Budget Administration

After gaining board approval of your budget, you have a green light to spend and allocate funds throughout your organization. As you spend, keep records of how much money is used for each program or activity. This is essential for preparing financial reports at the end of the year in accordance with the Financial Accounting Standards Board (FASB).

The Financial Accounting Standards Board establishes standards of financial accounting and reporting. These standards govern the preparation of financial reports. Two standards, FASB 116 and FASB 117, are specific to nonprofit reporting. FASB 116 mandates that nonprofits must prepare an annual financial statement, known as a Statement of Financial Position. The Statement of Financial Position shows your organization’s financial health at a given point in time. It is prepared on the last day of the fiscal year and lists your group’s assets, liabilities, and any change in them from the beginning to the end of the year. In addition, organization’s must prepare the following statements to comply with FASB 116:

  • Statement of Financial Activity: The Statement of Financial Activity is essentially a profit/loss statement, which shows the amount of revenue that came into your organization versus the expenditures.
  • Statement of Cash Flow: The Statement of Cash Flow shows where money came from and how it was used. It combines your Statement of Financial Position and your Statement of Financial Activity.

FASB 117 explains how to report volunteer contributions. For example, if a lawyer contributes 20 pro-bono hours of work, those 20 hours count as a donation of time towards your organization. However, the hours an office volunteer works to fold and stamp envelopes do not count. Only hours from a specialized skill are included as a donation to your organization.

Getting Started

As the year moves forward and you navigate your budget, evaluate your progress. Are you spending too little or too much? Are actual costs exceeding proposed costs? Perform a variance analysis by measuring the variation between actual and proposed costs. If you are over budget, try to determine why. Were expenditures too high, or was revenue too low? For example,

  • Did your membership level decrease?
  • Did program supplies cost more than anticipated?
  • Did rent or utilities increase?
  • Did general donations decrease?

Keep detailed and thorough records of all sources of revenue and expenditures. These records will provide a starting point for the following year’s budget, and provide data to be used to analyze trends over the years. Knowing actual costs will help in determining how much money to allocate in future budgets.

Further Resourcesresources

  • Not-For-Profit Budgeting and Financial Management; Not-For-Profit Accounting, Tax, and Reporting Requirements; and Model Policies and Procedures for Not-for-Profit Organizations by Edward J. McMillan. Available from Wiley
  • The Budget Building Book for Nonprofits: A Step-by-Step Guide for Managers and Boards, by Murray Dropkin and Bill LaTouche. A guide on resources needed to develop a budget, including To-do lists, sample forms, worksheets, schedules, sample budgets, policies, and procedures. Jossey-Bass Inc., 1998.
  • Not-for-Profit Accounting Made Easy, by Warren Ruppel. Provides a practical, easy to understand explanation of the financial accounting and reporting standards of not-for-profit organizations. The book focuses on not-for-profit basics for those who lack a background in accounting principles and financial reporting. Wiley, John & Sons, Incorporated, March 2002.
Click here to return to the Governance Resources Page