Chapter 2: Budgeting & Planning

Question 1

Proposed Budget

Answer 1

Budget that is still being prepared. Presented to the Board.

Question 2

Adopted Budget

Answer 2

Proposed budget that has been approved by the Board.

Question 3

Operating Budget

Answer 3

The budget throughout the fiscal year, which likely has been modified from the Adopted Budget

Question 4

Revenue Budget

Answer 4

Plan for all anticipated revenues in the organization

Question 5

Expense Budget

Answer 5

Plan for all anticipated expenses in the organization

Question 6

Budget Allocations

Answer 6

Amount of funds each department of a nonprofit receives

Question 7

Encumbrances

Answer 7

Dedicating funds to a very specific purpose (such as purchasing computers)

Question 8

Spending Baseline

Answer 8

Starting point for budget planning the next year. Cost of CY programs adjusted for inflation.
How much it will cost to keep current services operating, in terms of staff and materials at next year’s prices, with no additions/subtractions from current year budget

Question 9

Types of Nonprofit Budgets (2)

Answer 9

1. Operating Budget - day to day revenue and expenses

2. Capital Budget - plans resources for long term investments such as land, buildings, and equipment

Question 10

What is the link between a nonprofit’s Budget and Mission?

Answer 10

In order to fulfill the mission, executives & staff must plan and carve out reasonable objectives. Objectives are closely related to resources and budget. Planning involves 3-5 year projection, with specifics about who will donate and how revenue will be raised.

Question 11

Finance Committee

Answer 11

Committee with the function to review and monitor the nonprofit revenues and expenses carefully, work with the executive director and finance officer, and ask the hard questions.

Question 12

Audit Committee

Answer 12

Committee with the function to (1) oversee the outside auditor hired to review the nonprofits finances and create financial statements, (2) oversee and review internal controls

Question 13

Internal Controls

Answer 13

Financial procedures created to ensure the assets of the organization are protected

Question 14

Outside Auditor

Answer 14

Reviews and verifies finances of a nonprofit. No law requires this, but there are external pressures (including fed/state funding) on nonprofits to produce audited financial statements developed by CPAs.

Question 15

If a contribution is verbally pledged, is that sufficient for executives to use that revenue source in the budget?

Answer 15

No, a written pledge should be secured before using that revenue source in a budget

Question 16

Cycle of Budgeting as Management Tools

Answer 16

1. Planning and Budgeting
2. Reporting
3. Data Analysis
4. Using analysis to educate staff

Question 17

Surplus

Answer 17

More than enough revenue to cover expenses

Question 18

Deficit

Answer 18

Not enough revenue to cover expenses

Question 19

When must volunteer activities be counted as a contribution to the organization?

Answer 19

1. If services provided create/enhance nonfinancial assets

2. If services require specialized skills and would have had to be purchased if volunteer had not come forward

Question 20

How must in-kind contributions be reported (such as rent, or supplies?)

Answer 20

Contributions should be reported as both revenue (received) and as an expense (because it will use up the resource)

Question 21

Line-Item Budget

Answer 21

Oldest budget format, with emphasis on budget reform (replaced lump sum budgeting). Has all items listed in the budget needed for the next year. Says little about a nonprofit’s programs, but clearly lay out major spending cateogries.

Question 22

Program Budget

Answer 22

Divides projected budget into various programs offered by the nonprofit. Very informative; allows anyone reading the budget to compare department and program spending.

Question 23

Performance/Results Based Budgeting

Answer 23

Links inputs (resources) to measurement of outputs (results). Focused on outcomes. Helps assess efficiency and effectiveness of program. More often used by local governments.

Question 24

Budget Process Stages (4)

Answer 24

1. Preparation
2. Approval
3. Execution
4. Auditing

Question 25

Preparation (Budget Process Stage 1)

Answer 25

Examining sources of revenue and expenses, successes and failures of programs, and potential new programs

Question 26

Federal government’s fiscal year

Answer 26

Oct 1 - Sept 30

Question 27

Necessary Components Before Budgeting (3)

Answer 27

1. Mission
2. Objective
3. Program

Question 28

PS

Answer 28

Personnel Services (all full and part time positions, including fringe benefits)

Question 29

NPS

Answer 29

Non Personnel Services (all non employee expenses)

Question 30

Role of Executive Director

Answer 30

1. Meet with development officer to discuss new revenue streams for new/expanded programs
2. Review proposed budget, along with key staff and/or finance committee
3. Monitor implementation of budget

Question 31

Variance Budget

Answer 31

Regular report (monthly, weekly) that lists revenue budget, expense budget, and actual revenues and expenses to date, and compares them to planned annual budget amounts

Question 32

Cash Flow Management Report

Answer 32

Internal document created to inform a nonprofit’s leadership about times the nonprofit may run short of cash, even with a balanced annual budget

Question 33

Performance Report

Answer 33

Details the performance of each program in the agency

Question 34

When is a nonprofit required by the government to provide audit information?

Answer 34

If the nonprofit receives more than $500k from the federal government

Question 35

Does in-kind legal work need to be reported as income/expense?

Answer 35

Yes, because these services otherwise would have needed to be purchased.

Question 36

Outcomes

Answer 36

Qualitative measure of something positive and meaningful being accomplished (94% of students graduate, etc). Highly valued by funders