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November 14, 2019
Managing Your Church Blog, May, 2018
When Expenses Are Higher than Your Budget
Does your policy have the answer on what to do?
When Expenses Are Higher than Your Budget

For churches that view the operating budget as an expense control mechanism, the matter of how to deal with expenditures in excess of budgeted amounts is an important element of policy that is poorly developed in many churches.

For example, a church operating budget will typically include line items for each of the church’s main areas of ministry operations. Line items will exist for worship activities, educational activities, children and youth ministries, missions, and so on.

Suppose a church develops and approves an operating budget for the year reflecting total expenses of $1.5 million, of which $200,000 relates to educational activities. Also suppose that, due to unexpected developments, it appears the church’s expenses for its educational activities will exceed the amount budgeted by $50,000 for the year.

This is an important element of policy that is poorly developed in many churches.

Is it acceptable for the church’s staff leadership to make the additional expenditures for the educational ministries, so long as total expenses do not exceed the total amount of expenses budgeted for the church of $1.5 million? Even if church staff leaders are permitted to reallocate budget line items so long as the total amount spent remains within the amount of total expenses authorized by the budget, who on the church staff leadership has the authority to make such a reallocation decision? Or should church staff leaders be required to obtain specific authorization to incur expenses that exceed the amount budgeted for the educational ministries? If authorization is required in order to exceed expenses for an individual line item or for the budget as a whole, who must provide that authorization? If the congregation approved the annual budget, must the congregation be involved in an authorization for such a variance? Or, may such approval be granted by the governing body of the church or by some other group? Would the answer to these questions change, depending on the amount by which actual expenditures are expected to exceed budgeted amounts?

Many churches do not have good answers to these questions. For churches that view the operating budget as an expense control mechanism, it is essential to have an appropriate budget policy that clearly addresses such matters and leaves little room for misunderstanding.

Excerpted from Church Finance, available in the Church Law & Tax Store.