The use of budgets by governments long preceded their use in private enterprise (Isaac, Lawal & Okoli 2015:1). With one major exception, public sector or service budgets have the same characteristics as private sector budgets. In the government, the budget is not designed with a focus on profitability (Raghunandan, Ramgulam & Raghunandan-Mohammed 2012:114). Olurankinse (2012:146) suggested that a budget is prospective in the sense that it refers to expected future revenue and expenditure. According to Tyer, Willand and Mikesell in Purtell and Fossett (2009:96), government accounting and budgeting systems historically have been designed to maximise central control and prevent theft through the use of fund accounting, line-item budgeting and central budget agency control over allocations and transfers.

Freeman et al. (2011:121) observed that budgets are designed to ensure that government revenues and expenditures are properly planned, authorised, controlled, evaluated and reported to the citizenry, legislature and creditors. Through its budget, government indicates how much it is willing to spend on public purposes, sets substantive policy priorities within overall spending levels, determines the amount that must be borrowed to finance approved spending and thus influences the economy (Ekeocha 2012:64).

Schick (2007:2) argued that without reliable financial controls, the budget cannot be used for other important government functions such as managing the economy, improving administrative efficiency and formulating public objectives and priorities. Budget approval in the public sector (government) occurs at three stages: ministerial approval, executive approval and legislative approval (Olurankinse 2012:147). Deng and Peng (2011:76) postulated that the public budget, serving as a reflection of the collective public interest and as a legal constraint on government spending, can be an effective tool for promoting good governance and public interest. Financial management in government generally consists of three major components, which are:

Given the importance of the budget in government, government officials must have timely, useful, up-to-date information on how actual operations during the year compared with the budget (Freeman et al. 2011:121).

The World Bank and the International Monetary Fund developed a framework named the Medium-Term Expenditure Framework (MTEF), which is intended to facilitate several outcomes such as macroeconomic balance, improved resource allocation, budget predictability for ministries and efficient use of public funds (Gollwitzer 2010; Le Houerou & Taliercio 2002:4). The MTEF system in South Africa uses key sets of budget documentation to extract strategic information for decision making, to ensure commitment to decisions taken and to enable accountability (Folscher & Cole 2006:15).

The MTEF is designed to be a key tool that supports and improves budget planning in the municipality and to bring resources, key policy issues and government programmes together. According to Shah (2009:238) ‘the initial experience with the MTEF in South Africa, started in 1994, as such, lacked political involvement and had no clear link with the budget preparation process’. Taking these challenges into account, the government in 1997 merged the MTEF and the budget process to improve resource allocation and expenditure management.

The framework in Figure 1 outlines the accountability cycle for budgeting and reporting for municipalities and the documentation the municipality must compile concerning each of these processes. The budgeting framework is demonstrated in Figure 1.

The Integrated Development Plan (IDP) is a 5-year strategic plan (document) that is compiled by the governing party of the municipality and is linked to the voting cycle. It determines the strategies, objectives and service delivery targets of the municipality (Mathebula et al. 2016). Accordingly, a newly elected local government and the mayor draft a 5-year strategic plan that will outline strategic policy priorities and plans for the next 5 years (National Treasury 2004:n.p.). The 5-year plan will guide the new government in the budgeting process and policy prioritisation. The Built Environment Performance Plan’s (BEPP) overarching goal is to ensure spatial transformation and restructuring by prioritising capital expenditure in regions that would maximise the positive impact on residents, drive private sector investment, and promote development and growth.

Municipalities in South Africa plan their budgets by using the MTEF budgetary procedure (Gollwitzer 2010). The MTEF is a 3-year budget cycle, where government departments and municipalities are expected to implement the first year (year one) and leave the two outer years (Pearson, Pillay & Chipkin 2016:16). The implementation of the first year of the MTEF budget process is regulated by the Municipal Finance Management Act 56 of 2003. According to the Municipal Finance Management Act 56 of 2003, Section 53:

When compiling the annual budget, the budget and Treasury directorate within the municipality must distribute the prescribed schedules to all programme managers with a request to prepare the budget breakdowns in conjunction with the programme strategic plans (Ndebele et al. 2017). Thus, according to the MFMA, the accounting officer of the municipality must each year, before the beginning of the financial year, submit a monthly breakdown of anticipated income and expenditure (cash flow) of a department to the relevant treasury (South Africa 1999:50).

The accounting officer of a municipality must compile cash flow statements and in-year monitoring assessment reports of actual expenditure and projected expenditure on a monthly basis. Thus, these reports should be submitted to the relevant Treasury and the Minister or Member of the Executive Committee (MEC) responsible for the department within 15 days of the end of each month (South Africa 1999:50). If there are deviations between what was projected and what was spent, the accounting officer must explain to the relevant treasury the remedial action taken to avoid any deviations from reoccurring.

