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  1. 1. INTERNSHIP REPORTLetter of TransmittalOctober 10, 2012.ToProf. Dr. Md. Shah AlamThe Head ofThe Department of Business AdministrationThe University of Asia Pacific.DhakaFrom: Lutfa Khanom, ID : 102036036Subject: Submission of Internship report on “Financial Management of NGO:Association for Realizations of Basic Needs (ARBAN) .”Dear Sir,I am pleased and happy to submit this dissertation report on ‘ Financial Management ofNGO of Association for Realizations of Basic Needs (ARBAN) ’ which you asked me to prepare.Endeavors have been made to make it comprehensive as far as possible.Any shortcoming or mistake in the report is my fault. Please call me any time at yourconvenience if there is any point, which needs further clarification.I would like to request you to accept my report and oblige thereby.Thanking you,
  2. 2. INTERNSHIP REPORTStudent DeclarationI am Md. Mahfuza Akter Mili the student of Mastered of Business Administration (MBA)Registration ID: 10206038, major in Finance from The University of Asia Pacific wouldlike to solemnly declare here that an internship report on “ Financial Management of NGO:Case of Association for Realizations of Basic Needs (ARBAN) ” has been authentically preparedby me.While preparing this internship report, I didn’t breach any copyright act intentionally. Iam further declaring that, I did not submit this report anywhere for awarding anydegree, or certificate.--------------------------------Mahfuza Akter MiliMBA (Major in Finance)The University of Asia Pacific
  3. 3. INTERNSHIP REPORTSupervisor’s Declaration IThis is to certify that, the thesis on “Banking System Practice in NCC Bank Ltd.” isprepared by Mahfuza Akter Mili a student of under my supervisor and guidance. I havegone through the thesis and found his thirst for seeking depth of every aspect of theresearch topic is very much enthusiastic and satisfactory.It is to be noticed that the thesis fulfills the partial requirement of the degree of MBA. Ithas not been submitted to any other university or institute for any of the degree orcertificate or for publication.The report is approved and accepted in quality form.…………………………………………Prof. Jesmin SultanaAssociate ProfessorDepartment of Business AdministrationThe University of Asia Pacific.
  4. 4. INTERNSHIP REPORTACKNWEDGEMENTCompletion of anything requires supports from various sources. I am very muchfortunate to get the sincere guidance and supervision from a number of persons.I am deeply indebted to my internal guide teacher Jesmin Sultana, Associate professor ofUAP, for her whole-hearted supervision to me. Her suggestions and comments to makethe report a good one was really a great source of spirit for me.My heartfelt gratitude goes to Prof. Dr. Shah Alam, Head, Department of Business ofSchool, UAP for reviewing the whole report so carefully and expertly and for giving mevaluable advices and suggestions to complete the whole thing in a right manner.It is my pleasure to them and my grateful appreciation goes to ARBAN authority forrending me their expertise, knowledge and giving me opportunity of having a practicalexperience the this internship program.Lastly, I like to give many special thanks the entire person in ARBAN who help me andthe Department Of Business Administration, suggestion and for inspiring me in somecases. Thanks for all from the core of my heart.
  5. 5. INTERNSHIP REPORTIntroductionDoing internship is mandatory for the students of Department of Business Administration of TheUniversity of Asia Pacific. Final of MBA program requires internship which involves 3 monthsorganizational attachment for practical experience and 1 month time for report writing. As per normthis report is the fulfillment of the mandatory requirement for the evaluation process of the internshipprogram. This report titled “Financial Management of NGO: Case of Association for Realizationsof Basic Needs (ARBAN) Bangladesh with Comparative Discussions of Practices in ProfitOriented Firms” is the outcome of 3-months internship in the Finance and Administration Unit at theCountry Office of Association for Realizations of Basic Needs (ARBAN) Bangladesh. The topic isassigned by Syed Lutfa Khanom, Financial Management of Association for Realizations of BasicNeeds (ARBAN) International and former Head of Finance and Administration of Association forRealizations of Basic Needs (ARBAN) Bangladesh. During the internship period I was assigned withthe jobs related to the Fund Management of the partners, and Cash Management Section of FinanceDepartment. I was under the direct supervision of Ms. Jesmin Banu, Head of Finance andAdministration of Association for Realizations of Basic Needs (ARBAN) Bangladesh. I haveprepared this internship report with the mentioned topic, which was supervised by my Professor,Jesmin Sultana of The University of Asia Pacific.Objective of the ReportThe objective of the report is to know the financial management of NGOs as non-profitableorganization and also to present a comparative scenario of financial management of non-profit andprofit oriented firms.Scope of the ReportThe scope is limited within the Country Office of Association for Realizations of Basic Needs(ARBAN) Bangladesh and especially within the Finance & Administration Unit of Association forRealizations of Basic Needs (ARBAN) Bangladesh. Here I mentioned a part of financial works ofAssociation for Realizations of Basic Needs (ARBAN) Bangladesh giving emphasis on their financestructure, accounting, auditing, budgeting, taxation, and performance evaluation & controlling ofprojects in financial aspect.
  6. 6. INTERNSHIP REPORTMethodologyThe method is mainly discussion and sharing of information with staff members of ARBAN andreview of their operational documents and manuals. ARBAN’s publications have used to prepare thisreport. I also incorporated with verbal suggestions of the staff members, which helped me a lot toenhance my knowledge. The secondary sources for data collection were published annual reports,annual financial reports of ARBAN, electronic publications of ARBAN and their country strategicpaper.LimitationsProper guidance from more professionals of similar sector could enrich this report and also couldmake it more informative and comparable. But their time constraints could not allow me to do that,which seemed to me a limitation to prepare this report. Another limitation is that, comparableinformation is not available in this report as I was only permitted to complete my internship in asingle organization, i.e. Association for Realizations of Basic Needs (ARBAN) Bangladesh.Structure of the ReportThe report is divided into two main parts:Part 1: Organizational overview contains snapshot of Association for Realizations of Basic Needs (ARBAN) Bangladesh, functions of Association for Realizations of Basic Needs (ARBAN) Bangladesh, overall financial performance of ARBAN (In 2005 and 2006), and ARBAN’s current state of operations and future direction.Part 2: First portion of the project part is the introduction to the project. Association for Realizations of Basic Needs (ARBAN) Bangladesh’s Financial Management, Accounting System, Budgeting, Taxation, Auditing, and Performance Evaluation & Controlling of Projects are the core chapters of this part. Major findings, recommendations and lastly conclusion are given to end the project..
  7. 7. INTERNSHIP REPORTSnapshot of Association for Realizations of Basic Needs (ARBAN)BangladeshAssociation for Realizations of Basic Needs (ARBAN) is an international development organizationworking over 35 countries, with its head quarter based in the United Kingdom and Secretariat at SouthAfrica. Association for Realizations of Basic Needs (ARBAN) Bangladesh (ARBAN) is one of thefive country programs in Asia and has been operating in Bangladesh since 1983. Four broad thematicareas are main program intervention areas of ARBAN e.g. Education, Governance, Livelihood andStop Violence against Women & Girls. Association for Realizations of Basic Needs (ARBAN) Bangladesh (ARBAN) is registered withNGO Affairs Bureau of Bangladesh Government under the Foreign Donations (Voluntary Activities)Regulation Rules, 1978 vide registration no. FD/R No-210, Date 27/04/1986.Location of Association for Realizations of Basic Needs (ARBAN)The addresses of Association for Realizations of Basic Needs (ARBAN) International andAssociation for Realizations of Basic Needs (ARBAN) Bangladesh are as follows:House # 16 (Ground floor), Road # 9/A, Dhanmondi R/A, Dhaka-1209, Bangladesh. Phone +880 2 8111321 Fax +880-2-8122250/880-2-9111017 Email Website background of ARBANAssociation for Realizations of Basic Needs (ARBAN) InternationalAssociation for Realizations of Basic Needs (ARBAN) was founded in 1972 by Mr. Cecil Jackson-Cole, a business man who believed that business people should actively support charities, with thename Action in distress (Aid) with the objective to provide education, health support, and emergencyrelief to the poor children as service oriented activities. In 1979 it changes its name to Association forRealizations of Basic Needs (ARBAN) and started to work in 20 countries.
