Casino is a large electrical construction company having a turnover of Rs.100 crores per annum. Since a few years the company has not been doing well in terms of profits. In order to find out the reason, a group of independent auditors were deployed to examine the operations of the company. The item they felt that needed closer attention was the budget control of new construction work. The audit showed that most electrical designs for new construction were carried out at the headquarters of the company by a project manager. In preparing a budget for a new project, he checked the expenses for similar jobs in the past, then simply multiplied them by various factors. The auditors found that during the past two years, most budgets were greatly overestimated. Incidentally, it was about two years ago that the project manager was given the primary responsibility for budgeting. In this role, he would submit his budget to the Expenditure Control Committee, consisting of higher-level managers who had only a limited interest in budgeting. It was to this committee that the project manager submitted requests for additional money whenever needed. Most of the requests were approved. The chief auditor felt that the project team tended to "expand" the time needed to complete the task whenever the members thought the budget made it possible. In other words, they "adjusted" their productivity to match the money allocated to the project. The auditors noted that other contractors could do similar jobs for 20% less money. They concluded that a new control procedure was needed.

Questions 1. What do you think of the budgeting process?

Question 2. What kind of control procedure should the auditors recommend?