Quarterly performance reports (QPRs) are compiled and submitted to the relevant treasury. These QPRs highlights the key departmental goals and objectives as indicated in the Annual Performance Plan. The purpose of the report is to assess the performance of a department on financial or non-financial issues. Progress in departmental performance against the budget and strategic plan is reported quarterly.

The executive authority of the national or provincial government must consider the annual report. Because the budget is an estimate of future expenditure, it is necessary to continuously review and evaluate the budget against the actual expenditure to measure the extent of expenditure. If the allocation of these resources in the estimations (budget) is to be of any practical use, then there is a need to review the budget requests. The review assists in the coordination and the evaluation processes that will maximise the benefits derived from these scarce resources.

In government structures, many units do budgets at lower-cost centres. At a higher level, proposals are tabled, discussed, reviewed, synchronised (coordinated) and approved to ensure that there is a link between the plans, decisions and budgeting, resulting in a master budget, which, if properly executed, should be able to satisfy everyone contributing to the budgetary process.

Organisations should review budgets using the most recent and relevant information at their disposal to reflect what was budgeted for, how much was budgeted for, how much was spent on the particular item or project and how much is available or left to be spent. This process is carried out to review the performance of an organisation. Reviewing the budget helps an organisation to make effective decisions and set future direction. If budgets are reviewed continuously by management any underperformance can be detected timeously and the necessary actions can be taken.

According to the Municipal Finance Management Act 56 of 2003 (South Africa 1996:48), the accounting officer of the municipality prepares financial statements for each financial year following generally recognised accounting practices and standards. The Act further states that those financial statements should be submitted within 2 months after the end of the financial year to the auditor general and the relevant treasury to be audited.

At this stage, performance against the budget and strategic plan will be reported, which will include a performance report of the audit committee, annual financial statements and the oversight report on human resource management and service delivery.

Five hypotheses were advanced with respect to the proposed budget model. These are illustrated in Figure 2.

Budgets are management planning and control systems; thus, the effectiveness of budgeting depends on how a budget is organised in the municipality (Sulistiyo & Pratiwi 2021). The budgeting process assists municipal managers to shift their focus away from short-term goals and day-to-day operations of the organisation and towards the long term (Melnichuk 2015). One of the key goals of budgeting is to focus on planning, resource allocation and evaluation so that the achievement of organisational goals becomes the primary goal of budgeting (Maher, Fakhar & Karimi 2018). In the light of this, the following hypothesis (H₁) is advanced:

According to Rakabe (2011:137), municipalities should have revenue management systems in place in order to effectively classify, collect, reconcile and record income, which is generated by the municipality from businesses and citizens for services rendered. Lack of revenue management systems and procedures affects how municipalities budget for revenue and expenditure (Malobela 2016:13).

Transgressions such as fruitless, irregular and unauthorised expenditures are the major challenge municipalities face in relation expenditure management. The second hypothesis (H₂) is formulated as follows:

The Constitution is the supreme law that requires municipalities to manage financial resources with diligence and promotes accountability in the local government sphere. There are several statutes that empower municipalities and provide a legal framework for municipalities and municipal entities. The Municipal Financial Management Act (MFMA) is part of a number of parliamentary acts that focus on robust financial management and minimisation of maladministration in municipalities (Imuezerua & Chinomona 2015:359). The Municipal Finance Management Act gives clear direction to municipalities, municipal and municipal employees in general on how to effectively manage financial resources (Reddy 2016:2). Thus, we put it together forward into the hypotheses (H₃) as follows:

Risk is one of the challenges facing organisations and one which may negatively impact the activities and operations of an organisation in terms of achieving objectives (Ridha & Alnaji 2015:9). Ridha and Alnaji (2015:15) defined risk as ‘an unexpected and uncertain event that could happen in the future and is counterproductive to the goals of the organisation’. According to Fadun (2013:225), economic volatility requires managers to focus and manage risk effectively at all levels of management. According to Nel (2019:60), different variables affect risk management in the public sector, including changes in a dynamic and unpredictable environment, accurate risk intelligence and knowledge and skills. Risk management is a vital activity that companies must undertake if they want to achieve their goals and business objectives (Ahmeti & Vladi 2017:323). Thus, we formulated the following hypothesis (H₄):

The movement of money into and out of a municipality’s bank account is called cash flow. Money inflow consists of money that is received from ratepayers (property rates and tariffs), whilst cash outflows consist of money paid to staff and service providers (Reutener & Fourie 2015:12). When more money flows in to than out of the bank account of the municipality, the municipality should have a ‘surplus’ of funds, which should enable the municipality to carry out its activities without any obstacles. If a municipality does not generate cash (cash inflow), this might lead to bankruptcy and thus the cash inflows and cash outflows determine the solvency of the municipality (Belobo & Pelser 2014:227).

