activities, and functions to
Zero Based Budgeting for KCS 23
increase profitability, enhance efficiency, or lower costs. ZBB results in the optimum allocation
of company resources. There is an input-output relationship. (Shim, 2011, p. 321)
ZBB considers the objectives of the activity and how it is to be accomplished. The failure
to fund an activity may results in adverse consequences that have to be taken into account. For
example, the failure to produce a particular product may adversely affect the sale of related
products in the company overall product line. (Shim, 2011, p. 321)
Managers who benefit from using ZBB include production manages, purchase managers,
marketing managers to appraise competing alternative product lines formulate and advertising
strategy, evaluate salesperson performance, establish and monitor marketing priorities. A cost
benefit analysis should be undertaken for each sales program in terms of staff, product, and
territory. The objectives of each subunit (e.g. department, responsibility center) should be
consistent with the overall goals of the company. (Shim, 2011, p. 321)
2.3.2. Defining the Objectives of ZBB
The first step in structuring a zero-base budgeting system is to establish objectives for the
effort. This normally involves a brief informal meeting among administrators, controller and his
budget staff. Some of the uses to which zero-base budgeting might be put:
1. Developing an operating plan and budget for the coming year.
2. Conducting a one-time cost reduction effort on staff overhead.
3. Diagnosing what is really going on in the organization to refine policy or set long-
range policy or set long-range objectives.
4. Allocating staff overhead to product lined and profit centers on more equitable
basis.
5. Validating the feasibility of the long-range plan.
Zero Based Budgeting for KCS 24
6. Auditing the effectiveness of staff programs.
7. Providing a database to restructure the entire organization (Cheek, 1977, p. 21)
2.3.4. Responsibility
The responsibility could be divided based on the organization experience. The more the
organization is innovative and has been frequently active with employment, new technology
follow up, this organization can lean its planning to individual managers within the department.
However, if the organization is less experienced could use multifunctional force. Those
organizations, which have generally weak management at the grass roots (or promising but
immature one) but do have a number of “stars” who could innovate generally, opt for task force
approach. (Cheek, 1977, p. 26)
2.4. What is its history? Who used it? 2. Why did it fail?
The first record of zero-based budgeting (ZBB) application in the public sector occurred
in the Department of the Agriculture in 1964, mainly because of Secretary Orville Freeman’s
interest in budgeting (Cheek, 1977, pp. 12-3). This attempt was short-lived in spite of top-level
support. Each responsibility center charged with budgeting functions fought to further its
priorities while ignoring the goals, objectives, priorities, and instructions of the department.
Among the problems, contributing to ZBB’s failure to take hold in the Department of
Agriculture included short lead-time for budget preparation and massive paperwork. (Bartley,
1997, p. 127). Despite the failed implementation of ZBB, it motivated the department’s top
management to initiate the involvement of all levels of operating managers in the budgetary
process. (Bartley, 1997, p. 127)
Zero Based Budgeting for KCS 25
3. CHAPTER THREE
3.0. Rebirth of ZBB
Momentum for ZBB in public sector began when the state of Georgia (under then-
governor Carter), the city of Garland, Texas, and a few other entities implements it during the
early 1970’s. When Jimmy Carter was elected president in 1976, his support for ZBB in the
federal government infused new enthusiasm about ZBB in government. A number of especially
attractive features were then being emphasized, such as effective planning and control and
efficient allocation of scarce budgetary resources, clearly setting forth benefits to be gained
versus costs to be incurred for each program or activity undertaken. In ZBB, every dollar
allocation is required to stand or fall on its merit. Each increment or unit of cost for an activity or
program requested must generate and equal or greater increment of benefit. Zero-based-
budgetary requires constant matching of costs versus benefits, no program or activity can be
continues simply because a budget request is made. (Bartley, 1997, pp. 127-128)
Governor Nathan Deal directed the Office of Planning and Budget (OPB) to implement
Zero-Based Budgeting as part of the budget development process, fulfilling his commitment to
Georgia's citizens to implement ZBB. The purpose of the zero-based budget analysis is to
assess individual programs against their statutory responsibilities, purpose, cost to provide
services, and outcomes achieved in order to determine the efficiency and effectiveness of the
program and its activities. (Dunn, 2015)
The ZBB review process formalizes the work inherent in OPB budget analysis and
provides a systematic review and reporting of the activities, performance and expenditures of the
programs in the state budget. The ZBB document is a summary of the information gathered and
Zero Based Budgeting for KCS 26
analyzed by OPB as part of our ZBB reviews. The document includes four sections for each
program reviewed:
1. Results of Analysis: This section summarizes OPB’s analysis and provides
recommendations for future review or changes to the program budget and
operations.
2. Program Purpose and Key Activities: This section lists the agency and program
purpose. A list of the program’s key activities is provided with its authority,
number of positions, state funds and total funds budgeted is also provided in this
section.
3. Performance Measures: This section lists the goals of the program and a set of
measures for the program.
4. Financials: This section provides a summary of the program expenditures and
budget. The section lists two years of expenditures, the current fiscal year budget,
Governor has recommended changes and recommended budget. (Dunn, 2015)
3.1. FY 2016 Zero-Based Budget Analysis Georgia Department of Corrections ZBB Program:
Georgia Department of Corrections, ZBB Program: Private Prisons
FY 2016 Zero-Based Budget Report- Purpose of Review
The Georgia Department of Corrections (GDC) administers the prison and probation
sentences of offenders adjudicated by Georgia's courts.
