An agency's ability to offer high quality and effective programs depends upon its ability to secure and manage funds. In many cases, the budget office is responsible for financial management while the program manager attends to the delivery of services. Managers of smaller programs, however, often find themselves responsible for both services and finances. Regardless of the situation, all program managers should know, at least, the fundamentals of funding and financial management.

Overview of funding

In New York State, there are several categories of funding that may support an adult education program. The main categories are as follows:

• Grants are generally awarded by the New York State Education Department. Upon approval, an agency receives advance payment prior to the delivery of services. To review budget guidelines, visit the New York State Education Department.
• State aid is typically generated by school districts and BOCES based on student attendance. Employment Preparation Education State Aid (EPE) is an hourly reimbursement used to support adult education programs.
• Contracts are generally used by other New York State agencies and county agencies. Upon execution of the contract, the provider operates programs and services and is reimbursed after a specified period. Please note that the New York State Education Department is required to execute contracts for agencies other than school districts and BOCES.
• Tuition is a fixed fee charged by the program provider. Tuition may be paid by the student or by a local agency on behalf of the student.
• Performance-based contracts are generally used by county agencies. These contracts establish expectations for student outcomes, typically employment. Once the student outcome is documented, the agency is reimbursed for programs and services.

Each funding source delineates its allowable expenses, funding cycle, program operation dates, and reporting requirements. To ensure compliance, the program manager should become familiar with the requirements of each funding source used to support the program. Understanding fund requirements will also enable the program manager to "blend" fund sources and maximize existing resources.

Developing a Budget

A budget is a document that estimates the financial resources that will be available to, and the financial demands that will be placed upon, a program. It is a forecast, generally 12 or more months in advance, of revenue and expenses. A budget must be as accurate as possible because it will often be the basis for funding agreements. The estimates actually become boundaries within which programs must operate. Additionally, a budget serves three major purposes:

• Budgets help agencies plan accurately. Decisions about implementing a program as planned versus scaling back somewhat can be made only after determining the cost of running a program as well as expected revenue.
• Budgets provide funders with an itemized breakdown of anticipated program expenses. With this information, funders can release funds to the program and monitor the program's expenditures in accordance to rules, regulations, and priorities.
• Budgets provide a framework against which income and expenses can be monitored on a regular basis over the course of the year.

There are several types of budgets. An operating budget shows the annual cost for running an agency and the annual revenue that is expected, according to the fiscal year of the agency. A program budget shows the operating costs and revenues of a specific program. It may be based on the fiscal year of the funder instead of the fiscal year of the agency. A start-up budget includes one-time costs for starting a program. These costs might includes purchasing or renovating a facility, hiring staff or consultants prior to actual start of the program, initial development of curricula or materials, etc.

Every agency should have a combined annual operating budget, and each separately funded program should also have its own budget. All programs should contribute revenue to the overall expenses of the agency, including a portion of facility costs, administrative costs (bookkeeping, top management, liability insurance, auditing, etc.), basic telephone service, etc. Budgets are generally developed on an annual basis or are based on the length of a program cycle (e.g., a summer program has a new budget each year for its 8-week session).

The first step in developing a budget for a new program is to identify what is needed: number and type of staff; space, equipment, and materials; and other important resources, such as insurance, maintenance, utilities, consultants, dues/fees, etc.

Once identified, each of those items must be assigned a cost. What salary will staff receive? What benefits will they receive? (Union contracts or personnel policies may determine these issues.) The agency's human resources office will know which staff positions are eligible for which benefits (e.g., Are part-time staff eligible for full, partial, or no benefits?) and how much benefits cost.

An allocation for the program's share of overall administrative expenses must be included. This allocation is often based on the percentage the program represents of the agency's overall budget, staff, and/or number of students served.

For an on-going program, expenses for the next funding cycle can be estimated by adding inflation, planned salary increases, benefit changes, and the like to current operating expenses. Any and all anticipated changes in the program for the coming year should be studied. Will these changes require additional resources or result in a reduction of expenditures?

