1. Fiscal Resources Budgeting and Funding Sources

2. The purpose of organization budgets is to:  Plan how funds will be used within a one year period.  Identify how much money will be needed by the organization to deliver services.  Monitor how funds are currently spent.  Predict how much money will be needed for the next fiscal year.

3. Budget time frames are called fiscal years. The fiscal year may span the time period:  January 1 – December 31  July 1 – June 30 (the fiscal year for most state governments)  October 1 – September 30. (Federal budget year)

4. Budgets specify:  Dollars on hand  Revenue  Expenditures  Revenue minus Expenditures  Specific categories of expenditures.

5. The two biggest items in agency budgets are:  Salaries and wages  Fringe benefits: -Payroll taxes (employer’s share) - Health Insurance -Pension (share) - Other incentives given to employees (for example, college tuition)

6. Personnel costs are approximately 80% of all expenditures in an agency budget. Of that amount, fringe benefits, on average, are about 15-25% of the total for salary and wages.

7. The two primary types of budgets are:  Line item budgets (includes specific categories of expenditures for the organization)  Program budgets (lists the same types of expenditures as the line item budget – except that they are organized by program). A typical program budget would just be a line item budget that includes columns for each of an organization’s programs.

8. Items typically included in a budget are:  Personnel (salary/wages and fringe)  Office supplies  Rent or mortgage  Utilities  Maintenance costs  Xeroxing and/or printing  Phone  Insurance  Cost of Annual Audit  Equipment  Travel  Professional Development

9. Two approaches to budgeting are:  Cash accounting – Transactions are recorded only when money flows into or out of the organization.  Accrual accounting – income is recorded during the time period in which it is earned. Expenses are recorded when they occur rather than when they are paid.

10. Other important accounting concepts are:  Fund accounting. Columns on the budget sheet indicate whether funds are restricted for certain uses.  Restricted funds are those that for which funders limit utilization. Therefore organizations need to set up separate accounts or record-keeping processes that “separate” restricted funds from nonrestricted funds.

11. Methods for developing a budget 1) Increasing or decreasing line items in relation to projected increases or decreases in funds. Often line items in budgets are increased at the rate of inflation (3 to 5%). Similarly, line items may be reduced by a specific percentage per year.

12. Addition methods for making budget estimates 2)How much did the organization go over or under the designated budget amount in the previous year? Adjustments are made accordingly. 3)Estimating cost on a line item by line item basis – based on vendor estimates of costs, existing contracts, or costs that have previously been “locked in” or fixed. 4)Using budgets from similar programs to estimate future costs in new programs.

13. Additional methods to allocate costs (continued)  The unit cost of delivering services to individuals, families, or groups. If we know the unit cost, we can estimate budget changes based on increases or decreases in clientele.  Allocating funds based on the percentage of space used by a program or the number of employees in a program.

14. In general, there are two types of costs in budgets:  Fixed Costs. Costs that we know in advance and that will probably not change in the next year. One approach to managing resources is to lock in as many of the yearly costs as possible (rent, utility rate plans, salaries)  Variable costs. Costs that may vary in the course of day to day operation that are difficult to control, for example, xerox and telephone.

15. Another way to categories expenses involves certain administrative costs (Overhead)  Certain types of management activities are considered to be overhead or indirect costs– for example, manager salaries, clerical support, or accounting and other services. (Direct costs are considered expenditures used to operate programs)  Funders often restrict what percentage of program overhead may be paid for with grants and contracts. (8 to 20%)

16. Overhead may be listed”  As a specific line item in a budget.  As a cost center or separate program in a program budget.  Allocated among the various programs in an agency.

17. There are several different types of budget tools used to monitor agency budgets  Operating statements – lists the various sources of funding and expenditure categories.  Balance sheets – Lists Assets and Liabilities; Difference between this year’s and last year’s expenditures.  Cash flow statement (month by month listing of revenue and expenses)  Year to date budget – what percentage of the yearly budget has been spent to date.

18. Tax-Exempt Organizations are also required to submit information to the IRS each year  Results of a yearly audit by a certified accountant.  Form 990 is to be filed with the IRS (statement of revenue and expenditures) Most 990 forms are filed electronically and can be found at the Urban Institute’s website: http://www.guidestar.org Organizations also must publish annual reports that must be made available to the public upon request!

