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Finance Report.doc

  1. 1. United Mission to Nepal Finance Change Process, Preparation Phase Finance Topic Team Report 1 Introduction This report was prepared by the Finance Topic Team at the request of the Change Team as part of the preparation phase of the UMN Change Process. 2 Members 1. Roshan Chitrakar, TSO (and Change Team) 2. Mark Glover, Change Team 3. Jen Marston, Personnel department 4. Jhabendra Bhattarai, RDD 5. Martin Allaby, YUHP and HSO 6. Mary Maxwell, LNC 7. Rashmila Shakya, HSO 8. Roger Marston 9. Rudra Lal Karmacharya, LNC 10. Sabari Shrestha, LNC 11. Shreedhar Khadka, Finance department 12. Sunid Man Shrestha, Accounts section 13. Tim Trimble, Finance department 3 Identification, background and present situation of issues Issues were identified and divided into six general categories. Each issue was assessed to determine whether it was Strategic, Operational, or both. The six issue categories are: - 3.1 Fundraising 3.2 Marketing 3.3 Government issues 3.4 Accounting / Costs of Expatriates vs. Nepali staff 3.5 Financial impact of technology 3.6 Financial expertise 3.1 Fundraising 3.1.1 Fundraising in Nepal______________________________________________(Strategic and Operational) Donor and funding sources appear to be decreasing; therefore, new ones need to be found. Potential donors that have not been seriously considered before are those within Nepal, they could be institutions or individuals. In the past some funds for projects have originated from within Nepal. Because of UMN’s good image in Nepal, there could be a large volume of potential new donors. It should be noted that there is uncertainty whether there is provision to allow fundraising from within Nepal in the present UMN General Agreement or under the new SDO Act and Foreign Aid Policy. Future ownership of UMN might also affect this approach. 3.1.2 Fundraising from individuals outside Nepal_______________________________(Operational) There could be a number of people outside Nepal, not on the present donors' list who may be willing to help UMN financially. Who are they and how do we approach them? Do we seek donations from people related to member / affiliated bodies only or from the countries of Member Bodies only? finance-reportdoc1776.doc Page 1 of 10 March 28, 2002
  2. 2. United Mission to Nepal Finance Executive Committee has, in the past, discouraged UMN from independent fundraising in the countries of UMN Member Bodies because they themselves are raising funds from the same people. Will UMN differentiate donations from different people with different religions or beliefs? Are there any restrictions on who we may approach? 3.1.3 Fundraising from Institutions outside Nepal_______________________________(Operational) When we talk about fundraising outside Nepal, there is an equal opportunity of approaching institutions as well. A number of organisations and institutions are willing to help UMN in different sectors – health and education, social development, infrastructure development etc. These could be Christian organisations or other secular institutions, which have the whole or a part of their objectives, aims, goals or even mission and vision common to UMN. We need to explore the possibility of getting financial assistance from them or initiating a joint venture with them. But at the same time, we also need to look at the up-coming government rules and regulations that could encourage or prohibit such activities for an organisation like UMN. 3.1.4 Accountability to donors_____________________________________________________(Operational) UMN has different levels of accountability to donors. To some donors, acknowledgement of their donations is enough; while to others, regular reporting is needed as to how and when their money is being spent, what achievements have been accomplished so far, and what plans of action are being initiated. For UMN also, it is equally important to communicate regularly with its donors as they are major sources of funds. Hence, UMN will need to review and improve reporting procedures to meet increasing donor expectations. 3.1.5 Higher donor expectations__________________________________________________(Operational) Donors’ expectations are increasing with technological development. For example, they expect prompt acknowledgement of donations received. The reports of the donation being given are expected to be well publicised – e.g. pictures of the activities of a program supported by the donation, a graphical representation of the progress. Some donors are willing to get electronic version of the reports and other documents that are either received by email or downloaded from websites. A few institutional donors might even show their interest in affiliating with UMN. 3.1.6 Staff salaries____________________________________________________________________(Strategic) The number of appointees in UMN is decreasing with Nepali staff being recruited to those posts, especially in senior Nepali staff positions. This has a direct implication of need for a larger budget. Also, senior staff expect higher salary. 