In many companies, there’s this policy which requires awarded budget that must be spent completely once it’s approved. If the annual spend is below the allocated annual amount, there’s a chance next FY you won’t get the requested budget you asked for.
– why do such policy exist?
Isn’t it better to carry over unused expenses to the next FY? Saving expenses expenditure is a bad thing? Such a policy encourages employees to spend extravagantly the remainder amount nearer to FY-end.
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>why do such policy exist?
To justify funding; If they don’t use it all, then next budget isn’t going to assume they need it, which may not be the case.
This is also the case if the business is in any type of program that relies on their requirements. If they spend less, they might get less next FY
>Isn’t it better to carry over unused expenses to the next FY?
Not necessarily.
From an economical point of view, money sitting in a bank account is wasted potential. It should either be spent on making the company better, or paid to shareholders. Otherwise, it’s rapidly losing value due to inflation.
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