Financial

inancial Management Essentials

A Handbook for NGOs

 Financial Management Essentials

A Handbook for NGOs

Produced by Terry Lewis for

Mango (Management Accounting for Non-governmental Organisations)

Chester House, 21-27 George Street, Oxford OX1 2AU
Phone +44 (0)1865 423818 Fax +44 (0)1865 423560
E-mail training@mango.org.uk
Website: www.mango.org.uk

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Registered company no. 3986178

Revised January 2015

These materials may be freely used and copied by development and humanitarian
organisations for capacity building purposes, providing Mango and authorship
are acknowledged. They may not be reproduced for commercial gain.

Mango is an award-winning UK-based charity which provides financial management training, consultancy and
free resources for humanitarian and development non-profit organisations.
Table of contents

Glossary of financial terms i

4 UNDERSTANDING ACCOUNTS 59
1 OVERVIEW OF FINANCIAL MANAGEMENT 1 Why keep accounts? 59
Foundations for effective NGO work 1 Accounting methods 60
Two golden rules 2 Which accounting records to keep 64
So what is financial management? 4 Supporting documentation 65
The financial management process 5 Bank book basics 66
Why is financial management important? 7 Petty cash book 69
Who is responsible for financial Full bookkeeping systems 70
management? 9 What is a trial balance? 72
What are financial statements? 74
2 GETTING ORGANISED 15 The income and expenditure report 75
The Balance Sheet 75
Seven principles of financial management 15
What is depreciation? 79
The four building blocks of financial management
Accounting for shared costs 80
18
Tools of financial management 19
Systems design 21 5 FINANCIAL REPORTS 81
Financial and management accounting 22 Who needs financial reports? 81
The Chart of Accounts 23 What are the annual accounts? 84
Cost centres 24 Interpreting financial statements 84
Cost structures 26 Ratio analysis: quick reference formulas 88
Financial policies and procedures 27 Management reporting 89
What is a finance manual? 29 The cashflow report 90
Work planning 30 The budget monitoring report 91
Forecast reports 93
3 FINANCIAL PLANNING 33 Analysing budget monitoring reports 93
Variance analysis techniques 95
The financial planning process 33
Action planning 98
What is a budget? 36
Reporting to donors 101
Who needs budgets? 37
Presenting financial reports 103
What makes a good budget? 37
Reporting to beneficiaries 105
Types of budget 38
Summary: Twenty questions 108
Budget structures 41
Budgeting techniques 41
The budgeting process 43 6 SAFEGUARDING YOUR ASSETS 111
Good practice in budgeting 45 Managing internal risk 111
Using a budget worksheet 47 Four actions for internal control 112
Budget consolidation 50 Delegated authority & separation of duties 113
Budgeting for central support costs 51 Cash control 119
Multiple donorfunded programmes 54 Physical controls 120
Summary of budgeting terminology 57 The reconciliation process 124
Checking accounting records 126

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7 MANAGING AUDIT 129
What is an audit? 129
Internal audit 130
External audit 131
Donor (or project) audit 135
What does the auditor need? 136
Summary 137

8 FRAUD AND CORRUPT PRACTICES 139

What is fraud? 139
Top tips on the warning signs of fraud 141
How to deal with fraud 143
What is corruption? 145
Bribery and the NGO sector 147
Zero tolerance approach to bribes 148

REFERENCES 155

APPENDICES

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Glossary of financial terms

Account A record of monetary transactions, either recorded in a book

designed for the purpose or entered onto a computer file.

Account code A unique numerical code or short name assigned to each

type of financial transaction, to separately identify them in
accounting records. Also used in budgets and financial
reports

Accounting period A specified time period for recording and reporting financial
activity, eg one year, one quarter or one month.

Accrual Adjustment made at the end of an accounting period to

recognise expenses that have been incurred during the
period but for which no invoice has yet been received.

Accumulated funds Money, or equipment, that we build up year by year as a

result of not spending all our income. Often referred to as
reserves.

Acid test The ratio achieved by dividing Current Assets (excluding

stocks) by Current Liabilities. It tells us if the organisation
has sufficient funds to pay off its debts immediately.

Allocation The process of sharing direct costs between two or more

cost centres in the accounts in proportion to actual or
estimated use. Eg where the costs of using a shared vehicle
for project work are allocated according to the number of
kilometres travelled. Income can also be allocated.

Apportionment The process of sharing indirect costs between two or more

cost centres in proportion to the estimated benefit received.
Eg sharing Director salary on the basis of full time equivalent
staff numbers.

Asset Something we own or have a claim on others which is of

value to the organisation. Examples include cash, equipment
and loans to staff. See also Fixed Assets and Current Assets.

Audit A formal check on accounting records by an independent

person (auditor).

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Audit trail The ability to follow the journey of any reported transaction
through an organisations accounting systems.

Authorisation The process of approving transactions, normally the decision

to purchase or make expenditure. Authorisation by a budget
holder is a way of confirming that spending is is appropriate
and in line with the budget.

Back donor The original source of funds channelled through an agency

(such as an international NGO) to an implementing partner.
The agency must report back to the original funder to
account for the use of the funds by the partner.

Balance sheet A summary of the financial position of an organisation at a

particular date, showing the assets owned by the
organisation and the liabilities (or debts) owed to others.
Also known as Statement of financial position.

Bank book An accounting register which records receipts and payments

transactions passing through a bank account. Also known as
a cashbook or a cash analysis book. Can be held in a physical
book format or in a computer file.

Bank reconciliation The process of comparing the entries and ending cash
balance in the cashbook with the bank statement for the
same period, for the purpose of spotting any differences. It
provides an important check on the completeness and
accuracy of the cashbook entries.

Budget A best estimate of the amount of money that an

organisation plans to raise and spend for a set purpose over
a given period of time.

Budget holder The individual who holds the authority, and has the
responsibility for managing, a budget for a specified activity,
project, programme, department or organisation.

Burn rate Expressed as a percentage, the amount of a grant or budget

used up so far. Also known as Grant or Budget Utilisation
ratio.

Capital expenditure Expenditure on equipment, property and other fixed assets

of high value which will be used to support activities over
more than one accounting period.

Capital fund Accumulated funds and reserves held in the form of

equipment and property.

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Cashbook An accounting register which records receipts and payments

transactions passing through a bank or cash account. Also
known as a bank book or a cash analysis book. Can be held
in a physical book format or in a computer file.

Cash reconciliation Comparing the physical cash count to the expected balance
in the petty cash book on a particular date.

Cashflow The difference between cash received and cash spent in a

period.

Cashflow forecast A report that shows the expected timing of cash receipts and
payments for the next 3-6 months (or longer).

Chart of accounts A list of all the accounts codes and cost centre codes that are
used in an organisations accounting system, with a
description of each.

Core costs Central support costs shared by many projects. Also known
as operating overheads.

Cost centre A way of distinguishing between different activities or

projects to define where costs are incurred or income is
earned. Cost centres are closely linked to the concept of
budget-holders.

Creditor Anyone the organisation owes money to.

Current assets Cash and other short-term assets in the process of being
turned back into cash eg debtors. They can, in theory, be
converted into cash within one year.

Current liabilities Amounts owed to others (eg unpaid suppliers bills, bank
overdraft) which should be paid in the next 12 months.

Current ratio A measure of liquidity obtained by dividing Current Assets by

Current Liabilities. It tells us if the organisation is able to pay
off its debts within 12 months.

Debtor Anyone who owes money to the organisation.

Depreciation A proportion of the original cost of a fixed asset,

representing the loss in value due to use, which is internally
charged as an expense to the organisation.

Designated funds Part of the unrestricted general reserves which have been
set aside for a particular purpose at the discretion of the
Board.

Direct cost A cost which can be specifically allocated to an activity,

department or project.

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Donation in kind Where a grant or contribution to a project is made in the

form of goods or services, rather than a cash donation.

Double funding Where a project or activity has restricted funding from more
than one source and which exceeds the budget needed to
complete the activity.

Double entry The method of recording financial transactions whereby

bookkeeping every item is entered twice (once as a debit entry and once
as a credit entry) to recognise there are always two sides or
parties in every transaction a giver and a receiver.

Exceptions report A short narrative report which highlights significant

variances or areas for concern to accompany management
reports.

External audit A review of the year-end financial statements carried out by

a professionally qualified and legally registered auditor
resulting in an opinion about whether they give a true and
fair view of the financial position and associated records.

Financial accounting The process of recording, classifying and summarising

historical financial data, resulting in financial statements.

Fixed asset An item of high value owned by the organisation for use over
a long period, eg office equipment, vehicles and buildings.

Fixed assets register A schedule of an organisations equipment and property,

recording details of purchase date, value, location, etc.

Fraud Intentionally lying or cheating to gain an advantage or to

cause someone else to make a loss.

Fund accounting Accounting for spending on projects according to the source

of the donated funds.

Funding grid An internal planning tool which provides an overview of

which donor fund is paying for what part of a project budget.

General ledger The main accounting record where double-entry

bookkeeping is used. See also Nominal ledger.

General funds Unrestricted reserves which have not been set aside for a
particular use and which may be used to support any of the
organisations objectives.

Good received note Supporting document which accompanies deliveries of

(GRN) goods, signed by the person receiving the delivery to
acknowledge the goods are received undamaged and as
stated on the packing note.

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Imprest A type of cash float, set at an agreed level, which is topped

up by the exact amount spent since it was last reimbursed to
bring it back to its original level.

Income & expenditure Summarises income and expenditure transactions for the
account accounting period, adjusting for transactions that are not yet
complete or took place in a different accounting period. Also
known as Statement of financial performance, Profit and Loss
account or Income Statement.

Indirect cost A cost which cannot be specifically assigned to one activity,

department or project, eg the fee for the annual audit.
Usually shared out (apportioned) between projects on a pre-
agreed basis.

In-kind donation See Donation in kind.

Journal entry An entry in the books of account which covers a non-

monetary transaction eg for recording a donation in kind or
an adjustment to correct a recording error.

Liabilities Amounts owed by the organisation to others, including

outstanding invoices, unspent restricted grants and loans.

Liquidity The level of cash and assets easily convertible to cash

compared to demands on the available cash, eg to pay bills.

Liquidity ratio A measure of liquidity obtained by dividing debtors, cash and

short-term investments by current liabilities.

Management Providing financial information to managers for the purposes

accounting of planning, decision-making and monitoring performance.

Net assets Total assets minus total liabilities, the net worth or equity of
an organisation.

Net book value (NBV) Cost of a fixed asset less the total cost of depreciation to
date.

Net current assets Funds available for conducting day-to-day operations of the
organisation, defined as current assets less current liabilities.
Also known as working capital.

Nominal account A page or container in the nominal ledger for recording

every type of financial transaction likely to occur in an
organisation. A complete list appears in the Chart of
Accounts, each with a unique nominal code.

Nominal ledger A book or computer programme which holds details of each

of the nominal accounts. Also known as the General ledger.

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Organogram Organisation chart showing the management and

departmental structure of the organisation.

Payment voucher An internal document completed for each payment to

capture payment information and evidence of authorisation.
Supporting documents are attached to it.

Petty cash book The day-to-day listing of petty cash (ie small cash amounts)
transactions.

Prepayments Amounts paid in advance at a particular accounting period,

eg office rent paid for the next three months.

Procurement The process of purchasing goods and services including

requisition, supplier selection, purchase order, receiving
goods and payment.

Quarter / quarterly Three months of the accounting year, eg Quarter 1 (or Q1)
would be 1 January to 31 March where the financial year
runs from January to December.

Receipts & payments A summary of the cashbook o(r bank book) for a defined
account period with opening and closing cash balances.

Reconciliation Checking mechanism which verifies the integrity of different

parts of an accounting system, for example balancing the
cashbook to the bank statement.

Reserves The organisations savings, funds that are set aside from
surpluses produced over the years.

Restricted funds Income or reserves which have conditions attached to how

used, usually with a requirement to report back to the donor.

Signatories People who are authorised to sign documents on behalf of

the organisation, eg bank transactions, purchase orders.

Statement of financial Another name for the Balance Sheet.

position

Statement of financial Another name for the Income and Expenditure statement.
performance

Statutory audit The annual external audit as required by law.

Statutory deduction Amounts which must be taken from an employees pay

before they receive it, such as income tax.

Supporting document The original documents that provide evidence of a

transaction, eg receipts, invoices, bank statements.

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Transaction Any exchange of goods, services or money in return for other

goods, services or money.

Trial balance List of (debit and credit) balances for each nominal account,
used to prepare an Income & Expenditure report.

Trustee A member of the governing body who shares overall

responsibility for the NGOs work.

Unrestricted funds Income and reserve funds which can be used to support any
of the organisations objectives as received without
conditions attached.

Variance The difference between the budget and the actual amount of
income or expenditure.

Virement The ability to transfer from one budget heading to another,

for example if one budget line is under-spent, using the
spare budget to offset an overspend on another line.

Working advance A sum of money entrusted to someone to spend on behalf of

the organisation, which needs to be accounted for.

Working capital See Net current assets.

Year-end Cut-off point for the annual financial accounting period.

Zero-base budgeting A method of preparing budgets which involves calculating

costs for each item from scratch.

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Chapter

1
1 Overview of Financial
Management
An Introduction to financial management in the NGO sector

This chapter:

Sets the context for good practice in NGOs

Discusses the concept of downward accountability
Defines financial management and financial control
Describes the Plan-Do-Review cycle

Explains why financial management is important for NGOs

Describes who does what in financial management.

Foundations for effective NGO work

Our goal in the NGO sector is to provide development assistance to help
people help themselves.

It is widely accepted that NGOs are most effective when they contribute to
peoples own efforts to improve their lives, organisations or societies
instead of taking a lead in trying to solve other peoples problems.

