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Workshop on NGO Management Workshop on NGO Management
Financial Management and Control Financial Management and Control Mechanism Mechanism
December 20-22, 2009December 20-22, 2009FHI and Interact WorldwideFHI and Interact Worldwide
Zubair Kayani Zubair Kayani Technical Advisor-Finance Technical Advisor-Finance Interact Worldwide, Pakistan. Interact Worldwide, Pakistan.
Objectives of the sessionObjectives of the session
Understanding about Financial management
Basics about record keeping Basics about Budgeting Financial Monitoring format Basic checks and control
mechanisms Match Funding Pre-Award Assessment
Understanding About
Financial Management
Financial ManagementFinancial Management
Financial Management is the process of managing organizations’ financial resources relating to its activities and maintaining proper record in the books of accounts. It includes planning, organizing action, reporting and monitoring and evaluation.
Constituents may include : preparation of
budgets, financial reporting system including variance analysis of budget and actual expenses, maintaining complete and accurate accounting records and effective control.
Financial ManagementFinancial Management Pre-request of effective
financial management
– Acceptability in importance of financial management at top decision making level
– Qualified finance staff.– Double entry accounting system
(IAS)– Computerized accounting software– Financial Management Trainings
(FMTs) for Board and staff
Strategies
Program Selection
Budgeting
Implementation & Measurement
Reporting &
AnalysisBudget revise
Organizational Goal
Financial ManagementFinancial Management-Planning -Planning ProcessProcess
Understanding About
Record keeping
Accounting Cycle (Terminologies)Accounting Cycle (Terminologies)
Transaction:
Any activity that involves an exchange of money
against goods or services between two persons or
organizations is called a transaction.
Accounting Cycle Accounting Cycle (Terminologies (Terminologies Contd.)Contd.)
Concept of Standard TransactionTo maintain or record the standard transaction, please
followthe CEAVOP principle, In Urdu these are developed
as six“Meem”
Completeness. (Mukammul) Existence. (Mojood) Accuracy. (Mayari) Valuation (Miqdari) Ownership (Malkiat) Presentation (Muratub, Muzayyan)
Record KeepingRecord Keeping (Receipt)(Receipt) No receipt = no reimbursement. If you haven’t got a receipt, then the
CBO/FDO/UC can’t pay for the item purchased. Remember: To lose or forget a receipt is the same as losing cash!
Keep the organization’s money – and receipts – separate from personal money/receipts.
Total of cash + receipts should always be the same as the sum you started with.
A receipt tells us the following information about money we’ve spent: [When? – Who? – What? – by Whom? – How much?]
Advantages of Obtaining ReceiptsAdvantages of Obtaining Receipts We can check when an item was bought We can prove from where the item is bought
if something goes wrong A complete record of how we spent all the
money More sure than relying on memory Can help resolve disputes Receipts are organized first by category of
expenditure – to correspond with budget lines, so that expenditure can be monitored against the budget.
Receipts are also organized in date order – because accounts are checked monthly, and also to make it easy to find a particular receipt
Bank ReconciliationBank ReconciliationA monthly bank reconciliation is a useful
means ofverifying the accuracy of your project records.
Thisexercise balances your bank statement with the
projectcash book. Once the bank statement balance
agrees withthe cash book balance called bank reconciled:
At month end you should receive a statement from the bank indicating:
the bank balance from the previous month all deposits made to the account all withdrawals from the account (i.e. cheques,
bank charges, loan payments, etc.) the new balance according to the bank records
Financial ManagementFinancial ManagementBasic Reports and registers
Balance SheetPresentation of organizational assets and funds (Liabilities) status at a specific period
Receipts and Expenses statementPresentation of total Receipts and expenses incurred for specific period
Trail BalancePresentation of total closing balances of all ledgers (balance sheet and receipts and expenses statement)
Understanding About
Budgeting
BudgetingBudgeting Budget is “Planning the activities of an organization’s programs according to available resources” OR“A financial & /or a quantitative statement(s) prepared & approved prior to a defined period of time establishing the policies to be pursued during that period for the purpose of attaining the stated objectives
THEREFORE BUDGET Is for future & prepared prior to a defined period of time
Provides management not only a tracking tool to ensure effective utilization of resources but also for better future planning.
BudgetingBudgeting (Contd.)
Characteristics
Should be in line with the planned activities (objectives, mission)
Separate planning/resource allocation for each accounting period
It’s a ‘controlling tool’ & should cater for future contingencies
It should be as realistic as possible “The real budget starts where assumptions end”.
Should relate to the needs of the organization
BudgetingBudgeting (Contd.)
