The Relationship Between Budget Participation and Internal Control: Evidence from Government Finance Officers

ABSTRACT This study examines the relationship between local government finance officer budget participation and internal control quality. We gathered survey data to capture finance officer perceptions of budget participation, information about their government’s characteristics, and individual demographics. We subsequently hand-collected archival data regarding the internal control quality outcomes of the government to pair with survey responses. Results indicate that finance officers with more involvement in budget processes are associated with better internal control quality, as proxied by material weaknesses, significant deficiencies, compliance with regulations, and audit timeliness. Furthermore, we find that female and uncertified finance officers (non-CPAs) are associated with higher-quality internal control if they are more involved in the budget process. We also find that budget committees constrain the saliency of budget-related information in improving internal control quality. Our results shed light on the benefits of engaging finance officers in the budget development processes in governmental entities. Data Availability: Please contact the authors. JEL Classifications: H10; H30; H72; H83.