The Private Prisons program consists of four facilities, under two contracts, with
Corrections Corporations of America (CCA) and GEO Corporation. Combined, these facilities
are contracted to house up to 7,974 inmates, typically of low to medium risk. The purpose of this
Zero Based Budgeting for KCS 27
review is to evaluate the cost-effectiveness of program activities and assess the need of private
prisons as part of Georgia's future correctional infrastructure. (Dunn, 2015, p. 60)
3.1.2 Results of Analysis
1. Statutory Alignment: Program activities are aligned with statutory responsibilities.
2. Staffing Levels: There are no positions funded in this program.
3. Fleet Management: There are no motor vehicles assigned to the program.
4. Performance Measures: OPB worked with the agency to identify metrics for key program
activities. The updated measures accurately reflect the performance of the program.
5. Budget Impact: Maintain the current funding level. (Dunn, 2015, p. 60)
3.1.3 Program Operations:
The Criminal Justice Reform Act of 2012 is expected to divert low risk inmates and drug
offenders away from the correctional system through the utilization of alternative sentencing
programs such as county drug courts. These diversions are expected to negate the previously
projected 8% increase in the prison population and $264 million in associated costs. The future
prison population will consist of a more hardened and higher risk inmate, of which private
prisons are not currently equipped to detain. Private prisons utilize an “open bay” housing design
structure in the majority of their facilities. This design is meant to accommodate a low to
medium security risk inmate and is not conducive to accommodate a large number of inmates
who require single-cell confinement. (Dunn, 2015, p. 54)
Recommendation: Evaluate contracts with private prison vendors on an annual basis to
ensure that offenders' profiles fit private prison capacity and capabilities.
Zero Based Budgeting for KCS 28
Research has shown that offenders who re-enter communities after receiving evidence
based programming (substance abuse, educational, and vocational) are up to 7.5% less likely to
reoffend within three years. Private prisons are required to provide components of evidence
based programming to offenders, but programs are not standardized among the private prison
facilities.
Research has shown that offenders who re-enter communities after receiving evidence
based programming (substance abuse, educational, and vocational) are up to 7.5% less likely to
reoffend within three years. Private prisons are required to provide components of evidence-
based programming to offenders, but programs are not standardized among the private prison
facilities. (Dunn, 2015, p. 54)
3.1.4. Georgia Department of Corrections
Table 5. ZBB Program: Private Prisons (Key Activities and Alternative Approach
(Dunn, 2015, p. 54)
FY 2015 FY 2015
State Funds Total Budget
Riverbend
Correction
al Facility
Opened in December 2011 as an adult male medium security
prison in Milledgeville with a max capacity by contract of 1,500
inmates. Offers various academic, vocational, and counseling
classes to rehabilitate offenders. Owned and operated by the
GEO Gro up
$28,196,250 $28,196,250 0 $28,196,250
Wheeler
Correction
al Facility
Opened in 1998 as an adult male medium security prison in
Alamo with a max capacity by contract of 2,638 inmates. Offers
various academic, vocational, and counseling classes as well
as faith-based programs to rehabilitate offenders. Owned and
operated by Corrections Corporation of America.
42,733,573 42,733,573 0 42,733,573
Jenkins
Correction
al Facility
Opened in 2012 as an adult male medium security prison in
Millen with a max capacity by contract of 1,150 inmates. Offers
various academic, vocational, and counseling classes as well
as faith-based programs. Owned and operated by Corrections
Corporation of America
22,057,863 22,057,863 0 22,057,863
Coffee
Correction
al Facility
Opened in 1998 as an adult male medium and close security
prisonin Nicholls with a max capacity by contract of 2,628.
Offers various academic, vocational, and counseling classes
as well as faith-based programs. Owned and operated by
Corrections Corporation of America.
41,920,338 41,920,338 0 41,920,338
$134,908,024 $134,908,024 $0 $134,908,024
Total:
Zero Based Budget Review
(State Funds)
Activity
Description
Changes
Recommendations
Key
activities
Zero Based Budgeting for KCS 29
3.1.5 Georgia Department of Corrections
Table 6. ZBB Program: Private Prisons: Financial Summary
Expenditures FY2015 Zero Based Budget Review
Objects Of
Expenditures
FY2013 FY2014
Personal Services
Regular
Operating
Expenses
Motor Vehicle
Purchases
Equipment
Computer
Charges
Real Estate
Rentals
Telecommunications
Contractual
Services
$134,694,789
$133,811,261
$134,908,024
$0 $134,908,024
Total
Expenditures
$134,694,789
$133,811,261
$134,908,024 $0 $134,908,024
Fund type
State General
Funds
$134,694,789
$133,811,261
$134,908,024
$0
$134,908,024
Total Funds
$134,694,789
$133,811,261
$134,908,024
$0
$134,908,024
(Dunn, 2015, p. 57)
Zero Based Budgeting for KCS 30
3.1.6. Georgia Department of Corrections
ZBB Program: Private Prisons - Performance Measures
Agency Purpose:
The Georgia Department of Corrections administers the prison and probation sentences
of offenders adjudicated by Georgia courts. The Department of Corrections creates a safer
Georgia by effectively managing offenders and providing opportunities for positive change.
