Section 5: Budget and Finance

Managing the finances of a CIL is one of the most challenging aspects of being an executive director (ED). Mistakes in this arena can have legal and monetary consequences. You need to understand the requirements and limitations of each funding stream that your CIL has. A support team of knowledgeable and trustworthy staff and board members is essential.

While a primer on accounting principles is beyond the scope of this tool kit, we do want to address a few topics that a new ED should keep in mind. And at your earliest opportunity, you should read two publications produced by the IL-NET: IL-NET Sample Fiscal Policies and Procedures Handbook: A Set of Policies and Procedures with Annotations for Use in Training for Centers for Independent Living and Financial Management for Centers for Independent Living. Information is listed below for how to access these training materials.

Key Aspects of Financial Management for CILs

CIL Fiscal Policies and Procedures—The first key question you need to answer is the status of the CIL’s fiscal policies and procedures. If your CIL doesn’t have a set of policies, developing this document needs to be a priority for you and the board.

If there is an existing set of policies, when were they last reviewed and updated? Regulations and guidance from the federal government have changed over the past several years and you need to make sure your policies are consistent with legal requirements. The CIL’s procedures likely have changed as well, as staff get better at what they do. Policies and procedures need to be current, and they should focus primarily on four areas: approval and authority, physical security, proper documentation, and regular checks and balances to allow for early detection of fraud or human error. The sample policies handbook mentioned above will provide you with a step by step approach to developing policies and procedures. (See also Section 4.)

Finance Committee—Establish a board finance committee if your organization doesn’t already have one. Nonprofit organizations need committees to do the more detailed work of the board of directors. Some committees are optional and created at the discretion of the organization; however, a finance committee is essential. This committee has a key role in fiscal oversight of the CIL, including more detailed review of financial statements, budgets, and contracts, and giving a summary and opinion of their recommendations to the full board.

Determine and document fiduciary roles and responsibilities for board committees, the board, executive director, and accountant or bookkeeper regarding fiscal matters. Following are lists of typical roles.[1]

Board of Directors & Committes

  • Set, oversee, and clearly articulate the organization’s vision, mission, and values.
  • Set a proper tone for the organization: show no tolerance for dishonesty, question unusual transactions or activities & support appropriate training.
  • Review and approve the annual budget prior to the beginning of the fiscal year.
  • Review periodic financial reports. Conduct such reviews no less frequently than once each quarter.
  • Develop and approve the job description for an ED. Select a qualified ED; forward information on the selected candidate to ACL for approval.
  • Hire the ED and establish the salary and benefits for the position.
  • Review the ED's performance annually and establish salary based on responsibilities and on comparative information.
  • Review and advise the ED on internal controls and accounting policies and procedures.
  • Assess risk periodically, determine the adequacy of internal controls & determine the types and amounts of insurance coverage required for the CIL.
  • Review contracts with third parties that are over a certain dollar amount set by the board.
  • Provide leadership and strategic direction for the mission, budget and development activities that sustain the CIL.
  • Determine whether the CIL should have an audit or federal compliance audit under OMB Uniform Guidance. Select and contract with the auditor.
  • Review the CIL’s compliance periodically and assure that whistleblower protection policies are in place for anyone reporting suspected illegal acts, waste, fraud or abuse of funds.
  • Verify the CIL is not involved in any impermissible political activities.

Executive Director

  • Ensure that a comprehensive, accurate budget is developed annually and presented to the board for review and approval.
  • Review key monthly financial reports (such as balance sheet, income and expense report, and budget comparison).
  • Present key financial reports to the board with complete and accurate explanations. Describe changes, discrepancies or variances, including the budget comparison report. Highlight aspects of the reports or the CIL’s financial position of which the board should be aware.
  • Ensure complete and thorough adherence to all internal controls.
  • Review and approve all program expenditures to verify they are reasonable, allowable, and properly allocated.
  • Review and approve invoices and reimbursement requests and other supporting documentation.
  • Review and sign or co-sign checks.[2]
  • Review payroll journals (reports of time worked and pay rates by individual) to ensure hours worked and rates are complete and accurate.
  • Review bank statements including checks, electronic payments, transfers and other transactions to identify any irregularities.
  • Review completed monthly bank reconciliations with accountant.
  • Review written support documentation for drawdowns and approve drawdowns prior to initiation.
  • Review insurance with the board on an annual basis to be sure that the CIL has proper liability, fire & theft, workers’ compensation, disability, and other appropriate coverage.
  • Initiate donor thank-you letter acknowledgements.

Accountant (Bookkeeper)[3]

  • Prepare monthly financial reports including a balance sheet, income and expense report, budget comparison, & other key financial reports for review by the ED & board.
  • Review the online bank account, reconcile the bank account, and review credit and debit card transactions and documentation.
  • Enter debit/credit card transactions into the accounting system.
  • Calculate drawdowns based on allowable expenses.
  • Back up accounting software.
  • Prepare the 1099 annually.
  • Perform an initial review of time sheets prior to ED approval.
  • Prepare and print paychecks and provide them to the ED with supporting documentation.
  • Review or prepare all federal and state quarterly and annual payroll tax reports, and prepare checks for tax deposits.
  • Prepare documentation required for workers’ comp insurance audits.
  • Classify receipts, expenditures, and payroll properly by account.

