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Budgets and Procurement Policy

Date of approval

This policy was approved by resolution of the OSMF Board on 2024-02-29.

Budgets and Procurement Background

A Budget is made up a list of all the funds we expect to spend, broken down into quite small categories. These are small categories are called accounts or line items.

The funds allocated to an account or line item are based on the funds requested by a Working Group or other structure of the OSMF to fund services and projects that it is planning to purchase in the next financial year and possibly several financial years.

The management of the budget during a financial year is concerned with ensuring that the accounts are not under-spent or over-spent. Under-spending is bad because planned services and projects will not be implemented. Over-spending is bad because services and projects may have to stop before the end of the year.

Budget Procedures

Call for requests

The Treasurer will call for Working Groups and the Board to submit requests for funding allocations a few months before the end of the financial year.

The budget line items are zero based. Funds are allocated if the structure advises that it is planning to buy services or implement a project in the year. If there are no purchases planned then the funds allocated will be zero.

Income estimation

The Treasurer will work with the membership and fundraising teams to prepare a projection of the amount of money that will be raised from membership fees and fundraising efforts in the coming financial year. The projected income must be balanced against the projected expenditure to, ideally, create a balanced budget.

Maintenance of Reserves

To manage the impact of unexpected large financial demands on the OSM Foundation there is a policy to hold approximately one year of operating income in reserve. The reserve is designed to buffer a financial shock from events such as litigation, massive reputational damage, loss of sponsorship for key delivery systems, such as the content delivery network and loss of the sponsored use of satellite images. The reserve also provides assurance to staff and contractors that the Foundation will honour its commitments and pay its debts. To maintain the reserve funds the Treasurer will divert income to the reserve until it reaches the design level. Note that the reserve is flexible and is not protected. The Treasurer may draw on the reserve to support the budget whenever needed but should replace any draw-down as soon as possible.

Negotiations

If the amounts requested by all OSMF structures exceed the projected funds that are available for any year there will be a negotiation process to reduce the total requests before finalisation of the budget. Structures may be asked to cancel some of their planned spend or to move planned spending into future years.

Whenever a structure is unable to make sufficient reductions in planned spend the Finance Committee may propose reductions. Finance Committee proposals must be ratified by the Board.

The Treasurer may optionally create an overflow list for requests that exceed available funds, in anticipation of receiving further funds during the year, thus allowing the overflow requests to be funded. There is no guarantee that the overflow items will be funded.

Budget approval

The draft budget is approved by a resolution of the Board before the start of the Financial Year. Funds listed in the line items are then made available to the structures for expenditure during the year.

The amount indicated in the budget line item is a spending cap. It indicates the maximum that can be spent on that line item. The Treasurer will not approve or pay for expenditure exceeding the spending cap.

Note that the money itself is not divided up. The funds, including the reserve, remain as one pool in OSMF bank accounts and the Treasurer draws on it as needed guided by the allocations, commitments and residual funds in the budget.

Managing the Budget

Tracking commitments

If a contract is signed, the funds needed for future payments for the contracted goods or services are regarded as "Commitments" and the available funds listed against the line item will be reduced by that amount. Commitments can extend into future financial years.

Tracking spending

When a structure asks for payment to be made against their budget line item, the Treasurer will draw funds from a bank account and make the payment. The amount spent will be recorded against the line item as an "Actual" - meaning funds that were actually spent.

The 'Commitments' and the 'Actuals' allow the Treasurer to monitor if the spending cap on any line item has been reached. Once the sum of actuals reach the spending cap the budget line item has run out of funds and can spend no further.

Adjusting

The Board can adjust funds to move allocations between line items at any time in the financial year. Typically funds are reduced for under-spending and increased for over-spending projects. Working Groups should monitor their spending rate and may ask the Board for adjustments to increase of decrease a line item allocation or to adjust funds between the line items controlled by a Working Group.

Adjusting the budget at mid-year

The Board may undertake a mid-year budget review to be approved at the end of June, which will involve shifting funds around to compensate for slow delivery, underestimations of costs or to compensate for higher or lower fundraising.

Budget Year-End Report

Within 6 months of the end of a financial year the Treasurer has to place before the Board for formal approval a summary of the financial situation of the organisation up to the end of the previous financial year. The approved report is also required for legal purposes and is placed on public record at Companies House.

Procurement Rules

The Three Procurement Requirements

Procurement is the process of buying goods and services. Any purchase by the OSMF is procurement. Procurement is an important point of control over OSMF funds so there are rules about procurement.

There are three essential requirements to be met before purchasing:

The buyer must have authority to purchase for the relevant line item.
There must be sufficient available funds in the relevant line item.
The service/goods purchased must be closely aligned with the stated purpose of the relevant line item.

If any one of these three requirements are not met the Treasurer must not make payment.

Rules on Authority to Purchase

Structures other than the OSMF Board and Working Groups do not have spending authority. They must procure through the OSMF Board.

