By Michael Castrilli

It’s Not Just a Phase

My experience working with ministers is that for many, church budgeting is viewed as a necessary, yet stressful and time-consuming exercise. People resist or even fear the topic because of seemingly complicating processes or past negative experiences. Even with personal finances, many people grow up learning that developing a budget is good practice but a constraining activity designed to prevent or control people from doing all of the things they want to do.

In simple terms, the budget is the tool that connects church priorities to financial resources. The alignment between church mission, vision, pastoral priorities, and budgeting are integrally linked. Effective parish budgeting not only enables you to plan, allocate, and manage resources effectively, it will empower you with information and insights to help inform decision-making.

So, where do you begin? Let me help debunk the myth of budgeting as a constraining activity and provide some simple strategies for developing an effective, efficient, and collaborative budget and financial management practices. Let’s begin with understanding the three main phases of the church budget process.

Tip 11: Formulate, Execute, Control

Below is an excerpt from Parish Finance: Best Practices in Church Management (Mahwah: Paulist Press, 2016).

Phase 1: Church Budget Formulation

Budget formulation is the process used to develop the budget. This is where you will review the variety of income and expense categories and determine how much you expect to receive and project how much you plan to spend. There are a variety of methods we can use to create the budget and in which we can develop the budget. Whether you use top-down, bottom-up, incremental, or flexible budgeting, the framework will help you structure the development.

In the budget formulation phase, the parish will get into the nuts and bolts of budget building. Here a variety of questions will be answered including:

What are the assumptions and expectations for the upcoming year?
How will resources be allocated for staff, programs, emerging requirements, or assets?
What information and methods will be used to ensure that accurate projections/forecasts are developed for income and expenses?

This is the phase of the budget process where we will build the “budget house.” We will review architecture plans, pour a solid foundation, frame the walls, and build a strong roof so that as storms rage, the house remains sturdy and strong.

Phase 2: Church Budget Execution

Once the income and expense parameters have been set, and the budget has been approved, the plan is ready to be implemented. Budget execution is the phase in the budget lifecycle when the checks are written, salaries paid, and income is received. Policies and procedures are established to ensure accountability. Clear roles and responsibilities are developed for who, what, when and how resources will be authorized, distributed, and accounted for. The outcomes of this phase are policies and procedures for collecting and distributing resources.

Phase 3: Church Budget Control

Complementing the execution phase, budget control is the part of the budgeting lifecycle that ensures that the efforts that you have put into the other steps of the process are successful. Strategies and techniques can be deployed to keep you on track and headed in the right direction with warnings along the way if you are getting off track. Actual income and spending amounts are compared to budgeted projections to measure variances between the amounts. With this information, parish managers can accurately account for resources or deploy mitigation tactics if spending is getting out of control or if resources need to be reallocated.

All three of these phases build upon one another and create a budget lifecycle that brings flexibility, adaptability, and accountability to financial planning and actions.

Qeustions/Comments? Contact me at mjcastrilli@gmail.com.

By Michael Castrilli

Fraud Alert: 5 Tips to Protect Church Collections From Theft

There is nothing worse than reading about a Church who has lost thousands or even millions of dollars due to theft. Unfortunately, church collections are very susceptible to fraud because the theft involves something that is difficult to track – cash!

It would never happen here, not at our Church!

Our parishioners would never steal!

This is a Church — people are honest here!

Yes, I do believe that a majority of people are honest, but sin is a problem for a reason. I always like to say; most fraud doesn’t happen overnight. Fraud can occur slowly, even one dollar at a time and next thing you know – thousands, or in the case of some churches, millions are gone.

Fraud can occur as easy as:

Tom, the church usher, finds himself alone in the sacristy ready to put the Sunday collection in the safe. He pauses and thinks, “I work hard for this church as a volunteer. I’ve been here for 20 years; no one will care if I take a $10 bill, this church brings in tons of money.” The following week he takes a few $10s, and as time goes by, the dollars add up.

Jamie, the church administrator, always has the pastor review and sign the deposit slip before she leaves the bank. However, on her way, sometimes Jamie will make a second deposit slip that leaves out $50 or maybe $100 in cash. She forges the pastor’s signature (he won’t mind), and the bank does not notice. The fraud goes unnoticed because Jamie not only makes the deposits; she also reconciles the accounts in the church financial software.

Prevent Fraud – Protect People

Here is the main point – creating safeguards (aka internal controls) for assets is not about trust – internal controls are about protection and accountability.

Question: “Whoa – I’ve been here for years! You don’t trust me?”

Response: “This is not about trusting you, this is FOR YOUR PROTECTION.”

Think about it this way – without strong internal controls, if the money goes missing, how are people protected? If there is no process, there is also no protection. Without shared accountability, individuals are left in the lurch.

5 Tips to Safeguard Church Collections

Tip #1: Send Them Out Two-By-Two – Never allow one person to be alone with collections. If someone is bringing the collection to the office or the safe, have at least two people present.

Tip #2: Rotate Collection Counters – Set up a schedule for different people to count collections for different weeks. If people are in cahoots, and the same people count money in the same weeks, this can lead to fraud.

Tip #3: Create Checks and Balances (Literally) – Financial responsibilities should never rest on one person’s shoulders. The person who makes the bank deposits should not be the person who reconciles the accounts. An individual who writes the checks should not be the only one who signs the checks.

Tip #4: Communicate Proactively – An Information vacuum can cause people to create dirt. Establishing policies without proper communication lead people to suspicion and gossip – “Oh, I heard Laurie might be stealing money.” Be proactive with the answers to what, why, and how new policies are established.

Tip #5: Speak to Fears – Respond with “This is for your protection,” when confronted with “You don’t trust me?” Changing financial policy is not about a lack of trust but about safeguarding assets and sharing accountability.