Program Purpose:
The purpose of this program is to contract with private companies to provide cost-
effective prison facilities that ensure public safety.
Table 7. Performance Measures Georgia Department of Corrections
Performance Measures Actuals
FY 2011
FY 2012
FY 2013
FY 2014
Annual Occupancy Rate
97%
83%
99%
99%
Three-Year Felony Reconviction Rate
31%
28%
30%
30%
Number of Ged Diplomas Received In Private
Prisons
178
82
200
234
Number Of Contracted Private Prison Beds as A
Percentage Of All Inmate Beds
11%
14%
16%
17%
Average Daily Cost Per Inmate
*$46
$53
$51
N/A
(Dunn, 2015, p. 58)
Zero Based Budgeting for KCS 31
3.1.7 Implementing Program Budgeting and Zero Base Budgeting in EU Countries
Experiments with program budgeting were first initiated in the US at the federal
government level, during the 1960s (Planning, Programming and Budgeting System, PPBS).
Since then the methodology was improved, but program budgeting is still not widely used in
Europe. Later, starting from the 1970s zero base budgeting (ZBB) was developed as a
continuation of PPBS. According to the latest budget system law, program budgeting will be
compulsory in Serbia starting from 2015. (Gábor Péteri, 2009, p. 12)
Program budgeting is based on the hierarchical structure of public functions. So the
actual spending programs have to be defined within the overall system of goals and objectives
set by a government. The specific services are derived through 3-4 levels of these hierarchical
goals. For example the overall objective of “clean city” is further broken down to sub-programs
and marking an activity, like “snow removal” at the end. (Gábor Péteri, 2009, p. 12)
3.2. Lessons for Serbia
The fiscal planning rules and budgeting methods cannot be standardized across all
government levels. At the national level where the main task is to allocate categorical transfers
among local budgets, the planning techniques are built more on incremental budgeting. At the
local government level planning the service organizations’ budget appropriations might be more
program oriented, using elements of performance budgeting. (Gábor Péteri, 2009, p. 14)
However, at both levels of government there is a need for changing the main function of
the budget. Presently the budget is primarily an instrument for authorizing spending and
exercising control over the usage of public funds. The main purpose of budgeting should be
forecasting combined with greater discretion in setting the appropriations. At the national level it
Zero Based Budgeting for KCS 32
would require the higher share of non-categorical transfers and general grants against categorical
grants. (Gábor Péteri, 2009, p. 14)
At the local government level, when the task is to allocate funds among several indirect
budget users, the planning methods might be changed. A gradual shift has to be made from the
line item incremental budgeting towards performance based and program budgeting. At the most
innovative local governments in selected service areas, elements of the modern planning
techniques have to develop. (Gábor Péteri, 2009, p. 14)
3.3. State of Idaho Budget Process
Idaho, the state's largest city and capital is Boise. Area, 83,557 sq mi (216,413 sq km).
Population (2000) 1,293,953, a 28.5% increase since the 1990 census. Capital and largest city,
Boise. Statehood, July 3, 1890 (43d state). (Infoplease, 2015)
Table 8.Idaho Population
Population, 2013 Estimate
1,612,843
316,497,531
Population, 2010 (April 1) Estimates Base
1,567,652
308,758,105
Population, Percent Change - April 1, 2010 To July 1, 2014 4.3% 3.3%
Population, Percent Change - April 1, 2010 To July 1, 2013 2.9% 2.5%
Population, 2010
1,567,582
308,745,538
Persons Under 5 Years, Percent, 2013
7.0%
6.3%
Persons Under 18 Years, Percent, 2013
26.5%
23.3%
Persons 65 Years And Over, Percent, 2013
13.8%
14.1%
Female Persons, Percent, 2013
49.9%
50.8%
(Census Bureau, 2015)
Zero Based Budgeting for KCS 33
3.4. Idaho Zero-Base Budget (ZBB) Initiative
Department of Administration
The Department of Administration was one of the first state agencies to undergo the
Zero-Based Budgeting process as a result of Governor Otter's initiative to re-evaluate each line
of state spending starting from the base of zero. (idaho.gov, 2015)
In a reverse working process of traditional budgeting, the Department reviewed its
mission and its mandates first. Not only did it determine whether its budget and resources are
supporting those charges, but it examined whether aspects of its edict should be modernized
based on the current economy and/or advances in technology and strategic business practices.
It was a valuable exercise for managers as well as our front-line staff members, who also
contributed to the project. (idaho.gov, 2015)
The Process Used for Gap Analysis:
The Department of Administration created a 16-member ZBB team composed of
Program Managers, its Deputy Attorney General, Chief of Staff, and Program Specialist to
provide support services. Work teams were created within each of the programs. Three templates
were designed for use by the work teams to stimulate discussions. The Task Template is a matrix
used for listing all tasks of the program down the side, with answers to questions about each of
the tasks across the page. Questions posed for each of the tasks included:
• Does the program/service support and contribute to the mission of the agency?
• Do they meet constituency needs? Do they overall entities functions?
• Any measureable evidence of the value of the service/program under review?
• Are goals/objectives of the program important enough to warrant expenditures
made?