  8. 8. INTERNSHIP REPORT Brief historyWhen Association for Realizations of Basic Needs (ARBAN) was established in 1972, its primaryaim was to assist some of the world’s poorest children, firstly with primary education, and then withpractical skills, which would help them build a more secure future. It soon learnt that providingprimary education and training was not enough. It was only the first step in building aProgram that will reduce poverty and enable children to have a better future. By the end of the decade,its work had expanded to include long-term health, sanitation and agricultural projects that wouldimprove living conditions for children and their families. In 1978 it started its first project undertakingintegrated community development.In 1974 it supplied emergency relief for the first time when Hurricane Fifi struck Honduras - fundingfood, clothing, medicines and tools for thousands of homeless people in 250 isolated villages. In thesame year in Bangladesh it also funded provision of 50,000 meals a day, glucose and medicines forthe people of eight towns devastated by floods.From the mid seventies, the focus of its work started shifting. From solely providing education itmoved on to helping children and their families to become self-supporting. By the start of the1980s,its focus had shifted again to ensure it was tackling the root causes of poverty, not just the symptoms.There are many complex and inter-related causes of poverty. High child mortality and malnutrition,high birth rates, low literacy rates, limited access to clean water and sanitation, health care andeducation, insufficient land to grow food and lack of credit to buy seeds and tools - these are justsome of the factors that can contribute to poverty.It had learned that for its work to be of lasting benefit, it needed to work with whole communities toboost agricultural production, improve water supplies, gain access to basic healthcare and find newsources of income. Programs in education, agriculture, health, water, skills training and helpingpeople to organize and access savings and credit were integrated so that each supported the other. Italso helped communities organize themselves to challenge injustice and ensure they received theirentitlements and as much assistance as they could from their own governments.
  9. 9. INTERNSHIP REPORTIntroduction to Association for Realizations of Basic Needs (ARBAN) BangladeshAssociation for Realizations of Basic Needs (ARBAN) Bangladesh (ARBAN) started as a smalloperator in the coastal areas of Bangladesh in the district of Bhola in 1983 to manage disaster but overthe years its work shifted more towards a rights-based approach. This was one of the key approachchanges. ARBANs current strategy is aligned with the poor and excluded people. It emphasizes theagency and the action of the poor and excluded people as the primary engine of development toeradicate poverty and injustice from society of Bangladesh.A rights-based approach to development implies, as mentioned in 1CSP III, recognition of theRights of people not only to fulfill their basic needs, but also to treat them with equal dignityAnd realize their creative potential and state obligations to create an enabling environment forAssertion of their fundamental rights. In the promotion of the rights-based approach to endPoverty and injustice, the concepts of equality, citizenship and justice are critical.This evolution has been the imperative of the empirical experience that the organizationGained through its long and deep involvement in combating poverty and knowing itsStructural causes. Questions of rights of women, excluded groups and the livelihoods of thePoor and the marginalized now occupy a front seat.At present ARBAN works in 35 districts and has more than 200 local and community-basedPartner organizations. While ARBAN sets its own strategy, it is an international organizationWith national accountability. The unity with Association for Realisation of Basic Needs (ARBAN)International is in the commonVision, mission and values, this enables ARBAN to take a determined action in the fight toEradicate poverty and establish equal rights.From its inception to the present times, ARBAN moved from the regional to the thematicApproach in its work. However the core values remain unchanged. There are 12 ongoingProjects with major donors and child sponsorship continues to be a major source of fund.The present Country Strategy Paper III of ARBAN focuses on “Equality, Citizenship andJustice” which sums up the core concerns of ARBAN’s work.1
  10. 10. INTERNSHIP REPORTA new Country Strategy Paper was initiated in 2004, which required operational changes tocope with new challenges. As a result, there has been a change from regionalization tothematic programs based on ARBAN’s learning, experience and history of work for bettercoherence. The themes are now pursuing to achieve specific strategic objectives and this hasprovided greater space to engage the partners and other actors both at the local and nationallevel. With stronger position at the policy making level, there is now increased synergy inARBAN’s work as it benefits from linkages across themes.
  11. 11. INTERNSHIP REPORTOrganizational ObjectivesThe organizational objectives for ARBAN according to Country Strategy Paper III which isapplicable for the time period 2005-2009 are presented below.Organizational objectives according to CSP III • To promote effective organizational culture • To promote Human Resource Development system that continuously addresses the needs and updates the capacities of staff • To promote gender equity and equality • To nurture shared learning and establish a system of knowledge management to promote institutional memory and greater synergy of work • Commitment towards monitoring and evaluation for better understanding for the changes in the lives of poor and marginalized • To establish national accountability in light of internationalization • To allocate resources at the optimum level for cost effectiveness and ensuring financial transparency • To raise sufficient resources and effectively manage the resources to be efficient, effective and transparentGoals & Strategic Objectives of ARBAN by ThemesGoal 1: Poor and marginalized people’s rights over their livelihoods are more secure Strategic objectives for achieving goal 1 • To facilitate an enabling environment where poor and marginalized people are able to exercise their right to sustainable livelihood through access to employment opportunities, and also able to claim their fair share from the institutions, capital and market • To reduce vulnerability and risk to the livelihood of the poor and marginalized from disasters • To increase access and control over natural resources and public services by the poor and marginalizedGoal 2: Women’s rights are advanced for gender equality
  12. 12. INTERNSHIP REPORTStrategic objectives for achieving goal 2 • To promote women’s right to self determination and create an enabling environment for their effective participation in social, political, economic and environmental dimensions • To create an enabling environment for practice of egalitarian gender relations and active citizenship by adolescent • To promote a culture of zero tolerance of violence against womenGoal 3: Development of a society inclusive culture where diversity is celebrated, equal citizenshipexercised, and non- discrimination is actively practiced Strategic objectives for achieving goal 3 • To assert equal citizenship by those of diverse origins based on ethnicity, language and religion • To promote an inclusive and barrier free society where enabling environment and conditions prevail for the people of disabilities • To promote active processes for inclusion of the socially excludedGoal 4: People’s movements for social and economic justice are strengthened Strategic objectives for achieving goal 4 • To promote the right to “quality education” for the poor and marginalized children • To promote public accountability of the government, private sector and international development agencies that secures economic justice for all • To promote the right to quality health care for the poor and marginalizedARBAN’s MissionA confident and responsible nation, free from poverty and indignity, in which its citizens can lead anactive life of freedom and livelihood security.ARBAN’s VisionTo work with poor and marginalized women, men, girls and boys to eradicate poverty by overcomingthe injustice and inequity that causes it.
  13. 13. INTERNSHIP REPORTARBAN’s Core ValuesThroughout Association for Realizations of Basic Needs (ARBAN) the following values aremaintained form the common basis to help in designing all organizational policy and practice.Each person in Association for Realizations of Basic Needs (ARBAN) has the right to expect to betreated and the obligation to treat others according to these principles implicit in organizationalvalues. ARBAN will actively, explicitly and continuously invest in keeping its values alive.Mutual Respect: Association for Realizations of Basic Needs (ARBAN) recognizes the innatedignity and worth of all people and the value of diversity.Equity and justice: Association for Realizations of Basic Needs (ARBAN) will ensure that everyperson, irrespective of sex, age, race, colour, class and religion has an equal opportunity to expressand utilize her or his potential.Honesty and transparency: Association for Realizations of Basic Needs (ARBAN) will beaccountable for the effectiveness of their actions and open in their judgments and communicationswith others.Solidarity: Association for Realizations of Basic Needs (ARBAN)’s only bias will be a commitmentto the interest of the poor and powerless.Courage and conviction: Association for Realizations of Basic Needs (ARBAN) will have thecourage of our convictions to be creative and radical, without fear of failure, in pursuit of making thegreatest possible impact on the causes of poverty.Independence: Association for Realizations of Basic Needs (ARBAN) will be independent of anyreligious or party political affiliation.Humility: Association for Realizations of Basic Needs (ARBAN) recognizes that they are part of analliance against poverty and so, in their presentation and behavior, they will demonstrate humility.Efficiency: Association for Realizations of Basic Needs (ARBAN) will manage their organization inthe most cost effective and efficient manner possible in order to maximize the impact of the resourcesthat are dedicated to their ultimate objective of eradicating poverty.