Effective cash flow management (CFM) is an important municipal function. Ineffective processes and monitoring of CFM systems affect the survival of a municipality (Belobo & Pelser 2014:227). Municipalities should have realistic strategies to manage cash flow to achieve sustainability and survival (Myeni 2018:5). Municipalities must prepare realistic cash flow projections prior to the beginning of each fiscal year. The achievement of these projections must be monitored on a monthly basis using monthly cash flow statements or reports. In light of the given facts, we formulated the following hypothesis (H₅):

A quantitative research technique was used for the survey. Quantitative research aimed at explaining and describing phenomena and correlations. Statistical methods such as correlations, empirical (descriptive) were used to assist in the establishment of causal links. The quantitative dimension is focused on the fact that the research aimed to find the relationship between the independent variables (budget planning, revenue and expenditure management, risk management, CFM and legislation consideration) and the dependent variable (effective budget management). According to Neuman (2011:16), the quantitative design may be descriptive or experimental in nature, where only correlations between variables are formed by a descriptive analysis and causality is established by an experiment.

The research took a positivist approach, as it relied on hypothesis development and testing. Hypotheses were put forward in proportional or question form about the relations between the phenomena, where the influence of independent variables on the dependent variable was investigated. This study involved the development of five hypotheses and the testing of these in relation to a municipal budgeting model and the collection and analysis of data from selected municipal employees.

Data for this study were gathered across three South African municipalities in the provinces of Western Cape, Eastern Cape and Free State. These three municipalities located in three different provinces are governed by different parties. These municipalities were purposely selected for the following reasons.

Municipality A from the Western Cape is under the administration in terms of Section 139(5) of the Constitution read with Section 139(1) of the Municipal Financial Management Act, 56 of 2003 (MFMA) due to poor financial management and maladministration (Makwetu 2019). Municipality B and C were selected from Eastern Cape and Free State provinces respectively. According to Parliamentary Monitoring Group (PMG) (2021), local government audit outcomes 2018/19 revealed that in the Eastern Cape, there was a widespread lack of financial controls and project monitoring. In the Free State, there was a deliberate lack of accountability by political and administrative leadership (PMG 2021). However, the municipality from Free State provinces received a financially qualified opinion with findings (Makwetu 2019). Therefore, the rationale for selecting these municipalities was to do a comparison of municipalities that performed differently in terms of the Auditor General’s report on municipal performance in 2019/2020 fiscal year. Furthermore, the intention was to get the views of municipal employees who are working in different work environments. This enabled the researchers to obtain more broad perspectives on how the budget is managed in various political environments. The study’s population was made up of individuals directly involved in budget management: clerks, assistant accountants, accountants and managers working for the municipalities. Data were collected using a questionnaire administered online via the Lime Survey. The sample size for this study was 261 (Table 1). In this regard, the sample of each municipality is as follows.

Data from the Lime Survey, which is linked to SPSS analysis of moment structures (AMOS), were transferred and captured to SPSS AMOS. The questionnaire consisted of two sections: Section A, biographical information about employees and Section B, Likert scale statements to be ranked by respondents.

Specific individuals in the study population were identified based on their participation in the budget preparation and monitoring process and were designated as the sample units that made up the sampling frame. With a total of 261 respondents, the requirement of a sample size of between 200 and 400 for structural equation modelling (SEM) was satisfied (Hair et al. 2017:7; Siddiqui 2013:286).

The reliability of the instrument was tested using exploratory factor analysis in AMOS version 20 using SEM. In addition, Cronbach’s alpha was used to test the measuring scales used in the research instrument (questionnaire) that was sent to one municipality before sending it to the other two municipalities. For alpha to be acceptable, it should be 0.70 and above. In this study, Cronbach’s alpha was 0.92, which was strong and acceptable.

Structural equation modelling is a tool used for statistical analysis by social science researchers (Hair et al. 2017:2). The SEM is especially useful in the social sciences, where many of the main ideas are not immediately measurable. The SEM examines the structure (model) and the relationships of the variables or constructs within the structure. For the purposes of this study, SEM was used to consider the relationships between the independent variables and the dependent variable and to identify which independent variables have a significant influence on the dependent variable. The SEM was also used for statistical testing. Furthermore, SEM can be viewed as a composite of regression, path analysis and factor analysis, with a focus on theoretical structures represented by latent factors.

