Challenges in Budgeting for Charitable Organizations: A Case Study of Australia Salvation Army Eastern Territory

This study identifies a charitable Organisation where the various activities carried by the Organisation are listed. The Australia Salvation Army eastern territory Organization is selected as the reference charity Organisation in the study. The study outlines the various major challenges in budgeting, which affects the charitable organizations. Additionally, a discussion about whether the not-for-profits organizations should be concerned with budgeting is rolled out. A clear rationale for the same is outlined.

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Charitable Organization
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Introduction
This study identifies a charitable Organisation where the various activities carried by the
Organisation are listed. The Australia Salvation Army eastern territory Organization is selected
as the reference charity Organisation in the study1. Further, the study continues to outline the
various major challenges in budgeting, which affects the charitable organizations. Additionally, a
discussion about whether the not-for-profits organizations should be concerned with budgeting is
rolled out. A clear rationale for the same is outlined2.
Charitable organization
It is important to note that while all charities are not-for-profits organizations, not all not-
for-profit Organizations are charities. In Australia, all charities are regulated by a national
independent commission referred to as Australian charities and not for profits Commission
(ACNC). According to the ACNC register, there are more than 54,000 charities, which have
been registered by the year 2018. One of the registered charity Organisation is the Salvation
Army eastern territory3. This Organisation will form the basis of this study. The main activity for
Salvation Army eastern territory is to provide social services. The Organisation, additional,
provide the following list of services as part of their activities; addiction recovery services, aged
care plus services, emergency and disaster recovery services, employment plus services, fighting
1 Bruce, M. Defining “Culture” and “Organizational Culture”: From Anthropology to the
Office. Available on http://www.haworth.com/en-us/knowledge/workplace-library/documents/
defining-culture-and-organizationa-culture_5.pdf , 28/9/2018
2 Businesstopia. Why is Non-verbal Communication Important? (2017). Available on
https://www.businesstopia.net/communication/why-non-verbal-communication-important,
28/9/2018
3 Ibid., 1

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modern slavery, homelessness accommodation services, international development activities,
salvos funerals, salvos legal and youth services4.
Greatest challenges in budgeting for the salvation army
eastern territory
Every organisation should have a stable financial stability in order to maintain its
operations. The basic component of financial stability is the commitment of the organization’s
board and staff to proper financial management. This informs both the timely review of financial
reports and advance planning. Creation of budget is one of the ways in which the Salvation
Army eastern territory board and staff plans for the future income and expenses5. A coherent
financial management is characterized by a fundamental building block of approving the annual
budget. The role of budgeting is the responsibility of the staff. However, executive or finance
committee drawn from the Board reviews the proposed budget. The full board is meant to adopt
the reviewed budget during a full board meeting. This approved budget acts as a foundational
guide for the financial activities to be carried out by the charity in the few months ahead.
Notably, charity being a non-profit Organisation, its financial position may change during the
year6. For this reason, the organization’s budget should not be permanently drafted, as it should
be reviewed as the financial position of the charity changes7.
In the context of charity organizations, a budget can be described as a guide that assists
the organization to arrange and make future plans as well as assessing its current financial status.
4 Bass, B. M. “From transactional to transformational leadership” and B. M. “Learning to share
the vision” in Leadership: Understanding the dynamics of power and influence in organizations
Vol.2 (2017), pg. 324
5 Kotter, J. P. “what leaders really do” Harvard Business Press, Ed. 1 (2016)
6 Herzberg, F.” How do you motivate employees” Encyclopedia (2017)?
7 Knapp, K. “The Effect of Enterprise Resource Planning (EPR)” in Omega Dissertation,
Systems on Organizational Culture, 2nd Ed., A Quantitative Analysis. Vol 1. (2016).

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Charity organizations budget should be subjected to periodical reviews to build a comparison
between the budgetary estimates and the actual cash flows and estimates. This helps the board of
management to determine whether the Organisation is in course with its annual strategic plans
and objectives. This also gives room for budget reviews to align the financial plans with the
actual cash flows and expenses. Other stakeholders utilize charitable organization budgets and
partners like banks and other financial institutions or even donors to determine whether the
organization funding is properly utilized8.
Salvation Army eastern territory encounters several challenges when drafting a business
budget just like many other not-for-profit organizations. The challenges range from organizing
sources of income to maintaining compliance. One of the challenges that Salvation Army eastern
territory encounters when creating its budget is the instability in the revenue cycle. Since the
Organisation does not operate on profits; its operations are dependent on donors and sometimes
governments and foundations. The activities of the charity are financed through donations,
government funding, and gifts. The challenge of instability is because of donors failing to
channel their donations, the government may put an end to its funding and the foundations may
decide to withhold their gifts. The instability and inconsistency in funding are an early warning
sign that the organizational budget will be characterized by frequent evolvements to account for
incoming and diminishing resources. The accountants and financial planners for charity
organizations should constantly continue looking for new funding opportunities to curb this
challenge of unstable income9.
8 Cox∗, A., M., Daoud, M., & Rudd, S. “Information Management graduates’ accounts of their
employability” in Education for Information, A case study from the University of Sheffield. Vol
30 (2013), pg. 53
9 Dawson, C., S. “Leading Culture Change”; and S. C., “What Every CEO Needs to Know”.
Palo Alto, CA. Stanford University Press: USA (2017).