  14. 14. INTERNSHIP REPORTExcellence: Association for Realizations of Basic Needs (ARBAN) will try and attain the higheststandards in their work with a view to establishing Association for Realizations of Basic Needs(ARBAN) as a world leader in terms of the quality of the their development work.Proximity: Association for Realizations of Basic Needs (ARBAN) will take decisions as close totheir consequences as possible.International organizational structure of Association for Realizations of Basic Needs (ARBAN)With its head office in UK, Association for Realizations of Basic Needs (ARBAN) has three regionaloffices based in Asia, Africa and Latin America in the world to operationalize its work in the poorestcountries in the world.The Head office primarily comprised of the following units:Table: International organizational structure of Association for Realizations of Basic Needs (ARBAN) Name of the department Purpose Marketing department It assigned to manage and raise funds for the organization. It has diversified funding sources, starting from regular giving income from sponsors to huge grants from large donors, e.g. DFID, European Commission, Ford Foundation etc. Policy support unit The unit is assigned to lobby the international agencies in the arena of formulation of policies in education, food rights, tied aid, emergency response, HIV/AIDS, trade issues, etc. In addition to that it is also involved in the building partnership with global agencies. Finance unit & IT unit It maintains the global accounts linked with income from the alliance partners to expenditure to the country where it is operating. It also maintaining the IT infrastructure of the organization. The regional offices with the same functions as above are maintaining the linkages between the country program and the head office.
  15. 15. INTERNSHIP REPORTFunctions of Association for Realizations of Basic Needs (ARBAN) BangladeshCommon work approaches followed in ARBAN form a strong basis for their unity. ARBAN iscommitted to creating a diverse workforce that positively acknowledges the differences existingbetween people- such as sex, gender, race, age, ethnic origin, caste, class, color, belief, nationality,HIV status, sexual orientation, disability, education, social background etc. These differences maylead to differences in attitudes, experiences, and ways of thinking, behaving, communicating andworking. ARBAN reserves the right to add other categories to this list and will apply this principle inall aspects of organizational practice. ARBAN recognizes that a diverse workforce leads to betterorganizational performance, improved productivity.This chapter gives the detailed description of various functional units of ARBAN, its logo & slogan,and organogram.Identity & Resources MobilizationIRM Dept. through its three unique functions of Sponsorship, Partnership Development and Identityhope to create a cohesive and winning team environment to achieve a cost-effective funding base forARBAN through horizontal team work as well as interlink ARBAN’s local and national issues andidentity with other development stakeholders. It also hopes to create wider space for shared learningand best practices through regular flow of information both from its local partnerships as well as AAICountry Programs.Sponsorship1. Rights Based Approach and its outcomes/impacts more tangible to the supporters in its telling of the reports2. Creating opportunities for supporters to move on from being donors to becoming active supporters of the social movements.3. Capacity building of the staff of partner organizations to ensure the real and organized program information from the field4. Arranged communication training for Development Area (DA) staffThe Identity Unit 1. The identity of ARBAN is rolled out through information and case stories of their work published in newsletters, brochures, information packs, identity materials ( such as posters,
  16. 16. INTERNSHIP REPORT leaflets, greeting cards, year planners etc), photographs, media and news articles ( both national and international), participation in national and international programs and exhibitions, the website and the intranet. 2. An identity produces social messages in the print media and regularly follows up with the media on programmatic involvements as well as continues dialogues on a regular basis. 3. Develops partnerships with educational institutions to promote future leadership in the development sector and to familiarize the young leaders of tomorrow about work in development. 4. Shares local/national issues in the international forums through electronic media, website and external publications and regular communications update “The Asia Update” 5. Produce television and radio spots on priority sectored issues 6. Produces items for enhancing ARBAN’s Identity through video documentation 7. Developing media strategy for better professional linkages and capacity building of grass roots level journalists 8. Gives active support to local and international campaignsPartnership Development1. Partnership Development Unit started with the inception of Identity & Resource Mobilization Department (IRM) of ARBAN (Oct.2001). Since then Partnership Development initiated a process of developing a structured fundraising system with strategies, policies, donor relationship, systems of archiving, contract management and overall capacity of official and non official fundraising, etc2. Partnership development deals with official funding and relationships with bilateral and multilateral donors, trusts, foundations & corporations.3. Partnership Development unit also closely works with the DA and project partners to build their fundraising capacity4. Partnership Development unit critically engages itself with donors to influence5. Partnership Development unit works both with internal and external entities
  17. 17. INTERNSHIP REPORT Figure: Organogram of IRM Department Head Head Sponsorship Partnership Development Identity Sponsorship Partnership Development Identity Assoc. Coordinator Assoc. Coordinator Assoc. Coordinator Assoc. Coordinator Assoc. Coordinator Assoc. Coordinator Officer Officer Assoc. Officer Assoc. Officer Assoc. Coordinator Assoc. Coordinator Assoc. Officer Assoc. Officer1.3.2 Finance and AdministrationARBAN finance and administration unit work together. The main responsibilities of financedepartment are: 1. Financial management (Planning, Fund management, Monitoring & Controlling) 2. Financial accountability 3. Internal controls 4. Recording financial events 5. Audits 6. Budgeting and planning 7. Treasury management 8. Reporting financial information 9. Financial efficiency measurement 10. Capacity building of Finance Staff members of ARBAN and at partners’ end Work done by a ten (10) member team of dedicated and expert staff members under the leadership and management responsibilities of Head of Finance and Administration. Team contains different level of staff members, i.e. Manager, Deputy Manager, Officer, and Associate Officer.
  18. 18. INTERNSHIP REPORT Setting Strategic Direction done by Board of Trustees and International Directors.The core responsibilities of Administration department are: 1. Assisting in organizing International & national meetings, seminars, workshops, training courses and projects related events including administrative and logistics support 2. Processing visa & ticketing, maintaining petty cash ,coordinating and monitoring work of support staff, keeping an inventory record of all properties, supervising office equipments and maintenance 3. Procuring and purchasing equipments, reviewing vouchers and requesting for payments related administrative functions, ensuring office safety, security and cleanliness, making arrangements for travel and accommodation 4. Ensuring and keep functioning the communication systems of the office (internal & external) 5. Vehicle management and provide vehicle support to field visit and different events Figure: Organogram of Finance & Administration Unit Head of Finance and Administration Head of Finance and Administration Manager Administration Manager Administration Manager Finance Manager Finance Officer Officer Deputy Manager Deputy Manager Administration Administration Support Staff Support Staff Officer Officer Assoc. Officer Assoc. OfficerHuman Resources & IT 1. Staff recruitment as per need 2. Placement of staff 3. Confirmation of regular staff, extension of probation period 4. Preparing Employment Policy, Consultant & Outsourcing Policy, Volunteer Policy, International Secondment Policy
  19. 19. INTERNSHIP REPORT 5. Preparing job description of each personnel 6. Performance appraisal of the staffs 7. Arrangement of staff capacity building, staff retrenchment, staff leave, staff leaving a job, staff medical benefits. 8. Management of smooth and uninterrupted ISP service 9. Plan, organize and procure IT items as per need Figure: Organogram of HR & IT Unit Head of HR & IT Head of HR & IT Coordinator-IT Coordinator-IT Coordinator-HR Coordinator-HR Officer Officer Officer Officer Assoc. Officer Assoc. OfficerCountry Director’s UnitCountry Director’s (CD) unit consists of CD’s unit, internal audit, monitoring & evaluation, reflectsdevelopment and shared learning. The responsibility of CD is1. To rebuild and re-invigorate the organization and bring about stability within the organization2. To deal with the negative publicity and other troublesome issues3. To spend time on mission level issues and to do field visits to understand the perspectives of the poor and marginalized people that ARBAN works for4. To finalize various policies and publish the CSP.5. To build up the relationship with the partners as well as ARBAN’s donors.
