Estimated Reading Time: 5 minutes
By Melanie Lockwood Herman
When cleaning out a desk recently, I found several dated vials of “Wite-Out®,” a brand of correction fluid, the opaque fluid used to cover typing errors in typewritten documents. Although I haven’t used it recently, I recall that correction fluid was sold under various product names (e.g., Liquid Paper®) and it was available in several colors. The vials I found had long since turned into powder. I threw them out.
Finding these vials of correction fluid and throwing away their powdered remains reminded me of the need for nonprofits to discard practices that no longer work as well as actions or conduct that serve to obscure, rather than illuminate the facts. Transparency is an essential aspect of sound governance and effective fiscal oversight. Every nonprofit board should strive to operate in an environment that allows light in, the recognition of past mistakes, and the commitment to working in an “above board” way to address the difficult challenges associated with advancing the nonprofit’s mission.
One opportunity for letting light in is the nonprofit’s budgeting process. An inclusive budgeting process supports the commitment to transparency and turns staff and volunteers into ambassadors of the nonprofit’s mission and strategic priorities. When spending priorities are discussed with only “key people” involved, distrust and concern are likely to fester outside the room.
Most staff and volunteers are motivated by wanting to do the right thing and to do things right. An inclusive budgeting process with room for healthy debate about spending priorities and the need for fiscal austerity aligns staff and volunteers with a shared vision of the appropriate use of limited resources. An inclusive budgeting process also paves the way for ongoing commitment to the priorities reflected in the budget as well as a shared understanding of financial decisions that may be necessary in light of budget outcomes.
Sound budgeting begins with a strategic vision of the future of the organization. The vision must be more than one individual’s ideas about the future. To the extent that the nonprofit’s board and staff have a common understanding of the challenges and opportunities, as well as the organization’s strengths and weakness, they will be well equipped to develop budgets that guide resources to accomplish the vision and periodically evaluate whether or not it is working. An inclusive annual budgeting process is essential to good organizational planning and creating a monitoring tool available to the board and staff throughout the year. And the process is never perfect. Each year, as the organization grows or circumstances change, there will undoubtedly be ways that the process can, and should be, improved.
Within reason, the more people who understand the organization’s strategic vision and have an opportunity to participate in the budget process, the better for the nonprofit.
In her book titled Financial Risk Management: A Guide for Nonprofit Executives, the NRMC’s Executive Director, Melanie Lockwood Herman, offers the following advice to strengthen your budgeting process:
Liquid Paper® and Wite-Out® enabled office workers to cover up a host of errors in typewritten documents. Ineffective governance and management practices invariably lead to the need to “cover up.” A better approach is to commit to strengthening governance and transparency. An inclusive budgeting process with a reasonable timetable and active involvement by staff and volunteer leaders is an important step in achieving the transparency and effectiveness that your nonprofit’s stakeholders both expect and justly deserve.
Melanie Lockwood Herman is Executive Director of the Nonprofit Risk Management Center. She welcomes your feedback on this article and questions about the NRMC’s consulting services at Melanie@nonprofitrisk.org or 703.777.3504.
“First let me congratulate you on a conference well done. I had a great time at the Nonprofit Employee Benefits Conference and walked away with some valuable tools and questions that we’ll need to be addressing in both the short and long term. Thanks to you and your staff for all you do to provide us with quality resources in support of our missions.”
“BBYO’s engagement of the Center to conduct a risk assessment was one of the most valuable processes undertaken over the past five years. Numerous programmatic and procedural changes were recommended and have since been implemented. Additionally, dozens (literally) of insurance coverage gaps were identified that would never have been without the work of the Center. This assessment led to a broker bidding process that resulted in BBYO’s selection of a new broker that we have been extremely satisfied with. I unconditionally recommend the Center for their consultative services.
“Melanie Herman has provided expert, insightful, timely and well resourced information to our Executive Team and Board of Directors. Our corporation recently experienced massive growth through merger and the Board has been working to better integrate their expanded set of roles and responsibilities. Melanie presented at our Annual Board of Director’s Retreat and captured the interest of our Board members. As a result of her excellent presentation the Board has engaged in focused review which is having immediate effects on governance.”
“The Nonprofit Risk Management Center has been an outstanding partner for us. They are attentive to our needs, and work hard to successfully meet our requests for information. Being an Affiliate member gave us access to so many time- and money-saving resources that it easily paid for itself! Nonprofit Risk Management Center is truly a valued partner of The Community Foundation of Elkhart County and we are continuously able to optimize staff time with the support given by their team.”
“The board and staff of the Prince George’s Child Resource Center are extremely pleased with the results of the risk assessment conducted by the Nonprofit Risk Management Center. A thorough scan revealed that while we are a well run organization, we had risks that we never imagined. We are grateful to know that we have now minimized our organizational risks and we recommend the Center to other nonprofits.”
Great American Insurance Group’s Specialty Human Services is committed to protecting those who improve your communities. The Center team has committed to delivering dynamic risk management solutions tailored to nonprofit organizations. These organizations have many and varied risk issues, hence the need for specialized coverage and expert knowledge for their protection. We’ve had Melanie speak on several occasions to employees and our agents. She is always on point and delivers such great value. Thank you for the terrific partnership and allowing our nonprofits to focus on their mission!