Zero Based Budgeting for KCS 34
• What would happen if the program/services were not provided at all? (gov., 2015,
p. 1)
• Are there other less costly, more efficient ways of achieving these objectives?
• Would benefits be greater if all or part of the funds spent was used for other
programs?
The Mandate Template is a matrix used for listing down the side all sections of Idaho
Code, Administrative Rules, and Executive Orders affecting each of the programs, with answers
to questions related to each of the mandates across the page. Prior to filling this spreadsheet out,
our Deputy Attorney General spelled-out all applicable code, rules, and executive orders
affecting the Department and explained what they all meant in non-technical language.
Questions posed for each of the mandates included:
• Is the Department fulfilling the mandate’s intent?
• Does the mandate support and contribute to the mission of the agency?
• Do they meet constituency needs? Do they duplicate other entities functions?
• Are the mandates important enough to warrant continuation?
• What would happen if the mandate was not provided at all?
• Are there other less costly, more efficient ways of satisfying these mandates?
• Would benefits be greater if all or part of the funds spent was sued for other
programs?
• Based on analysis of the data collected in each of the templates, the work groups
identified any gaps that became apparent between tasks and mandates. The Gap
• Template is a matrix that poses the following questions:
Zero Based Budgeting for KCS 35
• What tasks are NOT mandated, but we ARE doing them? Do they support our
mission? Why are we doing them?
• What tasks ARE mandated but are NOT done? Should they be mandated?
• (gov., 2015, p. 1)
• What tasks ARE mandated and we ARE doing them, but should we be doing
them anymore? Why?
• What tasks are NOT mandated, we are NOT doing them, but should we be doing
them? Should they be mandated?
• What continuing tasks, whether mandated or not, could be done more efficiently
and/or cost effectively? What would be required?
Once the Gap Templates were complete, work groups were asked to delineate what
would be required for any proposed changes—legislative changes, more/less staff, more/less
appropriation, for example. Simultaneous to this process, Divisions determined how to organize
their cost centers in anticipation of incorporating approved changes identified in the gap analysis
processes and for writing decision units for the Fiscal Year 2011 budget. This packet contains a
listing of those cost centers for FY2011; a section of proposed code deletions, modifications, and
addition; other gaps identified; and, a long list of suggested efficiencies, in many cases not
requiring code changes or additional resources. The next step is to discuss proposed changes to
the Department with the Director, and receive any approvals and direction for proceeding with
the zero-based budget for FY2011. (gov., 2015, p. 2)
Zero Based Budgeting for KCS 36
3.4.1 Idaho Department of Correction
The Idaho Department of Correction's Bureau of Management Services and Bureau of
Contract Services support IDOC's public safety mission by providing a wide range of support
activities. Management Services provides budget and payroll management; information
technology; and fiscal services (Cost of Supervision and Offender Account Management.)
Contract Services provides grant/contract administration; offender records; dietary
services; capital construction projects, and contract facility monitoring. (idoc.idaho.gov, 2015)
IN FISCAL YEAR 2010, the Idaho Department of
Correction (IDOC) had $143.2 million in prison
expenditures. However, the state also had more than $1.5
million in prison-related costs outside the department’s
budget.
The total cost of Idaho’s prisons—to incarcerate an average
daily population of 7,402—was therefore $144.7 million, of
which 1.0 percent were costs outside the corrections budget.
Zero Based Budgeting for KCS 37
Determining the total cost of state prisons requires accounting for expenditures in all areas of
government that support the prison system—not just those within the corrections budget.
The additional costs to taxpayers can include expenses that are centralized for
administrative purposes (such as employee benefits and capital costs) and services for inmates
funded through other agencies. Prison costs also include the cost of underfunded contributions to
corrections employees’ pensions and retiree health care plans; states must pay the remainder of
those contributions in the future. (Justice V. I., 2012)
Prison costs outside the IDOC’s budget included the
following: RETIREE HEALTH CARE CONTRIBUTION.
The state of Idaho made a payment of $247,000 for
corrections employees in 2010. (Justice V. I., 2012)
UNDERFUNDED RETIREE HEALTH CARE
CONTRIBUTIONS. In 2010, the state contributed 51 percent
of the annual amount required to fully fund retiree health care
benefits in the end. The state will need to pay the remaining
$237,000, plus interest, to provide for the retiree health care
benefits for corrections employees that are scheduled under
current law. (Justice V. I., 2012)
STATEWIDE ADMINISTRATIVE COSTS. In 2009, the
most recent year for which Vera could obtain data, the IDOC incurred $973,000 in indirect costs
(such as auditing or information technology) paid by state administrative agencies. Indirect costs
related to prison operations that are provided by these agencies were determined using the
Statewide Cost Allocation Plan (SWCAP). (Justice V. I., 2012)
OTHER STATE COSTS. A portion of the costs of capital improvements, judgments, and
legal claims were funded outside the corrections department. Vera could not obtain this
information and these costs are not included in this fact sheet. Therefore, the state’s total prison
cost calculated for this report is a conservative estimate. (Justice V. I., 2012)
Zero Based Budgeting for KCS 38
4. CHAPTER FOUR
Correctional Service of Kosova Findings & Analysis
4.1. Audit Report on the Financial Statements of the Ministry Of Justice for the Year Ended 31
December 2013.