Whether designing a new program or operating an existing one, keep in mind that each funding source can ask for different levels of detail and may classify expenses slightly differently. Some funders ask only for category totals (e.g., total salaries, total fringe benefits), while others ask for line-item detail (e.g., salaries for each staff person, fringe benefits detailed in terms of health insurance, social security, worker's compensation). Expenses might also be classified into different categories. Liability insurance could be its own line item, could be lumped into a category for all insurance, or could be included under contracted expenses.

Many funders divide the budget into two or three major sections with personnel costs (salary and fringe benefits) being in one section and non-personnel costs in other sections (e.g. contracted services, maintenance and operation). However, others may divide a budget into program-related costs and administrative costs. The bottom line is to read budget forms carefully before completing them.

Requirements of and restrictions imposed by funding sources must also be thoroughly understood. Funding Source A sets a limit on the amount of money that can be used for administrative purposes while Funding Source B limits what can be used for fringe benefits. Funding Source C prefers a formula based on the number of learners served or number of hours of service. Some funders allow for indirect costs; others require all costs to be itemized. Each funding source has its own client eligibility requirements and starting/ending dates.

Once the expenses have been calculated, it is time to address the other half of a budget: revenue. Program income and expenditure totals must match. When calculating revenue, it is perhaps most prudent to be conservative, basing estimates on worst-case, rather than best-case, scenarios. If, for example, part of the revenue is based on tuition, never expect full payment due to unfilled seats or delinquent learners.

In the case of insufficient revenue, it may be possible to access additional sources of funding. If not, expenditures must be reduced. If the budget is still unbalanced and further cuts would compromise the program, it may be necessary to scale back the original design of the program. Working with an electronic spreadsheet or other financial software makes this process more manageable.

Upon achieving a balanced budget, all of the information should be put together in the format requested, and on the forms provided, by the provider. To minimize rejection due to clerical oversight, be sure to provide all the information requested and submit within the timeframe specified. This document will become part of the agency's contract with its funder.

The agency will be expected to operate within the bounds of this budget. Generally, it is unlikely that the total amount of funding will increase within the same year. In that regard, the bottom line is inflexible. However, other lines in the budget usually may be modified with the funder's advance approval. Prior to the start of the contract, the program manager or fiscal officer should be very clear on how budget modifications or amendments are handled. Some funding sources limit the number of amendments, while others allow a certain percentage of variance without seeking prior approval. Agencies might be allowed to move money from different staff lines within the salary section, but not between major sections of a budget (e.g., salary, maintenance and operation, contracted services).

Managing a budget

As the program year commences, it is important to compare actual revenue and expenditures to the ones estimated in the budget. If discrepancies occur, it will be necessary to bring the budget back into balance. For example, an unexpected increase in health insurance costs might be offset by delaying purchase of new equipment or by reducing part-time staff hours. Remember to complete the budget amendments required by the funding source.

Program managers should seriously consider using a financial management system that is computer-based. Such a system should accommodate multiple funding streams on varied funding cycles so that reports fitting the unique requirements of each funder can be generated. In the case of a single primary funder, a computer-based system will probably more easily allow creation of internal budget and bookkeeping practices that are compatible with the system used by the funder.

There are a number of commercial accounting software packages that can handle this demand. Once such a system is set up, the budget for the agency overall and for each funding stream can be entered in the system, and income and expenses can be automatically compared to the budget on a monthly (or more frequent) basis. Very detailed financial records are a tremendous support to managing budgets.

Managing cash flow

Too often, a balanced budget is threatened by the realities of program operation. Expenses are incurred day by day, but revenue can be delayed by reimbursement procedures, errors in processing, or delays in state budget approvals. Therein lies the problem: How do programs maintain sufficient funds to meet current expenses?

