The approved budget is not just a financial projection. It is the board's authorization for what the officers, employees, and volunteers may spend in the coming year.
To exercise proper oversight, handle the budget over the last two board meetings before the new fiscal year.
The Earlier Meeting: The Generalities Discussion
At the second-to-last meeting of the fiscal year, hold an open, strategic discussion with the CEO and CFO.
- Do not look at detailed spreadsheets yet.
- Discuss generalities: What are our programmatic priorities? What is the fundraising landscape? What projects should we pursue?
- Let the officers lead with their application of the vision, while the board provides counsel and wisdom. This gives the staff a clear "contour" to prepare the actual budget.
The Approval Meeting: Review and Adopt
At the final budget meeting, the staff presents a complete, line-item draft budget built on those contours. The board reviews it in detail and votes to adopt it. Once approved, the budget is the spending authority staff works within.
Allow for the unexpected: if a genuine emergency or a material change calls for spending outside the approved budget, the officers should come back to the board for approval.
How to Review: The Ten Biggest Deviations
When reviewing a budget packet, do not get lost in the pennies. Ask the CFO to build the review around the ten biggest deviations from the approved budget, and to explain the story behind them, rather than handing the board a bare list.
If travel costs doubled, or program enrollment is projected to drop by 20%, ask for the operational narrative behind those numbers. This is where the real governance issues reside.