Important Instruments /points for preparation
Work plan (short-term, long term) Last year expenses analysis,
experiences Availability of funds Market survey Increase or decrease in HR /
activities / tasks Inflation element
BudgetingBudgeting (Contd.)
Types include: – direct program budget– operational budget– capital budget– staff budget– HRD budget
Budgets prepared for various functions/ departments/ sections of the organizations are called as Sectional Budgets and consolidation of various sectional budgets leads to Master budget.
IMPORTANT TO REMEMBERBudget allocation for finance section is required 1.75% to 2.25% of the total budget for total project period for effective and efficient financial management .
Budget Vs Actual ComparisonBudget Vs Actual Comparison
Understanding About
Financial Reporting
Monitoring Current Month & Monitoring Current Month & Cumulative TotalsCumulative TotalsIn practice, there are three time periods over which
it is usually most useful to monitor expenditure: Monthly – i.e. the money spent this month; Quarterly – i.e. the money spent over a 3-month period; Cumulative total to date – i.e. the money spent from the start of the project up to the present time.
Capital items are usually purchased at the beginning of a project, as they are needed for the project to function. So in monitoring expenditure against budgets, focus on the recurring costs.
Donors will sometimes allow a project to switch funds from one capital cost line to another, or from one recurring cost line to another. But it is usually more difficult to get approval to switch funds between Capital Items and Recurring Costs.
Financial Monitoring Format…Financial Monitoring Format…Budget & Actual Statement from 1 April to Budget & Actual Statement from 1 April to
30 June30 JuneAmount in PKRAmount in PKR
ItemsItems Budget Budget (3months)(3months)
Actual Actual (3months)(3months)
VarianceVariance
Staff Staff CostsCosts 27,000 30,194 (3,194)Furniture Furniture & & EquipmenEquipments ts
3,500 1,873 1,627
Travelling Travelling 3,600 200 2,400Trainings Trainings 2,500 3,927 (1,427)Supplies Supplies & & Material Material
7,500 4,500 500
TotalTotal 44,100 40,694 3,406
Financial Monitoring Formats….Financial Monitoring Formats…. Improvements can be made by including:
– The total budget for the year – The budget for the year to date – The year to date income / expenditure– Commitments not included in the
actual– Variances between budget & actual– Variance percentages, to highlight
significant differences – More ??
Financial Reporting/Monitoring Financial Reporting/Monitoring formatformat
A B C D E F=D-E G H=B-C I
Line Items
Total Budget
Cum Exp
Q-4Budget
Q-4 Exp
Q-4Var
Var (%)
Proj.Var
Reasons
G.Total
Targets planned
UC(planed)
Targets achieved
UC(actual)
Basic ChecksAnd
Control Mechanisms
Control Mechanisms
Control and Efficiency Control and Quality Control and Innovation Control and Responsiveness
to Clients/Partners
The Importance of ControlThe Importance of Control
EstablishMission and Goals
Develop a Strategyand Structure
Design Control Systems that Measure:• Efficiency• Quality• Innovation• Effective Response
Measure Financial Performance
Take corrective action to solveproblems or look at new opportunities
Control Mechanisms
Designing Effective Control Systems
Establish benchmarkand targets
Develop measuring &monitoring systems
Compare actual performance againstestablished targets
Evaluate result
Take corrective action if necessary
Control Mechanisms
Control Mechanisms
Tools of Internal Control
Audit (Internal and External) Contracts/Agreements complianceBank accounts monthly ReconciliationsAuthorities/delegation
Control Mechanisms
Tools of Internal Control-Cont
Segregation of roles and responsibilitiesPhysical verificationsPolicies and proceduresBudgetary control (Budget vs Actual
analysis)
Control Mechanisms
Tools of Internal Control-Conti
Monitoring and EvaluationFinancial ReportingPayment and Procurement proceduresCentralization verse DecentralizationFixed Assets and inventory managementApproval under tax exemption Section
Control MechanismsThings to consider
Compensation Policy
Gender Policy (Including Crèche facility)
Financial Policy and procedures
Travel/vehicle Policy
Control Mechanisms
Things to consider-Conti
Hiring & Termination (Including Interns) Policy
Leave Policy
Procurement Policy
Staff development Policy
Property Management Policy
Cost Sharing
Cost sharing Cost sharing approache/methodology
1. In kinds2. Time cost3. In cash
Contracts/Agreements with Donors
Keep the copy of contracts/Agreement at upfront
Make the summary of obligatory compliances
Make the summary of targets as per work plan already submitted
Keep the planed vs actual targets variances analysis at the end of each quarter
THANK YOU