Budgeting and Costing Convery 20131

 Articulate the challenges of budgeting and reporting on whether the budget was met  Describe various types of budgets  Describe different budgeting methods  Analyze budget vs. actual statements  Explain various methods of costing services Convery 20132

 How do you report to various stakeholders who have different user needs at different times? ◦ Management (daily, weekly operating decisions) ◦ Board (monthly oversight) ◦ Donors (as they make giving decisions) ◦ Grantors (at the end of a grant period) ◦ IRS (end of the fiscal year) Convery 20133

Can you report on each of the following objectives in one report, or do you need specialized reports? ◦ Compliance with the budget ◦ Compliance with laws and regulations ◦ Compliance with terms of grants and restricted gifts ◦ Fairness and conformity with generally accepted accounting principles (GAAP) ◦ Performance - efficiency and effectiveness Convery 20134

To INTERNAL PARTIES: ◦ Management ◦ Board To EXTERNAL PARTIES:  Audited annual financial statements ◦ IRS - Form 990 ◦ Specific grantors’ reports (federal, state, local government, university, private foundation, community foundation, United Way - unrestricted or designated, individual donors - restricted or unrestricted gifts) On:  Compliance with laws and regulations  Fairness and conformity with GAAP  Performance ◦ effectiveness - did you meet your program goals? ◦ efficiency - did you use your resources efficiently? Convery 20135

 of the financial position, results of operations, and cash flows  on different reporting forms ◦ Audited annual financial statements ◦ IRS - Form 990 ◦ Specific grantors’ reports  federal government  state government  local government  university  private foundation  community foundation  United Way - unrestricted or designated  individual donors - restricted or unrestricted gifts Convery 20136

How do you build a chart of accounts that captures: – function or program, – granting source, and – natural expense (object-of-expenditure or line- item) for each revenue and expense item? PROGRAM AGRANT 1 PROGRAM BGRANT 2 PROGRAM CGRANT 3 Also: Objects-of-expense or line-items; i.e., salaries, supplies, phone, travel Convery 20137

 Build the budget ◦ With input from all levels of management ◦ With input from constituencies ◦ With approval by the Board  Work the plan ◦ Compare actual to budget each month, by each program area, for each line-item expense.  Evaluate your results ◦ Adjust operations (increase or decrease planned revenues and expenses) ◦ Reward or sanction responsible parties Convery 20138

Entity-wide budget Cash flows budget Capital expenditure budget Program budgets Grant budgets Convery 20139

 Strategic planning at an entity level  Staff provides information to managers about how to meet the strategic plans  Managers prepare budgets for their responsibility area  Program budgets are built based on consolidating departments  Management modifies budgets in light of constraints and other information program managers may not have.  Public review of the budget (or possibly just review by internal people). Convery

Convery What:When ?? Strategic planning at all levels Staff provides information to managers about how to meet the strategic plans Managers prepare budgets for their responsibility area Program budgets are built based on consolidating departments Management modifies budgets in light of constraints and other information program managers may not have. Public review of the budget (or possibly just review by internal parties.

 For what purpose or decision maker?  What method (or philosophy) of costing? ◦ Activity-based costing ◦ Full absorption costing ◦ Variable costing  Are costs accumulated by jobs or processes, or activities or departments? Note: “Costs” is a term used to distinguish the cost of the goods sold or service provided from other operating expenses, such as general and administrative or selling expenses. Convery