Budget Planning and Execution: We have considered the source of budget funds for MoJ and
spending of funds by economic categories. This is highlighted in the following tables:
Table 9.MOJ Financial Statements as of 31-Dec-2013
Economic Categories Amount € Final Budget 2013 Outturn
2011
Outturn
Wages And Salaries 10,124,215 9,688,604 9,510,257 9,123,140
Goods And Services 5,826,116 6,053,553 5,173,127 5,714,551
Utilities 827,258 907,258 858,186 809,957
Subsidies And Transfers 200,000 400,000 31,698 60,965
Capital Investments 1,622,500 1,537,400 1,144,252 793,321
Total
18,600,089
18,226,815
16,227,936
16,501,934
(Finance, 2015 Budgeting, 2015, p. 12)
Issue 2 – Low Budget Execution in Capital Investments – High Priority
Finding: Expenditures for Capital Investments compared to the final budget for this
category were 60%. Failure to execute four projects, which in absence of eligible bids were in
retendering process, had an impact on this. This resulted in changing the time of their execution.
Zero Based Budgeting for KCS 39
Risk: Low budget execution in particular with capital projects may lead to the risk that
resources are inefficiently used and may reduce the effectiveness of the expenditure plans.
(Finance, 2015 Budgeting, 2015, p. 14)
Issue 4 Finding: According to Financial Rule no. 01/2013 on Spending of Public Funds, the
authorizing officer (budget holder) authorizes the request for the commitment of funds for all
purchases, whilst the procurement office prepares and creates the purchase order.
Then the request for supply by the Economic Operator (EO) is made. In the case “Supply
with fuel” in two payment orders in the amount of €94,467 and €97,749, we found the supply in
KCS started prior to the initiation of the request for supply by the internal users. In the first
payment, the supply occurred in December, whilst the request was made on 17.01.2013, i.e.
commitment of funds and purchase order were made on 24.01.2013.
In the second payment, supply started in February whilst the request was made on
07.03.2013 and commitment of funds and purchase order were made on 11.04.2013.
Risk: Supply with Goods and Services without the initiation of request from the requesting
units and without the commitment of funds may lead to the purchase of goods or to unnecessary
services delivered to the Ministry. This may result in the inefficient use of resources and reduces
the effectiveness of expenditure plans. This situation is challenging to the adequate functioning
of internal control. (Finance, 2015 Budgeting, 2015, p. 15)
Zero Based Budgeting for KCS 40
4.2. Audit Report on the Financial Statements of the Ministry Of Justice for the Year Ended 31
December 2012
Despite all the progress, the MoJ needs to make many improvements. The most
challenging area remains budget planning and execution. The MoJ had budget surpluses of 13%,
and executed only 57% of the capital investments budget. Evidently, the annual procurement
plan is done without preliminary analysis of market prices, without properly identifying projects
objectively that are to be carried out, and without proper monitoring. (General Audit, 2012, p. 5)
Table 10. MOJ Budget 2012: Spending of funds by economic categories- Outturn against the budget (in €)
Economic Categories
Initial Budget
%
Final
%
Wages And Salaries
10,070,780
52.5%
9,793,717
52.4%
Goods And Services
5,475,857
28.6%
5,894,756
31.6%
Utilities
2,558,532
13.3%
2,012,037
10.8%
Subsidies And Transfers
844,258
4.4%
944,258
5.1%
Capital Investments
220,000
1.1%
35,000
0.2%
Total
19,169,427
18,679,768
(General Audit, 2012, p. 12)
The table above shows that the Initial Budget was in the amount of €19,169,427, and the
Final Budget was in the amount of €18,679,768. Therefore, we see a reduction for €489,659
compared to the Initial Budget. (General Audit, 2012, p. 12)
3. Issue - Shortcomings in executing capital projects – Priority Significant
Finding: Capital expenditures compared to the final budget were 57%. This indicates that a large
part of capital projects was not implemented. In a nine-month period was spent only 17% of the
budget and the other 40% of the budget was spent in the last quarter.
Zero Based Budgeting for KCS 41
Risk: There is a significant disagreement between the plan and expenditures. Due to poor
planning of expenditures, capital projects were not implemented. The risk of this is generating
high budget surpluses. (General Audit, 2012, p. 12)
4.3. Audit Report on the Financial Statements of the Ministry Of Justice for the Year Ended 31
December 2011
Table 11. MOJ Budget 2011: Spending of funds broken down by economic categories- Outturn against the budget (in
€)
Table 11. shows that MoJ had an increase of final budget for €598,095 compared to the
initial budget. In the following, we will disclose budget movements by category of expenditures.
Table 11. shows an increase in the category of Wages and Salaries for €101,145. Such increase
was due to Government’s decision on the Brain Fund in the amount of €64,320, whilst the other
amount of €36,825 was from own source revenues, for payment of committees on exam
attendance. In the category of Goods and Services, there was a budget increase of €1,400,054.
