This is part of a special series, brought to you by the Standards for Excellence Institute, to provide nonprofit leaders with a brief nonprofit governance and management tip weekly over the course of 2020. We hope these short tips will be helpful to you and the nonprofits you serve. If you have suggestions for future topics, please forward these to email@example.com.
At the end of last year, due to term limits, I ended my service as the chair of the finance committee of a nonprofit that is near and dear to my heart. It was a position that involved a lot of work and many challenges, but I am grateful for the chance to have served. The opportunity to work with the nonprofit’s experienced and dedicated finance staff made my work so much easier, and in fact, a pleasure in many cases.
As I look back on the term, I can’t help but recall the budget setting process with its many steps and iterations. Seeking input from the different program areas, getting buy-in from committee members – and ultimately, our governing board—were all important parts of the budgeting journey. Our budget had a variety of different program areas and line items for the expense categories. Of course, we also spent time considering and developing the income categories and determining the best ways to pay for all of the important program initiatives. Each year, we looked closely at the budget categories and proposed amounts in each of the categories—these included pledged gifts, special giving campaigns, events income, and a variety of different types of earned revenue, just to name a few. Unfortunately, in some organizations, the revenue side of the budget is not as well planned (and executed) as the expense side of the budget.
The Standards for Excellence: An Ethics and Accountability Code for the Nonprofit Sector states “Nonprofits should have sound financial and operational systems in place and should ensure that accurate records are kept. The organization’s financial and non-financial resources must be used in furtherance of tax-exempt purposes. Organizations should conduct periodic reviews to address accuracy and transparency of financial and operational reporting, and safeguards to protect the integrity of the reporting systems” and that “the board should annually approve the organization’s budget and the organization should be operated in accordance with this budget.”
More information is available and helpful models and samples are available in the Standards for Excellence educational resource packet, Financial Budgeting, Reporting, and Monitoring, which was just updated and re-release in the last few months. In the packet, you will find a sample budget (with annotations) as well as a discussion of the budgeting process and the various roles different board and staff leaders play in the process. The packet also features resources on financial statements, audits, direct and indirect costs and much more. Members of Maryland Nonprofits have access to this and all 27 Standards for Excellence Educational Resource Packets through the member portal.