Program managers need to monitor the rate at which funds are coming into and going out of a program. It is generally preferable to maintain an excess balance in the account, known as a "fund balance" or "excess revenue", which can be carried over from year to year to help cover temporary shortfalls. If a positive fund balance cannot be generated, it may be necessary to consider one of the following actions:

• Accelerating revenue. Some funders will provide an advance to help offset a delay in reimbursement. Others will expedite reimbursement when there is a problem. Discounts can be offered to fee payers if they pay early (although this will reduce total revenue for the year).
• Delaying payments. Vendors may be willing to allow a delayed payment schedule or to suspend finance charges. Paying salaries and taxes should never be delayed, since failure to be timely can result in legal action.
• Borrowing money. Although additional costs will be incurred, arranging a loan is generally preferable to shutting down temporarily from a lack of positive cash flow. Cash flow shortfalls should be apparent well in advance. As soon as the possibility of a shortfall is detected, negotiations about preparing a line of credit should begin. Most banks or lending institutions are willing to arrange a loan if the reason for the cash flow problem is clearly presented. The bank or lending institution will require documentation of the program's budget and funding commitment.

  Managing the Financial System

  As noted above, it is very helpful to have the financial record-keeping system set up in an electronic format to facilitate recording and reporting detailed financial information. In addition to the actual records kept, the process by which funds are handled and recorded is extremely important. All financial records should be maintained for at least seven years.

  There are a number of standard controls that should be established in any financial management system, such as:

  • Signed invoices, verifying that the products or services were received and that the expenditure was approved, accompany all expenditures.
  • Once paid, the invoices are filed with check numbers and payment dates noted on them.
  • Only checks with preprinted numbers are used.
  • If there are many individual tuition payments, pre-numbered receipts for all income are used.
  • Records of equipment and other assets are maintained. Inventories are conducted periodically.
  • All fiscal staff are covered under fidelity insurance.

  A key principle of financial management is "separation of controls". Dividing the responsibilities for financial management among a number of individuals helps ensure that funds are handled accurately and opportunities for fraud or embezzlement are greatly reduced. Some of the basic separations are that:

  • The person writing checks should not be approved to sign any checks.
  • Two people should sign all checks over a specified dollar amount (set by the board).
  • Someone other than the bookkeeper should receive and reconcile bank statements.
  • Someone other than the bookkeeper should authorize writing off bad debts or other assets.
  • Collection of cash should be under the control of two people whenever possible.
  • If checks arrive in the mail, two people should open the mail together.
  • All income should be deposited in the bank at once. Someone other than the people who open the mail or receive the income should make the deposit.

  In managing a financial system, there are several reports to prepare on a monthly basis. They should include a listing of all expenditures and revenues that month; a summary of expenditures and revenue by category for that month and for the year to date; and a comparison (by category subtotals) of actual and projected expenditures and revenues for that month and year to date. Significant variations in actual as compared to projected numbers should be explained in writing as footnotes to the report. These reports should be reviewed by managers outside the financial management system and/or members of the board of directors/school board (or its finance committee).

  Acquiring Funding

  Adult education programs generally receive their core operating funds from the State Education Department. Additional funds can be received from the local Workforce Investment Board, tuition paid by the County Department of Social Services, the local school district, or the local BOCES. Funds can also be raised through writing grants to private foundations (including local foundations such as the United Way), applying for special competitive grants from state and federal governments, seeking donations from local or national corporations, and holding fund raisers such as cultural events, auctions, or book sales.

  As noted in previous sections of this guide, successfully acquiring funding rests on:

  • a clear, specific, and community-focused mission statement and set of measurable outcome objectives.
  • a proven track record. Documentation of learners' educational gains and successful performance upon completing the program can only help.
  • a clear program design showing the strengths of the program.
  • specific requests that match the priorities of the potential funding source. The exact dollar amount, what it will be used for, and the outcomes it will produce should be presented to the funder.
  • the ability to properly manage the funds: a good bookkeeping system, adequate internal controls, and good financial reports.

  The Federal Register, the NYS Contract Reporter, and many websites list funding opportunities from the state and federal government. There are several publications (hard copy and on-line) that report on funding opportunities. The Foundation Center (available in many public libraries and on-line) has information about private foundations. The local United Way may also have information about local funding opportunities. The local Workforce Investment Board has funds available through WIA.