Questions? Comments? Contact me at ChurchManagementAcademy@gmail.com.

Read More Church Finance Tips 30/30

By Michael Castrilli

Church Budget Methods: Take it from the Top!

Which budget method(s) do you use when you create your church budget? How do you estimate revenues and expenses?

There are a variety of methods you can use to create an effective church budget. Three common techniques:

Top-down budgeting
Bottom-up budgeting
Incremental budgeting

Let’s begin with top-down budgeting.

Top-Down Budgeting

I know it may be intuitive, but a top-down approach to budgeting is when resources are allocated at a high-level and the details are then worked out based on this amount of funding. To use a simple example, think about your salary. Each month, your employer gives you a salary but does not dictate how you spend that money. Unless a pay raise is on the horizon, you know how much money you have available to spend and you work out your budget based on that amount of money.

The same method can be applied to organizations. At certain organizations, a leader will establish how much money will be allocated for a given project and then the budget is created from that level of funding. On the other hand, maybe you receive a donation from a benefactor and you are going to budget those resources using this method.

Like all budget methods, there are inherent advantages and disadvantages.

The advantage of top-down budgeting is that the method is relatively simple. It does not necessarily require labor-intensive cost estimating because the overall amount of money that will be budgeted is established. Using this method, money is then allocated to categories of spending. One disadvantage to top-down budgeting is that you might be forcing or form-fitting various cost elements to meet your target.

Empowerment and Buy-In Go Together

Top-down budgeting can work really well when you know the amount of money you are willing to allocate or you have a set amount of funding being given by an external source. The key is to involve and empower others who will help you manage the budget so buy-in is established early in this process. As a general rule, if the top-down method is applied to budget formulation, it is important for those who are given responsibility for managing the budget to propose and justify enhancements or reductions for the budget they have been allocated.

A simple method would involve asking the Director to detail how she plans to spend the money AND allow her an opportunity to propose changes to the amount that has been allocated. You may now be saying, “Ok, but staff will always seek more resources, right?” Again, this is where collaboration is so critical in budget matters. When staff members are empowered and know that they have input into a budget’s creation, it is much less likely that unreasonable requests are proposed. Budgets that are developed secretly or through closed-door methods serve no one well and actually diminish staff morale. Top-down budgeting works well when those who will manage the budget are involved in the process.

Learn more about the benefits of church budgeting!

Photo Credit: David Holt London Flickr via Compfight cc

By Michael Castrilli

The 3-R Approach to Address Financial Challenges

Previously we have discussed how to construct a church financial narrative with impact and ease. However, we all know that writing about money is simple when finances are in great shape. Inevitably, church financial challenges occur and also need to be communicated.

Address Financial Challenges with 3-R

Picture of doors with the inscription "Holy doors of Mercy" showing that openness if required when it comes to addressing financial challenges — The Cathedral Basilica of Saints Peter and Paul., Philadelphia, PA

For example, from a decrease in collections, the parish drew a larger percentage of endowment funds than in previous years. Responding to financial challenges can feel overwhelming, but consider breaking the problem down using the 3-R Approach. The first step is to Reflect what has occurred. What is the actual data telling you about what happened? The second step is to Review reasons or circumstances and consider any changes that are necessary for the future. The third step is to Refine any policies and procedures to mitigate the likelihood that the problem will occur again.

When reporting a challenging situation, keep the narrative simple, straightforward, and offer answers to the relevant “W” questions.

What happened?
Who is/was involved?
When did it take place?
Why did it happen?

So, we have constructed the financial narrative, we have addressed any challenges, now what? Let’s choose the most compelling visuals to include in your financial reports. Next week we discuss choosing visuals to communication financial understanding!

Read More Church Finance 30/30 Tips

By Michael Castrilli

Bottom-Up Budgeting: Start From The Ground Floor

Which budget method(s) do you use when you create your church budget? How do you estimate revenues and expenses? Last week we discussed top-down budgeting! This week, let’s take a look at bottom-up budgeting.

Bottom-up Budgeting

Sometimes referred to as zero-based budgeting, the bottom-up method involves building a budget from the lowest income/expense elements and then rolling them up into the total budget request. From zero, each cost element is developed and justified. Therefore when the budget is complete, the program manager has a thorough understanding of the budget under their management.

Advantages/Challenges

The advantage of this method is that each cost element is scrutinized and justified in order to develop the budget. The challenge to this type of method is that it can be time-consuming due to the comprehensive nature of building from zero up.

Therefore, the leader might consider using this method for one department at a time or taking a bottom-up approach every other year so that the process is not overwhelming for those involved in building the budget.

For example, maybe you start with the Music program, and the following year, review the Religious Education program. When a budget has been developed using the bottom-up approach method, the insight into a program/department is typically very good.

Another advantage of this method is that the detailed analysis provides a level of granularity not necessarily achieved by top-down budgeting. With top-down budgeting, the dollars are broken out from a broader perspective, whereas the bottom-up method creates a more precise estimate of program costs.

Can you figure out what the greatest challenge to implementing a bottom-up budget method? You guessed it; the method can cause anxiety. People may feel like you are scrutinizing them and get defensive. Help staff to understand the answer to questions like, “Why me?” or “Why my program?” Be truthful. If you are asking for staff to build a bottom-up budget because you are concerned about overspending, let them know. We often think that we don’t want to concern staff. But guess what? They become concerned anyway.

When you answer the “why?” question truthfully, watch as build buy-in and rapport. People are happy to help build a great budget when they are clear about expectations and outcomes.

Photo Credit: mripp Flickr via Compfight cc

Portions of this text are excerpted from Parish Finance: Best Practices in Church Management (Mahwah: Paulist Press, 2016), Chapter 4