  20. 20. INTERNSHIP REPORT Figure: Organogram of Country Directors Unit Country Director Country Director Assistance to CD Assistance to CD Monitoring & Monitoring & Internal Audit Internal Audit Reflect Reflect Shared Learning Shared Learning Evaluation Evaluation Development DevelopmentLivelihood Security & Risk ReductionThe goal of this sector is to ensure a more secure livelihood for the poor and marginalized people.Promotion and strengthening of livelihoods, protection from disasters, access to and control overnatural resources are the three themes in this sector.Women’s Rights & Gender EqualityGender sensitivity and promotion of women’s right and equal access for women in all the programsand projects are the primary focus of ARBAN. It works to advance women’s rights for genderequality, create an enabling culture to practice gender equality among youth and adolescents andprevent violence against women.Rights & Social JusticeARBAN works for a socially inclusive culture where diversity is celebrated, equal citizenshipexercised and non-discrimination is actively practiced. This sector includes three themes diversity andcitizenship, disability & enabling environment and social inclusion.Social Development & Economic. JusticeARBAN tends to strengthen people’s movements for social development and economic justicethrough ensuring quality education, economic justice and quality health care for all. Their objective isto promote public accountability of government, private sector and international developmentagencies that secures economic justice for all.
  21. 21. INTERNSHIP REPORTFigure: Organogram of Livelihood Security & Risk Reduction, Women’s Rights & Gender Equality, Rights & Social Justice and Social Development & Economic. Justice Units Sector Head Sector Head Sector Head Sector Head Sector Head Sector Head Sector Head Sector Head LS & RR WR & GE R & SJ SD & EJ LS & RR WR & GE R & SJ SD & EJ Theme Leader Theme Leader Program Officer Program Officer Assoc. Program Officer Assoc. Program Officer
  22. 22. INTERNSHIP REPORTThe logo and slogan of Association for Realizations of Basic Needs (ARBAN) Bangladesh The logo of Association for Realizations of Basic Needs (ARBAN) Bangladesh is: The slogan of Association for Realizations of Basic Needs (ARBAN) Bangladesh is:Organ gram of Association for Realizations of Basic Needs (ARBAN) BangladeshAn organogram of Association for Realizations of Basic Needs (ARBAN) Bangladesh is attached inthe following page.
  23. 23. INTERNSHIP REPORT Figure: Organogram of ActionAid Bangladesh ARBAM ARBAM Bangladesh Bangladesh Head- Head- Head- Head- Liveliho Head- Women’ Head- Head- Head- Finance Liveliho od Women’ s Rights Head- Rights Head- Social Head- Finance Head- CD’s od s Rights Rights Social Head- and Head- CD’s Security & & Social Develop and Adminis Security & Risk & Gender & Social Justice Develop ment & IRM Adminis HR & Unit & Risk Gender Justice ment & IRM tration HR & Unit Reducti Equality E. tration IT Reducti on Equality E. Justice IT on Justice Identity Finance HR Monitori LivelihoIdentity Finance HR Monitori Liveliho & Partners od & Partners Manage ng & od Women’ Diversit Educatio Commu & Manage ng & Promoti Women’ Diversit EducatioCommu nication & capacity Promoti ment Evaluati on s Right y& nnication s capacity building ment Evaluati on s Right y& n s building on Citizens on Citizens hip hip Sponsor Organiz Emerge Adolesc EconomSponsor Organiz Emerge Adolesc Econom ncy and ic ship Finance ational Internal ncyRisk and ent & Disabilit ship Finance ational Internal ent & Disabilit ic Risk Reducti Manage Projects Develop Audit Youth y JusticeManage Projects Develop Audit Reducti on Youth y Justice ment ment on ment ment Fundrais Informat Reflect Natural Violenc SocialFundrais Informat Reflect Natural Violenc Social Resourc e against ing and Adminis ion Develop Resourc e against Healthing and Adminis ion Develop es & Women Inclusio Health es & Public Women Inclusio n Contract tration Technol ment Public nContract tration Technol ment Services Mgt ogy Unit Services Mgt ogy Unit Shared Shared Learnin Learnin g g
  24. 24. INTERNSHIP REPORTOverall Financial Performance of ARBAN (In 2010 and 2011)The overall financial performance of ARBAN is measured by the total income it received,percentage of costs according to international themes, and trends of income & expenditure.The analysis of these data for the year 2005 and 2006 is presented in the following section.Income mixThe total income for 2005 and 2006 was £ 3.59 and £ 3.94 million respectively. From thisARBAN has spent £ 2.88 and £ 2.96 million as project cost for the year 2010 and 2011. Thepercentage of income mix was: Table: Income mix in 2010and 2011 Figure: Income mix 2010Year 2010 2011Regular giving 61% 48.51%Other regular giving 0.97% 16.23%Partnership (official) 35% 9.81%Partnership (others) 2.36% 12.07%Others 0.31% 0.33%Transfer in 1.13% 13.05%Total 100% 100% Income mix 2005 2.36% 0.31% 1.13% 35% 61% 0.97% Regular giving Other regular giving Partnership (official) Partnership (others) Others Transfer inThe income from Regular Giving is high for both the year 2005 and 2006. The income fromPartnership (official) is high in 2005 but in 2006 the second highest position held by otherregular giving. The least income came from other source for both the year as shown in thegraphs.
  25. 25. INTERNSHIP REPORT Figure: Income mix 2011 Income mix 2006 13.05% 0.33% 12.07% 48.51% 9.81% 16.23% Regular giving Other regular giving Partnership (official) Partnership (others) Others Transfer inIn 2005 the income from Regular giving and Partnership (official) are higher from 2006 asshown in the above graphs. The income form Other Regular Giving, Partnership (others) andTransfer in are higher in 2006 than 2005.Percentage of costs according to International ThemesThe analysis according to the various international themes is the following.Table: Percentage of costs according to Figure 9: % of costs according to International Themes 2010 International Themes in 2010 and 2011Year 2005 2006Food and hunger 25% 31%Women’s rights 12% 20%Human security 22% 18%Right to education 28% 15%Governance 7% 7%HIV/AIDS 5% 5%Others 2% 4%Total 100% 100%
  26. 26. INTERNSHIP REPORT % of costs according to international themes 2005 5% 7% 2% 25% 12% 28% 22% Food and hunger Women’s rights Human security Right to education Governance HIV/AIDS OthersIn the year 2005 ARBAN had spent most in Right to Education Theme, but in the followingyear it turned its policy and spent most in Food and Hunger Theme. The second highestcontribution of ARBAN was Food and Hunger and Women’s Rights for 2005 and 2006respectively. Figure: % of costs according to International Themes 2011 % of costs according to international themes 2005 5% 7% 2% 25% 12% 28% 22% Food and hunger Women’s rights Human security Right to education Governance HIV/AIDS OthersThe development works of ARBAN for its international themes are higher in 2006 than 2005in the themes like: Food and Hunger, Women’s Rights and Others. In Human Security andRight to Education the costs are more in 2005 where in Governance and HIV/AIDS themes itremained almost same for the both year.Trends of income and expenditure in ARBANThe following graph shows ARBAN’s last four years income and expenditure pattern from
  27. 27. INTERNSHIP REPORTyear 2004 to 2006 are given below. Here we can see the expenditures increased with incomesand in the year 2005 and 2006 the expenditures were almost equal to incomes. Table: Income and expenditure trend (2004-2006) In GBP ‘000 Year 2004 2005 2006 Income 4,394 3,396 3,784 Expenditure 3,492 3,296 3,765 Figure 11: Trends of income and expenditure in ARBAN Trends of income & expenditure 5,000 4,500 4,000 3,500 In GBP 000 3,000 2,500 2,000 1,500 1,000 500 0 2004 2005 2006 Income Year ExpenditureSWOT Analysis of ARBANThe SWOT analysis comprises of the organization’s internal strength and weakness andexternal opportunities and threats. SWOT analysis helps the company an insight of what theycan do very important to identify the current position of the strategic analysis of theorganization.The strengths of ARBAN are:  Good organizational culture of ARBAN.  Its young, energetic, sincere and skilled workers.  To attract donor Association for Realizations of Basic Needs (ARBAN) has priority over other companies because it spreads in 40 countries.  Association for Realizations of Basic Needs (ARBAN) is centralized. So each Country Director has responsibility to the head of Association for Realizations of Basic Needs (ARBAN) for reporting.  Association for Realizations of Basic Needs (ARBAN) acts as pressure group for the Government.  Good organizational culture of ARBAN.