Authority to purchase by the Board, Working Groups and OSMF employees is scaled in three steps to ensure control, particularly control over large scale procurement. These rules are made in Euro. Purchases in other currencies must be converted to Euro to determine how the rules apply.

Authority for Small amounts

Board Members, Working Group members and OSMF employees have authority to make purchases costing from €0 to €500 provided that:

The three procurement requirements are met.
There is no conflict of interest. The purchase may not directly benefit the purchaser.
The buyer must buy the item with their own funds and then seek a refund from the Treasurer.

Authority for Medium amounts

The Board and Working Groups have authority to make purchases from €0 to €10 000 provided that:

The three procurement requirements are met.
A Working Group or the Board must pass a recorded resolution of a formally constituted meeting to approve the spending.

Authority for Large amounts

The Board and Working Groups have authority to make purchases of more than €10 000 provided that:

The three purchasing requirements are met.
The OSMF Board must pass a recorded resolution of a formally constituted Board meeting to approve spending for the OSMF Board.
A Working Group must pass a recorded resolution of a formally constituted meeting of the Working Group plus the Working Group must seek a recorded resolution from the Board in order to approve spending for the Working Group.

Prohibition on payment if non-compliant

For all purchases of Small, Medium or Large amounts, the three procurement requirements will apply. If any of the three requirements are not met the Treasurer must refuse to make payment. Appeals against payment being refused will be decided by the Board.

Authority for Recurring and Ongoing Expenses

For long term commitments and recurring expenses (for example: accountancy, hosting costs, salaries, specific multi-year contracts) authority to spend can be granted at the beginning of the multi-year period. It is not necessary to apply for approval every year if multi-year approval has been passed.

Multi-year purchases must be approved as a whole, not as individual annual amounts. This applies mostly to long term contracts. The appropriate level for granting authority to procure will be determined by the sum of the expenditure over the multi-year period.

Multi-year authority is binding on future Boards. Once authority to purchase has been made, whether for single or multiple years, the funds are committed and may not be re-purposed or adjusted unless the commitment is formally ended.

Prohibition on spending outside a structure

All funding allocations are made to and associated with just one OSMF structure, either a Working Group or the OSMF Board. No structure has any authority to claim or spend funds allocated to another structure, except that the OSMF Board may, by resolution, re-allocate funds between structures.

Rules on Budget Management

Prohibition on splitting

Splitting a purchase into multiple transactions for functional reasons is entirely acceptable but splitting a purchase in order to fit within a lower level of purchase authority is not allowed. Phased transactions, such as buying one instance of an item every 3 months, can also amount to splitting unless authority has been granted for the cumulative cost. In all cases the collective cost of closely related annual or multi-year purchases must be approved according to the rule for the appropriate level.

Prohibition on roll-overs

At the end of a financial year the allocation to all line items returns to Zero. Unspend allocations are not carried forward to the new financial year. Contractural committments that cross a financial year boundary must be provided for in the next financial year budget.

Allowing financial year end payments

Invoices received after financial year-end for goods or services delivered during the previous financial year will be paid from the previous budget. Payments from the previous budget will cease after one month into the new year.

Allowing emergency purchases

In exceptional circumstances any three board members plus the Treasurer may approve emergency payments without restriction. The emergency meeting may be held on zero notice and at any time. The spending decision must be recorded in writing immediately after the meeting and must be ratified at the next Board meeting.

Allowing adjustment of the Budget

The Board may, by resolution, adjust allocations to line items on a budget for the current or future years. Allocations may be reduced or increased.

Allowing multi-year budgets

There are many circumstances that are better handled if there are committed allocations in future years. The Board is able to make a committed allocation of funds to any line item in one or more future years. Those funds can then be relied on for making multi-year payments. However, funds in future years can be adjusted unless there is a binding committment in place.

Rules on Contracts

Prohibition on over-committing funds

No contract that is legally binding on the OSMF may commit to making any payment or payments that exceed the available funds in a line item for any financial year or multiple financial years. If there is no relevant line item, then no contract is posible. Any contracts not complying with this rule are automatically void.

Checks on open ended contracts

A contract that is long term, for example software development, or that is unavoidably open ended, for example for repair of a server, must have check-points written into the contract. Check points may be specified in hours of work or specified in money or may specify a specific deliverable, at which point a decision is made by the OSMF organisation contracting the work to either proceed or to stop work. If a decision to proceed is taken, further check-points must be set.

Required contract cancellation clause

All contracts for the delivery of services or goods over a period should, if possible, include clauses to the effect that the contact may be cancelled at will by either party by serving email notice on the other party. Payment will be made for goods or services delivered up to and including to the date of serving such notice. Either party may impose penalties for early cancellation.

Required contract approval

All contracts for purchase of goods or services costing over €10 000 in total must be approved by the Board before signing.

Any contract for the delivery of goods or services that is specially written for that purpose must be approved by the Board before signing.

Standard non-varying supply contracts for purchase of goods up to €10 000 should be closely read for problems by the contracting person, Working Group or the Board, but do not require further approval.

ENDS