19. Three approaches to analyzing budgets:  Revenue Analysis  Expenditure Analysis  Efficiency Analysis

20. Revenue Analysis  What proportion of revenue comes from grants, contracts, and donations?  Does the proportion of funds generated from these sources help the organization balance accounts?  How reliable is the revenue base? Does money come in as expected?  What new sources of funding can be used by the organization? Can on-going sources be increased?

21. Efficiency Analysis involves estimating unit cost or work effort Unit cost. Calculate cost of delivering the program. Divide this cost by the number of people served in the program. How does this compare to other programs in the organization or similar programs outside the organization? For example, Total Cost = $100,000. Clients = 100. Unit Cost = $1,000

22. Work Effort Work Effort. How much of a worker’s time is used to complete a specific activity. Therapy for One client = 20 hours client contact One staff member serves 50 clients per year. The staff member works 8 hours per day, 235 days per year 20 hours X 50 clients / 235 * 8 = 1000/1880 = 53% of worker time

23. Expenditure Analysis  Is the organization over budget in a number of expenditure categories.  Is the organization under budget in a number of categories.  Is the organization under budget in some categories and over in others (what adjustments should be made in the budget)  What proportion of the annual budget is spent on overhead or fundraising costs?

24. Funding Sources Raising Funds for Organizations

25. Types of funding  Government Grants & Contracts  Independent foundations  Corporate foundations  Community foundations (United Way or Community Trust)  Fees for Service  Membership Dues  Donations from Individuals  Special Events  In-kind Donations

26. Typically problems with government funding  Duration 1-3 year cycles.  Must apply for a grant or negotiate a contract.  Performance based contracts only reimburse for the delivery of specific services.  Reimbursements may be delayed.  Contracts often do not provide start-up funds.  Organizations must often supplement funds in the contract.  The organization can often lose money on a contract.  The organization may be forced to select only those clients who will have successful outcomes.  The contractor or grantee must be accountable to the funder  The organization can lose funding if there is a problem with the way the money is spent.  The funder may not invest money in actually monitoring the agency.  The agency may save money by reducing staff salaries or using volunteers  Federal contracts place restrictions on using contract dollars for lobbying

27. Other funding related problems  Organizations may become reliant on one source of funds and have few options if that funding is lost.  The organization may lose its independence and autonomy if funding is conditional on compliance with funder demands.  The organization may forfeit social justice related goals in order to please funders or shift from a social action to service delivery focus.

28. Strategies to reduce reliance on one or two primary funder  Use a mixture of sources.  Raise all funds through membership fees, fees for service, and individual donations.  Offer a unique service not provided by other organizations.  Develop power resources such as a board of directors with powerful members or network with government officials to protect organization resources

29. IRS restrictions on 501 (c) (3) organizations  The organization can only allocate the following amounts for direct lobbying: 20% of the organization’s first $500,000 15% of the organization’s second $500,000 10% of the organization’s third $500,000 5% of any remaining funds (The organization can not spend more than $ 1 million per year on lobbying). For Grassroots lobbying, the organization can only spend 25% of total spent for direct lobbying. (Grassroots lobbying involves telling others to lobbying on issues of concern to the organization)

30. Activities that are exempt from lobbying restrictions  Lobbying for changes in regulations  Lobbying by volunteers, unless the organization spends its own money on this.  Any communication that simply informs people about an issue.  An organization’s response to a legislator on technical issues.  Lobbying to protect the organization’s existing grants and contacts.  Sending out a nonpartisan analysis of a legislative issue.  Urging the public to support or oppose a ballot initiative.

31. Organizations typically send out funding proposals to a variety of organizations  Proposals are sent out to a variety of organizations.  They are sent out at several points during the year. Each funder may have a different deadline.  Funding agencies vary in terms of a specific emphasis or areas in which they fund.  Funding can be for operating expenses, specific programs, facilities, or endowments.

32. Sources of information about funders  Federal Register.  Foundation databanks on the web.  Libraries.  Annual Reports  The funder’s web page (often includes information about past grantees).

33. Components of a Proposal 1) Cover Letter9) Time frame 2) Title Page10) Budget 3) Executive Summary11) Budget Justification 4) Problem Statement12) Dissemination Plan 5) Needs Statement13) Continuation Plan 6) Background of organization 14) Reference list and Appendices 7) Goals and objectives15) Staff Qualifications 8) Methods16) Proof of IRS status/Organizational chart/Letters of Support

34. Proposal Must Contain  Quantifiable and Feasible Goals and Objectives  A description of the program’s theory of action (a description of how the program is expected to work and the anticipated outcomes X  Y)  An evaluation plan.  A timeline for expected task completion (GANNT chart)