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NGOs deliver quality work when their work is based on a sensitive and dynamic
understanding of beneficiaries' realities, responds to local priorities in a way beneficiaries
feel is appropriate, and is judged to be useful by beneficiaries. Keystone

This is important for both short term and long term reasons, including:

Our work should respect peoples right to make their own

decisions about their own lives. We cant tell people what to think or
do. We can help them build up their confidence and abilities, to
tackle their own priorities.

NGOs are only one factor in peoples efforts and we often do not
understand local situations and priorities very well. Local situations
are complicated and change unpredictably. They always involve local
politics: when one social group benefits, another may lose out.
Peoples priorities are also complicated and change. So our initial
analysis may not be right, and our plans are always likely to have to
change.

Our work is only sustainable if it is based on local peoples

priorities. It is very unlikely that we can truly persuade people to
feel a sense of ownership over our priorities.

Funds are given to help beneficiaries, not NGOs it is not our

money. We have a responsibility to make sure that it is as useful to
beneficiaries as possible.

Two golden rules

ONE: NGOs front line staff have to maintain a good quality dialogue with
the people they aim to help.

The first Golden Rule requires staff to build up dialogue with all local groups
of people, including the poorest and most marginalised. It requires
managers to ask two key questions at each stage of the project cycle:

Who is making decisions or analysing the situation?

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Do activities help people build up their self-confidence and ability to

tackle their own priorities?

NGOs can choose to make themselves accountable to the people or

partners they aim to help, for example managing and reporting how
their front line staff interact with local people and partners. This can
empower local people, allowing them to increase their influence over what
the NGOs do. This is sometimes called downward accountability.

Downward accountability
Accountability generally is the responsible use of power. It means that people can
participate in decisions that affect them, 'have a say' in decision-making processes and
complain when a decision is made poorly or has unexpected and unwelcome
consequences. The Humanitarian Accountability Partnership.

Accountability is a way of influencing other peoples decisions. If more

powerful people hold less powerful people to account, then it can oppress
them. If less powerful people hold more powerful people to account, then it
can empower them. This empowering accountability is known as
downward accountability because the accountability flows down from
more powerful people to less powerful people. It is the same process as
citizens holding a powerful government to account.

Interestingly, while NGOs are required to be upwardly accountable to their

donors (and spend much time and effort reporting to donors), they do not
have to be downwardly accountable to the communities they work with.

TWO: NGOs depend on their front line staff and have to help them make good
judgements and check whether they do.

For instance, this could include:

Providing front line staff with good quality information

Helping front line staff build up their own skills, especially financial

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Reinforcing the commitment to helping people help themselves

Decentralising decision-making, and encouraging flexibility

Focusing project delivery on customer service

Asking for feedback from beneficiaries and local partners.

Underlying the Two Golden Rules is a third idea to keep in mind at all times:

NGOs have to be rigorous and realistic in their proposals, plans and strategies.

This means that NGOs must not claim more than they can realistically
achieve. Otherwise donors (and other key stakeholders) will expect
unrealistic results, and this can seriously distort work.

These ideas and approaches in many ways challenge how we currently work
and relate to key stakeholders and how we measure and monitor
effectiveness. For some new ways of looking at NGO accountability and
effectiveness, see Helping People is Difficult and other papers based on the
research by Alex Jacobs, Mangos founder, on Mangos website.

Both of the Golden Rules point to the importance of financial management

in NGO operations. We have to be accountable and able to make good
judgements. We cant do that without robust financial management
systems in place.

So what is financial management?

Many people have the impression that financial management is just about
keeping accounting records. In fact, it is an important part of programme
management and must not be seen as a separate activity left to finance
staff.

Financial management entails planning, organising, controlling and monitoring the

financial resources of an organisation to achieve objectives.

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Financial management to an NGO is rather like maintenance is to a vehicle.

If we dont put in good quality fuel and oil and give it a regular service, the
functioning of the vehicle will suffer and not run efficiently. If neglected, the
vehicle will eventually break down and fail to reach its intended destination.

At the heart of financial management is the concept of financial control. This

describes a situation where the financial resources of an organisation are
being correctly and effectively used. This will only happen if strong and
relevant financial policies and procedures are put in place.

Poor financial control in an organisation means that:

assets will be put at risk of theft, fraud or abuse

funds may not be spent in accordance with the NGOs objectives or

donors wishes and

the competence of managers may even be called into question.

So it is better to spend some time designing good policies and procedures

to help manage your NGOs money.

The financial management process

In practice, financial management is all about actively looking after the
financial health of an organisation, not leaving things to chance. This
involves:

Managing scarce resources

NGOs operate in a competitive environment where donor funds are
increasingly scarce. We must therefore make sure that donated funds and
resources are used properly, and to the best effect, to achieve the
organisations mission and objectives.

Managing risk
All organisations face internal and external risks which can threaten
operations and even survival (eg funds being withdrawn, an office fire or a
fraud). Risks must be identified and actively managed in an organised way
to limit the damage they can cause.

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Managing strategically
Financial management is part of management as a whole. This means
managers must keep an eye on the bigger picture looking at how the
whole organisation is financed in the medium and long term, not just
focussing on projects and programmes.

Managing by objectives
Financial management involves close attention to project and organisation
objectives. The financial management process mirrors the project
management cycle Plan, Do, Review a continuous cycle.

Figure 1.1: Plan-Do-Review

Plan: When an organisation starts up, it sets its objectives and planned
activities. The next step is to prepare a financial plan for the costs
involved in undertaking the activities and where to obtain funds.
Do: Having obtained the funds, the programme of activities is
implemented to achieve the goals set out in the planning stage.

Review: The actual situation is compared with the original plans.

Managers can then decide if the organisation is on target to
achieve its objectives within agreed time scales and budget. The
learning from the review stage is then taken forward to the next
planning phase, and so on.

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Why is financial management important?

In many NGOs, financial management has a low priority, characterised by
poor financial planning and monitoring systems. But NGOs operate in a
rapidly changing and competitive world. If they are to survive in this
challenging environment, they need to develop the confidence and skills to
manage their financial resources and achieve more with their money.

Good practice in financial management will:

help managers make effective and efficient use of resources to

achieve objectives and fulfil commitments to stakeholders

help NGOs to be more accountable to donors and other stakeholders

gain the respect and confidence of funding agencies, partners and

beneficiaries

give the advantage in competition for increasingly scarce resources

help NGOs prepare themselves for long-term financial sustainability.

Some very persuasive reasons for getting it right!

Top ten reasons for good financial management:

1. To be accountable to the people who give us money

With good financial reporting systems, it is easier to show donors and
supporters that we are using their money for the purpose intended.

2. To be accountable to the communities we work with

We have a moral obligation to show that funds raised in the beneficiary
communitys name are being used correctly.

3. To be able to produce financial statements for regulatory bodies

As part of the registration process, NGOs are required to be accountable
for the money they raise and spend.

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4. To minimise fraud, theft and abuse of resources

Good financial management includes internal controls. When these are in
place they help to stop fraud and protect the staff as well as the assets.

5. To plan for the future and become more financially secure

We have to plan to make sure we have enough money to carry out our
objectives now and in the future. Budgets help us plan for projects and
manage cash. Financial information helps us to identify potential financial
risks and the need for savings (reserves). We need financial information
about where we are now and where we want to be in the future, to help
identify our long-term financing needs.

6. To enable staff to make better decisions on the use of funds

Complete, up-to-date and timely project monitoring reports enable project
managers to plan their activities according to the budget available and take
decisions to fulfil objectives. Good cashflow management enables activities
to be planned, items purchased when needed and staff paid on time.

7. To achieve the objectives of the organisation

Good financial management will give the management team and Board the
information they need to ensure they are fulfilling the objectives of the
organisation and following the strategic plan.

8. To enhance the credibility of the organisation

NGOs that keep good accounts, create great budgets and produce accurate
and timely financial reports, inspire confidence and trust in their
stakeholders. This gives them an advantage over their competitors.

9. To strengthen fundraising efforts

NGOs that present good budgets and audited financial statements with
funding proposals are more likely to receive a favourable response.

10.To get better value for our money

Financial information allows us to compare and assess spending plans to
make sure we make efficient, effective and economic use of financial
resources.

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Who is responsible for financial management?

It is important to understand an NGOs structure and legal status to
appreciate who is responsible for what in financial management.

What is an NGO?
The term non-governmental organisation tells us more about what it is not,
rather than what it is. NGOs operate in a wide range of fields and come in
all shapes and sizes. Whilst each one is unique, most share some common
features.

They are:

values-led their prime motivation is a desire to improve the world

in which we live

not-for-profit but they can make surpluses to be set aside for

future work

an alliance of many different interests, so have many stakeholders

governed by a committee of volunteers the Governing Body

private autonomous organisations, independent of the State.

Legal status

There are a number of different ways of registering as an NGO and this will
determine the organisations legal status. Organisations are recognised
either as a separate legal entity (incorporated body) or as a loose collection of
individuals (un-incorporated body).

Most smaller NGOs are un-incorporated. This means that trustees bear full
responsibility and are held jointly and severally responsible (ie as a group
and as individuals) for the affairs of the organisation. So individual Board
members could be named in a legal action and have no protection in law.
This is illustrated in Figure 1.2 by the arrows passing through the
organisations boundaries.

When a body is incorporated, it has a separate legal identity and is

recognised in law as an artificial person (demonstrated by the thick border
protecting the individuals in Figure 1.3).

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In this situation, individuals serving as Board members have some

protection in law. They have what is known as limited liability. This means
that their financial responsibility, if things go wrong, is limited to a token
amount (eg USD1.00).

Figure 1.2: Unincorporated NGO

Figure 1.3: Incorporated NGO

Whatever the legal status, the trustees of an NGO together have a statutory
duty to see that the organisation is being properly run and that funds are
being spent for the purpose for which they were intended.

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The constitution
Every NGO should have a founding document such as a constitution or
memorandum and articles of association. This document describes, amongst
other things:

the name and registered address of the NGO

the objects of the organisation and target group

how it raises its funds

the system of accountability ie who is the governing body, its

powers and responsibilities.

The governing body

The governing body or Board is legally responsible and accountable for the
organisation. This means that if anything goes wrong in the NGO then the
law holds the members of the governing body responsible.

It has many different names Council, Board of Directors, Board of

Trustees, Executive or Governing Board and several functions including:

responsibility for deciding on policy and strategy

custodianship (or safeguarding) of the financial and other assets of

the organisation

appointing and supporting the Chief Executive

representing the interests of stakeholders.

The governing Board is often organised with a series of sub-committees eg

Finance, Personnel or Project sub-committees.

Governing Board members or Trustees are volunteers (ie not paid a

salary) and are known variously as trustees, committee members, directors
or council members. If Board members were to benefit financially from
their membership of the Board, there could be a conflict of interest.

Honorary officers are those who are elected or appointed to specific

positions on the Board such as Chair, Treasurer and Secretary. They
oversee the execution of Board decisions and often sign legal undertakings.

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The Chairperson is usually the main point of contact for the Chief
Executive Officer (CEO), and usually fulfils an important public
relations role for the NGO.

The Treasurers role is to oversee the finances of the organisation. In

a smaller organisation the Treasurer may take on a more active role
and act as bookkeeper, but where there are paid staff, the Treasurer
assumes more of a supervisory role.

Even if they are not supervising the accounting process and preparing
reports themselves, Board members must still be sure that everything is in
order.

The governing Board members are ultimately responsible for the financial affairs of the
organisation and they cannot escape this duty except by resigning from the governing
body.

Day to day responsibility

As the Board is made up of volunteers who meet only a few times a year, it
delegates authority for day-to-day management to the CEO, appointed by
the Board to implement policy. The CEO then decides how to further
delegate authority, to share out duties amongst the staff team.

While it is acceptable for the governing body to delegate authority to staff

members, it cannot delegate total responsibility since ultimate accountability
rests with the trustees. Furthermore, authority without accountability is
unhealthy the Board must set up monitoring mechanisms to make sure
their instructions are being fulfilled.

Figure 1.4 demonstrates how the authority for day-to-day financial

management tasks is delegated down through the line management
structure. At the same time, the accountability process comes back up
through the structure as people report back on progress.

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Figure 1.4: Delegated authority

Delegated authority Governing Body

Accountability
Chief Executive Officer

Finance Manager Operations Manager

Finance Team Project Officers

A team effort
In practice, everyone who works to achieve the objectives of an NGO has an
important role to play in financial management. As a team, we must take
every opportunity to integrate financial management into the day-to-day
management of the organisation.

Figure 1.5: Who is accountable?

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Chapter

2
2 Getting Organised
Getting the basics right for best practice

This chapter:

Shares key principles of financial management

Outlines the four building blocks of financial management
Describes the two branches of accounting

Introduces the Chart of Accounts and cost centres

Defines different types of costs
Looks at the role of financial policies and procedures
Explains what a finance manual is and what goes in it.

Seven principles of financial management

We begin this chapter on good practice frameworks and systems with a look
at a series of guiding principles. Look upon each of the seven principles of
financial management as a standard to assess your current practice and
goals to aim for.

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Consistency
Consistent use of financial policies and procedures are important for
efficient operations. For example, the Chart of Accounts encourages
consistent use of codes in the accounting records, budgets and reports.
This assists the financial reporting process and promotes transparency (one
of the best ways to hide irregularities is to change the way figures are
reported).

Accountability
All stakeholders, including beneficiaries, have the right to know how
financial and other support has been used to meet objectives. NGOs have
an operational, moral and legal duty to explain their decisions and actions,
and make their financial reports open to scrutiny.

