Arapahoe County: Variance Analysis Memorandum Essay

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In essence, budget variances occur because spending did not take place as had been planned. Therefore, in basic terms, variance could be representative of under-spending or overspending. Both under-spending and overspending, as shall be highlighted in this text, could have diverse implications. In that regard, therefore, there is need to highlight the factors that caused under-forecasting or over-forecasting of actual figures. This is important so that future variances can be reduced by taking corrective action on the basis of information derived from the present variance analysis. This text looks into the various spending categories, as presented, and highlights the various concerns relating to overspending and overspending. Further, the text discusses the overall picture painted across all spending categories, with an aim of analyzing the department’s effectiveness as a whole in budget forecasting.

An analysis of the adopted budget vis-à-vis the actual expenditures of Arapahoe County presents several instances of under-spending, in which case some budgeted funds remain unspent. While this could be a red flag in some instances, it is largely understandable in others. The Arapahoe County’s adopted budget is, in essence, a plan. In that regard, therefore, it may not match the actual expenditures and may be subject to variances. However, the county ought to have in place and embrace best practices in relation to the budgeting process where there are robust oversight and monitoring processes.

It is important to note that in some instances, managers may have deliberately failed to report instances when there were reasonable expectations that that actual expenditures would come under budgeted expenditures. In this case, there may have been concerns that some unanticipated uses could crop up during the fiscal year. Failure to report or factor in the relevant figures could have been founded on the fact that anticipated savings could be used as a basis to slash present or future budgets. This particular concern manifests itself in supplies where we have a 26.8% positive variance for the fiscal year 2013 and a subsequent 41.4% positive variance for the year 2014. In essence, there is a significant gap in this case, which could have come about as a consequence of cost savings in the fiscal year 2013 that may not have been reported.

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It should also be noted that in instances where unforeseen costs come about in the course of the fiscal year, some managers may rationalize exceeding expenditure budgets. This could have taken place in the fiscal year 2015 going into 2016 where a negative variance in 2015 could be used to explain the 37.4% positive variance in the year 2016. The managers in the category may have found it hard to absorb the costs anticipated for the year 2016.

It should be noted that in relation to salaries and wages, forecasting could be clouded by numerous vacant positions that are budgeted for, and in which case the offsetting attrition figures are significant. The department does not appear to have this particular problem – especially given the largely minimal variances from year to year – except for the year 2016, in which case the negative variance in the year 2015 may have motivated padding. Budget padding, in the words of Shim, Siegel, and Shim (2011), has got to do with the “underestimating revenue or overestimating costs” (311). The motivation in this case is often to ensure that the budget is beaten; and in this particular case, the course of action could have been to overestimate salaries and wages so as to reduce chances of a similar fate as of 2015. It is, however, important to note that other ‘outlier’ occurrences ought to be factored in to explain the positive variances from time to time with regard to salaries and wages. These include, but they are not limited to, resignations in which case replacements are not hired immediately, retrenchments, and reduced costs for overtime pay. Supplies did report huge variances, as was the case in capital outlay and central services.

Given the imperfect nature of budgeting, small variances are permissible. However, it should be noted that large variances are often an indicator of deeper issues relating to not only the budgeting, but also the expenditure process. Towards this end, variances falling below 10 percent may not be a significant issue of concern in Arapahoe County. Nevertheless, they ought to be examined so as to better the budgeting process for future purposes. The positive variances in 2013.....

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