Outside CPA

  • Prepare annual nonprofit organization filings.[4]
  • Perform audits or reviews of the organization’s financial statements.[5]
  • Perform a compliance audit in accordance with OMB Uniform Guidance. (This must occur in any year that the organization has $750,000 or more of expenditures of federal awards.)[6]

Budget

In Nonprofit Management 101, David Greco, President and CEO of Social Sector Partners, writes, “A budget is an organizational plan that helps to allocate resources, provide a road map, allow the nonprofit to monitor progress, and set and clarify goals.”[7]

The CIL needs an annual budget that identifies all the sources of revenue and expense that the organization will utilize during its upcoming fiscal year. It is also useful to have a budget for each funding stream or program to ensure that funds are being allocated properly.

The annual budget includes two basic elements:

  • Revenue—dollars earned by service delivery, sales, donations, investments, etc.
  • Expenses—outflow of cash

In addition to these two broad categories, the annual budget identifies three sections:

  • Cost
  • Revenue
  • Surplus or deficit (profit or loss)

Costs in the annual budget for the nonprofit typically include five major categories:

  • Personnel (typically the highest cost)
  • Fringe Benefits (mandated and non-mandated)
  • General Operating
  • Property
  • Administration and Overhead

For more detail on these categories and other budgeting considerations, please refer to Financial Management for Centers for Independent Living.

Indirect Costs

Uniform Administrative Requirements 45 CFR 75.521 Appendix IX Indirect Cost Identification and Assignment and Rate Determination for Nonprofit Organizations establishes the principles for determining costs of grants, contracts, and other agreements with the federal government. The guidance addresses allocation of direct costs—those that can be identified specifically with a specific funding source; and indirect costs—those that have been incurred for common or joint objectives and cannot be readily identified with a particular final cost objective. Examples of indirect costs are leadership and administrative salaries, board expenses, common space expenses, legal and insurance costs, and facility maintenance.

Currently, HHS requires all Part C-funded CILs with more than one cost objective, regardless of size, to submit an indirect cost rate proposal to describe how costs are allocated, and to obtain an approved indirect cost rate unless they can allocate everything directly to each of their cost objectives (and can prove it, which is difficult). As ED, you may want to discuss this with your ACL/OILP Program Officer. Use this resource(https://www.ilru.org/training/how-prepare-indirect-cost-rate-proposal) to develop an indirect cost rate proposal.

An indirect cost rate is a means for determining the proportion of indirect or shared costs each program should bear. It is expressed as a ratio: indirect cost pool/direct costs. Indirect Cost Rate Proposals must be approved by the “cognizant agency” prior to implementation. In the case of Centers for Independent Living, this agency is HHS.

All Part C CILs should be doing resource development, which becomes a distinct cost objective. For that reason, even small CILs probably have at least two cost objectives; consequently, ALL Part-C CILs are required to obtain an indirect cost rate unless they qualify for and elect the 10% de minimis rate. De minimis rate is an opportunity for organizations that do not have a current indirect cost rate agreement to receive an indirect cost rate of 10 percent of modified total direct costs.

The indirect cost rate is critical to the fiscal well-being of your CIL. Take the time to understand how your CIL developed its indirect cost rate, and get technical assistance as needed. Don’t just assume that the methodology and calculations are correct. It is a complicated issue, but well worth your time and effort to ensure your CIL has an appropriate and approved rate. The three webinars in the Resources for a Deeper Dive should be helpful in getting you started.

Restricted Funds

Grant funding can only be used for the purposes and the time period for which it was granted. In other words, those funds are restricted.

All of the programs of a CIL contribute to the same big picture goal of increasing independence and community options for people with disabilities, and when you are immersed in day-to-day competing priorities and trying to help real people solve real problems, it may seem reasonable to use money from that program’s budget to meet a shortfall in this program’s budget, because after all we are all working toward the same goal. Do not do this. Absolutely, do not do this.

Using restricted funds to pay for something other than the use for which they were designated can cause you, your board, and your CIL a lot of legal and financial headaches and heartaches from which it may not be easy to recover.

Resources for a Deeper Dive


[1] Adapted from Heveron, J. F., McElwee, P. L., Petty, R., Jones, D. L., IL-NET Sample Fiscal Policies and Procedures Handbook: A Set of Policies and Procedures with Annotations for Use in Training for Centers for Independent Living. Houston: Independent Living Research Utilization, 2020.

[2] Many organizations have the treasurer or board officer co-sign checks or co-sign checks above a specified amount determined by the board.

[3] The Accountant/Bookkeeper may be a staff member or an outside contractor. The roles and functions are the same in either case.

[4] Most nonprofits engage an outside CPA firm to prepare these filings.

[5] As required by regulations or determined by the board, a separate outside CPA firm may be engaged to perform audits or reviews of the organization’s financial statements.

[6] The firm that prepares filings or conducts other ongoing work for the CIL should not be the firm that conducts an annual audit.

[7] Rodriguez Heyman, D. and Brenner, L. (Eds.). Nonprofit Management 101: A Complete and Practical Guide for Leaders and Professionals, Second Edition. Hoboken, NJ: John Wiley & Sons, Inc., 2019, p. 219.