  28. 28. INTERNSHIP REPORT  Participatory program development on need basis, which promotes harmony and goodwill with in the organization, in the communities where it works and amongst the donors.The weaknesses of ARBAN are:  Violation of policy as per senior management instruction sometimes happened.  None is directly liable to anyone for his/her duties. The leader is all in one. So negligence in service may occur.  Sometimes, Association for Realizations of Basic Needs (ARBAN) is criticized for not maintaining good relationship with NGO affairs bureau.  Weakness in management system including unbalanced distribution of responsibilities, inadequate and inappropriate assessment and evaluation of projects, lack of unity in management.The opportunities of ARBAN are:  More scope of collaboration with various government programs.  Greater collaborative programs with other NGOs.  Diversification of donor source.  Expanding activities in new areas and new fields of activities.  The policies are reviewed time to time, so there is lot of opportunity to adapt the policies with the changing demand of the world.The threats of ARBAN are:  Association for Realizations of Basic Needs (ARBAN) may lose donor fund if they don’t maintain good liaison relationship with donor organization.  Multiplicity of NGOs in Bangladesh.  Government policy change and bureaucratic nature of decision making lead to unequal exchange.ARBAN’s Current State of Operations and its Expected Future DirectionCurrently ARBAN is operating in Bangladesh with a hope to eradicate poverty. AA has sixinternational themes. They are Food and hunger, Women’s rights, Human security, Right to
  29. 29. INTERNSHIP REPORTeducation, Governance and HIV/AIDS. Of that, in Bangladesh it gives most emphasize onfood and hunger theme. The rationale of this, they are trying to enhance the livelihood of themarginalized people of Bangladesh. Association for Realizations of Basic Needs (ARBAN) International, which has beenworking in Bangladesh since 1983, is uniquely placed to address the development challengesthat the people of Bangladesh will face in the coming years. Over the past 20 years, ARBANhas established a track record for working effectively with communities for theiradvancement and empowerment. Since 1998, ARBAN has expanded its partnership to includeorganizations from vulnerable locations throughout the country. It has developed expertise inworking with disabled, development of adolescent programs.The special characteristics of ARBAN to promote and strengthen national leadership withinan international organization, and its funding structure provide ARBAN with a uniqueopportunity to pursue the challenges faced by Bangladesh in the coming years throughdevelopment of innovative grassroots programs and provide policy insights and directions.This will provide ARBAN the strategic advantage. Though, ARBAN faces some problems instrategic and operational level.Strategic and operational issues facing ARBANStrategic issuesAlthough ARBAN emerged as public benefit organizations in advancing the interests of abroader community where a large number of men and women are marginalized, vulnerable tostructural social injustice and victim of violation of human rights, their management practicedoes not show any line of accountability to the community. The lack of defined accountabilityto the community blurs the downward accountability of ARBAN & other NGOs and thereforecreates accountability gap.NGOs should have accountability relationship between their peer organizations from theperspective of upholding the standard, value tradition and reputation from the sector.However, the reality is that the norms around the sharing of good accountability practice areoften absent and as a result NGOs frequently lack a common standard or accepted behavior tohold each other to account.Operational issuesFor an effective organization leadership, accountability and transparency are needed. So,
  30. 30. INTERNSHIP REPORTARBAN has to build up leadership and develop inner strategies. ARBAN has to elect peoplein the board view of changing the nation in a positive direction.The strategic and operational issues that ARBAN is facing can be minimized by the followingstrategies and tactics:The strategies and tactics used to cope with them• Building responsive governance within the organization.• Developing policy guidelines and manuals as open document.• Coordination and creation of space for shared learning in terms of accountability.• Regular revisit of the policies, values and norms in line with existing policies.• Minimum standard setting for organizational accountability.• Promoting self assessment with organizational domain.• Developing relationship with government officials.• Dissemination of information at all levels.• Practice of participatory decision making process.• In case of preparation and implementation of policy the method should be sharing, involvement, and dissemination.• Peer accountability should be trust building, development of mindset about shared learning.• Downward accountability should be mind setting of subordinates, trust building and reducing dependency.• Real partnership has to build up with donor through local fund mobilization.Introduction to the ProjectAssociation for Realizations of Basic Needs (ARBAN) Bangladesh is a leading InternationalNon Government Organization in Bangladesh. In preparing this report financial managementpractice of ARBAN has taken among non government sector. The study is based on the threemonths internship program at the ARBAN. The study is about the overview of the financialmanagement practice of ARBAN.Objective of the Study
  31. 31. INTERNSHIP REPORTThrough this study, I tried to attain the following objectives: Prime objective of my study was to find out financial management of NGO To reach in a comparative analysis of financial management of profitable and non- profitable organization.Significance of the StudyThis project titled “Financial Management of NGO: Case of Association for Realizationsof Basic Needs (ARBAN) Bangladesh with Comparative Discussions of Practices inProfit Oriented Firms” was designed to present the financial management of NGOs in aneasy and understandable way. I have selected this topic to present the financial managementof non profitable organization. As non profitable organization has no profit motive, so howthey organize their income and expenditure in their financial statements according to theirorganizational objective was my attempt to prepare this report. The report is totallydescriptive in nature.Scope of the StudyThe scope of the project part is limited to the financial manuals of Association forRealizations of Basic Needs (ARBAN) and their financial reports only. Reviews of theiroperational manuals are also used to prepare the report. Besides, text books were used assupplementary when needed. A detailed list of them has mentioned in the bibliography.MethodologyPreparing a report about the financial management of an organization is a difficult andcomplicated task and no single method is appropriate for preparing the report. Effectiveresearch involves six basic steps, shown in the following figure: Figure: Methodology of the research
  32. 32. INTERNSHIP REPORT Define the Problem Research Objective Develop Research Plan Define the Problem Research Objective Findings & Recommendations Data Analysis Data Collection Findings & Recommendations Data AnalysisThe project title is “Financial Systems of NGO: Case of Association for Realizations ofBasic Needs (ARBAN) Bangladesh (ARBAN) with Comparative Discussions ofPractices in Profit Oriented Firms”. This is a descriptive research. The major purpose ofthis descriptive research is to describe the financial management of non profit orientedorganizations.Types of DataThe report is mainly based on 2 types of data-1. Primary data2. Secondary dataCollection of DataPrimary source of data  Personal observation of the financial activities.  Interview with the officials of the Association for Realizations of Basic Needs (ARBAN) Bangladesh. Secondary Source of data  Annual financial reports of Association for Realizations of Basic Needs (ARBAN) Bangladesh.  Published documents and reports.  Relevant WebsitesLimitations of the StudySome of the limitations faced while preparing this report are mentioned here:♦ Time was the most important limitation in preparation of the internship report. The program allotted only 3 (three) months for entire study, which disable many opportunities for a comprehensive study.