Accountability is the moral or legal duty, placed on an individual, group or organisation

to explain how funds, equipment or authority given by a third party has been used.

Transparency
NGOs must be open about their work, providing information about activities
and plans to all stakeholders. This includes preparing accurate, complete
and timely financial reports. If an organisation is not transparent, it may
give the impression they have something to hide.

Viability
To be financially viable, an NGOs spending must be kept in balance with
money coming in, both at the operational and the strategic levels. Viability is
a measure of the NGO's financial continuity and security. Trustees and
managers should prepare a financing strategy to show how the NGO will
meet all of its financial obligations and deliver its strategic plan.

Integrity

On a personal level, individuals must operate with honesty and propriety.

For example, managers and Board members must lead by example in
following policy and declare personal interests that might conflict with their
official duties. The integrity of financial records and reports is dependent on
accuracy and completeness of financial records.

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Stewardship
Financial stewardship involves taking good care of the financial resources
we are entrusted with, to make sure they are used for the purpose
intended. The governing body has overall responsibility for this. In practice,
managers achieve good financial stewardship through strategic planning,
assessing financial risks and setting up appropriate systems and controls.

Accounting standards
The system for keeping financial records and documentation must observe
internationally accepted accounting standards and principles. Any
accountant from anywhere around the world should be able to understand
an organisations financial accounting systems.

Tip: Use the 7 principles as a checklist to help identify relative strengths and
weaknesses in your own organisation. To help you remember, a useful
mnemonic formed by taking the first letter of each of the principles is CAT
VISA.

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The four building blocks of financial management

There is no model finance system which suits all NGOs. But there are four
basic building blocks which must be in place to achieve good practice in
financial management.

Figure 2.1: The four building blocks

Accounting records
Every organisation must keep an accurate record of financial transactions
that take place to show how funds have been used. Accounting records also
provide valuable information about how the organisation is being managed
and whether it is achieving its objectives.

Financial planning
Linked to the organisations strategic and operational plans, the budget is
the cornerstone of any financial management system and plays an
important role in monitoring the use of funds.

Financial monitoring
Providing the organisation has set a budget and has kept and reconciled its
accounting records in a clear and timely manner, it is then possible to
produce financial reports for all stakeholders. Internal budget monitoring
reports help managers to monitor the progress of projects and annual
financial statements provide accountability to external stakeholders.

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Internal control
A system of controls, checks and balances collectively referred to as
internal controls are put in place to safeguard an organisations assets and
manage internal risk. Their purpose is to deter opportunistic theft or fraud
and to detect errors and omissions in the accounting records. An effective
internal control system also protects staff involved in financial tasks.

Figure 2.1 shows how all of the building blocks must be in place
continuously to achieve effective financial control. For example:

there is very little point in keeping detailed accounting records if they

are not checked for errors and omissions (part of internal control)

inaccurate accounting records will result in inaccurate reports - which

in turn could cause a manager to make a wrong decision.

The four building blocks are covered in detail in the following chapters.
They are also used as the basis for Mangos Finance Health Check a self-
assessment checklist to help you build your financial management systems.
See Appendix 25.

Tools of financial management

There are many tools, not necessarily financial, which
managers can use to help achieve good practice in financial
management and control.

We can identify these tools under each of the four functions

of financial management (as in our working definition of financial
management on page 5).

Planning
Planning is basic to the management process and involves looking ahead to
prepare as well as possible for the future. In the course of putting a plan
together managers will consider several possible alternatives and make a
number of choices or decisions. Planning must always precede the doing.

Tools: Strategic plan, business plan, activity plan, budgets, work plans,
cashflow forecast, feasibility studyetc.

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Organising
The resources of the organisation staff and volunteers, vehicles, property,
money have to be co-ordinated to ensure implementation of the overall
plan. It needs to be clear what activities and responsibilities are to be
undertaken, when and by whom.

Tools: Constitution, organisation charts, flow diagrams, job descriptions,

Chart of Accounts, finance manual, budgetsetc.

Controlling
A system of controls, checks and balances are essential to ensure proper
application of procedures and resources during programme
implementation.

Tools: Budgets, delegated authority, procurement procedure, reconciliation,

internal and external audit, fixed assets register, vehicle policy,
insurance...etc.

Monitoring
This involves producing regular and timely information for
managers and stakeholders for monitoring purposes.
Monitoring involves comparing actual performance with plans
to evaluate the effectiveness of plans, identify weaknesses early
on and take corrective action if required.

Tools: Evaluation reports, budget monitoring reports, cashflow

reports, financial statements, project reports, donor reports,
audit reports, evaluation report etc.

Can you identify the common tool that links all of the four functions of
financial management?

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Systems design
Systems design is one of the organising aspects of financial management.
Every NGO is different and financial systems have to be adapted to meet
their needs and available resources.

There are a number of considerations to take into account to find the right
approach for your NGO:

Structure number of staff, their functions and where they are

based, operational structure (eg department, branch, function).
Organograms are useful here.

Activities of the organisation number and type of projects.

Volume and type of financial transactions do you pay for your

goods and services with cash or with suppliers accounts or both?

Reporting requirements and deadlines how often and in what

format do financial reports have to be produced for the different
stakeholders in your organisation?

Resources what financial, equipment and human resources are

available to help manage the finances?

All of these considerations will help to decide the most appropriate:

method for keeping accounting records

coding structure for transactions

financial policies

financial reporting routines

use of administrative staff.

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Financial and management accounting

For the financial management process to take place effectively, financial
systems and procedures need to cover two aspects of accounting.

Financial accounting
This describes the systems and procedures used to keep track of financial
and monetary transactions. Financial accounting is a system of recording,
classifying and summarising information for various purposes. Financial
accounting records can be maintained using a manual or computerised
system (or a combination of both methods).

The main output of financial accounting is the annual financial statements,

used primarily for external accountability.

The financial accounts must be accurate and up-to-date if the second area is
to be undertaken effectively and with minimum effort.

Management accounting
Management accounting takes the data gathered by the financial
accounting process, compares the results with the budget and then
analyses the information for decision-making and control purposes.

The management accounts are primarily for internal use and should be
produced on a regular and timely basis usually monthly or quarterly
depending on the needs of the organisation. The table below summarises
the main differences:

Financial accounting: Management accounting:

Records transactions Compares results against goals

Classifies transactions Determines reasons for variations

Reconciles records Helps identify corrective action

= Summarises transactions Provides forecasts

Presents financial data Analyses information

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The Chart of Accounts

The Chart of Accounts is probably the most important organising tool for
the budgeting, accounting and reporting processes. It plays a role in all four
building blocks.

There are many different kinds of financial transaction taking place in an

NGO. We buy a wide variety of goods and services to help achieve our
objectives from rent for the office to tools for a garden project. And we
receive different kinds of income grants, donations and membership fees,
for instance.

To make sense of all of this financial activity, it helps to sort the different
types of transaction into a series of pre-determined descriptive categories or
accounts. These accounts are listed in the Chart of Accounts and are
typically arranged in a logical order:

Income

Expenditure

Assets (things we own)

Liabilities (things we owe).

When a transaction takes place, it is recorded in the books of account and

categorised according to the guidance held in the Chart of Accounts. The
same categories are used in the organisations budget and financial reports,
for consistency and transparency.

Each organisations Chart of Accounts will be different. Typically, the layout

will include:

reference number or account code, numerical or alphabetical

account name

sub-groupings (family headings)

notes on when to use the account.

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Figure 2.2: The Chart of Accounts in a finance system

See
an example of a Chart of Accounts in Appendix 1.

Note that the categories have been sorted into sub-groups under family
headings such as Administration, Personnel and Vehicle Running. The
coding system follows the same logic using a sequence of numbers for the
family group. Family headings are especially useful for presenting
summarised information.

Cost centres
It is helpful to further classify financial transactions according to the budget,
activity, department or donor that they belong to, so that we can then
report and monitor income and expenditure by activity. We use cost centres
(also known as activity or budget centres) to separately identify these
transactions in the accounting records.

Fund accounting
It is especially important to identify donor-funded activities in the accounts
so that the organisation can demonstrate to the donor how the funds have
been utilised. This is known as fund accounting and requires care when
setting up accounting systems to identify and separate the necessary
information. If you have multiple projects, you will need to design a cost
centre structure that allows you to meet donor reporting requirements.

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Setting up cost centres

The starting point for designing your cost centre structure is the
organisation chart and donor funding agreements. There is no effective
limit on the number of cost centres that can be used especially if you use a
computer accounting program. However, do not over-complicate the
structure only include costs centres for activities that you need to report on
and monitor.

See the example below for the Milestone Project.

How are cost centres used?

Each cost centre is given a unique reference or code. When financial
transactions are entered into the accounting records, not only are they
categorised by the type of income or expenditure

Which budget line item does this belong to?

but also classified according to the fund, department or project.

Which project, donor or department budget does this belong to?

This means that separate financial reports can be more easily produced for
each cost centre, helping managers to monitor their own area of
responsibility and report to project donors.

Example

Milestone has three departments: Coordination (ie management,

administration and governance), Metalwork Department and Building
Department. The Metalwork department in turn has two separate activities
with their own funding sources: the Furniture Project and the Vehicles Project.

Their cost centre structure and reference codes are shown in Appendix 1
(page A2) and represented graphically in the egg chart in Figure 2.3.

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Figure 2.3: Milestones cost centres

Cost structures
As well as identifying the different types of expenditure for your
organisation, you also need to classify them as either Direct or Indirect costs,
for budgeting and accounting purposes.

Direct costs are those which are clearly related to a particular activity
and can be charged directly to the relevant cost centre(s). For
example, in a training project, the costs of room hire for a training
event and the trainers salary.

Indirect costs are those which are of a more general nature and
relate to the organisation as a whole or several activities. For
example, head office rent, the audit fee and the Chief Executives
salary. These usually form the bulk of what are known as the core
(or overhead or central administration) costs.

We need to distinguish between these two types of cost in the accounts so

that managers can properly plan, monitor and control project resources. In
particular, core costs have to be shared out or apportioned between the
different projects in a fair and justifiable way. There are various ways to do
this, for example sharing costs according to the size of each project budget
(more on this in a later chapter).

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Financial policies and procedures

All organisations need a series of financial policies and procedures to guide
operations, avoid misunderstandings and encourage consistency.

What is a policy?
A policy sets out principles and guidelines for a key area of activity within an
organisation. It removes any questions about how important resources are
used. For example, a vehicle policy will clarify who can drive the NGOs
vehicles, how they are disposed of and rule on private usage by staff.

Policies are usually written by senior managers and then discussed and
agreed by the Board or management team. Once approved, a policy is
binding on everyone in the organisation and failure to do so could result in
disciplinary action.

A good policy is one that:

is fair and realistic

covers all situations likely to arise

meets legal requirements

is affordable for the organisation.

What are procedures?

Procedures describe the steps for carrying out the guidelines in a policy.
They often include a requirement to complete standard forms to gather
data and authorisation for actions. For example, the vehicles procedure
might require completion of vehicle requisition forms and journey log-
sheets.

Policies and procedures are not about being overly bureaucratic. They help to run the
organisation smoothly and promote consistency, accountability and transparency. They
also facilitate the decentralisation process and help managers make the right decisions

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Developing financial policies

It is important to have a structured approach to developing financial
policies, to make sure that the policy is fair, realistic and acceptable to those
that will be affected. Here is a suggested approach:

Decide who will be involved in drawing up the policy

People are more likely to adhere to policies if they had a say in making
them. If the policy is to have an impact on how programmes are delivered,
it makes sense to include programme staff in the discussions.

Gather information needed to develop the policy

For example, if you were setting a policy on health-care support for staff, ask
around other NGOs to see what they offer and what it costs.

Write the policy document

Use the following headings as a guide:

o The purpose of the policy

o Why we need the policy
o Who the policy applies to
o The policy guidelines
o References (eg to other policies and procedures).

Circulate the draft policy for feedback

It is this stage that will check if the policy is fair and realistic and whether it is
likely to be supported (and therefore used).

Review the policy after implementation

After a few months of use, go back and test that the policy is fit for purpose.
Policies should stand the test of time whilst it is important to be flexible
and adapt to changing circumstances, do not change policies too often.

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What is a finance manual?

The Finance Manual brings the financial policies and procedures all together
in one document. The manual may also be known as the Financial
Regulations or Finance and Office Procedures. It is generally used by the
finance team for day-to-day operations but also serves as a reference in
case of query by programmes staff.

Be aware of the limitations of a finance manual: it is a major undertaking

and it cannot cover everything, to do so would be too bureaucratic. It must
be a living manual, used and implemented by everyone and regularly
reviewed and updated.

A finance manual might include sections on:

o Financial accounting routines

o The chart of accounts and cost centre codes
o Delegated authority rules (ie who can do what)
o The budget planning and management process
o Procurement procedures
o Bank and cash handling procedures
o Financial reporting routines and deadlines
o Management and control of fixed assets
o Staff benefits and allowances
o Annual audit arrangements
o How to deal with fraud and other irregularities
o Code of conduct for staff and Board members.

The manual may also include some reference materials such as:

o Organisation chart
o Job descriptions
o Standard forms.

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Standard forms
Standard forms are purpose-designed documents used to simplify or
facilitate financial administration routines (see Appendices 18-22 for some
commonly used standard forms). They help people to follow and
administer the procedures and gather information and signatures.

Examples of standard forms

Supplies requisition
Payment voucher
Petty cash voucher
Purchase order
Advance request
Travel & subsistence expenses claim
Assets register
Vehicle log sheet
Bank reconciliation form
Journal voucher

Work planning
Financial management involves many different tasks and routines. It is
therefore important to plan tasks involved during the financial year, such as:

Financial accounting routines eg month-end and quarter-end

reconciliation, payment runs

Critical deadlines eg payment of government taxes, insurance

renewals

Reporting schedules especially to meet donors reporting

requirements

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Budgeting process drafting, checking and approving

Annual reviews eg assets register, finance manual, insurance cover

Year end procedures eg closing accounts and annual external

audit.

