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