IntroductionBudgeting is an essential process for all businesses. Using the company's current financial data as well as its historical data, a company should be able to forecast and plan a budget for the company's future. A budget is defined as “a statement of monetary plans prepared in advance of a future period, usually one year” (Brookson 2000). This budget should align with the company's strategic and operational plans and is the tactical implementation of the company's business plan. Since the company budget is controlled by all levels of management in the company, the company budget is usually an overall compilation of department budgets. Budgets are used to help establish a company's sales forecast, product pricing, as well as to assist in investment planning. Budgets are also used by management for motivation and performance evaluation purposes. A manager's performance evaluation will generally relate to their contractual compensation plan and will be paid as a bonus in addition to their salary. These incentives are generally based on a percentage of achieving or exceeding budgeted or targeted goals that are established and monitored by management. Because of management's control over the numbers, budgets and targeted goals are easily manipulated in order to increase the manager's compensation. When this process occurs, it is called “gaming” the system. System managers are known to game the system when their personal incentives seem more attractive than the organization's benefits. System manipulation occurs when an organization's explicit policies and procedures are used, which managers view as obstacles to achieving the organization's goals. “By flexing the...... middle of paper......reshold, which will in turn benefit the company. Works CitedBrookson, Stephen. Essential managers: budget management. New York: Dorling Kindersley Publishing, Inc., 2000. Horvath, Peter and Ralf Sauter. “Why Budgeting Fails: One Management System Is Not Enough.” Balanced Scorecard Report, 2004: 3-6. Jensen, Michael C. “The Corporate Budget is Broken – Let’s Fix It.” » Harvard Business Review, 2001: 94-101. Leone, Marie. “Sliding budgets, with a touch of originality.” CFO.com. June 3, 2003. http://www.cfo.com/article.cfm/3009422/1/c_2984786 (accessed March 17, 2010). Rieley, James B. “Are Your Employees Gaming the System?” National Periodical Review, Summer 2000: 1-6.Walker, Kenton B. and Eric N. Johnson. “The Effects of a Budget-Based Incentive Compensation System on the Budgetary Behavior of Managers and Subordinates.” Journal of Management Accounting Research, 1999: 1-28.