3.1.7 Exchange rates_______________________________________________________________(Operational) Though the effect appears small, changes in the exchange rates of money alter (by sometimes large amounts) the amount of Nepali currency received when donors give money in their currency. This affects the central funds as well as of funding of projects. 3.1.8 Different priorities between UMN and donors________________________________(Strategic) Even though UMN gives priority to a programme, its donors may not have the same priority and raising funds become difficult. Some donors are sending money directly to non-UMN projects that fulfil their priorities. 3.1.9 Institutional direct versus co-ordinated fundraising________________________(Strategic) Some programmes/projects feel that raising funds directly from donors and not through the UMN centre would make the whole process faster. Some donors are contacted directly by the project/institution and would like to put donated money into their programme without giving a Central Support charge (7%) to UMN headquarters. Central UMN funding through the Finance Department is complex and more difficult for projects to understand. finance-reportdoc1776.doc Page 2 of 10 March 28, 2002
  3. 3. United Mission to Nepal Finance 3.1.10 September 11 attack (World economy)_________________________(Strategic and Operational) Following the terrorist attack of the September 11 attack, the world economy (especially US and other developed countries) was badly affected. Interest rates, inflation and international stock markets were affected. This could enormously decrease assistance and donations going to developing countries including Nepal. 3.1.11 Fads (Changing priorities in giving)_____________________________(Strategic and Operational) Donations to development projects somewhat depend upon “fads” that change over time. At the moment, donors are more interested in giving to the reconstruction of Afghanistan. Nepal has been at a lower priority for a few years, which will affect UMN in the future. 3.1.12 Disaster money_________________________________________________________________(Strategic) It is easier to raise funds for disaster works especially in countries which are suffering from hunger and natural calamities like earthquakes, flood etc. Such disasters are one-time occurrences and could attract large amounts of money quickly. But if we look at it from UMN perspectives, hospitals are doing 365 days a year personal disaster works. The number of people that a hospital saves each year could reach more than the number of people rescued after a big earthquake. The time consumed by the treatment of people suffering from life threatening diseases in a hospital each year could not be less than the number of people evacuated from a village being devastated by a flood. On top of that, every disaster work must be accompanied by hospital services to some extent. 3.2 Marketing 3.2.1 Communication / Marketing______________________________________(Strategic and Operational) In the past UMN has had a very weak, almost non-existent marketing function. UMN could have a marketing policy that requires strong marketing using modern communication services such as the media and the Internet (through the communications office). Specific programmes and projects could be marketed to seek financial support from a wider audience. This could increase non- mission/secular donor funding, an area not pursued strongly in the past. 3.3 Government issues 3.3.1 Accountability to government_______________________________________________(Operational) UMN has relatively low levels of accountability to the government. UMN will need to improve reporting procedures to meet Social Development Council requirements (assuming that UMN will need to comply with the Social Development Organisations Act). In order to fulfil this need, more Nepali staff is needed which requires more financial resources. 3.3.2 Government control______________________________________________(Strategic and Operational) The government requires UMN to act within its financial laws and regulations. Changes in HMG regulations affect UMN and other organisations. The number of HMG controls and reporting requirements will be expected to rise when the SDO Act and Foreign Aid Policy comes into effect. Again, more Nepali staff is needed for the additional work. 3.3.3 Visa cost_________________________________________________________________________(Strategic) At present UMN appointees’ Visas are free. Getting and renewing visas is difficult because of corrupt and inefficient bureaucracy. The possibility is that HMG may change this by introducing visa charges; this would have a considerable effect on the finances. Nepali personnel managing the handling of applications and renewals may need to increase; this has a cost implication. 3.3.4 Ineffective bureaucracy______________________________________________________(Operational) finance-reportdoc1776.doc Page 3 of 10 March 28, 2002
