E9.26 LO 9.9 Budgetary slack: financial services Tiara Connors is a new business development manager at BrightStar Financial Advisors. Tlara has just been asked to estimate the dollar value of new client funds under management she will secure over the next year. BrightStar has experienced a 5 per cent increase in the value of funds they manage on behalf of their clients over each of the past five years. In the year just ended BrightStar had just over $10 million under their management. Tiara is paid a salary plus a bonus of 5 per cent on every new client dollar they manage above an aggregate budgeted amount. Thus, if the annual budget calls for $400000 new client funds managed, and $600000 in new funds is achieved for the year, Tiara's commission will be $10000. Tiara believes that client funds under BrightStar's management will grow at about same rate next year as it has in recent years. She has decided to submit a budgetary projection of $400000 in new client funds for the coming year. Required Your consulting firm has been hired by the managing director of BrightStar to make recommendations for improving their operations. As part of the terms of your engagement, BrightStar has asked you to advise on the following: 1. How the bonus scheme encourages business development managers at BrightStar to pad their budget estimates and create budgetary slack. 2. How encouraging budgetary slack through the bonus scheme mentioned may have detrimental impacts both on planning and controlling business development activity at BrightStar, and other aspects of BrightStar's operations. 3. How the incentive to create budgetary slack may be mitigated. 4. Other games that managers at BrightStar may play in budget setting processes, and how they may adversely affect the use of budgeting as an effective planning and control tool.