Such increase is as a result of presentation of the prisoners’ private funds as well as presentation
of foreign donations in the final budget. (General Auditor, 2011, p. 9)
Economic Categories
Initial Budget
%
Reviewed
Budget
%
Outturn
2011
%
Wages And Salaries
10,005,742
49.68%
10,106,887
48.73%
9,123,140
55.29%
Goods And Services
5,668,145
28.14%
7,068,199
34.08%
5,714,551
34.63%
Utilities
2,020,000
10.03%
1,360,966
6.56%
60,965
0.37%
Subsidies And Transfers
1,603,572
7.96%
1,359,502
6.56%
793,321
4.81%
Capital Investments
844,258
4.19%
844,258
4.07%
809,957
4.91%
Total
20,141,717
20,739,812
16,501,934
Zero Based Budgeting for KCS 42
Fund for Subsidies and Transfers was decreased for €659,034 compared to the initial
budget. The budget cuts were made upon decisions of the Prime Minister of Kosova. The amount
€525,000 was cut based on the decision of 19th of October 2011 on internal harmonization; the
amount of €105,000 was transferred to the Judicial Institute of Kosova based on the decision of
23rd of November 2011. The amount of 28,934€ was cut based on the decision of 23rd of
November 2011. (General Auditor, 2011, p. 10)
A budget cut in the amount of €244,070 was also made in the Capital Investments on
27th of July 2011, aiming budget savings. (General Auditor, 2011, p. 10)
Planned (final) budget for 2011 was €20,739,812. The MoJ managed to spend the amount
of €16,501,934 or around 80% of the budget. If we see the budget execution based on economic
categories, we see that a low execution rate was in the categories of Subsidies by 4% and Capital
Investments by 58%. Low execution in the category of Subsidies and Transfers resulted due to
improper budgeting. The MoJ had budgeted means in this category for drafting of laws.
Considering the budget execution based on periods, there is also a poor budget execution. Over
30% of budget was spent only in the last three months. (General Auditor, 2011, p. 10)
Conclusion: The MoJ for 2011 did not have a good budget performance. Low level of execution
is mainly noticed in the categories of Subsidies and Transfers and Capital Investments. (General
Auditor, 2011, p. 10)
5. FIVE YEAR SCENARIO (INCREMENTAL VS. ZBB)
Figure 6. Incremental Budgeting 5Yrs Scenario ‘000
Description:
Incremental Budgeting
2011 2012 2013 2014 2015
EUR.
Expenses
Estimation
Expenses
Diff.
Estimation
Expenses
Diff.
Estimation
Expenses
Diff.
Estimation
Expenses
Diff.
Ratio
1%
-6%
-2%
-1%
-0.2%
-2%
4%
1%
1. Total MOJ Revenues
20,142
20,338
19,121
-
1,217
18,733
18,600
-133
18,572
18,115
-457
18,914
19,011
96
Wages and salaries
10,006
10,103
10,023
-81
9,306
10,076
770
10,061
9,823
-238
10,256
11,817
1,561
Goods and services
5,668
5,723
5,476
-247
5,272
5,826
554
5,817
5,745
-73
5,998
4,870
-
1,128
Of which: Utilities
844
852
844
-8
785
827
42
826
827
1
864
733
-131
Subsidies and Transfers
2,020
2,040
220
-
1,820
1,879
200
-
1,679
200
50
-150
52
20
-32
Subsidies for PE
Capital expenditures
1,604
1,619
2,559
939
1,491
1,623
131
1,620
1,623
2
1,694
1,523
-172
Own revenues
48
48
48
48
50
48
-2
KCS Budget Participation
/ Total MOJ Revenues
70%
78%
82%
80%
82%
2. Total KCS Expenses
14,189
14,861
15,232
14,581
15,598
Wages and salaries
8,152
8,152
8,552
8,064
9,763
Goods and services
4,200
4,068
4,465
4,346
3,808
Of which: Utilities
649
649
649
649
605
Subsidies and Transfers
Subsidies for PE
Capital expenditures
1,189
1,993
1,568
1,523
1,423
Own revenues
3. Remaining Departments
5,953
4,260
3,368
3,534
3,413
(Finance, Buxheti i Republikës së Kosovës, 2015;2014;2013;2012;2011)
Zero Based Budgeting for KCS 44
Based on actual incremental budgeting we can see the following budget expenses deviation:
Figure 7. Incremental Budgeting Deviation
Fiscal Year
Surplus Budget
Deficit Budget
Total
2012
1,217,000€
0.00
1,217,000€
2013
133,000€
0.00
133,000€
2014
457,000€
0.00
457,000€
2015
0.00
-96,000€
-96,000€
Grand Total
1,807,000 €
-96,000 €
1,711,000 €
Based on the actual budget comparison we can notice that there is a total deviation from 1.7 Million EUR. Surplus of estimated
budget and spent budget for four years. Moreover, there are discrepancies between the budget categories in estimations and
expenditures. In this case, budgetary organization to achieve its final reconciliation to the total budget need to move funds from one
category to another, which violates the rules established in respect of budgetary limits.
Surplus of the sums which appeared can be allocated in any other position required. By this a regular practice is reported that
the biggest percentage of annual budget is spend in last quarter of budgetary organizations, to avoid budget surplus, which if not
spend, the government will reduce of subsequent year's budget for of the same volume.
Zero Based Budgeting for KCS 45
Figure 8. Zero Based Budgeting 5Yrs Scenario ‘000
Description:
Zero Based Budgeting
2011 2012 2013 2014 2015
EUR.
Expenses
Estimation
Expenses
Diff.
Estimation
Expenses
Diff.
Estimation
Expenses
Diff.
Estimation
Expenses
Diff.