  4. 4. United Mission to Nepal Finance UMN is being forced to pay tax on the vehicles and equipment imported although it has been clearly exempted in the General Agreement. Government staff (especially in Custom and Tax office) do not seem to be helpful in following the agreement. There are also problems in obtaining reimbursement of VAT money. 3.4 Accounting / Costs of Expatriate vs. Nepali staff 3.4.1 Full cost (hidden cost) of appointee staff_______________________(Strategic and Operational) Sending bodies of UMN not only donate to certain programmes/projects but also send appointees. The value of the Appointee contribution is valued at Nepali staff rates (called Personal Contributed services) and is included in the UMN accounts both as income and expenditure. Thus the true cost of expatriates to the UMN member bodies is not accounted for. In rough terms, UMN’s total annual budget is around US$ 6-7 million, in addition to this the total cost of expatriates working for UMN (including their dependants) is probably around US$ 3-4 million i.e. about one third of the budget. It follows that projects do not have to bear the cost of appointees; they therefore save this money in recruiting and staffing people in those positions. This does not hold for secondments where a PCS is charged and used for scholarship etc. Currently, only 9 programmes are secondments but in future it appears almost all UMN expatriates will be seconded. 3.4.2 Support from mission organisations to Nepali staff______________________(Operational) The cost to Projects/UMN budgets of expatriates is noted but effectively there is a zero cost to the project. If an expatriate leaves a post that is filled by a Nepali, the additional (or “marginal”) cost to the project is considerable. There is little incentive for projects to initiate Nepali posts when they are burdened with finding additional funding. As the number of expatriates coming to UMN is reducing, UMN needs to raise additional funds to fill the gap. So, it was suggested that mission organisations/member bodies be asked to financially support Nepali staff in those positions where they have stopped sending appointees. There is also a trend among Member Bodies that send people and money to financially support projects only if they have appointees in those projects. 3.5 Financial impact of technology 3.5.1 Higher equipment costs______________________________________________________(Operational) Due to the increasing availability of newer advanced technology with related costs of installing, operating, and maintenance, UMN will have to spend increasing amounts in purchasing capital items such as computers and training people to make them workable. 3.6 Financial expertise 3.6.1 Lack of expertise in Finance_________________________________________________(Operational) Generally the number of appointees with finance expertise has decreased throughout UMN. There is an increasing cost in recruiting or training Nepali staff for financial roles. 4 SWOT analysis A SWOT analysis was conducted around the identified issues. 4.1 OPPORTUNITIES 1 Fundraising and Marketing 1.1 There are more wealthy Nepalese willing to donate to "UMN" 1.2 There is more "disaster" money finance-reportdoc1776.doc Page 4 of 10 March 28, 2002
  5. 5. United Mission to Nepal Finance 1.3 Large secular donor charities willing to give in Nepal 1.4 NRs devalues 1.5 Growing world economy 1.6 Individuals willing to give to sponsorships 1.7 Donor willing to give to short term interventions which focus on capacity building 2 Government issues 2.1 Growing Government support (as a result of complying with SDO Act): CTEVT 2.2 UMN will be offered more work by HMG/N - SDC 3 Accounting / costs of expatriate vs. Nepali staff 3.1 Member bodies willing to grant money in place of people 3.2 Donors willing to finance whole cost (including appointees) 5 Financial expertise 3.3 Financial management training available 3.4 Financial managers available in market 4.2 THREATS 1 Fundraising and Marketing 1.1 There is less "charity" money available to UMN 1.2 There are fewer long term expatriates coming, and therefore fewer alumni 1.3 Donor expectations are increasing 1.4 NRs slides 1.5 September 11, '01 will reduce donor money 1.6 Donor priorities will continue to change quickly 1.7 Donor priorities changing to short term-capacity building projects 2 Government issues 2.1 “One window” funding process 2.2 “One window” accountability (Red tape) 2.3 UMN will need to implement through partner organisations. 3 Accounting / Costs of Expatriate vs. Nepali staff 3.1 There are other high-paying employers that can attract skilled people. 4.3 STRENGTHS 1 Fundraising and Marketing 1.1 UMN has a good reputation 1.2 UMN has existing donors 1.3 UMN has many individual supporters 1.4 UMN can communicate to donors 1.5 UMN has contacts with potential donors (at the project level) 1.6 Good hard currency reserves 2 Government issues 2.1 UMN has many reporting / accountability systems 3 Accounting / Costs of Expatriate vs. Nepali staff 3.1 UMN has a good work environment (values, job satisfaction, training, etc.) 3.2 UMN has committed staff finance-reportdoc1776.doc Page 5 of 10 March 28, 2002