One of the best ways to do this is to create a yearly planning chart and put
this up in your office and encourage everyone to keep it up to date. This
helps to schedule tasks and allocate tasks to staff so that deadlines can be
met.

See Appendix 17 for an example.

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Chapter

3
3 Financial Planning
Failing to plan is planning to fail. (Chinese proverb)

This chapter:

Looks at the link between strategic and financial planning

Highlights different types of budgets
Describes different approaches to budgeting

Looks at good practice in budgeting

Explains how to create an activity-based budget
Describes the process of budget consolidation
Introduces a tool for managing multiple-donor funding.

The financial planning process

Financial planning is both a strategic and operational process linked to the
achievement of objectives. It involves building longer term funding
strategies and shorter-term budgets and forecasts. It lies at the heart of
effective financial management.

Financial planning starts with a clear plan about you want to do and how
you intend to do it. We can only produce effective budgets if we have good
plans to base them on.

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If you dont know where you are going then you are sure to end up somewhere else.
Mark Twain

The planning pyramid

NGOs exist to achieve certain objectives. It is usual to lay down how the
objectives are going to be achieved in a strategic plan. The strategic
planning document has several component parts starting with an outline of
long term goals either or both a Vision and Mission and going into
greater and greater detail about how the mission is to be achieved.

Figure 3.1: The planning pyramid

As the level of detail increases, the timeframe becomes shorter and

participation of staff members in the planning process should increase.

Vision
The vision represents the very long-term goal of the organisation it is the
big problem which the NGO alone cannot solve but strives towards. For
example, the United Nations underlying vision is world peace.

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Mission
Most NGOs have a mission statement. It clarifies the purpose and values of
the organisation in a few, general, sentences.

Objectives
Objectives are the building bricks which help an organisation achieve its
mission. Objectives (also known as goals or strategic objectives) give focus
to the organisations work and state in clear terms what it is that the
organisation hopes to achieve over a given timeframe.

Strategies
Strategies (also known as specific objectives) set out how the organisation
will achieve each of its core objectives. They outline the actions which will be
taken for each objective.

Activity plans
The strategy may be sub-divided into several, more specific and detailed
plans for each activity, function or project. Activity plans have a shorter time
focus (about one year) than strategies and objectives and are subject to
regular review as progress is made. Activity plans are the basis for budgets
so must be very SMART specific, measurable, achievable, relevant (or
realistic) and time-bound

Once plans are set, the organisation draws up its budgets and cashflow
forecast to help implement the plans. During the year financial reports are
produced to compare the budget with actual performance.

This review stage is very important to the financial planning process since it
will highlight areas where the plans did not happen as expected. This
learning process will help to identify revisions which need to be made to the
plans. And so the cycle continues... Plan, Do, Review.

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What is a budget?

A budget describes an amount of money that an organisation plans to raise and spend
for a set purpose over a given period of time.

A budget has several different functions and is important at every stage of a

project:

Planning
A budget is necessary for planning a new project, so that managers can
build up an accurate idea of the projects cost. This allows them to work out
if they have the money to complete the project and if they are making the
best use of the funds they have available.

Fundraising
The budget is a critical part of any negotiation with donors. The budget sets
out in detail what the NGO will do with a grant, including what the money
will be spent on, and what results will be achieved.

Project implementation
An accurate budget is needed to control the project, once it has been
started. The most important tool for on-going monitoring is comparing the
actual costs against the budgeted costs. Without an accurate budget, this is
impossible. Because plans sometimes change, it may be necessary to
review the budget after a project has started.

Monitoring and evaluation

The budget is used as a tool for evaluating the success of the project, when
it is finished. It helps to answer the question: Did the project achieve what it
set out to achieve?

A budget tells your money where to go, otherwise you wonder where it went.
J. Edgar Hoover

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Who needs budgets?

Budgets are used by different people for different purposes:

The Board of Trustees needs the NGOs overall budget because it

has to formally approve it and monitor its progress.

Chief Executives need budgets to keep an eye on progress of

programmes, operational costs and funding.

Fundraisers need budgets to accompany funding applications.

Project managers need budgets to oversee the implementation of

their project activities.

Finance staff need budgets to make sure there are enough funds in
the bank to cover anticipated expenditure.

Donors need budgets so they can see how an organisation intends to

spend its grants.

Community partners need budgets so they can see how an NGO

plans to spend and raise funds for their community projects.

What makes a good budget?

The sign of a good budget is that anyone could pick it up and use it to
fulfil their budget management responsibilities.

How good are your budgets?

Fit for purpose?

o Have the right level of detail for the user

o Include all relevant income and expenditure items
o Costs are justified and accurate.
Easy to use?

o Calculations are clear

o Include explanatory notes where needed.

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Types of budget
Essentially, there are three main types of budget:

o Income & Expenditure budget

o Capital budget
o Cashflow forecast.

Income & Expenditure budget

The Income & Expenditure budget sets out the anticipated running costs
(also referred to as recurrent costs) of the organisation and shows where
the funds will come from to cover the costs. See Appendix 11 for a
Consolidated Income & Expenditure budget.

The annual Income & Expenditure budget is often broken down into shorter
periods (or phases) quarterly or monthly to assist with monitoring
progress.

Capital budget
A capital budget lists the expenditure you intend to
make for the coming years on capital projects and one-
off items of equipment that will form part of the
organisations fixed assets. As these usually involve
major expenditure and non-recurrent costs, it is better
to list and monitor them separately.

Examples of capital expenditure include:

o Vehicles
o Office furniture and equipment
o Computer equipment
o Building construction or purchase
o Major renovation works.

A separate capital budget is not required if only one or two capital items are
to be purchased. In this case it is sufficient to incorporate the capital items
in a separate section of the Income & Expenditure budget. This is most
common in a project budget. The implications for the Income &
Expenditure budget should be noted such as running costs for vehicles.

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Cashflow forecast
For good financial management, cash reserves are
essential as there will always be times when grants are
delayed or unexpected expenses occur. The cashflow
forecast (or cash budget) helps managers identify those
times when cash levels become critical.

Whereas the Income & Expenditure budget shows whether the organisation
is covering its costs over the whole year, the cashflow forecast shows
whether it has sufficient cash in the bank to meet all of its obligations needs
as they arise. (See Appendix 13 for an example.) It predicts the flow of cash
in and out of the organisation throughout the year by breaking down the
master (or overall) budget into smaller time periods, usually one month.

This helps to identify likely cash shortages and allows avoiding action to be
taken such as:

requesting donor grants early

delaying payment of certain invoices

delaying some activities

negotiating a temporary loan facility at your bank.

However, take care as there are likely to be negative consequences if you

follow the last three strategies:

delaying payments could affect your relationship with suppliers

delaying activities will affect the communities you work with and your
ability to implement the programme as agreed with your donor

borrowing money from the bank will attract interest and bank
charges.

The cashflow forecast is also useful where the organisation maintains

substantial cash reserves which need to be invested wisely to maximise
investment income. See below for tips on creating cashflow forecasts.

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Tips for preparing a cashflow forecast

Set up a cashflow forecast table (a computer spreadsheet will make
this easier) with budget items listed on the left and the months of the
year along the top (see Appendix 13). Have ready the organisations
activity plans, income schedules and budgets for the year.

Based on the income schedule, work out when you will receive cash in
the bank for each income item. Plot each expected cash receipt in the
cashflow table.

Based on the activity plans for the year, work out when cash will
actually leave the bank for each expenditure item. For unpredictable
expenses eg equipment repairs use a monthly or quarterly
estimate. Plot each payment in the cashflow table.

Take account of payment terms and income schedules. Eg office rent

is usually paid in advance, so the rent for April to June would be paid in
March. Similarly, a donors grant agreement might specify 50% of the
grant will be paid at the start, then 20 % in months 6 and 9 and the
final 10% after receipt of the final report in month 12.

You do not need to include non-cash transactions, such gifts in kind and
depreciation, in the cashflow forecast. This is because these are paper
transactions only there is no actual cash movement.

Once the budget has been broken down according to expected cash
flow activity, you can calculate the net cash flow from the monthly totals
on cash in and cash out. This tells you whether there is more cash
coming in or going out for each month.

Include an estimate of any cash in the bank at the start of the year and
add this to the net cash flow to give your monthly cash forecast.

When your forecast is complete, you will be able to spot any problem
months. For example, in Appendix 13, the figures in brackets on the
bottom line indicate that Milestone is predicting cash shortages in
several months of the year. This signals that they need an action plan
to avoid the cash shortages.

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Budget structures
It is practical to organise budgets at different levels, eg by department,
programme or cost centre. This allows budgets to be delegated and
monitored at the activity level, and summarised overall.

Figure 3.2 shows Milestones budget hierarchy which reflects their cost
centre structure. The lower level project budgets are consolidated into the
departmental budget. Departmental budgets are in turn consolidated into
one master budget (as in Appendix 11).

Figure 3.2: Milestones budget structure

Milestone
Master Budget

Building Dept Metalwork Dept Coordination

Budget Budget Dept Budget

Furniture project Vehicles project

Budget Budget

Budgeting techniques
There are two main ways to build a budget incremental and zero-base. You
should adopt the approach which works best for you, given the skills and
time available.

Incremental budgeting
This approach bases any years budget on the previous years actual, or
sometimes budgeted, figures with an allowance for inflation and known
changes in activity levels. It has the advantage of being fairly simple and
quick to implement.

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It is most useful for organisations where activity and resource levels change
little from year to year.

A frequent criticism of this approach is that it does not encourage fresh

thinking and perpetuates existing flaws. It is also difficult to justify these
figures to donors since the original calculations are long forgotten.

Zero-based budgeting
An alternative approach is to start with a clean sheet or a zero base. Zero-
base budgeting (or ZBB) ignores previous budgets and starts with next
years targets and activities. ZBB requires the writer of the budget to justify
all the resource requirements.

This process may suit organisations going through a period of rapid change
and those, like NGOs, whose income is activity-based. Zero-based budgets
are said to be more accurate since they are based on the detail of planned
activities. However, the approach does require more work and time than
incremental budgeting.

Activity-based budgeting
This is a special form of Zero-base budgeting and is frequently used in the
NGO sector to create project budgets. It is favoured by many donors. See
Appendix 12 for an example.

Figure 3.3: Top down or bottom up

Top down
Long-term objectives

Annual
Budget

Day-to-day
activities Bottom up

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Top down or bottom up?

Where operations staff are involved in setting their budgets it is described as
bottom up budgeting as opposed to top down where budgets are set by
senior managers.

Since a budget is a financial plan that relates directly to the activities of the
organisation, it is important to involve those who will be responsible for
project implementation in writing the budget. If this is not done, the budget
could be less accurate and staff less likely to appreciate the need to spend
within budget or to reach fund-raising targets.

The budgeting process

It is best to approach the budgeting process as an organised and structured
group exercise. The budget process involves asking a number of questions:

What are the objectives of the project?

What activities will be involved in achieving these objectives?

What resources will be needed to perform these activities?

What will these resources cost?

Where will the funds come from?

Is the result realistic?

The budgeting process is one we go through almost on a daily basis without

even realising, as the example outlined below demonstrates. As you read it
through, think about what Rudi and his mum learnt about the process:

Talking through an activity helps to identify the resources we need

Breaking down quantities helps to accurately estimate costs

Include contingencies for unforeseen events or price changes.

We will return to the process when we look in more details at the Activity-
based Budgeting approach.

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Budgeting example:
Rudi goes to a football match

It is Friday afternoon and a teenage son Rudi rushes in from school

and asks his mother for $10.00 as hed like to go out with some friends
for the evening. His mother asks him to explain what he will be doing
and why he needs $10.00. He says he will take the bus into town, go for
some food and then go to watch a football match. His mother then took
him through the budgeting process, as follows:

Objective: To have an entertaining evening with friends.

Activities: Bus journey to town, visit a cafe, watch the football match,
bus journey home.

Resources: Money to cover the costs of bus fares, food and ticket.

$
Bus fares 1.50 2 x 75c
Food & drink 3.00 Burger and a soda
Tickets 3.00 Standing area
Sweets 0.50 To buy at the match
TOTAL 8.00

Rudis mother decides that the plan is a reasonable one but gives him
$8.00, not the $10.00 he originally asked for.

The next day....

On Saturday morning, Rudis mother asks how he enjoyed the evening.

He reports that the match was great, his team won and that he and his
friends had a very entertaining evening even though it did not go
entirely according to plan

After going to the cafe, Rudi and his friends arrived at the football
stadium to find that all the $3.00 tickets were sold out and they had to
spend an extra $1.00 each for a more expensive area.

This meant that Rudi did not have enough money left to buy sweets or
to get the bus back home again. Fortunately, he met the parents of
some school friends at the match and they offered to give him a lift
home, which he gratefully accepted. So it all ended well, even though
his plans did not go exactly as intended.

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Good practice in budgeting

Clarity
Since many different people will need to use the budget for different
purposes, they should be able to understand it (and adapt it, when
necessary) without any additional explanation beyond what is written down.
So keep notes on budgeting assumptions and calculations.

Get organised
There are several stages involved in constructing a budget before it can be
submitted for approval to the governing body, so it is a good idea to prepare
a budgeting timetable and commence the process early. This could be up to
six months before the start of the financial year, depending on the size of
the organisation and what approach has been adopted.

