1. Workshop on NGO ManagementWorkshop on NGO Management
Financial Management and Control MechanismFinancial Management and Control Mechanism
December 20-22, 2009December 20-22, 2009
FHI and Interact WorldwideFHI and Interact Worldwide
Zubair KayaniZubair Kayani
Technical Advisor-FinanceTechnical Advisor-Finance
Interact Worldwide, Pakistan.Interact Worldwide, Pakistan.
2. 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
4. 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.
5. 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
8. 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.
9. Accounting CycleAccounting Cycle (Terminologies Contd.)(Terminologies Contd.)
Concept of Standard Transaction
To maintain or record the standard transaction, please follow
the CEAVOP principle, In Urdu these are developed as six
“Meem”
Completeness. (Mukammul)
Existence. (Mojood)
Accuracy. (Mayari)
Valuation (Miqdari)
Ownership (Malkiat)
Presentation (Muratub, Muzayyan)
10. Record Keeping (Receipt)Record Keeping (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?]
11. 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
12. Bank ReconciliationBank Reconciliation
A monthly bank reconciliation is a useful means of
verifying the accuracy of your project records. This
exercise balances your bank statement with the project
cash book. Once the bank statement balance agrees with
the 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
13. Financial ManagementFinancial Management
Basic Reports and registers
Balance Sheet
Presentation of organizational assets and funds
(Liabilities) status at a specific period
Receipts and Expenses statement
Presentation of total Receipts and expenses
incurred for specific period
Trail Balance
Presentation of total closing balances of all
ledgers (balance sheet and receipts and
expenses statement)
15. 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.
16. 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
17. 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
18. 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 REMEMBER
Budget 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 .
21. Monitoring Current Month & Cumulative TotalsMonitoring Current Month & Cumulative Totals
In 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.
22. Financial Monitoring Format…Financial Monitoring Format…
Budget & Actual Statement from 1 April to 30 JuneBudget & Actual Statement from 1 April to 30 June
Amount in PKRAmount in PKR
ItemsItems BudgetBudget
(3months)(3months)
ActualActual
(3months)(3months)
VarianceVariance
Staff CostsStaff Costs 27,000 30,194 (3,194)
Furniture &Furniture &
EquipmentsEquipments
3,500 1,873 1,627
TravellingTravelling 3,600 200 2,400
TrainingsTrainings 2,500 3,927 (1,427)
Supplies &Supplies &
MaterialMaterial
7,500 4,500 500
TotalTotal 44,100 40,694 3,406
23. 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 ??
24. Financial Reporting/Monitoring formatFinancial Reporting/Monitoring format
A B C D E F=D-E G H=B-C I
Line
Items
Total
Budget
Cum
Exp
Q-4
Budget
Q-4
Exp
Q-4
Var
Var
(%)
Proj.
Var
Reasons
G.Total
Targets
planned
UC
(planed)
Targets
achieved
UC
(actual)
26. Control Mechanisms
Control and Efficiency
Control and Quality
Control and Innovation
Control and Responsiveness
to Clients/Partners
The Importance of ControlThe Importance of Control
27. Establish
Mission and Goals
Establish
Mission and Goals
Develop a Strategy
and Structure
Develop a Strategy
and Structure
Design Control Systems
that Measure:
• Efficiency
• Quality
• Innovation
• Effective Response
Design Control Systems
that Measure:
• Efficiency
• Quality
• Innovation
• Effective Response
Measure Financial
Performance
Measure Financial
Performance
Take corrective action to solve
problems or look at new opportunities
Control Mechanisms
28. Designing Effective
Control Systems
Establish benchmark
and targets
Establish benchmark
and targets
Develop measuring &
monitoring systems
Develop measuring &
monitoring systems
Compare actual
performance against
established targets
Compare actual
performance against
established targets
Evaluate resultEvaluate result
Take corrective action if necessary
Control Mechanisms
29. Control Mechanisms
Tools of Internal Control
Audit (Internal and External)
Contracts/Agreements compliance
Bank accounts monthly Reconciliations
Authorities/delegation
30. Control Mechanisms
Tools of Internal Control-Cont
Segregation of roles and responsibilities
Physical verifications
Policies and procedures
Budgetary control (Budget vs Actual
analysis)
31. Control Mechanisms
Tools of Internal Control-Conti
Monitoring and Evaluation
Financial Reporting
Payment and Procurement procedures
Centralization verse Decentralization
Fixed Assets and inventory management
Approval under tax exemption Section
32. Control Mechanisms
Things to consider
Compensation Policy
Gender Policy (Including Crèche facility)
Financial Policy and procedures
Travel/vehicle Policy
33. Control Mechanisms
Things to consider-Conti
Hiring & Termination (Including Interns)
Policy
Leave Policy
Procurement Policy
Staff development Policy
Property Management Policy
35. Cost sharing
Cost sharing approache/methodology
1. In kinds
2. Time cost
3. In cash
36. 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