  33. 33. INTERNSHIP REPORT♦ Relevant papers and documents were not available sufficiently.♦ In many causes updated information were not available.♦ The time schedule of ARBAN senior staffs did not allow me to discuss with them. But their opinion could make this report so informative. It seems a great limitation to me.♦ The lack of experience of the researcher in this field may have become another limiting factor.Financial Management of Association for Realizations of Basic Needs
  34. 34. INTERNSHIP REPORT(ARBAN) BangladeshThe core requirements of the financial management aspects of ARBAN include structure offinance unit, accounting procedures, recording of accounting information, budgeting,taxation, auditing, and performance measurement & controlling of projects by financesection.Structure of Finance Unit of ARBANThe structure of finance department of ARBAN is as follows: Figure: Structure of Finance Department of ARBAN Board of Trustees/International Board of Trustees/International Directors Directors Set Strategic Direction Country Country Director Director Head-Finance Leadership and Head-Finance and and management Administration Administration Planning, controlling Payment and Cash Payment and Cash Reporting and Reporting and Capacity Building Capacity Building Management Management Statutory Statutory and reporting Compliance Compliance financial activities Table: Number of Employees in Finance and Administration Unit Finance section Administration section Head of Payment and Reporting and Capacity Administrati Admin Finance and Cash Statutory Building ve SupportAdministration Management Compliance Officer Officer Staff (HOF) 1 3 4 2 1 1 10Composition of the finance teamThe HOF of the Country Program has the responsibility to manage the overall financialmanagement of the country program. The HOF reports to the Country Director of the CP,who is appointed by the International office of Association for Realizations of Basic Needs
  35. 35. INTERNSHIP REPORT(ARBAN) International. In absence of the HOF the CD is responsible of overall financialmanagement and financial integrity of the organization.Performance, standards and capacity building: The team is responsible in capacitybuilding of the partners as well as ARBAN in house staff. The team engaged in appraisal andreview of projects/partners performance, review of performance In addition to that theyprepare different financial reports for AAI, Regional Office and ARBAN Management (as perrequirement), provide support during planning & budgeting, developing policies & procedureand reserve management to HOF.Reporting & statutory compliance: This team is responsible for the overall reporting tointernal as well external entities that is a part of the overall financial information system ofthe organization. This includes providing expenditure/income/committed expenditureinformation to the budget holders of ARBAN, project reporting to the donors, projectreporting to the NGO bureau, and reporting to the international offices. Finance uses financialsoftware SUN for recording of all financial information, transaction, budget etc. They usesoftware named VISION (Version 5) for reporting purpose. In doing so, Team members areinvolved with partner expenditure checking as well as providing feedback to them,monitoring the utilization, reconciling partner expenditure with SUN, finalizing contracts ofpartners/third parties and providing support in preparation of project proposal. Team preparesfinal accounts of projects of ARBAN and help external auditors to conduct external audit andmeet audit queries. Team also involved with providing support to internal audit and differentdonor audit.Disbursement and cash management: This team is responsible to ensure timely payment toall third parties, including proper coding of the expenditure and verification of the documentsprovided to them for payment preparation. Team members are responsible to recordtransactions and reconciliation of the control account codes. The team leader of this team willbe responsible for treasury management of the Country Program.In profit oriented organization, generally the finance team is divided in three sections, suchas Finance, Personal Accounts and Costing. Finance section handles all activities related todebtors. It is responsible for the payment of bills. Personal account section deals with salarypayment, group insurance, foreign affairs and issues related with corporate heads. Costingsection deals with the production cost and profit related issues. So profit orientedorganization’s finance team is broad than non profit oriented organizations finance team.Accounting System of Association for Realizations of Basic Needs (ARBAN)Bangladesh
  36. 36. INTERNSHIP REPORTNon profit organizations such as NGOs need accounting to record and account for fundreceived and disbursed. Though they do not have a profit motive, yet they should operateefficiently and use resources effectively. This chapter will give idea about the accountingprinciples of ARBAN, their accounting cycle, financial reports & statements, accountingequation of ARBAN, accounting policy and procedure, recording of accounting information,and software used in ARBAN by finance unit..Accounting PrinciplesDual aspect principle: Double entry should be recorded in all ledgers.Monetary principle: ARBAN uses Bangladeshi Taka (BDT) as its based currency in all localfinancial reports. However, the transactions incurring in other currencies such as US Dollar(USD), Great Britain Pound (GBP) should be recorded in the original currencies andtranslated into BDT based on the accounting exchange rates for reporting purposes.Consistent principle: This principle regulates that all the accounting methods, books andreports should remain unchanged until their financial manual is revised or communicatedthrough memo and notice.Materiality principle: A transaction will be considered as material when its value equals toor is over GBP 1,000 or USD 1,600 or BDT 114,000.Fully disclose principle: All transactions must be recorded in the books and be disclosed inall financial reports. The Accounting Cycle in ARBANThe accounting cycle practiced in NGOs is almost same with accounting cycle of profitableorganization. They also contain bookkeeping and accounting steps.
  37. 37. INTERNSHIP REPORT Bookkeeping steps 1. Record transaction in a journal. Transaction means cash receipt and payment. 2. Transfer amounts from various journals to general ledger. 3. Calculate whether sum of all debit balances equals sum of all credit balances. Accounting steps 4. Posting the cash ledger to the accounting software SUN. 6. Analysis of data for reporting and preparing financial statements. Financial Reports ARBAN Produce (Formal & Informal)To measure the overall financial performance of a country program each country program hasto send their Annual Financial Report to AAI. This report contains the following financialstatements:Statement of income and expenditure - This include income from regular giving donation,income from partnership, net transfers in, transfers out, expenditure by project, support,fundraising & government. This statement shows the amount of money coming into ARBAN,how this money was paid out and any leftover money for a given period of time (i.e.: threemonths, one year, etc).This statement is equivalent of a Profit and Loss Statement for profitoriented organizations. In some NGOs this statement is called Statement of Receipts andDisbursements. A sample of income and expenditure statement is included in appendix part(Table 1)Balance sheet- The balance sheet provides a picture of the assets, liabilities and capitalreserves of ARBAN at a given point in time. A sample of balance sheet is included in theappendix partThese two statements in combination with more frequently generated performance reports canform the basis of financial reporting for ARBAN. Besides, the statements needed to supportthis two base statement are as follows:Summary of movements in reserves- This table gives the summary of fund flow fromdifferent country programs and check the reserve held at the end of the year.Expenditure, income and reserves by DA- Opening reserve, expenditure and closingreserve by each Development Area is shown here.Financial performance measures (FPM table) - It shows the progress of the developmentwork in a year. It is the key table to show accountability to the trustees and donors.The reports ARBAN has to submit to AAI, regional office, CD, donors are mentioned below:
  38. 38. INTERNSHIP REPORT Table: Financial reports of ARBAN Report type To be submitted Yearly financial report AAI Annual report & Half yearly report To Regional Office Consolidated Quarterly management To CD and Regional Office report Monthly management report To the CD and every budget holder of the CP Project financial report for the donor To the donor Accounting Equation in ARBAN The principal of accounting that is Asset = Liability + Owner’s Equity is also maintained in ARBAN. ARBAN uses accrual basis of accounting.Total assets = Debt to staffs, other country programs, income due from local contracts + cashat bank and ST bank deposit.Total liabilities = Due to staffs, other country programs, deferred income on local contractsTotal assets-Total liabilities = Total equity.Accounting Policy and Procedure Association for Realizations of Basic Needs (ARBAN) has Financial ManagementFramework where accounting policy and procedures are established. This involves thepolicies and procedures ARBAN should use to record and monitor financial transactions. Itspurpose is to help Association for Realizations of Basic Needs (ARBAN):  . Record all financial transactions  . Monitor and control expenditures  . Satisfy statutory reporting requirements  . Ensure timely and accurate financial and management reporting to donors and grant- makersThe core aspects of their accounting policy are about: income, expenditure, reserve, currencyand exchange rate movement, fixed asset, depreciation method, liabilities, accrued incomeand expenditure, and advance and pre payments. IncomeARBAN receives its income as donation and contribution from individual donor orinstitutional donor from Bangladesh or outside of Bangladesh in support of its activities taken
  39. 39. INTERNSHIP REPORTunder the Country Strategic Paper (CSP). Only when the income has practical certainty ofbeing approved then it is realized in the accounts. Main child sponsors are from UK, Ireland,Spain, Italy and Greece.For management purpose income is restricted according to the following group: (Development Area) DA /Project level National level and Un-restricted at country levelIncome restricted at DA level is to be spent with sole purpose of the development of thatparticular DA with the expenditure of supporting that DA. National level income is restrictedto be spent at national level to support the DA level work and to address the broader povertyissue. Un-restricted income is spent with the approval of the CD without having anyrestriction as said above.Income from individual donor is classified according to the following structure received fromthe Alliance partners. Table: Income allocation Alliance partner DA level National level Unrestricted Fundraising UK/Italy/Ireland 70% 10% 10% 10% Greece 60% 40% Spain 80% 10% 10% Note: Income allocation is used after deduction of Alliance partner levy.Income received from institutions is restricted according the objectives/activities that havebeen agreed between the donor and ARBAN. Only the administrative levy is part of theunrestricted income if the said project has covered its all operational level expenditure. ExpenditureExpenditure incurred must follow the internal control procedure set within the policy and inparticularly follow: Expenditure should be included in the financial statements in accordance with the accruals concept i.e. recognizing expenditure in the period in which they incur. Must be consistent with the intention of the mission/objective of the organization. Must be processed in accordance with the guidelines, policies and procedures. Expenditure should be appropriately authorized as guided by the existing Authority Protocol and changes there in time to time.