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Another prominent challenge facing charity organizations in matters budgeting is the lack
of financial education. Financial education is a key element in the budget-making process. A
competent person who has clear knowledge in financial education develops a realistic and
effective budget. Many charity organizations including salvation army eastern territory do not
have members of the staff with the requisite financial knowledge for budgeting tasks. It is for
this reasons that they are not able to draft a line-by-line budget required for a successful
operation. Most of the staff in the majority of the charity organizations are volunteers with no
financial skills and expertise to develop a realistic and operational budget. Salvation Army
eastern territory should consider utilizing the available non-profit budgeting tools to address this
challenge. Such budgeting tools as planning software can be used to construct a realistic
business budget for the organization. The software is also advantageous as it helps the
organization to track all its essential financial details10.
Another challenge facing charity organizations as far as budgeting is concerned is the
issue of inadequate staffing. Consider the case of Salvation Army eastern, it is a huge
organization with a broad mandate taking into account the activities it’s involved in and also
taking into account the wider region it is covering (Australia capital territory, New South Wales
and Queensland). The number of staff working in the Organisation does not match with the
labour demand. Due to extreme workload, the employees are overwhelmed with other
responsibilities in that they opt putting budgeting on the back burner. This also goes in line with
the explicit requirement for financial knowledge to draft a sensible budget. Employees opt to
evade the budgetary drafting responsibility, as most of them despite being few in number does
10 Hopkins, C., D., Raymond, M., A., & Carlson, L. “Educating Students to Give Them a
Sustainable Competitive Advantage”; Journal of Marketing Education, 3rd Ed. Vol 33, (2016),
pg. 40

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not possess the financial knowledge required to draft a realistic budget. To curb this challenge,
the charity organization should consider introducing and adopting the use of budgetary tools.
With a budgeting software, the organization can develop a financial plan encompassing its goals
while integrating income statements, balance sheets, and cash flows. The utilization of budgeting
tools will reduce the labour demand required in drafting and developing a budget for the charity.
The tools can also be utilized to look for the future potential financing opportunities11.
It is a worldview acknowledgment that budgeting Is a time-consuming exercise and an
imperfect process. The charities are facing a budgeting challenge of “use it or lose it” mentality.
The personnel entrusted with the responsibility of drafting the budget are not focused on that
they second-guess what will happen in the coming financial year. They thus draft an unreliable
budget with the mentality that the budget will be periodically reviewed and revised. It is
because of such undoing that the budgeting has become synonymous with management control
systems. The bottom line for any no-profit Organisation including charities is to measure their
impact. It should be about measuring a surplus or a deficit. Budgeting has shifted the focus of the
charities and in general the not-for-profit organizations from being impact-oriented to focusing
on surpluses and deficits. It has made the charities shift their energies on the wrong place as
opposed to concentrating on what they are delivering to the beneficiaries. The not-for-profit
organizations need to adopt a beyond budgeting approach to curb this challenge. This approach
does not recommend doing away with budgeting but adopting controls in addition to budgeting
to keep the Organisation focus on its mandate. The beyond budgeting approach provides a
11 Louis, M., R. ‘Organizations as culture-bearing; Organizational Symbolism”. Greenwich, CT:
JAI 3rd Ed. Greenwich Press Vol. 1 (2017)

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simple, low cost and a more relevant alternative to budgeting. It promotes good governance and
ethical behavior12.
Do not-for-profits need to be concerned with budgeting a
do for-profit organization?
It is my submission that the not-for-profits organizations need to be concerned with
budgeting just as profitable organizations are concerned. It is a common knowledge that if a for-
profit or not-for-profit Organisation runs out of cash reserves to continue its operations or
provision of services, there is a high likelihood that the Organisation will fail. It is important to
note that budgets are not only a method of allocating resources but it’s an avenue of controlling
expenses13. Consecutively, whereas the financial team and financial manager of for-profits
organizations plan and budget enough funds for operations and development, a financial
supervisor for not-for-profits plans and budget sufficient lead-time to get grants and funds for
organizational programs. Additionally, it's imperative to note that whereas the main goal for a
for-profit Organisation is maximizing profits and financial benefits for its shareholders, the end
goal for not for profit organizations is to ensure there are enough profits to continue making the
difference14.
One of the rationales as to why not-for-profits organizations need to be concerned with
budgeting is that a budget is used as a tool to assist the Organisation to focus on their goals and
mission. The organizational budget is developed based on various activities and programs which
the Organisation intends to undertake throughout the year. These activities and programs are in
12 Calasanti, T., M. & Slevin, K., F. “Gender, Social Inequalities, and Aging” Oxford: Altamira
Press (2017)
13 McKenna E. “Business Psychology and Organizational Behavior”. New York: Psychology
Press, (5th ed.), Management Inc. Vol 1. (2013)
14 Hofstede, G. “Dimensionalizing Cultures”; Readings in Psychology and Culture 2nd Ed., The
Hofstede Model in Context. Vol 1, (2016), pg. 17

