Use It or Lose It Budgeting

The budget process and budgets themselves can positively and negatively impact management actions. For example, so-called "use it or lose it budgeting," a practice that involves management spending any funds left at the end of a budget period, is a common practice among nonprofit organizations and government agencies. The view is that if a department or division manager does not spend all of the allotted budget monies, senior management will slice next year's budget by the amount not spent. Spending continues until the budget is zeroed out. This is then considered a successful budget year by the individual department and division heads. The end result of this practice is that all of us pay for the spending associated with this budgeting process. For this conversation, imagine you have been contracted by a local nonprofit or government agency of your choice, to offer some solutions to end this practice.

Please respond to one of the following:

• What options can you offer to end this practice? Include the pros and cons of each option.
• What steps would your implementation plan include?
• Assuming the role of the head of the nonprofit organization or government agency, what questions might you have for the accountant?