Budget headings
When setting a budget for the first time or when reviewing a budget, it is
important to pay attention to the Chart of Accounts. This is because the
budget line items also appear in the books of account and on management
reports. If the budget items and accounting records are not consistent then
it will be very difficult to produce monitoring reports once the project
implementation stage is reached.

One way of achieving consistency is to design a Budget Preparation Sheet

for your organisation, which will act as a memory-jogger and prompt staff to
include all relevant costs. It will list all of the main types of income and
expenditure that a project or department might have in a typical year.

Estimating costs

It is important to be able to justify calculations when estimating costs. Even

if you use the incremental method of budgeting, do not be tempted to
simply take last years budget and add a percentage amount on top for
inflation. While last years budget could be very helpful as a starting point, it
could also be very misleading and contain historical inaccuracies.

One of the best approaches is to use a budget worksheet (see Appendix 12)
to list of all the inputs required and then specify the number and unit cost of
each item.

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From this detailed working sheet, it is then a simple matter to produce a

summarised budget for each line item. It is also easy to then update if
quantities or unit costs change. See below for detailed guidance on how to
use a budget worksheet.

Contingencies

Contingencies are items included in a budget for unforeseen expenses. It is

best to include these for the budget lines that might need a cushion (eg
salaries, insurance and fuel) rather than adding a bottom line percentage.

Every item in your budget must be justifiable adding a percentage on the

bottom is difficult to justify and difficult to monitor.

Forgotten costs
There is a tendency in the NGO world to under-estimate
the true costs of running a project for fear of not getting
the project funded. Here are some of the most often
overlooked costs:

o Start-up costs (eg publicity, legal costs)

o Central support (core)costs (eg insurance,
utilities)
o Staff related costs (eg recruitment, training, benefits and taxes)
o Vehicle running costs
o Equipment maintenance and repairs (eg for photocopiers and
computers)
o Governance costs (eg Board meetings, AGM)
o Audit fees.

Check the figures

Find yourself a budget buddy to check your draft budget with a critical
eye. This could be a work colleague or someone doing a similar role in
another NGO.
Ask them to check the figures for accuracy, that you have included all of
the resources needed for the activity and if the total cost looks
reasonable.

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Using a budget worksheet

Table 3.1 shows a typical layout for a budget worksheet as used in activity-
based and zero-based budgeting. The extract describes the inputs needed
for a 4-day workshop for 20 participants with two tutors. The table details
items required for the workshop, the quantities required and the cost per
unit. The final column provides the budget for each item.

Other typical columns (not shown in the example above due to space
limitations) include Notes and Accounts Codes, as described in Table 3.2.

Table 3.1: Budget worksheet

A B C D E F G [D x E x F]
Ref. Description Unit No. No. Unit Total
type units times cost $ cost $
1 Workshop costs

1.1 Room hire for workshop Days 4 1 25 100

1.2 Tutors fees Days 4 2 100 800

1.3 Tutors accommodation Nights 5 2 50 500

1.4 Lunch & refreshments Person 22 4 5 440

1.5 Course handbooks Person 22 1 5 110

1.6 Folders for papers Trainee 20 1 3. 60

Sub total 2,010

Unit Types
Deciding on the unit type requires some careful thought as it is not always
obvious. The best way to work it out is to ask yourself:

how will the supplier charge for this item?

So, for example, a hotel charges for a room for each night, so in this case the
unit type is night and the unit cost would be the cost for one night. To
arrive at the budget, we would specify the number of rooms or the number
of nights or both.

The checklist in Table 3.3 will help you select a unit type.

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Table 3.2: Budget worksheet columns

A Ref. Line reference useful if you are discussing the budget and
need to draw attention to a particular line in the worksheet. The
budget is often separated into sections for specific activities,
each with a number. In the above example all workshop related
costs are listed under section 1.

B Description A short description of each line in the budget. Try to include

different inputs on a line of their own rather than lump similar
costs all together.

C Unit type This is the basis for costing and calculations. The unit type will
vary according to the budget item. For example, in line 1.4 of
the table above, the budget for lunches is worked out on a per
person basis. See below for some further examples of unit
types to use for different budget items

D No. units This specifies the number of units required for the project. For
example, in the budget above on line 1.4, we need lunches for
22 people (20 trainees plus 2 facilitators).

E No. times This is useful where we need the item described more than
or once. For example, in line 1.4 in the table above, we need to
frequency provide lunches for 22 people on 4 days as it is a 4-day course.
In line 1.3, we need to provide 5 nights accommodation for 2
tutors. Whereas in line 1.1 we only need to hire a one room.

F Unit cost That is, what does each unit cost as defined in column C? So, in
line 1.4 we see that it costs $5.00 for lunch and refreshments for
each person.

G Total cost This is calculated by multiplying no. units x quantity x unit cost.
So, the cost of lunch and refreshments for 22 people on each of
4 days at $5.00 per person costs $440.00 [22 x 4 x 5]

H Notes A notes or comments column is useful to clarify what the item is

for and how quantities have been arrived at.

I Accounts The code used in the organisations accounting records (ie as

Code listed in the Chart of Accounts)

J Donor code It is very useful to add another column which details the donor
code or line item reference as this makes it easy to transfer the
budget figures into the donor budget and reporting formats.

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Table 3.3: Choosing unit types

Typical budget items: Examples of unit type:

Personnel Costs
Salaries, benefits & taxes Month
Staff recruitment Advert entry
Staff development Days, person
Subsistence allowances Days, person, trip
Volunteers expenses Session, person, trip
Transport costs
Fuel & lubricants Kilometre, month
Vehicle insurance Month or lump sum per quotation
Vehicle maintenance Kilometre, month
Air fares Trip/journey
Bus/taxi fares Trip, month
Distribution costs Kilometre, trip, month
Programme administration
Office rent, electricity and water Month
Office insurance Month or lump sum per quotation
Telephone & fax, postage Month
Office stationery Box, carton, piece or month
Internet subscription Month or lump sum per quotation
Repairs & renewals Month
Bank charges Month
Audit fees Lump sum per quotation
Project Costs
Room hire/accommodation Day
Publicity costs Advert entry, lump sum per quotation
Publications/reference books Month or lump sum per quotation
Training materials Trainee, lump sum per quotation
Professional fees (eg, consultant) Days, lump sum per quotation
Printing/photocopy Copy, person, lump sum per quotation
Inputs (eg pipes, tents, tools) Piece
Equipment Piece, or lump sum per quotation
Food Person, meal, day

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The codes columns on the budget worksheet

It is a good idea to include internal accounting codes, and even donor codes,
for each item on your activity-based budget worksheet. We can then
summarise the budget details into any format required, eg project budgets
for internal use or different donor budget to accompany a funding proposal.

The internal codes are detailed on the Chart of Accounts and the donor
codes will be found on the donors budget format or grant guidelines. See
the example in Appendix 13 which includes Milestone internal accounts
code in the final column.

The codes also help with the process of budget consolidation ie joining
together several cost centre budgets into one overall budget.

Budget consolidation
The diagram in Figure 3.4 demonstrates the process of consolidating
budgets into different levels or formats. It shows how budget worksheets
are the starting point for all other budgets.

They can be summarised into project budgets based on the Chart of

Accounts codes. This format allows us to compare the budgets
against actual income and expenditure later on.

The project budgets can in turn be further summarised into

consolidated or master budgets to show information for a
programme, department or for the whole organisation. These are
ideal for managers and the Board.

The internal summarised budgets are then used to create cashflow

forecasts.

The budget worksheets can also be used to re-draft the budget into
different donor budget formats.

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Figure 3.4: Consolidating budgets

Budgeting for central support costs

Budgeting is not just about looking at the cost of programme activities.
When we create project budgets we must include both the direct project
costs and a contribution to the central support (or core) costs to arrive at
the true cost of running the project.

The starting point is to write a budget for the central support costs so they
do not get overlooked and the costs are clear. Typically, central support
costs include indirect costs such as:

o Office rent, insurance and utilities

o Core staff salaries CEO, accountant, receptionist
o Non-project vehicles and their running costs
o Office stationery and consumables
o Audit fees.

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Is it always a central support cost?

It is important to keep central support costs to a minimum not only are
these costs difficult to finance, they are closely scrutinised by donors,
regulatory bodies and the general public.

In some cases, it is possible to allocate out some shared costs to project

budgets to reduce the central charge. For example:

Pool vehicle shared by the CEO and programme staff: only the
CEO usage counts as Central Support costs. Programme staff usage
should be included as direct project costs in the relevant project
budget.

Photocopier: charge projects directly for their usage to cover the

costs of paper and machine rental.

In both of these cases, you need to set up a usage log to support the charge.

Financing central support cost

Every organisation needs a clearly stated policy on how it will pay for its
central support costs. These costs have to be financed just like any other
cost incurred in an NGO.

There are essentially two ways or a combination of both to finance your

central support costs:

Use unrestricted funds (ie money given to the organisation for

general purposes)

Charge projects a pre-arranged percentage of the costs.

The Figure 3.5 shows how this works in practice, using Milestone as an
example. Unrestricted funds come in centrally (Coordination) and are used
to help pay for some of the central support costs. The balance is financed
by including a contribution to central support in the project budgets, using
an agreed apportionment criteria. (The methods which can be used to
apportion costs are covered in a later chapter.)

The projects will then pay their contribution to core costs from their project
funds. Note however, that as these are restricted funds, the donors rules
and budgets must be checked to see what is allowed.

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As a general principle, you should never accept project funding without a plan to cover
the cost of central support it is just not possible to run a project with direct costs only!

Figure 3.5: Financing Milestones core costs

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Multiple donorfunded programmes

When a programme or project has more than one donor, it can present a
number of financial planning problems. In particular,

Donors have different budget formats and layouts, which they

require you to use when applying for funds.

Budget line items and descriptions vary, so it is not clear exactly what
each category includes or excludes, eg Transportation, Travel, Vehicle
Running.

It is not always clear who is paying for what activity or item.

Different donors have different policies on central support costs. It is

not always clear if all the projects internal contribution is covered.

Sometimes double funding (ie too much money) occurs on some

budget lines and other items are under-funded.

Some solutions

A detailed Chart of Accounts

If the Chart of Accounts is detailed enough, it will be able to cope with
different donor budget lines. For example, the category Transportation is
extended in the Chart of Accounts to include:

o Fuel & oil

o Vehicle maintenance
o Vehicle insurance
o Public transport
o Air travel
o Distribution costs.

Create budget worksheets for all projects

Because this approach provides a very detailed budget, with donor and
internal codes applied to each line, it is possible to transfer the information
to any other budget format as required. The worksheet format provides
maximum flexibility.

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Include some indirect costs as direct project costs

Look to see if it is possible to classify any central support costs as direct
costs in the project budget. For example, contributions to office rent and
insurance, accounting costs and audit fees. But do take care as all costs
must be justifiable.

Prepare a funding grid

A funding grid is an internal planning tool which provides an overview of
which donor fund is paying for what part of a budget. It is also useful for re-
negotiating funding agreements and identifying fundraising needs.

How it works:

The overall project or programme budget is detailed in column 1.

Donor budgets are entered in the next columns and reconciled to the
overall project or programme budget.

Unrestricted funds are then entered to plug any gaps.

The final column identifies any double funding (surplus) and

remaining funding gaps (deficit).

The funding grid must be updated regularly as new information becomes

available.

Table 3.4: Example funding grid Milestone Project (extract)

Confirmed Funding
All figures in USD
RESTRICTED UNRESTD

Budget Total DFID Smile Vanguard Dona- Total Surplus/

item Budget Trust tions expected (deficit)

Admin. 38,100 9,000 9,000 0 13,200 31,200 (6,900)

Staff 71,000 18,000 18,000 9,000 26,000 71,000 0

Travel 51,000 11,000 11,000 2,000 6,500 30,500 (20,500)

Training 111,200 52,000 52,000 10,000 0 114,000 2,800

TOTAL 271,300 90,000 90,000 21,000 45,700 246,700 (24,600)

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In the example, we can see that:

there are some predicted funding gaps for the Admin and Travel
budget lines (indicated by the negative figures in brackets);

a predicted surplus of funds on the Training budget line of USD 2,800

(indicated by the positive figure); and

overall, Milestone appears to be USD 24,600 short of the funds it

needs.

However, Milestone must not assume that it can keep the extra USD 2,800
on the Training line and use it elsewhere in the budget: these funds are
restricted and strictly speaking this presents a double funding situation.

In this case, Milestone must contact the donor(s) and make a request to re-
allocate the surplus funds on the Training line to other budget lines where
there are funding gaps. If the donors refuse, the surplus restricted funds
must be given back to the donor.

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Summary of budgeting terminology

Budget type Definition

or status

Income & This budget lists all items of incoming funds and recurrent
expenditure (ie regularly occurring) costs for a specified period.
MAIN TYPES OF BUDGET

Capital This budget lists one-off expenditure for expensive items

such as equipment, property, vehicles, or major building
works, which will be used over several years.

Cashflow Shows the predicted flow of cash coming in and out of the
forecast organisation each month, with the purposes of identifying
periods of cash shortages or surpluses.

Balanced Where anticipated income is the same as anticipated

expenditure
BUDGET STATUS

Deficit Where anticipated income is less than anticipated

expenditure

Surplus Where anticipated income is more than anticipated

expenditure

Incremental Where the calculations are based on previous years

APPROACHES TO WRITING A

budgeted or actual figures, with adjustments for new

activities or known changes
BUDGET

Zero-base Where the budget is built from scratch, and not based on
previous budgets or figures.

Activity based Where the budget is built up from a detailed activity plan
(a form of zero-base budgeting).

Master Shows overall anticipated income and expenditure for the

whole organisation for the year.
LEVEL OF BUDGET DETAIL

Consolidated This brings together several project or programme

budgets in a table to show a summary of each and the
total overall.

