Sr. Director of Administration and Performance Management
To continue to provide critical services to its constituents and its community – not just today but for the future – Community Based Organizations (CBOs) must properly manage their program and agency budgets to ensure that funds are used to maximize program outcomes as per funder guidelines and program budgets while ensuring essential non-program operating costs (such as keeping the lights on!) are met and maintaining fiscal soundness and stability. This is a challenge that requires both internal resources and coordination and continuous review of the program budgets, agency financial statements and organizational fiscal health. There are at least four important features of the Iris House budget monitoring/review process that we believe should be part of any CBO fiscal integrity process.
First, each program budget should include not only direct program services but the cost of program evaluation. This includes staffing, data entry and other related expenses. Often CBOs focus only on direct program services but this expense is critical to improving programs, maintaining current and receiving future funding, and should be included in a program budget.
Second, each program budget should, if possible, directly include the office expenses associated with that program staff, and have a rational agency-wide cost allocation approach. These should not be confused with indirect expenses which typically include, for example, the cost of accounting support. At the same time, program budgets must consider the indirect expenses they incur and be sure to cover those. Program budgets that only cover program staff and direct program expenses strain the agency resources by putting on unfair burden on fundraising or other programs to cover, for example, fiscal and IT expenses that they are incurring. Along these lines, the agency must understand each funder’s specific policy toward indirect expense and what can/cannot be included, indirect expense rate, etc; getting a federal indirect cost rate can be a huge help in budgeting and ensuring fiscal health.
Third, program managers must take ownership of their budgets and an internal fiscal agent (e.g. Comptroller) needs to review the budgets with them on a regular basis and reallocate expense items to reflect actual program expenses and services. To do this, program managers must be given monthly reports and an official process put in place. By doing so, budget changes/issues can be addressed with the funder prior to becoming a concern.
Fourth, the Chief Financial Officer and Executive Director must review the agency budget regularly (at least quarterly if not monthly) and look at both revenue and expense variances and address any issues before they grow large. For example, are performance-based contracts underperforming and, if so, what corrective actions can be put in place? Are there synergies available in expense items such as consultants or client travel? Is Fundraising on target to meet projections? Are printing/copying expenses too high – and if so, why? “Red flag” items can be “drilled down” to see the root cause and once identified, corrected.
Using these 4 concepts as cornerstones, we have been successful in staying ahead of problems and taking immediate action when needed to maintain strong funder relationships, avoid long-run complication and help to ensure Iris House will be providing critical services to multiple communities for a long time to come.