  40. 40. INTERNSHIP REPORT All expenditures must be supported with appropriate supporting (i.e. cash memo, Chillan /invoice, bills, claims, Work order etc.) Expenditure only which are incurred for the organization will be included in the books of accounts.ReserveReserves represent the capital of the organization, fixed and working, including short-termresources. The statutory reserve level will remain over the Country Program according to the2 AFMF guideline which will be not less than 2 months and not more than 4 months ofplanned expenditure of the following year. Every year the reserve level will be analyzed andreviewed before annual budgeting and it would be adjusted in the plans & budget for the nextyear. Currency and exchange rate movementDealing with international institutions, and having an international presence ARBAN isexposed to varieties of exchange rate and as a result is open to exchange rate gain or loss. Thepolicy of the CP is to minimize exchange rate loss through maintaining a Great Britain Poundsterling (GBP). Foreign currency account and utilizing the exchange rate information receivedfrom The Hong Kong and Shanghai Banking Corporation (HSBC) and from the to translate foreign currency to local currency. Fixed AssetFixed asset are purchased and controlled to support the functions in order to efficientlymanage the organization. Fixed asset are of two types: Table: Types of fixed asset Fixed asset type Nominal value Economic life Capital items Above or equal to £ 5,000 or 3 years equivalent amount in BDT Non-Capital items Below £ 5,000 or equivalent amount More than one year in BDTDepreciation method in ARBANDepreciation is charged to the income and expenditure account in order to write up the cost ofa fixed asset over its expected life. This means that the cost of asset will be divided by thenumber of years of asset life to get the annual depreciation charge.2
  41. 41. INTERNSHIP REPORTCapital items are subject to properly authorize, purchase, recorded, and accounted for,valuation and disposal. It is also subject to depreciation according to the following principleand depreciation of assets to be charged in straight-line method. Table 9: Depreciation period of capital items ASSET DESCRIPTION OUTSIDE EUROPE FREEHOLD Buildings owned by Association for 10 years PROPERTY Realizations of Basic Needs (ARBAN) International, ARBAN has no such property in Bangladesh OFFICE EQUIPMENT Computer Equipment 3 years Other Equipment e.g. photocopiers, 3 years generators and any other equipment used in the CP MOTOR VEHICLES All Motorized transport e.g. cars, trucks 3 years Note to mention in case of depreciation: Freehold land will not be part of depreciation. Full year depreciation charged in the year of purchase of an asset and nil in the year of disposal. LiabilitiesAs ARBAN is following the accrual basis of accounting, it is important that financialobligation to the third parties who have provided resources or to whom ARBAN is liable topay (e.g. Association for Realizations of Basic Needs (ARBAN) Bangladesh employeeprovident fund, Association for Realizations of Basic Needs (ARBAN) Bangladesh EmployeeGratuity Fund) is accounted in the local balance sheet in the accounting period in which theresources have been received and against whom expenditure has been charged. It should bepaid in the following accounting period and be removed from the balance sheetsimultaneously. Transaction recorded as liabilities must be supported by sufficientdocumentation that establishes the basis for their inclusion in the accounts.However, any goods and services purchased by the CP will be on payment on delivery basis.The CP must not have any agreement with any suppliers that require an interest payable incase of failure of terms and conditions for payment without written approval from the HOFand CD. Accrued income and expenditureAccrued income represents income due from local/international contractors with sufficientdocuments supporting the realization of the income with certainty for the project activities
  42. 42. INTERNSHIP REPORTalready completed in an accounting year. This income is categorized to be received in thelocal bank account of the CP. Income due from international donor for which the money is tobe received in Association for Realizations of Basic Needs (ARBAN) International office isnot accounted for in the local account. During the year-end process, this needs to be informedto those offices in order to be incorporated in there accounts. Income due must properlyrecorded in the debtor account.In order to accrue expenditure, the goods or services to be received against the expendituremust be received in the accounting period with the purpose of matching the expenditure withthe budget and for which payment has not been made. While considering the accruedexpenditure the followings are to be considered by HOF: What are the legal arrangement of the contract and how any disputes arising are to be settled Whether any entitlement to the funding requires a specific performance to be achieved (a contract or performance related grant) Whether funds can be used for any of the purposes of the organization, or whether they can only be used for a specific purposeAccruals expenditure should not be booked in the accounts merely to show expenditureutilization against the budget for that specific period, unless the goods or services have beenreceived in that specific period.Where the incoming resources are received in advance then Association for Realizations ofBasic Needs (ARBAN) may not have entitlement to these resources until the goods orservices have been provided. In this situation, incoming resources received in advance shouldbe deferred until Association for Realizations of Basic Needs (ARBAN) becomes entitled tothe resources. Advance and pre-paymentAll payments in advance of the current period should be recorded as assets until receipt of thegoods or services involved or until contract terms are met. This excludes Grants to Partnerswhich should be expensed in the Income and Expenditure Account. However a separateledger to be maintained to track expenditure against the advance made to the partners.Finance staff ensures that invoices are verified to identify areas where prepayments mayoccur. Prepayments are considered a standard business practice for the following types oftransactions; Memberships and Subscriptions, Rent, Insurance Premiums, Payment to
  43. 43. INTERNSHIP REPORTGovernment Units and Required Deposits. Other prepayments may be acceptable only if it iscost beneficial. The location, reputation and other characteristics of the vendor should betaken into consideration when making prepayments as it could have a bearing on the ability torecover the payment if the vendor defaults in the delivery of the supply or service.Recording of Accounting Information in ARBANIn the cash payment section, when any advance is taken by an individual it is recorded asdebit. At the time of returning the remaining amount it is recorded as credit. All theexpenditure is recorded as debit in the journal. The transaction part of a sample Cash Paymentand Receipt journal in included the appendix part (Table 3 and 4).ARBAN maintains two types of vouchers. One is for payment and another one is for receipt.At the time of receipt the all the expenditure is debited along with received amount. Theoriginal amount that had taken as advance is recorded as credit as follows:Only payment up to 10,000 taka is paid in cash. Payment above 10,000 taka is paid by check.For preparing check ARBAN use a software HEXAGON which is supplied by HSBC. Afterpreparing voucher the transactions again recorded in Excel which later converted into 3SUNsoftware for further analysis.Software Used in Finance Unit of ARBANSUN: SUN (Version 4) is accounting software used by most of Country Programs ofAssociation for Realizations of Basic Needs (ARBAN). Software is fully equipped with lot ofdata recording and analyzing tools.Through SUN they can capture:-• Staff wise transactions (training , advance etc),• Partner NGO wise transactions (advance, expenditure),• Theme/ Sector wise expenditure• Donor/ funding country wise expenditure• Expense incurred on behalf of other county program & vice versa• BudgetVision: Vision is reporting software. Through this ARBAN can further analysis the financialdata recorded/ processed through SUN. It also gives them the space to prepare report in timedonor’s requirement. They also produce the internal management reports (budget and actualexpenditure) through vision.3
  44. 44. INTERNSHIP REPORTIn profit oriented organization and also in non profit oriented organization, accountingpolicies are established based on the organization need. The objectives of accounting i.e.analyzing and interpreting financial information, preparing financial statements, conductingaudits, designing accounting system, preparing forecasting and budgets, and providing taxservices are same. But it varies in its operational nature with the need of the organizationwhether it is profit oriented or not. For example, most organizations use a standard accountingsoftware for accounting purpose. But it is not same in all organizations; accountants choosethe software according to their organization’s need. All NGOs require a financialmanagement system, however, many small NGOs may only have an accounting orbookkeeping system. Accounting or bookkeeping are a subset of financial management. InNGOs, financial management systems can be broken down simply into administrativesystems and accounting systems. Administrative systems assist all NGO managers indecision-making, planning, communicating, controlling and evaluating. Accounting system isconcerned with identifying financial information, expressing the information in numeric termsand communicating this information to interested parties. An accounting system provides theframework for working with financial information.Budgeting of Association for Realizations of Basic Needs (ARBAN) BangladeshBudgets have a crucial role to play in strong financial management. For budgets to be useful,they must be accurate and complete. That means that they have to be based on a realistic
  45. 45. INTERNSHIP REPORTassessment of the activities that NGOs expect to carry out and of how they expect to pay forthem.An important internal control of financial management is the operating and activity budget.This budget includes all monies approved in donor proposals and all activities planned for agiven period of time (preferably the fiscal year of an organization). The line items in thebudget should coincide with chart of account line items so that expenses can easily be taggedto budget. In ARBAN, budget done in accordance with its income. They follow zero basedbudgeting. Using a zero-based budgeting and properly dealing with the difference from monthto month allows ARBAN to gain total control over every money they spend. If they spendless than planned during the year, they can easily redirect that money where they really wantit instead of letting it misused through unfocused spending.The parties involved in preparation of budget are sector head, finance department, and partnerorganization for partner budget. Important aspect of budgeting of ARBAN are their three yearrolling budgeting process, budget responsibility and implementation, and yearly budgetingprocess. Three years rolling budgeting processAA introduced 3 year rolling plan in 2000 which enables each AA offices to have mediumview on its program, organizational and funding aspects.Responsibility• The regional finance coordinator (RFC) provides guidelines and table formats annually. In ARBAN, Asia finance coordinator provides these formats.• The HOF is responsible to coordinate the process from providing guidelines to consolidating ARBAN budget tables and submit to the region.• Budget holder is responsible to formulate the plan and budget for the area of her/his responsibility.• Funding & fundraising head in collaboration with the HOF is responsible to prepare the funding plan for the whole organization.• The senior management team is responsible to review and approve the plan/budget as well as plan execution.• The CD in consultation with the HOF and other concerned line managers authorizes supplement plan/budget and or makes any adjustment when and where necessary.
