What key action should be taken by departments during the budget preparation phase?

During the budget preparation phase, creating preliminary budget priorities is a crucial action for departments. This step involves analyzing the needs and goals of the department to determine where funding will be allocated most effectively. Establishing priorities helps ensure that the most critical areas receive the necessary resources, which is essential for meeting strategic objectives and addressing urgent requirements.

Determining these priorities also aids in making informed decisions regarding potential cuts or reallocations if funding is limited. This proactive approach enables departments to align their financial plans with broader organizational goals and can guide discussions with stakeholders about resource allocation.

While identifying revenue sources, revising past expenditures, and conducting a full audit are important financial practices, they serve different purposes in the budgetary process. Identifying revenue sources focuses on understanding how funds will be generated, which is significant but comes after establishing spending priorities. Revising past expenditures helps in assessments of efficiency but isn't as forward-looking as setting priorities. Conducting a full audit is primarily a review process that ensures accountability and accuracy but doesn’t directly inform the budget preparation phase in the same immediate way that defining budget priorities does.