Project or Shows income and expenditure for a specified project or

programme programme for the implementation period.

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Budget type Definition

or status

Multi-year This budget outlines anticipated income and expenditure,

TIME PERIODS

or cashflow, for two or more successive years.

Phased A budget broken down into time periods usually

monthly or quarterly to reflect the budget requirements
according to planned activity for those periods of time.

Donor A budget in the format required by a funding agency,

usually accompanies a funding proposal.

Flexible (or This budget is regularly reviewed and updated to take

SPECIALISED BUDGETS

variable) account of changes in levels of activity

Funding grid A special budget which reconciles anticipated income

sources to the programme budget, to show which funding
source is funding what, and to identify funding gaps.

Rolling A budget that always covers a fixed period of time (eg 12

months). It is updated every month or quarter to include
figures for the fixed budgeting period.

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Chapter

4
4 Understanding Accounts
An Introduction to the mysteries of accounting

This chapter:

Discusses why an NGO needs to keep accounts

Describes the different methods used to keep track of financial
transactions
Outlines which accounting records to keep

Defines and explains key financial accounting concepts and

terminology.

Describes the financial statements which are prepared from the

accounts.

Why keep accounts?

Good financial records are the basis for sound financial management of
your organisation.

Information
All organisations need to keep records of their financial transactions so that
they can access information about their financial position, including:

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A summary of income and expenditure and how these are allocated

under various categories.

The outcome of all operations surplus or deficit, net income or net

expenditure.

Assets and liabilities or what the organisation owns and owes to

others.

Credibility
NGOs especially need to be seen to be scrupulous in their handling of
money keeping accurate financial records promotes integrity,
accountability and transparency.

Legal requirement

There is often a statutory obligation to keep and publish accounts. Donor

agencies almost always require audited accounts as a condition of grant aid.

Future planning
Although financial accounting information is historical (ie happened in the
past), it will help managers to plan for the future and understand more
about the operations of the NGO. With information spanning two or three
years, it is possible to identify trends.

Accounting methods
Keeping accounts simply means finding a way to store financial information
so that the organisation can show how it has spent its money and where the
funds came from. Accounting records can be kept in a manual format ie
hardback books of account or in a computerised format in one of many
accounts packages available.

There are two main methods for keeping accounts:

o Cash accounting
o Accruals accounting.

The two methods differ in a number of ways but the crucial difference is in
how they deal with the timing of the two types of financial transaction:

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Cash transactions which have no time delay since the trading and
exchange of money takes place simultaneously.

Credit transactions which involve a time lag between the contract and
payment of money for the goods or services.

Significantly, the method we choose to record transactions will produce

different financial information as managers we need to know the basis of
accounting to better understand financial reports.

Cash accounting
This is the simplest way to keep accounting records and does not require
advanced bookkeeping skills to maintain. The main features are:

Payment transactions are recorded in a bank (or cash) book as and

when they are made and incoming transactions as and when
received.

The system takes no account of time lags and any bills which might
be outstanding.

The system does not automatically maintain a record of any money

owed by (liabilities) or to (assets) the organisation.

The system cannot record non-cash transactions such as a donation

in kind or depreciation.

When summarised, the records produce a Receipts and Payments Account for
a given period. This simply shows the movement of cash in and out of the
organisation and the cash balances at any given time.

See Appendix 7 for a sample Receipts and Payments Account.

Accruals accounting
This involves double entry bookkeeping which refers to the dual aspects of
recording financial transactions to recognise that there are always two
parties involved: the giver and the receiver. The dual aspects are referred to
as debits and credits. This system is more advanced and requires
accountancy skills to maintain.

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Expenses are recorded in a general ledger as they are incurred, rather

than when the bill is actually paid; and when income is truly earned
(ie we are 100% certain it will be paid) rather than when received.

By recognising financial obligations when they occur, not when they

are paid or received, this overcomes the problem of time lags, giving
a truer picture of the financial position.

The system can deal with all types of transactions and adjustments.

The system automatically builds in up-to-date information on assets

and liabilities.

These records provide:

an Income & Expenditure account summarising all income and

expenditure committed during a given period and

a Balance Sheet which demonstrates, amongst other things, money

owed to and by the organisation on the last day of the period.

Table 4.1: Summary of cash and accruals accounting

CASH ACCRUALS

Accounting system Single entry Double entry

Transaction types Cash only Cash and credit

Terminology Receipts and payments Income and expenditure

Main book of account Bank (or cash) book Nominal (or general)
ledger

Skill level Basic bookkeeping Advanced bookkeeping

Non-cash transactions No Yes

Assets & liabilities No Yes

Reports produced Receipts & Payments Income & Expenditure

report report with Balance Sheet

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Hybrid approach
Many NGOs adopt a half-way house approach. They use the cash
accounting basis during the year and then (often with the help of the
auditor) convert the summarised figures at the year-end (or more
frequently) to an accruals basis for the final accounts and audit.

This includes keeping separate books to record and identify accruals and
prepayments (see examples below), unspent grants and capital purchases
during the accounting period.

See Appendix 10 Note to the Accounts, Note 3, for a Schedule of Creditors

and Debtors, identified for Milestones year-end adjustment process.

Example of an accrual

An electricity bill covering the last month of the financial year is not received
until 4 weeks after the year-end. Even though the payment will be made
during the new financial year, the expenditure must be recorded in the
financial year that the electricity was consumed. It shows up as a liability on
the Balance Sheet.

Example of a prepayment

Office rent is paid six months in advance. Half of the payment covers the
first quarter of the new financial year and is therefore deducted from the
office rent account for the current year at the year-end. It is carried forward
to the rent account for the financial year when the rent falls due and shows
up as a prepayment on the assets list in the Balance Sheet.

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Which accounting records to keep

For a small NGO with very few financial transactions, a simple bookkeeping
system is all that is needed. As an organisation grows and takes on a
number of projects and different sources of funding, its reporting
requirements, and therefore its financial systems, will become more
sophisticated.

Accounting records fall into two main categories:

Supporting documents

Books of account.

Supporting documents

Every organisation should keep files of the following original documents to

support every transaction taking place:

o Receipt or voucher for money received

o Receipt or voucher for money paid out
o Invoices certified and stamped as paid
o Bank paying-in vouchers stamped and dated when money is
taken to the bank
o Bank statements
o Journal vouchers for one-off adjustments and non-cash
transactions.

With these documents on file it will always be possible to construct a set of

accounts.

Other useful supporting documents include:

o Payment voucher (PV)

o Local purchase order (LPO)
o Goods received note (GRN).

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Books of account
The minimum requirements for books of account are:

o Bank (or cash) book for each bank account

o Petty cash book.

For organisations with salaried staff, valuable equipment and significant

levels of stock, the following records, where relevant, may also be kept as
part of a full bookkeeping system:

o General/nominal ledger
o Journal or day book
o Wages book
o Assets register
o Stock control book.

Supporting documentation
It is very important to maintain supporting documents
Receipts Explain:
in the form of receipts and vouchers for all financial
When? transactions. These should be cross-referenced to the
books of account and filed in date or number order.
How much?

Apart from being required by the external auditor to

What?
support the audit trail, certified receipts also provide
Who? protection to those handling the money. Mislaid or
incomplete records can result in suspicion of
Why?
mismanagement of funds.

Keep separate files for receipts for money coming into the organisation and
money going out. Mark invoices paid with the date and cheque number to
prevent their fraudulent re-use by an unscrupulous person.

Well maintained files provide invaluable information to the organisation

such as the trends in price increases, details of equipment purchased, past
discounts, etc.

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Bank book basics

The bank book or cashbook or cash analysis book is the main book of
account for recording bank transactions (ie cash transactions). It is normal
to maintain a separate bank book for each bank account held as this makes
it easier to reconcile each account at the end of the month. See Appendices
3 and 4 for a sample bank book.

With a manual (ie paper based) bank book, receipts are usually entered on
the left side and payments on the right and each page is ruled into columns
(see Figure 4.1 for a typical layout). The number of columns required will
depend on the type and volume of transactions.

Each transaction is entered on one line of either the Receipts page or the
Payments page in date order. The column headings prompt you to enter
key information eg date, cheque number, payee, description, amount,
category of transaction, etc. The columns are totalled at the end of each
page or accounting period.

Analysis columns
These are what make the bank book such a useful record. These columns
(numbered 1 to 9 in Figure 4.1) include the main categories of income and
expenditure as identified in your Chart of Accounts and your budget. They
allow you to sort and summarise transactions by budget category which in
turn helps to compile financial reports quickly and easily.

Figure 4.1: Typical bank book layout

LEFT SIDE RIGHT SIDE

Receipts of money into the bank Payments out of the bank
Date/details 1 2 3 4 5 6 7 8 9 Date/details 1 2 3 4 5 6 7 8 9

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Bank reconciliation
The bank book should be checked with the banks records the bank
statement at least once a month, more frequently for very busy bank
accounts. This is called the bank reconciliation.

The purpose of a bank reconciliation is to make sure that the organisations own
records agree with the banks records and to pick up any errors or omissions made by
the bank or the organisation.

A bank reconciliation involves taking the closing bank statement balance for a
particular date and comparing it to the closing bank book balance for the
same date. If there is a difference between these two closing balance
figures, the difference must then be explained.

In practice, there will almost always be a difference because of timing

delays, such as:

Money paid into the bank which is not yet showing in the banks
records

Cheques issued to a supplier but not yet banked by the supplier

Bank charges and bank interest which get added to the bank
statement by the bank periodically

Errors either made by the bank or when recording entries in the bank
book.

See Appendix 6 for a completed bank reconciliation form and Appendix 21

for a blank form to help you with this process.

Table 4.2 summarises the reconciliation process and actions to take when
discrepancies are discovered.

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Table 4.2: Bank reconciliation

In On bank Example Action

Item: cashbook statement

Cash received in Monitor

the office, but bank statement
Receipt
not yet banked. (all cash received
Cash fraud? must be banked)

Bank interest
received
Enter into
Receipt Donor grant
the cashbook
transferred, no
advice note sent

Monitor
Cheque sent to bank statement
supplier, not Contact
Payment
presented to the
supplier if older
bank
than two
months

Bank charges or
Enter into
Payment bank interest
the cashbook
paid

Omission or
duplication of a
Cashbook Correct the
transaction
error cashbook
Figures entered
incorrectly

Bank Bank recording

Contact the
statement error
bank
error Cheque fraud

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Petty cash book

Petty cash records are kept in a similar way to the bank book records. As
both sets of figures will eventually have to be combined to produce financial
reports, it makes sense to set out the books in a consistent manner. A
sample petty cash book can be seen in Appendix 5.

The petty cash book can either be kept in a loose leaf or bound book format.
It does not however, require more than one analysis column on the Receipts
side because the only money that is paid into petty cash is the float
reimbursement. The petty cash book will also require fewer analysis
columns for payments because petty cash will not (usually) be used to pay
for larger items such as salaries, office rent, etc.

There are two ways of keeping petty cash:

o fixed float or imprest system

o variable or non-imprest system.

Fixed float or imprest method

With the imprest system you have a fixed float of, say, $50 and when the
cash balance gets low, you top up the float by exactly the same amount that
you have spent since the float was last reimbursed.

Example:

Receipts/vouchers for cash spent total: $34.60

Cash remaining in cash box counted: $15.40
TOTAL FLOAT $50.00
Reimbursement cheque written for: $34.60

An advantage of this system is that at any time you count the money plus
vouchers in the tin, they should always add up to the fixed float amount.
Also, it is much easier to incorporate petty cash spending into the accounts
as the reimbursement cheque is entered in the analysed bank book.

See how the reimbursement cheque for the petty cash book in Appendix 5
has been written in to the bank book in Appendix 4. Look for cheque no.
13583 on 12/01.

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Variable float or non-imprest method

An alternative is to draw cash from the bank in round sums as required. If
you use the non-imprest method you will need an extra column in your
bank book headed petty cash withdrawn.

When reconciling this float you will have to add up all the petty cash
withdrawals since the last reconciliation and add on the cash balance
brought forward to get a total of the cash float for the period. This total
should then be the same as the total spent since the last reconciliation plus
the cash left in the tin. A more complicated and time consuming process!

Full bookkeeping systems

Organisations requiring a full bookkeeping system use a series of ledgers
(this just means books of account), depending on the activities of the
organisation.

The general or nominal ledger

This is a central record which pulls together basic bookkeeping information

from the main working books of account (bank book, petty cash book, sales
and purchase ledgers).

The general (or nominal) ledger is rather like a series of

post boxes or pigeonholes used to sort basic financial
information. It has one page for each category of
income, expenditure, assets and liabilities and
information is posted from the other accounting books
into each relevant box. This sorting mechanism is
especially useful when an organisation has several
projects and different donors requiring different reports.

The general ledger plays a central role in the double-entry bookkeeping

system and is the basis for the trial balance (see below), the starting point for
preparation of financial statements.

Other ledgers
Other elements in a full-bookkeeping system include:

o Sales ledger and sales day book (but only if you have sales)

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o Purchase ledger and purchase day book

o Stock ledger
o Journal.

These, together with the bank book and petty cash book are the day-to-day
working accounts books. It is quite possible to set up a general ledger
without these additional ledgers; the choice will depend on the activities of
your organisation.

The Journal is used to record unusual, one-off transactions which cannot be

recorded easily in other books of accounts. These will include non-cash
transactions (such as depreciation and donations-in-kind), adjustments and
corrections.

A journal entry follows the rules of double entry and will always include
entries to at least two accounts. For example, a donation-in-kind in the form
of rent-free office space would be recorded as income under Donations
and expenditure under Office rent.