One of the benefits of SEM is that a researcher can test the entire model in one analysis (Shadfar & Malekmohammadi 2013:582). For SEM to be effective, a system called AMOS has to be used to analyse data (Hair et al. 2017:2). According to Kline (2011:11), SEM is generally a technique used with large samples. In determining whether a model is fit for purpose, determining whether it fits the data collected is crucial (Gao, Shi & Maydeu-Olivares 2019:1). The SEM is a mixture of factor analysis, modelling of paths and partial least squares (Chen et al. 2014:253). According to Shadfar and Malekmohammadi (2013:585) for a researcher to determine whether or not it is appropriate to use SEM, there are certain fit statistics that need to be tested. These SEM fit statistics are summarised in Table 2.

The primary objective of the analysis of data from Section A of the questionnaire was to determine the suitability of the candidates for the work with which they worked in dealing with the budget at their lowest cost centre and the execution of budget allocations.

In essence, this question was used to determine the age of the staff members involved in the budgetary process. Although age may not have a great impact on the ability to budget or manage budgeting procedures, researchers have recognised a link between age and the perceived level of budget comprehension. The ages of the respondents are shown in Table 3.

Table 3 shows that the highest percentage of participants at 28.4% (n = 74) were between the ages of 31 and 40 years. About 26.1% (n = 68) were between the ages of 41 and 50 years. Approximately 16.9% (n = 44) were between the ages of 26 and 30 years, 15% (n = 40) between the ages of 51 and 60 years, 8% (n = 22) between the ages of 61 and 66 years and 5% (n = 13) between the ages of 18 and 25 years. As fewer than a quarter of those surveyed are between the ages of 18 and 30, it could be argued that a significant majority should be considered mature adults with considerable life and work experience.

This question was advanced to the respondents to investigate their suitability in the study. Of 261 participants, only 167 respondents responded to this question. Table 4 shows the distribution of their positions in the municipalities.

Table 4 shows that the highest percentage by category of those who responded (23.6% [n = 62]) is that of managers. About 23.0% (n = 59) of the respondents occupied other positions such as accountants, engineers, clerks, 8.0% (n = 21) were directors, 6.9% (n = 19) were executive directors and 1.5% (n = 4), of the respondents were municipal managers. These results indicate the following: (1) that the levels of employment in municipalities relevant to budgeting were adequately represented in this survey, (2) that 60% of the sample categorised their employment as ‘other’ (n = 59) or did not answer the question (n = 97) making it difficult to know whether or not their work would include budgeting.

This question aimed to establish the likely experience in local government and perhaps in budgeting. The responses are presented in Table 5.

As shown in Table 5, the largest group of respondents (31.8% (n = 83)) have been employed by the municipality for a period of 5 years or less. About 26.8% (n = 70) respondents were employed (n = 70) for 6 to 10 years, 18.0% (n = 47) for 11 to 15 years, 11.9% (n = 31) for 16 to 20 years and 11.5% (n = 30) for 21 or more years. This distribution shows that the highest number of employees (58.6%) in the municipality have 10 years or less and thus may lack experience in conceiving or executing budgets.

The number of years spent engaging with budget formulation, management and financial management is likely to result in improved competence in these areas, particularly if there have also been opportunities to participate in training programmes. Figure 3 illustrates the number of years that the participants have been involved in implementing budgets and financial management policies.

Figure 4 shows that the largest category of respondents, 39% (n = 101), have been dealing with budgets and financial management policies for 5 years and less, with another 30% (n = 78) of the respondents involved in budgeting and financial management policies for 6 to 10 years, 17% (n = 44) for 11 to 15 years and 7% (n = 19) for 16 to 20 years. Only 7% (n = 19) of the participants have been involved in the implementation of budgeting and financial management policies for 21 years or more. It is concerning that the largest category of respondents (39%) has been involved in implementation of budgets and financial management policies for less than 5 years. This suggests that a significant percentage of municipal employees have limited experience in the implementation of budgets and financial management policies.

This question aimed at establishing the level of education of the participants in this investigation. Addressing the challenges faced by municipal employees requires them to have relevant qualifications and sufficient expertise. The responses to this question are presented in Table 6.

The largest category of respondents 39.5% (n = 103) has a bachelor’s degree; 31.4% (n = 82) have a national diploma; 21.1% (n = 55) have a master’s degree and 1.1% (n = 3) have a doctorate. A total of 6.9% (n = 18) of the respondents have other credentials, such as matriculation certificate, master’s degree, or completed short courses.