Manage Accounts & Finances in NGOs.
According to the local laws and regulations of most countries, all registered NGOs are required to maintain a system for recording and submitting all types of financial transactions made by them for the purposes of implementing projects and running their organization. Since finances are a crucial part of organizational management, it is always a better idea to maintain a ‘Financial Policy’ for following procedures to keep the accounting system effective, transparent and easily manageable.
What goes into an NGO Financial Management Policy
basically a manual that covers the accounting policies, systems and procedures of the organization. It is developed not only for governing the financial transactions of the organization for its staff can follow the set of systematic procedures but also to fulfill local statutory requirements and demonstrate the strong management practices adopted by NGOs.
Scope of the NGO Financial Management Policy
The NGO Financial Management describes the accounting policies, systems and procedures to be used by the organization. The Policy will cover the input, processing, output, control and distribution of financial data. It has been developed to set out the accounting policies and procedures that will:
a) book of account
b) financial report on monthly basis
c) Proper used of funds and resources accountably.
purpose of the Policy is
maintenance of control
training and monitoring
take a feedback from the staff, management and auditor.
procedures have the following objectives
Accuracy of the data posted from source documents (say invoices, payments receipts, journal and cashbook) to the computerized system
detail the operation and administration procedures for input, processing, output and distribution of data to ensure security of data and documents.
provide accurate and reliable reports to enable management to perform effective control over the operations of the organization.
Who develops and updates the Financial Management Policy in NGOs
the Board of Directors or the NGO Board Members have appointed a financial committee to develop a draft financial management policy which is further discussed, improved and authorized by all the members of the Board. The NGO director and the finance officer are primarily responsible for ensuring that the policy is fully implemented within the organization.
Updating the NGO Financial Management Policy
1) manual is kept up-to-date
2) manual continues to set out the procedure that must be followed in the operation of the system and procedures
3) Sufficient copies of manuals are available
Basis of Accounting
1) The organization shall prepare its accounts on the basis of historical
2) Grants and donations if any shall be recorded separately from operational activities
3) The organization shall apply accrual based accounting method. Revenue andgrants/donations shall be recorded in the accounting period it is received and expenses recognized when incurred.
Procedures can be followed for Salaries and Advances in NGOs
The staff needs to aware about the salary systems followed by the organization whether payment to them is made on a monthly basis or not, mode of the salary payment, procedures for giving out advances to staff and other details
1) All permanent employees shall be issued with appointment letters signed by the organization head and employee-signifying acceptance of the terms and conditions set forth thereto.
2) Subsequent changes in salary, responsibilities, duties, terms or conditions of employmentshall be communicated to the employee in writing.
3) Salaries shall be paid monthly in arrears.
4) Employees shall be issued with a pay slip every month.
5) travel expance can be provide to the staff in advance along with there salary.
How NGOs can operate bank accounts
All registered NGOs in most countries can operate bank accounts. Bank accounts are also required to receive funds mobilized by NGOs besides using them for administrative and project-based expenses. A procedure on how to operate these bank accounts would be relevant as part of the NGO financial management policy. So what goes into this kind of procedure
Bank account for the project funds shall be opened only in a nationally recognized bank or any other bank authorized by the central bank of the country.
Every check/instrument is signed by at least two signatories
Closing of Bank Accounts
Any bank account not required to be operated must be closed immediately.
b) Surrender all the check leaves to the bank under a receipt
c) Confirm closure of the bank account and transfer of balance to the competent.
NGOs can manage Bank Transactions
It is important to have systems for managing bank transactions and these systems need to be properly outlined in the financial management policy of the NGOs.
a) Bank Receipts
b) Bank Payments
c) Bank Reconciliation Statement.
Procurement, Stock and Inventory Management in NGOs
1) Identification of needs, for goods and services,
2) Identification of costs to cover the needs for those goods and services,
3) Identifying the suppliers, procuring estimates (at least three)
4) Placing an order.
Identifying the Supplier
1) Quality of goods supplied
2) Must be local, reliable and known
3) Must be able to supply large quantities if necessary
4) Past performance
5) Reputation of supplier
How to develop Financial Planning and Budgeting
NGOs receive specific grants to implement activities but it may not be necessary that the entire allocated grant will be spent for a certain activity. NGOs usually have their own internal valuation systems to judiciously allocate resources for different activities. For this reason, it is important to undertake financial planning and budget.
Budgets & Approvals
It is necessary that for every activity taken up by us to be interpreted in financial terms and get the approval of the concerned competent authority. Such interpretation takes the form of budgets detailing each and every components of the activity so that a clear evaluation of the total activity and the components thereof can be made by before approval. Such budgets normally become necessary, for the following activities:
a) Meetings & conferences
b) Special events
c) Remuneration of Staff & Consultants
d) Capacity Building & other Training Programs
e) Office Running Expenses
f) Promotional events
process to be followed
Budget for each activity to be prepared giving break up of sub-activities and related costs
The budget has to be verified and certified by the finance/accounts manager to ensure that the costs are realistic as compared to the activities,
1) The budget has to be verified and certified by the finance/accounts manager to ensure that the costs are realistic as compared to the activities,
2) Budgets set a framework for reporting and analysis.
How to develop Financial Reports in NGOs
Financial reports are developed for internal use such as monitoring expenses within the organization and also for external use such as for submitting reports to donor agencies. In many cases, there can be separate formats for both the uses. Nevertheless, it is important that the internal financial reports are properly developed according a guideline.
Internal Control Measures and Management Information Report
In addition to setting up adequate internal control measures, Management shall from time to time perform these checks to safeguard assets
Management Information Report
The Finance/Accounts Officer prepares and consolidates the Reports and submit it to the Relevant Persons as the case may be, with a copy to the Finance Manager before 10th of every month.
1) Bank & Cash Balances:
This will reflect the utilization of funds received and also will furnish broad indication of how much has been spent on Grants and on office/admin expenses. The opening and closing balances should be in agreement with the Bank Book.
2) Analysis of Expenses against Budget:
This is the variance report on Management of Expenses budget and reflects whether the trend of expenses have to be reviewed in order to avoid any negative variation and take corrective action as necessary. Every positive and negative variance has to be commented upon citing reasons for variance and corrective action proposed.
3) Grant Utilization Status:
It is necessary to review on a monthly basis the utilization status of grant budget in order to ensure that the actual spending is as per the planned budget and the phasing of utilization .
The Assets Register needs to be maintained as per the format authorization of the same need to be done on a regular basis.”