Wages records
Employers have a statutory duty to maintain records of all wages paid and
deductions made. Failure to keep these records could result in a heavy fine.
Be sure to familiarise yourselves with the arrangements of your own
Department of Taxes and keep the latest
tax deduction tables.

Larger organisations should also keep a

separate wages book, which brings
together all information on staff salaries
and deductions. Wages books can be
purchased from stationery suppliers in a
pre-printed format or are available as add-
ons to accounting software packages.

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What is a trial balance?

The trial balance (or what accountants often refer to as the TB) is simply an
arithmetical check on the accounts maintained using the Double Entry
method of accounting. It is also the basis for the preparation of accruals-
based financial statements.

At the end of an accounting period usually monthly all the accounts

categories having a balance in the general ledger are listed on a summary
sheet to form a Trial Balance. Providing no errors have crept in during the
recording and summarising stages, the total of debit balances on the list will
equal the total of the credit balances.

Figure 4.2 illustrates which figures from the trial balance end up where in
the annual financial statements.

Figure 4.2: Trial balance leading to financial statements

Trial balance

Debit balances on Credit balances on

accounts accounts

Expenses Income Assets Liabilities

Income & Expenditure a/c Balance Sheet

Figure 4.3 shows how the trial balance is the final stage of the accounting
process the result of recording, classifying and summarising the many
different transactions that take place in an organisation.

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Figure 4.3: How it all fits together

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What are financial statements?

Financial statements are produced from the organisation's accounting
records. They are a summary of all the transactions for a specified period of
time and show the financial position of an organisation. In particular, the
financial statements tell us:

where the organisation's money came from

how the money was used up

the outcome for the period, ie a surplus or deficit

what the organisation is worth (on paper).

Financial statements can cover any period of time for example, a month, a
quarter or one year. The annual financial statements are used as the basis
for the annual accounts and external audit.

It is common for the annual financial statements to include the previous

year's figures for the purpose of comparison - so you can see what has
changed from one year to the next. Is it getting better - or worse?

The simplest of all financial statements is the Receipts & Payments report.
This is a summary of the cashbook (see Appendix 7) and includes details of
cash balances at the start and end of the reporting period. The other two
main reports relevant to NGOs are:

The Income & Expenditure report

The Balance Sheet.

Together these contain a lot of useful information. In the chapter on

financial reports, we look at how to analyse the information in the financial
statements.

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The income and expenditure report

In the not-for-profit sector, the equivalent of the profit and loss account is
the Income & Expenditure report (or account). See Appendix 8 for an
example.

It is either produced from a trial balance (as described above) where the
accruals-based system of accounting is used; or it is based on a receipts and
payments account with adjustments for loose ends.

It records as a summary:

all categories of income and expenditure which belong to that year

all income not yet received but belonging to that financial year

all payments not yet paid but belonging to that financial year.

Income items usually appear first in a list down the page, followed by the
summary of expenditure items. The difference between total income and
total expenditure, often called the outcome, appears on the bottom line and
is expressed either as:

excess of income over expenditure where there is a surplus; or

excess of expenditure over income where there is a deficit.

This excess figure is then included on the Balance Sheet under the heading
of accumulated funds. There should be an accompanying Balance Sheet for
the same date that the Income & Expenditure report is prepared at.

The Balance Sheet

The purpose of a Balance Sheet is to assess the financial
position or net worth of an organisation at a given
date. If the organisation ceased operating at that date
and all of its assets were converted into cash, and all of
its debts were paid off, then what was left over would be
what the organisation was worth. See Appendix 9.

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The Balance Sheet is a list of all the assets and liabilities on one particular date and
provides a snapshot of the financial position of an organisation.

Components of a Balance Sheet

The Balance Sheet is in two parts. One part records all balances on assets
accounts, the other records all balances on liabilities accounts plus the
Income & Expenditure account balance.

The Balance Sheet will either be presented with the assets listed on the left
and the liabilities presented on the right of the page, or more commonly
nowadays, listed down the page with assets presented first then liabilities
deducted from them.

Assets
Assets are classified into two parts:

Fixed assets tangible long-term assets such as buildings, equipment

and vehicles, having a value lasting more than one year. Fixed assets
are shown on the Balance Sheet after an allowance for wear and tear
or depreciation has been made (see an explanation of what
depreciation is later in this chapter).

Current assets the more liquid assets such as cash in the bank,
payments made in advance and stocks. These, in theory at least, can
be converted into cash within 12 months.

The term liquidity is used to describe how easy or otherwise assets can be
turned into cash. So money held in a bank account is considered to be very
liquid, while money tied up in a vehicle is clearly not liquid at all.

Liabilities
Liabilities are also divided into short and long-term liabilities:

Current or short term liabilities including outstanding payments, and

short-term borrowings ie those having to be paid within 12 months.

Long-term liabilities such as loans that need to be paid after 12

months. However, for NGOs such borrowings are not common.

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Working capital
These are the funds that the organisation has available as a cushion or
safety net for running the organisations operations in the short term.

Also known as net current assets, they are calculated by deducting immediate
debts (current liabilities) from short-term funds (current assets).

Accumulated funds
Accumulated funds represent the true worth of the organisation in the
form of capital and/or cash reserves which have been built up from
surpluses in previous years.

Accumulated funds are classified as liabilities. In an NGO the funds are held
in trust for the organisation in pursuance of its objectives. If the NGO
should close down, any funds remaining after all the debts were paid off
would have to either be returned to the original donors (practically quite
difficult to do) or passed to another NGO with similar objectives.

Table 4.3 summarises the main components and typical layout of a Balance
Sheet (but do note that terminology does vary).

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Table 4.3: Components of a Balance Sheet

Component: Description:

FIXED ASSETS: Less liquid assets, those having a significant value lasting
more than one year, eg cars, office equipment, property.

CURRENT ASSETS: The more liquid assets can usually be converted into
cash within one year.

Cash Money held in the bank and as cash.

Debtors Money owed to the organisation such as loans and

unpaid invoices.

Prepayments Value of items paid for in advance such as insurance

premiums or office rent.

Grants Due Grants owed to the organisation for projects already

started in the reporting period.

Stocks The value of raw materials or supplies such as

publications or T-shirts for sale.

CURRENT LIABILITIES: Those paid within one year of the year-end.

Creditors & accruals Money owed by the organisation at the year-end

such as bank overdrafts and unpaid bills.

Grants in advance Grants received for a particular purpose but not yet
spent, so carried forward to the next financial year.

OTHER LIABILITIES: Longer term commitments and reserves.

Accumulated funds The total of all accumulated surpluses and deficits

achieved since the organisation started. The funds
are held as cash and/or equipment and can be
restricted or unrestricted.

General funds These are the part of the accumulated funds that are
unrestricted and available for general use - the
organisation's 'safety net' money. Also called General
purposes fund.

Designated funds Part of the General funds, money set aside for
specific purposes, eg replacing equipment.

Long-term loans Any loans to others that have to be repaid in more

than 12 months time, eg a mortgage on a building or
a capital loan from a donor.

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What is depreciation?
Capital expenditure, such as that on buildings, computer equipment and
vehicles, is expenditure which covers more than one accounting period and
retains some value to the organisation.

Depreciation is how we account for the cost of wear and tear on fixed
assets. It allows the original cost of the item to be spread over its useful life.
The amount calculated for depreciation is shown as an expense in the
accounts and deducted from the previous value of the asset. As a non-cash
transaction, depreciation is entered in the accounts using a journal entry.

There are several methods used to calculate the cost of depreciating assets,
but the two most commonly used are: Straight line method and reducing
balance method.

In the straight line method the amount to be depreciated is spread evenly

over a pre-arranged period. For example, a computer purchased for USD
1,000 expected to last for 4 years will be depreciated at USD 250 per year for
4 years. At the end of 4 years the computer will have a zero net book value
ie it will have no value as far as the accounts are concerned. In reality, it may
have a second hand market value.

The reducing balance method fixes a percentage reduction in value so that

the item loses more value in the earlier years.

Example:
A car is purchased for USD 10,000. It is decided to depreciate it over 4 years
ie by 25% per year. Table 4.4 shows how the equipment is depreciated
over its useful life (all figures are rounded to nearest dollar).

Table 4.4: Depreciation schedule

Year Depreciation calculation Net book value

Year 1 $10,000 x 25% = $2,500 $7,500

Year 2 $7,500 x 25% = $1,875 $5,625

Year 3 $5, 625 x 25% = $1,406 $4,219

Year 4 $4,219 x 25% = $1,055 $3,164

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Note that when using this method, the asset is never completely written off.
At the end of Year 4 it will still have a residual value. In this example, the car
will be valued in the accounts at USD 3,164. This recognises that the item
may have a resale value when it comes to replacing it.

Accounting for shared costs

Some costs cover more than one project or activity. In this case, it is
important to identify which activities the costs should be charged to. There
are two types of shared costs:

Those that are truly direct costs and belong to two or more projects

Those that are truly indirect costs that must to be shared across all
projects in the organisation.

For truly direct project costs eg the cost of using a shared vehicle for
project activities these must be allocated according to actual use to the
relevant project cost centre. It is best to make the allocation when the
transaction is entered into the accounting records.

For truly indirect costs ie central support costs such as the central office
running costs or the annual audit fee these must be apportioned in a fair
and justifiable way across all cost centres.

Central support costs are often shared out between cost centres in a pre-
arranged ratio. This is more commonly entered in the accounting records at
the end of the reporting period by making one adjustment entry.

The decision on how to apportion costs between cost centres can be based
on different criteria according to what is known as the cost driver, eg:

o Full-time equivalent (FTE) staff

o Number of cost centres
o Size of each project budget
o Project staff costs
o Amount of space used by a department.

There is no hard and fast rule for apportioning central support costs to
projects. It should however be logical, transparent and consistently applied.

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Chapter

5
5 Financial Reports
Making sense of the numbers

This chapter:

Identifies who needs financial reports and why

Describes the different types of financial report for programme
management and stakeholder accountability
Shows how to interpret financial statements using trend and ratio
analysis
Explains how to use the information in management accounts

Outlines the important features of donor reports

Outlines reasons for reporting to beneficiaries.

Who needs financial reports?

As we have seen, one of the main reasons for keeping accounting records is
to access information about how the organisation is being run. Having set
up accounting systems and budgets, the next step is to produce financial
reports to report on and monitor the organisations financial affairs.

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Financial reports are needed primarily by those responsible for managing

the organisation and by current and potential donor agencies. Those
responsible for financial management of an NGO also need to give an
account of their stewardship to a wide range of stakeholders.

The main reporting outputs include:

During the financial year accounting information is summarised and

turned into Management Accounts for internal monitoring of progress
against the budget.

At the end of the year, the Annual Accounts (ie the Balance Sheet and
Income & Expenditure account) are produced to report on the
outcome to external stakeholders.

At intervals during the year, an NGO will also be required to complete

special progress reports to donor agencies.

Providing the accounts are kept in a suitable way and have been checked for
accuracy, putting together a financial report is not as time-consuming as you
might think.

Financial reports must be timely, accurate and relevant.

Table 5.1 summarises the main users of NGO reports and why they need
this information. From this list, we can see that there are many different
users of financial reports both internal and external stakeholders using
financial information for management and accountability purposes.

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Table 5.1: Who needs financial information?

Stakeholder Why do they need it?

Project staff To know how much money and resources are available
for their projects and what has been spent so far.

Managers To keep an eye on how project funds are being used,

especially compared to the original plans. To help plan
for the future.

Finance staff To make sure that there is enough money in the bank to
buy the things the NGO needs to run its programmes.

Board of Trustees To keep an eye on how resources are being used to

achieve the NGOs objectives.

Donors To make sure their grants are being used as agreed and
that the projects objectives are fulfilled. To consider
whether to support an organisation in the future.

Government To make sure that the NGO pays any taxes due and that it
departments does not abuse its status as a not for profit organisation.

Project beneficiaries To know what it costs to provide the services they are
benefiting from and to decide if this is good value for
their community.

The general public To know what the NGO raises and spends during the year
and what the money is used for.

It is not surprising, therefore that we need different kinds of reports for

different users, as summarised in Table 5.2.

Table 5.2: Different reports for different users

Programme management Stakeholder accountability

Budget monitoring report Board report

Internal
Cashflow report
Donor progress report Donor report
(financial and narrative) Audited financial statements
External
Annual report
Reports to beneficiaries

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What are the annual accounts?

In the previous chapter we looked at the Balance Sheet and Income &
Expenditure account ie the financial statements. When these are
produced at the end of the financial year, they become the annual
accounts.

Accompanied by a report on the work of the organisation, the annual

accounts form the main information package for external stakeholders. For
this reason, the annual accounts should:

present the organisation in the best possible light

help to promote its work

meet the needs of those using the accounts

meet the requirements of auditors.

If an NGOs annual accounts show large accumulated funds, it may give the
impression that the organisation is well resourced and donors may be less
inclined to give support to new initiatives. There are however, good reasons
why an organisation will have cash reserves for example, funds put aside
to replace equipment or a building appeal fund. An explanation must be
provided to reassure potential donors that their support really is needed.

Interpreting financial statements

The aim when reviewing an NGOs financial reports is to assess the health of
the organisation and to check that funds are being used as intended ie to
achieve organisation objectives. Numbers taken on their own dont tell us
very much. We need something to measure them against such as
comparing them to similar organisations, standard measures or targets, or
previous years accounts.

When we interpret the Balance Sheet and Income & Expenditure statement
we use two types of financial analysis:

Trend analysis which asks: how are we doing compared with the last
period?

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Ratio analysis which provides a means of interpreting and comparing

financial results.