  6. 6. United Mission to Nepal Finance 4.4 WEAKNESSES 1 Fundraising and Marketing 1.1 Dependence on alumni 1.2 UMN not marketing individuals (child sponsorship) 1.3 Poorly equipped for marketing and fund-raising 1.4 Hard to change UMN's priorities quickly 1.5 UMN doesn't market itself well 1.6 UMN does not do "disaster" work 1.7 UMN does not do donor relations well 2 Government issues 2.1 UMN does not use HMG/N (SDC) reporting / accountability systems 2.2 UMN is not equipped to maintain database to report in HMG/N (SDC) format 3 Accounting / Costs of Expatriate vs. Nepali staff 3.1 UMN does not pay competitive salaries to senior staff 3.2 UMN pays too much for junior staff 3.3 UMN has one Policy of Employment that tries to be fair to 35 different projects 3.4 UMN tries to operate a uniform salary system over Nepal resulting in higher/lower that market salary costs in some projects. 4 Financial impact of technology 4.1 Dependent on imported Technology 5 Financial expertise 5.1 UMN has very little financial management expertise 5.2 UMN has imperfect recruitment into management posts finance-reportdoc1776.doc Page 6 of 10 March 28, 2002
  7. 7. United Mission to Nepal Finance 5 Forecast Trends and determine Critical Trends The Opportunities and Threats were then forecast and evaluated to determine whether they are critical enough to be considered in the strategic planning. (Numbers in the first column refer to Opportunities (O) and Threats (T) of SWOT analysis in section 4. Headings Probability, Impact and Critical are abbreviated to P, I and Crit. respectively. The item having value 4 or higher in one of the Probability or the Impact column is considered as critical.) Opportunity / Strength O/T Evidence P I Crit.? 1.1 Wealthy Nepali’s donate to UMN O Patan Hospital Ward donated / Oral health Programme support 3 2 No 1.2 Disaster money O Okhaldhunga Hospital rebuilt / Gujarat earthquake 5 2 Yes 1.3 Secular charities with large funds give to Nepal O Save the Children, Care, foreign government money (Japan, 4 3 Yes Scandinavian, UK) 1.4 NR devalues (from donor point of view) O Historical average; 9% per year 5 1 Yes 1.5 Growing world economy O World GDP increasing 4 0 No 1.6 Individuals prefer to give to sponsorship O Constant requests for sponsorship, World Vision 3 2 No 1.7 Donors willing to give for capacity building in short O Donors request projects to have a hand-over and definite end. They 4 4 Yes term want to see results and move on to a new project 2.1 Growing govt. support (as a result of complying with O Tansen Nursing School and Karnali Technical School have already 3 3 No SDO Act) been supported by CTEVT. 2.2 UMN will be offered more work by HMG due to O 2 2 No SDO Act 3.1 Member bodies willing to grant money in place of O Gossner has supported Nepali staff 2 3 No people 3.2 Donors willing to finance the whole cost (including O Dutch government policy allows to donate in this way 2 4 No appointees) 4.1 Financial management training available O ODC, MAN have trained UMN staffs, Henley diploma course was 4 3 Yes offered to UMN staff 4.2 Financial managers available in the market O No. of applicants is increasing for managerial positions 3 4 Yes finance-reportdoc1776.doc Page 7 of 10 March 28, 2002
  8. 8. United Mission to Nepal Finance Threat / Weakness O/T Evidence P I Crit? 1.1 Less charity money T Difficult to raise money for some UMN projects 3 4 Yes 1.2 Fewer alumni T Appointee numbers falling. Medical Assistance Fund not increasing 4 3 Yes 1.3 Donor expectations increasing T Reporting requirements more stringent, accountability more detailed. 5 4 Yes Frequent visits by donors, more ownership by donors 1.4 NR devalues (from expenses point of view) T Historical average; 9% per year 5 1 Yes 1.5 Sept 11, 2001 reduces donor giving T Current world recession 2 3 No 1.6 Donor priorities change quickly T Donors re-write strategic plans every 5 years. Difficult to fund some 4 4 Yes projects that were funded in the past. 1.7 Donors willing to give to short term projects with T Donors request projects to have a hand-over and definite end. They 4 4 Yes phase out/hand-over planned want to see results and move on to a new project 2.1 One window approval process T Articles/debates in national media are increasing 2 5 Yes 2.2 One windows accountability T NGO database and MOF reports 5 2 Yes 2.3 UMN will need to implement through partner T SDO Act / Foreign Aid Policy 4 5 Yes organisations 3.1 There are other high paying employers T GTZ, CARE Nepal etc. 3 3 No finance-reportdoc1776.doc Page 8 of 10 March 28, 2002