Ratio
Risk Surplus/Deficit
1. Total MOJ Revenues
20,142
19,121
19,121
0
18,600
18,600
0
18,115
18,115
0
19,011
19,011
0
Wages and salaries
10,006
10,023
10,023
10,076
10,076
9,823
9,823
11,817
11,817
Goods and services
5,668
5,476
5,476
5,826
5,826
5,745
5,745
4,870
4,870
Of which: Utilities
844
844
844
827
827
827
827
733
733
Subsidies and Transfers
2,020
220
220
200
200
50
50
20
20
Subsidies for PE
Capital expenditures
1,604
2,559
2,559
1,623
1,623
1,623
1,623
1,523
1,523
Own revenues
48
48
48
48
48
48
KCS Budget
Participation
/ Total MOJ Revenues
70%
78%
82%
80%
82%
2. Total KCS Expenses
14,189
14,861
15,232
14,581
15,598
Wages and salaries
8,152
8,152
8,552
8,064
9,763
Goods and services
4,200
4,068
4,465
4,346
3,808
Of which: Utilities
649
649
649
649
605
Subsidies and Transfers
Subsidies for PE
Capital expenditures
1,189
1,993
1,568
1,523
1,423
Own revenues
3. Remaining
Departments
5,953
4,260
3,368
3,534
3,413
(Finance, Buxheti i Republikës së Kosovës, 2015;2014;2013;2012;2011)
Zero Based Budgeting for KCS 46
Zero based budgeting when comparing to incremental budgeting has no difference with budget surplus or deficit, therefore the total
deviation is zero. This scenario shows the best result if ZBB is implemented correctly.
Figure 9. Actual Incremental Budget Line Sample (Repeated Amount 5yrs in row)
Project Name (KCS) 31-Dec-11 31-Dec-12 31-Dec-13 31-Dec-14 31-Dec-15
Establishment of a special
unit for monitoring and
transporting prisoners
150,000
150,000
150,000
150,000
150,000
Renovation of the roof (roof
maintenance of facilities and
prisons )
50,000
50,000
50,000
50,000
50,000
(Finance, Buxheti i Republikës së Kosovës, 2015;2014;2013;2012;2011)
As seen Figure 9. presents two budget categories among other budget projects in KCS, which are re-estimated each year and
exact amount of money was spent. This is additional argument that incremental budget preparation mindset is narrow and it costs extra
euros to the government of Kosova, especially poor estimations cause by public services organization such as KCS. What
incremental budgeting leaves out of the account is analyzing the need for financing new project from scratch but leaving budget
organization spend more money in repetitive capital projects, goods and services and rise stocks of goods, while ignoring needs in
enhancing organization strategy as ZBB suggests.
6. Potential Use in Kosovo
A. Can we apply ZBB to Kosovo?
Table 12. Correctional Services FY2014 Budget Comparison between Kosova and State of Idaho (USA)
Description State Of Kosova State Of Idaho
Population
Size Of Budget In MOJ
Number Of Employees In KCS
Inmates
Average Annual Cost Per Inmate
1,859,203
USD 20.7 MIL
1,608
1,500
USD 13,826
1,634,464
USD 143.2 MIL
1,960
8,120
USD 19,545
The Republic of Kosovo has approximate figures to that of state of Idaho. From statistical
data, Kosovo has population of 1.8 million while state of Idaho has 1.6 million, the correctional
staff numbers is approximately 1,608 in Kosova and 1,960 in Idaho, and the average cost per
prisoner brought in a buck for Kosovo is 13.826USD and 19.545USD for the state of Idaho.
Given the state of Idaho has a larger budget, a large number of prisoners and implements
zero budgeting, gives us a strong argument that ZBB can be applied in Kosovo Correctional
Service which has a smaller budget, smaller number of prisoners, and possesses sufficient time
and space for administrative officials to deal with budgetary planning, implementation,
monitoring and reporting.
Zero Based Budgeting for KCS 48
5.1. Would it truly benefit Kosovo Departments?
A. If so, how?
ZBB may be of benefit to departments that provide services to the government of
Kosovo, such as the Department of Correctional Services, Kosovo Police, and Kosovo Protection
Force.
First, Zero based budget will organize budget proposals on rankings by reducing
unnecessary ones, for each project will implement cost-benefit analysis, feasibility study for
capital projects, and then higher management will decide if the budget is related to the
organization's strategic plan, detects inflation, and the allocation of funds will be efficient.
Furthermore, ZBB is easier to control by internal and external audit as it allows single
audit report. By this, taxpayers money will be ensured that is spend properly and for projects that
matters to the government of Kosova.
Lastly, ZBB can reduce corruption as prior cost benefit analysis of budget will be
conducted, and there will no space to increase budget drastically for the reason of unforeseen
plans during preparation of incremental budgeting.
ZBB may be of benefit to departments that provide services to the government of
Kosovo, such as the Department of Correctional Services, Kosovo Police, and Kosovo Protection
Force.
B. If not, why?
In the other hand, ZBB is only really applicable to a service environment, its time
consuming, requires additional training for staff and managers, may cause budget increase for
certain categories during the first years planning, can cut budget in some other categories, and
may lead to lost continuity of action and short term planning.
