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Setting budget responsibilities for nonprofits

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Edward M. Rose

Edward M. Rose

Edward M. Rose

Does your nonprofit have an annual budget that is prepared by your executive director and financial administrator?

Are the assumptions upon which the budget is based vague, not clearly identified or documented?

Finally, is the budget an effective tool to monitor activity throughout the budget year, identifying problems or opportunities that should result in timely changes in planned activities?

This article will address these and other issues to consider in planning, executing and maximizing the benefit of a strong budgetary process.

Who should be involved in the budget process?

Every person who is responsible for specific activities of the nonprofit should determine the annual budget for their areas of responsibility, clearly document the assumptions upon which the budget estimates are made, and monitor the accuracy of the budget estimates throughout the year.

Let’s call these individuals line-item or program owners.

Every line and program in the annual budget should have an owner, and every program should have a budget. Program leaders should be the owner for their respective program’s income and expense line items.

Only in this manner can board leadership understand what each program costs or how it benefits the agency as a whole.

Most accounting systems, such as QuickBooks, have the capacity to track both budgets and actual income and expense, by program. This is a valuable tool, and should be used.

Finally the board should be asked for input for any items or projects they may wish to be considered for the new budget. This way the board becomes part of the budgeting process.

Documentation of budget assumptions

Each line-item or program owner should clearly document, in a supporting schedule to the annual budget, the basis and assumptions for the significant proposed budget lines.

This is critical both in understanding the basis for the proposed budget and in monitoring the accuracy of the annual budget estimate throughout the year.

Summary for budget development and approval

Every line item for income and expense not included in program budgets, and program budgets themselves, should include the following information (in this case, assuming a June 30 fiscal year end):

  • Name of line-item or program owner
  • Actual results through March 31
  • Budget for current fiscal year
  • Projected actual results for current fiscal year
  • Budget for next fiscal year
  • Assumptions supporting proposed budget for next fiscal year

Monitoring the budget during the year

Budgets and actual results should be critically reviewed on at least a quarterly basis throughout the year, with each owner participating in the quarterly review for the line items and programs they are responsible for.

Based on a current evaluation of assumptions made with the budget initiation by the owner, and the balance in each line item or program at the current quarter end, the owner should make a critical projection as to what the line-item or program balances for their responsibilities will be at year end.

Once all line-item and program-projected year-end balances have been compiled, the executive director and other appropriate agency leadership will have the necessary information needed to make informed operating decisions regarding changes that should made to achieve overall financial objectives by year end.

Budget preparation time table

It is important to start the process early enough so that at least a preliminary budget approval is made by the board before the new-year starts.

Budget adjustments can be made after the beginning of the year for matters that cannot be finalized beforehand, such as some state or federal grant approvals.

Assuming a June 30 fiscal year, the finance or budget committee of the board should finalize a budget plan no later than March 31.

The Plan should be distributed to all program and line-item owners, with detailed instructions and deadlines for exactly what information shall be expected, and when.

Copies of assumptions used in the current year should be distributed to each owner for updating in the new budget

Each owner should, during the month of April, update the assumptions for the line items and programs that they are responsible for.

Based on the results through the third quarter, each owner should both project results for the current fiscal year, and propose budgeted amounts for the next fiscal year, supported by updated assumptions.

The finance or budget committee should review the newly compiled budget in April or May and present a first draft to the board for its preliminary review.

Modifications based on the board’s review can then be considered, where appropriate, and a final budget submitted to the board for approval at its May or June board meeting.

Many different people in an organization are responsible for various specific activities. Budget development and monitoring of the budget should follow those activity responsibilities.


Edward M. Rose is a retired certified public accountant and a consultant with the Executive Service Corps of the Triangle in North Carolina.

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