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line with the organization’s goals and mission. Not-for-profits, therefore need to be concerned
with budgeting to remain in course with the organization's goals and mission. Without budgeting,
charities may lose focus and forget of their mandate15.
Transparency and accountability is a contemporary global virtue that should be adopted
by all organizations. Since not for profits organizations gets its resources to finance its operation
from donors, government funding and gifts from the foundation, a high level of transparency and
accountability is expected. It is the role of a budget to show accountability and transparency of
the Organisation. A good budget displays exactly how the resources been given out is utilized by
the Organisation. In conjunction with accountability and transparency, the budget enhances
better oversight and review. It is through the budget that the not-for-profits will show where the
resources were wired to, how much was spent on projects/programs and how much revenue is
being generated.16
Every Organisation has its strategic goals. Thus, not-for- both profits and for-profits
organizations have their strategic goals. The strategic goals range from short-term to long term.
The strategic goals are dependent on the availability and timing for funding. The budget allows
the Organisation to focus on the short term and long-term goals. The not-for-profits
organizations need to be concerned with budgeting in order to realign their strategic goals with
the availability and timing of funding. If the not-for-profits organizational budget is not
strategically planned, then it means that the Organisation may not clinch its highest potential17.
Another rationale as to why the not-for-profits need to be concerned with budgeting is for control
15 Hager, M. “Intercultural Studies and Foreign Language Learning: Culture”; Peter Lang AG –
Bruxelles, Psychology, and Language Learning. (2014)
16 Chatman, J, A., & Eunyoung, S. “Leading by leveraging culture”. California Management
Review, 4rd Ed. (2013), pg. 14
17 Management. “Organizational Structure & Control”. Albany.edu & Albany Center
(2017)

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purposes. Budgeting enhances financial controls, which gives room to set the spending limits.
Through budgeting, an Organisation is able to maintain costs/expenses in line with the revenue
generated or the amount of income in the Organisation. Through setting the spending limit and
enhancing the cost control mechanisms, the Organisation will be saved from overspending and
ensure the board of management is making viable and beneficial decisions for the organization18.
Every Organisation has a bottleneck and so does the not-for-profits. They have
operations, which operates at their maximum capacity. In those operations, there is no additional
work that can be accepted beyond its immediate production level. The bottleneck is the key
drawback towards the ability of an enterprise to maximize its sales and profits. Through
outsourcing work, reconfiguring products and services and increasing efficiency, the effects of
the bottleneck can be minimized. The budget comes into to help analyze the constraints. It's
through budgeting process that the Organisation can consider on what to be done by either
expanding the capacity of the constraint or to eventually shift the job around it. Thus, the reason
why a not for profit Organisation need to be concerned about budgeting is to facilitate the
constraint analysis19.
Conclusion
In conclusion, the study has focused on the Salvation Army eastern territory charity
Organisation which is registered by the Australian charities and not for profits commission as
required by the Australian law. The study has further outlined the various activities carried by the
Salvation Army including addiction recovery services, aged care plus services, emergency and
18 Havelock, Ellis. ‘Introduction to the Task of Social Hygiene’ in B. Ellis (Ed) Social Hygiene
(London -1912, 2016), pg. 42
19 Bernard, B. “The concept and dynamics of culture”. In Walter de Gruyter, World
Anthropology: Munchen, DEU – Munchen, (2016).

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disaster recovery services, employment plus services, fighting modern slavery, homelessness
accommodation services, international development activities, salvos funerals, salvos legal and
youth services. However, the main activity of the Salvation Army charity Organisation is to
provide social services20.
Further, the study has continued to discuss the various challenges in budgeting, which
faces the charity Organisation in view of Salvation Army Eastern Territory Organisation. Such
major challenges as instability in revenue cycle, lack of financial education, inadequate staffing
and the challenge of use it or lose it mentality has been deeply discussed. The study has gone a
step further to recommend various strategies towards curbing those challenges including
adopting the beyond budgeting approach among others21.
Additionally, the study explores whether there is a need for the not-for-profits to be
concerned with the budgeting just as the for-profits are concerned. To support the answer to the
affirmative, the study outlines the rationale behind the concurring answer that the not-for-profits
need to be concerned. Among the reason cited, include enhancement of transparency and
accountability, to enable the organization to focus on its goals and mission, realigning the
strategic goals with the available income and timing of funding, constraints analysis,
performance evaluations, and planning orientations22.
20 Kroeber A. L., Kluckhohn, C., & Untereiner. “Culture: A Critical Review of Concepts and
Definitions” Vintage Books (2015).
21 Alvesson M. “Understanding Organizational Culture” Sage Publications Ltd - London
(2015)
22 Alder, N. “International Dimensions of Organizational Behavior” In Alder, 3rd Ed Cincinnai,
OH: South-Western College Publishing (2016)

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