Zero Based Budgeting for KCS 49
Works Cited
Assembly of the Republic of Kosovo. (2008). LAW ON PUBLIC FINANCIAL MANAGEMENT
AND ACCOUNTABILITY. Prishtina: Kosovo, Assembly of the Republic. Retrieved from
Gazetazyrtare: http://www.gazetazyrtare.com/e-gov/ahtisari/048-Eng.swf
Bartley, A. K. (1997). Case Studies of Public Budgeting and Financial Managament. Iowa:
Kendall/Hunt.
Census Bureau, U. (2015, 3 14). http://quickfacts.census.gov/. Retrieved from
http://quickfacts.census.gov/qfd/states/16000.html
Cheek, L. M. (1977). Zero-Base Budgeting Comes of Age. New York: AMACOM.
Dunn, R. (2015, 2 12). Retrieved from http://opb.georgia.gov/zero-based-budgeting
Finance, M. o. (2015). 2015 Budgeting. Ministry of Justice. Prishtina, Kosovo: Ministry of
Finance. Retrieved 1 23, 2015, from http://www.oag-
rks.org/repository/docs/RaportiAuditimit_MD_2013_Eng_757539.pdf
Finance, M. o. (2015;2014;2013;2012;2011). Buxheti i Republikës së Kosovës. Prishtine:
Ministry of Finance.
Gábor Péteri, S. L.-G. (2009). Local government budgeting practices. Strasbourg: Council of
Europe.
GAP, I. (2013, 3 31). Retrieved from
http://www.institutigap.org/documents/84490_AnalizaperbuxhetinENGfinal.pdf
General Audit, O. o. (2012). Audit Report on Financial Statment for MOJ Year 2012. Pristina:
General Audit.
General Auditor, O. o. (2011). Audit Report for MOJ. Pristina: General Audit, office of Republic
of Kosova.
gov., I. (2015, 14 3). Retrieved from
http://dfm.idaho.gov/state_agencies/zbb/Admin/the_process_we_used.pdf
Zero Based Budgeting for KCS 50
idaho.gov. (2015, 3 14). Retrieved from
http://dfm.idaho.gov/state_agencies/zbb/Admin/zbb_administration.html
idoc.idaho.gov. (2015, March 15). www.idoc.idaho.gov. Retrieved from www.idoc.idaho.gov:
http://www.idoc.idaho.gov/content/business_services
Infoplease. (2015, 3 14). Retrieved from infoplease:
http://www.infoplease.com/encyclopedia/us/idaho-facts-figures.html
Justice, M. o. (2015, 1 24). Retrieved from http://www.md-ks.net/?page=2,208
Justice, M. o. (2015, 2 23). Kosovo Correctional Service. Retrieved from http://www.md-
ks.net/?page=2,62
Justice, V. I. (2012). The Price of Prisons | Idaho. Idaho: Vera Institute of Justice.
Marcon, J. (2012). Retrieved from http://accounting.fundamentalfinance.com/zero-based-
budgeting.php
Pyhrr, P. A. (1973). Zero Base Budgeting. John Wiley & Sons,Inc.
Shim, J. K. (2011). Budgeting Basics and Beyond. Hoboken, NJ, USA: Wiley.
Zero Based Budgeting for KCS 51
Annex
Questionnaire: Zero Based Budgeting New Budgeting Approach to Kosovo Public Services
Dear Sir/Madam
My Name is Burim Haxholli, I am a student at the American University of Kosovo. Through this
compiled questionnaire I intend to propose to the Government, the method of preparing the
budget as” Budgeting from scratch or “0 “.
This paper is part of a Capstone Project, Master in Public Administration. I would be grateful if
you share your valuable time to respond to this questionnaire.
Budgeting is the main tool for planning and control activities such as money income and
outcome for its departments within an organization company. Through this survey, I tend to draw
the strengths and weaknesses of the budget preparation in institutions of Public Services in
Republic of Kosovo, about the quality of budget preparation, processes, deficiencies, weaknesses
etc.
* Required
Evaluate the level of preparation of the budget of the Republic of Kosovo *
o Superior
o Excellent
o Good
o Poor
Which budgeting method is required in Public Services *
Incremental budgeting uses data last year, making a small increase for the following year,
and budgeting from "0" starts with budget lines reassessment of the value 0.
This is a required question
Evaluate the degree of compiling, and budget forecasting in Public Services for
Capital Projects: *
1
2
3
4
5
Poor
Superior
Evaluate the degree of compiling and budget forecasting in Public Services for the
category Wages & Salaries: *
1
2
3
4
5
Poor
Superior
Evaluate the degree of compiling and budget forecasting in the Republic of Kosovo
for Goods and Services: *
1
2
3
4
5
Poor
Superior
Zero Based Budgeting for KCS 52
Evaluate the degree of compiling and budget forecasting in the Republic of Kosovo
for Utilities category: *
1
2
3
4
5
Poor
Superior
Evaluate the degree of compiling and budget forecasting in Public Services on
Subsidies and Transfers categories: *
1
2
3
4
5
Poor
Superior
Please evaluate your overall experience with budgeting in public institutions: *
Superior
Good
Poor
Other:
How many years of experience you have as an official compilation, budget
management? *
In which institution, department work? *
Please enter your feedback in the box, what method do you think the budget
forecast can be more accurate and do you think that zero-based budgeting can be
advanced option and why? *