2. WEEK 07 - TOPICS
• Basic Budgeting for Churches (Book by
Jack A. Henry)
• Audit Report review
• Internal Control
• Status of the Course Project
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3. Basic Budgeting for Churches
• Budget Basics
• Budget Development
• The Budget Approval Process
• Cash Flow Budgets
• Making the Budget Work
Luke 14:28-30
28 For which of you, intending to build a tower, does not sit down first and
count the cost, whether he has enough to finish it— 29 lest, after he has laid
the foundation, and is not able to finish, all who see it begin to mock him, 30
saying, ‘This man began to build and was not able to finish’?
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4. Budget Basics
• The best or the best you know how?
• What is a budget? A plan for allocating available
resources
• The budget is a quantitative expression of the
organization's business plan. It ties numbers to
words and allows the organization to project its
financial performance for the following year
• What does a budget do for you? Motivational aid
for securing the support needed for your church
ministries/organizational programs
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5. Budget Basics
• Budgets and church objectives: Every facet of church
activity needs to be considered. There should be broad
based involvement in the process
• Virtually all organizations prepare budgets.
• After approval it then serves as a tool for monitoring and
evaluating financial performance during the year.
• It is important to remember that the budget is not the
end result; rather, it is a means for achieving the end
result, namely, the organization's goals.
• At times the organization may need to deviate from the
plan to achieve its goals.
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6. Budget Development
• In most organizations the budgeting process is
complex and takes time to implement. Typically
it includes the following steps
• Set goals
• Establish priorities for each of them
Zero based budgeting
Line item budgeting
Zero based and line item combined
• Estimate your income
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7. Budget Development
• Estimate your expenses
• “Balance your budget”- or get the projected
expenditures equal to or lower than the
projected income
• Requirements for a good budget: complete,
equitable, capable of change, attainable, and
challenging.
• Budget format-Budgeting is not a requirement of
GAAP. There are no standard formats. Format
should be meaningful to the recipients, but not
overly complex (see pp.24-25)
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8. The Budget Approval Process
• Need to have a defined budget process including
timelines and responsibilities.
• The approval process is part of the overall budgeting
process.
• The entire process requires the review of the mission,
and each of the ministries/programs of the church/not-
for-profit.
• The purpose of the review is to assess goals,
achievements and projections for the coming year
• Goal is to involve a broad base of people in the process:
creates ownership, educates, reduces late changes,
“sells” the budget and avoids charges of dictatorial
leadership, especially in churches.
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9. Cash Flow Budget
• Take annual budget and break it down into
monthly cash flow budget-a projection of
the cash to be generated and disbursed
each month (See pages 51, 54-55).
• Compare monthly actual results to
budgeted results and identify variances
and make adjustments as necessary.
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10. Making the Budget Work
• The key issue with any variance is one word-Why? At
times, it may make sense to deviate from the plan;
however the manager should have a good reason for the
deviation.
• Distinguish between temporary and permanent
variances. Temporary variances are due to timing.
Funds are spent sooner or later than planned. Normally,
temporary variances are not a cause for concern.
However, if a temporary variance involves a large
amount of cash, it may affect the cash flow projection for
the period.
• Are "positive" variances really positive? Spending less is
not a virtue if necessary expenditures are not made or
quality suffers.
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11. Making the Budget Work
• Should be motivated to operate within the
budget
• If budgeted items must be reduced or eliminated
from the budget, the list of priorities developed
during the budgeting process will help you
determine how to handle.
• If an unexpected surplus becomes available, the
same priority list will help you determine how to
handle it.
• Remember, the budget is the road map to help
guide you through the year to where you want to
be at the end.
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12. Appendices
• A: Computer Reports and Graphics
• B: Converting Goals to Budgets
• C: Written Procedures for Church
Budgeting
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14. Level of Engagement by Auditor
• Audit
• Review
Limited type of engagement. Auditor does much less
work than in an audit in accordance with GAAS. Does
perform certain inquiries and financial statement
analysis. Provides a very limited form f assurance.
• Compilation
More limited than the review. Auditor takes information
from the not-for-profits organization’s financial reports
and prepares financial statements from those records.
Offers no level of assurance on the amounts reported in
the financial statements. Sometimes, management
elects to omit the disclosures.
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15. Independent Auditor’s Report
Look for standard three paragraph report
Are Financial statements prepared in
accordance with GAAP?
Is the Audit performed in accordance with
GAAS( generally accepted auditing
standards)?
- Are there any qualifications?
- Are there any Departures from GAAP?
- Any Restrictions on the scope of the audit?
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16. Internal Accounting Control
Definition:
Internal control is the process designed to ensure:
• reliable financial reporting,
• effective and efficient operations,
• and compliance with applicable laws and regulations.
• Safeguarding assets against theft and unauthorized
use, acquisition, or disposal.
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17. Internal Accounting Control
The Components of the System of Internal Control:
Control environment. The management style and the
expectations of upper-level managers, particularly their
control policies. (eg. management's integrity, ethical values,
and philosophy)
Control activities. Control activities are the specific
policies and procedures management uses to achieve
its objectives. Control activities include the following:
- Segregation of duties
- Proper authorization
- Adequate documents and records
- Physical control
- Independent checks
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