Companies, government agencies and individual business owners ensure the budget plan is realistic and effective by conducting audits and evaluations. Budgets consist of decisions regarding the appropriation of funds for departments, projects and company activities. Without evaluation and auditing, the organization or agency could not identify areas that require improvement or changes.

Identify Improper Use of Funds

A budget evaluation can assist companies in the identification of resource misappropriation. The identification provides an opportunity to correct the discrepancy and prevent it from occurring in the future. Auditing inspects and analyzes budget transactions to ensure accuracy. Auditors provide management with reports that highlight areas for concern regarding the appropriation of company funds and resources so that managers can use the information in the auditing reports to implement a corrective action.

Obtain Information for Future Budgets

The information gathered in a budget audit and evaluation helps an organization plan future budgets. For example, the company may discover during the evaluation that funds allocated to a department were excessive. In future budgets the organization can reduce the amount allocated to that department and increase the amount provided for other projects and areas of the company.

Collect Data for Budget Reports

An audit and evaluation of a business budget gathers the data necessary to create financial reports. Management uses the financial reports to evaluate how well the organization executed the decisions and plans in the budget. The financial data also helps the organization determine areas in the company that require improvement.

Ensure Compliance

Government agencies and businesses conduct audits and evaluations to assure the public or investors that the organization is operating effectively and within the constraints of the law. Annual evaluations and audits inspire confidence in the officials managing the agency or organization and add transparency to a company or government agency that also inspires compliance with the rules and laws regarding the allocation of funds.