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How can you align budget control policies with corporate governance standards?

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Budget control policies are essential for any organization that wants to achieve its strategic goals and ensure financial accountability. However, aligning them with corporate governance standards can be challenging, especially in complex and dynamic environments. In this article, you will learn how to overcome some of the common obstacles and implement best practices for budget control and governance.

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José Amancio

Head of General Accounting & Reporting Latin America | Controller
Asha Kanta Sharma

Manager - Finance & Accounts @ Opendoors Fintech | Financial Accounting

1 What is budget control and governance?

Budget control is the process of planning, monitoring, and adjusting the allocation and use of financial resources to achieve organizational objectives. Governance is the system of rules, policies, and procedures that guide and oversee the decision-making and performance of an organization. Corporate governance standards are the principles and practices that define the roles, responsibilities, and expectations of the board of directors, management, shareholders, and other stakeholders.

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José Amancio

Head of General Accounting & Reporting Latin America | Controller
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Aligning budget control policies with corporate governance standards involves integrating financial management practices with the ethical, legal, and strategic directives of the organization. This can be achieved by establishing clear guidelines for budget allocation, ensuring transparency in financial reporting, and promoting accountability among decision-makers. Regular audits and reviews of budgetary practices should align with corporate governance goals to maintain ethical standards and legal compliance. Additionally, involving diverse stakeholders in budget planning and monitoring can enhance governance and ensure financial decisions reflect the organization's overall mission and values.

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Asha Kanta Sharma

Manager - Finance & Accounts @ Opendoors Fintech | Financial Accounting
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Aligning budget control policies with corporate governance standards is crucial for maintaining financial discipline, transparency, and accountability within an organization. This involves establishing clear governance structures, adopting transparent budgeting processes, defining budgeting policies and procedures, incorporating risk management, setting ethical standards for budgeting, implementing accountability measures, including performance metrics, involving board oversight, conducting regular audits and reviews, promoting cost control and efficiency, communicating effectively, providing training and education, benchmarking against best practices, sustaining continuous improvement, and maintaining comprehensive documentation.

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Roberto Villanueva

Nearshoring / Finance & Management Consulting/ Good to Great culture
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Alignment is possible if you discuss and define the budget planning based on whole strategy of the organization Clear targets clear rules, clear time schedule and clear responsibilities are crucial for the control and tracking

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Ashok Kulkarni

Technical Adviser
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Look, as there is no any set standard for a particular corporate office/company. It's that we should fix the bench mark standards for some important KPIs. Need to tabulate, record particular parameters regularly and to compare with benchmark ones. To calculate the variance, and then take jointly agreed measures to reduce the variance. This procedure to repeat until one reaches the benchmark figures. Regards,

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2 Why is alignment important?

Aligning budget control policies with corporate governance standards is important for several reasons. First, it helps to ensure that the organization's financial activities are consistent with its mission, vision, and values. Second, it enhances the transparency, accountability, and credibility of the organization to its internal and external stakeholders. Third, it reduces the risks of fraud, mismanagement, and inefficiency that can compromise the organization's reputation and performance.

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Roberto Villanueva

Nearshoring / Finance & Management Consulting/ Good to Great culture
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Cleat rules define how an organization will move on and measure results Actions will be taken since business is alive but always on a define structure

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3 What are the challenges of alignment?

Despite the benefits of alignment, many organizations face challenges in achieving it. These challenges can include a lack of clear communication between the board, management, and budget holders, conflicting or competing interests, inadequate or outdated budget policies and procedures, insufficient or ineffective budget monitoring and reporting systems, and limited or no involvement of the board in the budget process. All of these issues can lead to a lack of oversight and guidance which can hinder the budget process.

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Roberto Villanueva

Nearshoring / Finance & Management Consulting/ Good to Great culture
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Main challenge is communication Mails are useless Open discussion and presentation of results and measures are a must Otherwise there will be surprises at the end

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4 How can you overcome the challenges?

To ensure successful alignment, a systematic and proactive approach is necessary. This includes establishing a clear and shared vision and strategy that guides the budget process and aligns with corporate governance standards. It is also important to define roles and responsibilities of the board, management, and budget holders in the budget process, while providing them with the necessary skills and resources. Additionally, budget policies and procedures should be developed that are realistic, flexible, and adaptable to changing circumstances. Moreover, SMART (specific, measurable, achievable, relevant, and time-bound) budget targets and indicators should be set that reflect the organization's goals and performance expectations. It is essential to monitor and evaluate budget performance regularly and report the results to the board, management, and budget holders. Feedback should be used to identify any issues or gaps in order to improve the budget process and outcomes. Finally, engaging with the board, management, and budget holders throughout the budget process can help foster a culture of collaboration, trust, and accountability.

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Roberto Villanueva

Nearshoring / Finance & Management Consulting/ Good to Great culture
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To overcome challenges or better be able to react to difficulties an open communication and measurement tools must be avail me to the group at all levels

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5 What are the best practices for alignment?

In addition to the steps mentioned above, you can also practice some of the best methods for alignment that have been successful in various contexts and sectors. These include aligning the budget cycle with the strategic planning cycle and corporate governance cycle to ensure consistency, using a participatory and bottom-up approach to budget formulation and allocation that involves input from stakeholders, applying a risk-based and value-for-money approach to budget execution and control that focuses on the most important activities and projects, employing a balanced scorecard or similar tool to measure and report budget performance from multiple perspectives such as financial, operational, customer, and social, and conducting regular independent audits and reviews of the budget process and outcomes while implementing any necessary recommendations or corrective actions. By following these steps and best practices, you can align your budget control policies with your corporate governance standards to achieve better results for your organization while enhancing your reputation as a responsible entity that delivers value to stakeholders.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How can you align budget control policies with corporate governance standards?

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1 What is budget control and governance?

2 Why is alignment important?

3 What are the challenges of alignment?

4 How can you overcome the challenges?

5 What are the best practices for alignment?

6 Here’s what else to consider

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