  46. 46. INTERNSHIP REPORT• The team leader of reporting and statutory compliance team is responsible to review the coding and import the budget into accounting software (SUN). Implementation• Time for planning: September every year for 3 year plan; November every year for annual budget.• Time for approval within the country: October every year.• Process: the HOF in consultation with the CD and management team will issue guidelines for the process every year.• A major review & planning process involving larger stakeholders will be undertaken once every 3 years. In the years between a minor review and readjustment of the plan will be done. Yearly budgeting processFor the budgeting purpose each sector has given a budget range. Then the finance sectionrevises the budget and finally prepares it.After completion of the 1+2 budgeting process the reporting and compliance team willprovide formatted budgeted expenditure with codes (for tracking expenditure) to every unitsin the CP in order to provide their plan of expenditure across twelve months. The finalindividual budget is approved by the CD of the CP and a signed copy is circulated from thefinance. After completion of the monthly budget, the budget is uploaded beforecommencement of the budget year.Profit-oriented organizations sell goods or service, so they have revenues and operating costthat must have to be budgeted. They prepare projected income statements and balance sheets.Non profit oriented organizations prepare cashflow forecast that tells them when receipts andpayments will happen, because they cannot start spending money on the project before theyhave actually received the cash. They also prepare partner budget for various projects. So theclassifications of budgets for NGOs are: Unit budget, Cashflow forecast, Salary budget,Project budget. Unit wise budget is their master budget because it includes costs, income,salary, and DA/ non DA budget.Taxation of Association for Realizations of Basic Needs (ARBAN) BangladeshTaxation is the system of raising money to finance government. All governments requirepayments of money i.e. taxes from people. But non profit organizations do not have to pay
  47. 47. INTERNSHIP REPORTany tax for their income from grants. But the employees, who are working in there, have topay taxes for the incomes they received. Most of the organizations follow tax deduction atsource. The suppliers VAT are also deducted at the time of payment by accounts unit ofNGOs.For the taxation purpose in terms of salary of employees of ARBAN it follows tax deductionat income source. The withholding of Tax and suppliers’ VAT are described in the followingsection: Withholding TaxThe team leader of payment and cash disbursement shall ensure that withholding tax isdeducted as envisaged in the Bangladesh statutory laws. The tax deducted shall be depositedto government treasury every quarter. S/he shall prepare statutory/tax returns and get itapproved from HOF to be submitted to authorities. The tax heads are like salary tax, VAT onsuppliers’ goods.There is no any tax imposed on NGO income as it is grant. It is totally tax exempted. Butrecently Bangladesh government is thinking to impose tax on the income from micro creditand other small income generated activities of NGOs. But ARBAN has no any micro creditscheme.Suppliers’ VATSuppliers’ VAT is also deducted at source by payment and cash disbursement section ofARBAN at the time of payment.Tax is the largest income source for government. For this taxation has a crucial role inprofit oriented organization? They try to give minimum tax and sometimes evade tax sothat they can enjoy most profit. They have to give tax for both the personal and corporateincome. Governments impose many types of taxes for which only profit orientedorganizations are entitled. When high tax rates affect the behavior of profit oriented firms topay their corporate tax by evasion, non profit oriented organizations do not have any suchimpact.Auditing of Association for Realizations of Basic Needs (ARBAN)Bangladesh
  48. 48. INTERNSHIP REPORTAuditing is the process inspection and verification of the accuracy of financialrecords and statements. Private businesses and all levels of government conductinternal audits of accounting records and procedures. Internal audits are conductedby a firm’s own personnel to uncover bookkeeping errors and also to check thehonesty of employees. An external audit is used to give the public a true statement ofa company’s financial position. It is made at least once a year by public accountantswho are not regular employees of the organization. The auditors make sure that theorganization has followed proper accounting procedures in its financial records andstatements. They compare the current financial statements with those of the previousyear to determine whether the statements are calculated consistently. If they are not,they present a distorted picture of the organization’s financial position. The auditorsalso inspect real estate, buildings, and other assets to see if their value is overstated.Debts and other liabilities are checked to see if they have been understated.When the auditors are satisfied that the organization’s accounts are in order, theyissue a statement certifying that they believe the organization’s balance sheet,income statement, and records fairly reflect the organization’s financial condition.The audit statement is then made public in the organization’s annual report.Like profit and non profit oriented organization, in ARBAN both external andinternal audit is followed. This chapter discusses the internal and external audit ofARBAN, audit terms of reference, major areas covered by each audit, and theprocess of recruitment of an external auditor.Internal auditARBAN internal audit function is completely independent of the finance function and is
  49. 49. INTERNSHIP REPORTadministratively reportable to the CD & functionally reportable to the SMT of the CP. Therecore role include:  Strengthening the financial integrity of the organization.  Ensure compliance with international/local policies and procedures.  Coordinates the outsourced audit to the third parties of CP.  Coordinates the risk management of the organization.  Update the SMT and local of the audit issues and follow up the recommendation with focal person of the CP.Internal Audits are required for:  Country programs and affiliates (every 2 years)  International themes (every 2 years)  Regions (every 2 years)  International secretariat (every 2 years)  International functions, like for international themes of AA. Whether planned expenditure is utilized for the adequate purpose.External auditHead of Finance and Administration initiates the process through a circulation of Terms ofReference (TOR) of audit. Checking or verification is done by Senior Management Team andapproved by the Country Director.The purpose of external audit is to independently examine records, procedures and activities,and provide a legally valid report outlining the auditor’s opinion on the state of affairs.External audits are required for:  Association for Realizations of Basic Needs (ARBAN) International consolidated statutory accounts (every year)  Affiliates, associates and country programs (as per local law)  NGO Affairs Bureau  Government bodies, Tax authority etc.Standard terms of reference for an external audit will include:In an audit the standard terms of reference are Scope of Work, General Control andCompliance Requirements, Special Audit Areas, Reporting of Audit and Fees.