  9. 9. United Mission to Nepal Finance 6 Develop Options The Critical Opportunity and Threat trends were then compared with the Strengths, Weaknesses of UMN to determine options for UMN. (Only reference numbers of opportunities, threats, strengths and weaknesses from the SWOT analysis section are mentioned here. O, T, S and W stand for Opportunity, Threat, Strength and Weakness respectively.) Strength Opportunity Threat O1.1 Promote UMN (S1.1 S1.5) T1.1 Promote UMN (S1.1 S1.3) O1.2 Do Disaster work (S1.4 S1.5) T1.2 Promote UMN (S1.1 S1.3) O1.3 Promote UMN to secular organization (S1.4) T1.3 Promote UMN (S1.1 S1.3) O1.4 Fund shortfalls from interest and exchange gains (S1.6) T1.4 Promote UMN (S1.1 S1.3) O1.5 Expand UMN work (S1.1 S1.2 S1.4 S1.5) T1.5 Promote UMN (S1.1 S1.3) O1.6 Do sponsorship (S1.4) T1.6 Fund shortfalls from interest and exchange gains (S1.6) O1.7 Do Short term work (S1.1-S1.5) T1.7 Do time limited interventions that focus on capacity building (S1.2) O4.1, O4.2 Train staff (S3.1 S3.2) T2.1, T2.2 Improve relationship with HMG and donors (S1.1 S2.1 S1.4) Weakness O1.1 Do not market to alumni (W1.1) T1.6 Speed up strategic and planning processes in UMN (W1.4) O1.2 Do disaster work (W1.6) T1.7 Do not run institution type projects (W1.7) O1.3 Change UMN plans based on donor priorities (W1.4) T2.1 Improve relationship with HMG and donors (W 2.1 W2.2) T2.2 O1.1, O1.3, Promote UMN project work only to large organisations T2.3 Improve marketing with partner organisations (W1.7) O1.6 not individuals (W1.1) O1.6 Promote sponsorships to individuals (W1.2) T2.3 Improve fundraising between donor, UMN and partner organisations (W1.7) O1.7 Market UMN and Change priorities (W1.4 W1.5) T2.3 Improve donor relations with partner organisations (W1.7) O4.1, O4.2 Train staff or hire more qualified staff (W5.1 W5.2) finance-reportdoc1776.doc Page 9 of 10 March 28, 2002
  10. 10. United Mission to Nepal Finance 7 Conclusions When looking at the financial issues in isolation, the options available to UMN are: 1. Maintain large foreign currency reserves to fund shortfalls in under-funded projects. (O1.4 T1.4) _______________________________________________________________________________________________Strategic and Operational 2. Strengthen marketing function (O1.3 T1.1-T1.3 S1.1 S1.3)_____________________________________________Strategic 3. Do more disaster work (O1.2)_____________________________________________________________________________Strategic 4. Do more work to raise funds through sponsorship/scholarship schemes (O1.3)________________________Strategic 5. Market sponsorships / scholarships to individual donors, market large projects to large organisations (including secular organisations) (O1.3)__________________________________________________________________Strategic 6. UMN strategy and planning to be reviewed more frequently and be made to be in line with identified donor strategies (O1.3 T1.6 O1.7)________________________________________________________________________Strategic 7. Do only time-limited interventions with emphasis on capacity building for sustainable results. (O1.7) ______________________________________________________________________________________________________________Strategic 8. Improve marketing between donors, UMN and partner organisations. (T2.3)__________________________Strategic 9. Improve fundraising between donors, UMN and partner organisations. (T2.3)_________________________Strategic 10. Improve donor relation between donors, UMN and partner organisations. (T2.3)______________________Strategic 11. Send more managers for management/financial development training courses or conduct in-house training. (O4.1)__________________________________________________________________________________________Operational 12. When hiring a new manager from the market, give priority to financially skilled expert people (need to pay more!) and invest less for training and development. (O4.2)_______________Operational 13. Build up good relationship with the HMG/N. (T2.1 T2.2)____________________________________________Operational 14. Indicate to all donors about the way their donation is going to UMN projects. (T2.1)______________Operational 15. Train all projects and program units to be ready to comply with HMG accountability processes. (T2.2) ___________________________________________________________________________________________________________Operational 16. Train all projects and program units in donor relations. (T2.3)_______________________________________Operational finance-reportdoc1776.doc Page 10 of 10 March 28, 2002