A budget monitoring report is a financial report that shows actual income and expenditure for a certain period compared to the budget for the same period.
These reports are one of the most important tools for managers, allowing them to check that projects are still on track, in financial terms. Any areas that are not on track can be identified, and action can be taken to put things right before any situation gets critical.
Finance staff should prepare budget monitoring reports regularly throughout each project, normally once per month. Programme staff and managers should review the reports straight away, once they are prepared. It is good practice to organise a regular review meeting, including both programme and finance staff, to discuss the financial position and decide on any actions that need to be taken.
1. Look for the date of the report
- How recent is it? Reports are only really useful if they cover a period that is pretty recent – not more than a few weeks ago.
2. Look at the ‘bottom line’
- What is the total expenditure to date compared to the total amount in the budget? Is it about what you would expect for this period?
- What is the overall difference (or ‘variance’) from the budget? Plus or minus 10% is generally acceptable.
- Is total income what you expected? Have you received all the income you were expecting from your donors?
3. Look at the budget variance column
- Identify significant variances – i.e. where actual expenditure is more than 10% different from the budgeted amount, or where the actual expenditure is a significant amount.
- What, if any, reasons are given for these variances? Are they reasonable?
- Are the variances temporary (i.e. a timing issue that will work through eventually) or are they permanent (i.e. where you have really spent more or less than the budget)?
- How can the funds be found to pay for any permanent negative variances (i.e. where expenditure is more than the budget)?
4. Look at the % of the budget (or grant) that has been used
- Generally, is expenditure for each line about the level you would expect for this period?
- What message does expenditure to date on project-related costs tell you? For example, if it is half way through the year and only 25% of the budget is used so far, perhaps the project is at risk of not being completed on time. But if you have spent 75% of the budget, perhaps you are at risk of running out of funds.
- Are there any items showing zero expenditure which might cause concern? E.g. vehicle insurance.
5. Look for ‘linked’ budget items
- Are different budget items behaving consistently? E.g. if training activities are delayed, then all training-related budgets should be underspent to a similar level, perhaps including venue hire or travel as well as trainers costs.
6. Look for unusual or unexpected expenditure or income
- Could this be an indication of either miscoding or abuse of funds / fraud?
7. Look at the narrative reports
- Does the narrative report tell the same story as the budget report? For instance, if the narrative report says that some activities are delayed, then expenditure should be reduced too.
8. Look for solutions
- Can any permanent underspends be used to fund permanent overspends? Be very careful about conditions that donors may have placed on restricted funds – you may not be able to change how you are planning to spend money.
- Can any areas of overspend be controlled or reduced in future months? Note that some costs are fixed and so cannot be controlled.
- Can you find additional sources of income, if you need them?
- Do you need to think about the exact timing of when you receive funds and when you schedule expenditure? Maybe some big expenses could be delayed, if needs be.
- Does the budget still describe the activities you are actually carrying out? If the budget is out of date, then it may be worth re-doing it. This normally needs negotiation with your donors, your staff and the people / organisations you are aiming to help. It is not something to do too often – not more than every three or six months. But it can help to make sure that your work is really relevant to your beneficiaries.
- All these solutions will need to be discussed with programme managers. Decisions about changes to the budget or expenditure cannot be made by finance staff on their own