Trend analysis
Trend analysis takes at least two sets of figures compiled using the same
accounting techniques and showing information for two consecutive
periods, usually year on year. By comparing the figures it may be possible
to detect trends and use this information to forecast future trends or set
targets.

Trend analysis is more meaningful if also combined with financial ratio

analysis.

Financial ratio analysis

Financial ratio analysis is used widely in business to
assess the profitability and efficiency of companies.
Ratio analysis in the not-for-profit sector is less
common, but is nonetheless very useful if adapted
for the sector.

Ratios allow comparison of reports expressed in

different currencies and between organisations of
different scale by converting them into a like measure. Donor agencies
often use this technique when assessing performance, especially to
compare relative costs such as central administration between similar
organisations or projects.

The importance of ratios is in the clues they may provide to what is going
on, not as absolute measures of good or bad performance. Ratio analysis
helps Board members and managers answer three important questions:

Financial sustainability will our organisation have the money it needs

to continue serving people tomorrow as well as today?

Efficiency does our organisation serve as many people as possible

with its resources for the lowest possible cost?

Effectiveness is our organisation doing a responsible job of managing

its money?

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Analysing the Income and Expenditure statement

You can use ratios on the Income & Expenditure report by converting each
line item into a percentage of total income (that means to divide each item
by total income and multiply by 100). This gives a guide as to the relative
importance of different areas on the statement. For example, the relative
costs of administration versus direct project costs. This is useful for drawing
attention to the important areas and away from insignificant issues.

This calculation will also give an indication of the level of donor dependency
by dividing the total of donor grants by total income and multiply by 100. If
your financing strategy is leading you towards less dependence on external
aid, the dependency ratio will help to set and monitor your target level.

A further level of analysis can be obtained by comparing the ratios for the
current and previous years figures to detect trends.

Analysing the Balance Sheet

Again try dividing everything by the total income figure shown on the
accompanying Income & Expenditure statement to give an indication of the
relative importance of items on the Balance Sheet.

The Survival Ratio can be calculated by dividing general reserves,

sometimes called free reserves (thats the part of the Accumulated
Funds which are unrestricted, not held as capital and for general use)
by total income (from the accompanying Income & Expenditure
statement).

If you then multiply the resulting figure by 365 this will give an
indication, in days, of how long the organisation could survive in the
coming year if income dried up and levels of activity remain the
same. Of course, this is a highly hypothetical scenario as in practice
the organisation would contract operations if its income was
drastically reduced.

The Acid Test or Quick Ratio asks the question: Can we pay off our debts
now? It divides Current Assets less the less liquid assets such as
stocks and prepayments (in other words, short term debtors and
cash balances only) by Current Liabilities (short-term creditors and
overdrafts). The resulting ratio should ideally be in the range of 1:1.

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A ratio of 1:1 suggests an organisation has sufficient cash to pay its

immediate debts.

The Current Ratio asks the question: Can we pay off our debts within 12
months? It divides total Current Assets by total Current Liabilities to
find a further test of an organisations (longer term) liquidity. A result
of 2:1 is considered satisfactory. Again, convert the figures for both
years shown on the Balance Sheet to detect significant trends.

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Ratio analysis: quick reference formulas

Ratio: Formula:

1. Donor Dependency: TOTAL DONOR INCOME X 100

TOTAL INCOME
Expressed as %

2. Income Utilisation:
EXPENDITURE ITEM X 100
Expressed as % TOTAL INCOME

3. Survival Ratio:
GENERAL RESERVES* X 52 or X 365
Expressed in weeks or days TOTAL INCOME

* these are un-restricted funds for general

purposes under Accumulated Funds.
Alternatively use Net Current Assets.

4. Acid Test or Liquidity Ratio:

CURRENT ASSETS PREPAYMENTS
Expressed as a ratio n:n* CURRENT LIABILITIES

*Answer should be in the range of 0.8 to

1.2:1. A result of 1 to 1 means there are
sufficient funds to cover immediate debts.

5. Current Ratio:
CURRENT ASSETS....
Expressed as a ratio n:n* CURRENT LIABILITIES
*A result of 2:1 is considered satisfactory
enough to pay off the debts within 12 months.

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Management reporting
Managers need financial information throughout the financial year to
monitor project progress and manage budgets effectively. If reports are
produced on a timely basis, any problems can be addressed early on and
action taken to put things right.

Which reports?
The main reports that will be useful to managers are the:

o Cashflow report
o Budget monitoring report
o Forecast report.

How often?
Ideally, the management accounts should be produced every month and
within a few days of the end of the accounting period (any later and the
information becomes out of date and less useful). The minimum frequency
for management reports is once a quarter.

Since the reports are produced so that managers can take decisions about
the future management of the organisation, the meetings of the governing
body should be set to coincide with the management reporting cycle so that
the information is still timely.

Where do the figures come from?

Figure 5.1 shows how the financial planning and financial accounting
processes come together to produce management reports.

The reports are compiled by taking summarised figures from the main
books of account and the budget for the same period. Providing the
accounts and budgets have been set up to use the same Chart of Accounts
codes and descriptions, this should be a very quick process and no
additional work is required.

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Figure 5.1: Management reporting flow chart

The cashflow report

The cashflow report is the cashflow forecast updated with actual receipts
and payments each month, plus any new information about future
spending or fund-raising plans. It allows managers to predict periods when
cash balances are likely to be insufficient to meet commitments and make
the most of any surplus funds during the year.

Where cash resources are limited, it is important to monitor for the ability to
pay creditors on time and to take action when there are early warnings of
potential financial difficulty. Options available for managing cashflow
include:

Exercise good credit control chase debtors for prompt payment

Review grant schedules encourage payment in advance rather

than in arrears

Bank all money received daily

Request special payment terms from major suppliers (and stick

to them)

Pay certain overheads by instalment eg insurance premiums

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Prioritise major payments

Defer action that will lead to additional expenditure eg

recruitment, taking on leases, purchasing equipment

Negotiate an overdraft facility as short term but expensive

remedy.

The budget monitoring report

This report has several different names (eg budget compared to actual,
budget variance and budget versus actual) and can take different forms.
But as the titles suggest, the reports take the budget for the reporting period
(preferably the phased budget) and compares that with the actual income
and expenditure for the same period. See a sample report in Appendix 14.

The difference between the budget and the actual result is known as the
variance and this can tell us a lot about what is happening in a project.
Variance figures will be positive, negative or zero, depending on what has
happened. Often, budget monitoring reports also show variances as
percentages.

For example, the amount of the budget, or grant, used up so far is known as
the budget, or grant, utilisation ratio or the burn rate (see below for how to
calculate percentages.)

We can see the Plan-Do-Review process in action in Rudis evening out. He

set out his plans for the evening and what each activity would cost (PLAN)
and then went out with his friends (DO). But it did not all go as planned and
his actual spending varied as a result.

Table 5.3: Rudis budget compared to actual report

A B C D E
Budget item Budget Actual spend Variance Budget
$ $ $ utilisation
Travel 1.50 0.75 0.75 50%
Food 3.50 3.00 0.50 86%
Entrance Fee 3.00 4.00 (1.00) 133%

TOTAL 8.00 7.75 0.25 97%

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If we look at the variance column in Rudis budget compared to actual report

(REVIEW) in Table 5.3, it is possible to see the story behind the figures.

For example, we can see the effect of Rudi arriving too late to buy the
cheaper match tickets: he spent USD 1.00 (or 33%) more than planned on
the entrance fee. And because he then didnt have enough money left to
buy his bus fare back home (he got a free lift home instead) he under-spent
on his Travel budget, using up only 50% of that line.

When we review the figures, and in particular the variance column, it helps
us to understand why we did not fulfil the plans and build in that learning to
the next cycle.

In Rudis case, he learnt that he needs to get to the match earlier to buy a
cheap ticket (and his mother learnt that it might be a good idea to give Rudi
a bit extra for emergencies to make sure he gets home safely.)

How to calculate percentages

The budget variance percentage can be calculated in one of two ways. You
may use either method but it is important to be consistent:

Budget variance $ x 100 Under-spends will result in a positive % and

Budget for period $ over-spends will produce a negative %

Actual for period $ x 100 Under-spends will result in a figure less

Budget for period $ than 100% and over-spends will be more
than 100%

To calculate the percentage of the budget utilised (the Burn Rate):

Actual spend $ x 100 A resulting figure of over 100% means the

Total Budget $ total project budget is overspent.

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Forecast reports
Forecast reports are especially helpful for predicting the
outcome for the year and helping with the budget
process for the next year.

See Appendix 16 for a sample Budget Forecast report.

With a fair degree of accuracy you should be able to tell

whether the organisation is going to make a surplus or
deficit.

This is all-important in your relationship with donors:

A large deficit can make the organisation appear to be out of control

and poorly managed

A small deficit can demonstrate a great need and even a sense of

good housekeeping

A small surplus can suggest good management

A large surplus can indicate a failure to meet needs or inexperience in

budgeting.

There are various ways of reducing a surplus at year-end, including

purchasing new or replacement equipment, ordering stocks of stationery
and office supplies. There is very little that can be done about a large deficit
except to provide an early warning and a very good explanation to
stakeholders and hope that there are sufficient reserves to cover it.

Analysing budget monitoring reports

Budget monitoring reports help to identify problem areas and provide an
early warning when key targets are not being met. They may also help
detect fraud and errors in the accounts.

What should we look for?

Key areas to focus on when you pick up a Budget Monitoring Report include:

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What is the accounting basis of the report is it compiled on the

cash or accruals basis? Are there outstanding commitments (see
note below)? If so, how does that affect the results?

What does the bottom line tell you? Overall, is the budget over-
spending or under-spending and is it significant at this time in the life
of the project or programme? An outcome of plus or minus 10%
from the budget is considered to be a reasonable variance.

What is the result within budget family groups (ie budget items in
the same area, such as Staff costs or Admin costs)? Is spending
overall on target across the group? Again, if the result is within plus or
minus 10% from the budget, that is generally acceptable.

Look for unusual or unexpected results - could this be an indication

of a mis-coding or abuse?

Are there any significant variances in the individual line items? Are
the reasons for the differences explained? For example, the
Subsistence Expenses budget is substantially and unexpectedly over-
spent. Do not just concentrate on over-spending remember that
under-spending is just as critical for an NGO.

Do linked budget line items (eg activity-related costs) tell the same
story or do they contradict? For example, the project materials
budget is under-spent suggesting delayed activities but the vehicle
running costs are high, which is not logical.

Do the budget report figures tell the same story as the narrative
project report?

Sometimes the figures just do not look right: so trust your instincts and
follow up your concerns.

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A note on commitments
Commitments refer to (significant) expenses which have been incurred for a
project or organisation in a particular period but havent yet been accounted
for or belong to a future reporting period. Commitments usually occur in a
cash accounting system or where there are time delays in reporting all
expenditure, eg from field offices.

If significant commitments are not taken into account when compiling

budget monitoring reports, the results may under- or over-count the true
level of expenditure and give a distorted view when compared to the
budget.

It is important to be aware of outstanding commitments when monitoring a

budget or grant because decisions are based on the reported variances and
balances available. It could appear that there is more (or less) money
available to spend than there really is.

Here are two solutions if figures exclude outstanding commitments:

Include an extra column in the budget monitoring report to record

known commitments

Add a note about known commitments in the comments column or

covering note.

Variance analysis techniques

Variance analysis involves looking at variations from budget to identify
significant or unusual variances and what has caused them to happen. This
helps us plan the next phase. The first task is to identify whether the
variance is a positive or negative one.

Positive variances are sometimes described as favourable (ie generally good

news) and negative ones as adverse (ie generally bad news). A positive
variance happens when:

actual income is higher than the budgeted amount, or

actual spending is lower than budgeted.

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However, note that a budget under-spend is not always good news for an
NGO as this could be because activities are not on target and this may be a
cause for concern for the donor.

A negative variance happens when:

actual income is lower than the budgeted amount, or

actual spending is higher than budgeted.

The next step is to understand what has caused the variance to happen. In
all cases, a variance represents a change from the original plan but what lies
behind it? Generally, we can say that variances will be the result of a change
in one or more of:

the timing of the activity

the actual price achieved or

the actual quantity of goods or services taken.

Figure 5.2: What causes variances?

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Sometimes a variance may be due to an error in the figures, for instance a

mis-coding in the accounting records (which is effectively a change in
quantity compared to the plan).

We can classify variances using the three criteria in Figure 5.2 to highlight if
the variance is temporary or permanent will the variance continue or will it
work through the system over time?

Example of a temporary variance

The project plans to purchase a vehicle in month 1 but it is held up at the

port by Customs. The budget monitoring report will therefore show a big
positive variance on the Vehicles line (because the budget has not been
used yet). By month 2 the vehicle arrives and is purchased just a bit later
than planned.

The budget monitoring report will no longer show a zero spend on vehicles
and the previous large variance will be gone as it was a temporary variance
due to a timing issue.

The only action required in this case is to chase up Customs to make sure
the vehicle arrives so it can be used for the programme as planned.

Example of a permanent variance

The invoice for the vehicle is paid in month 3. The price of the vehicle has
increased by 10% due to a fluctuation in the exchange rate.

The budget monitoring report for month 3 now shows a negative variance
on the vehicles line equal to the difference between the budgeted price
and the actual, higher price paid. This is a permanent variance caused by a
change of price. A decision has to be made on how to fund the additional
10% on the cost of the vehicle.

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Temporary variances
Variances caused by a change in the planned timing of an activity (eg due to
delays or rescheduling) are described as temporary variances because they
will most likely work themselves out during the course of the year. These
should be monitored and managed internally, and are generally less of a
concern.

Permanent variances
Variances caused by changes in the price or quantity of particular budgeted
items fall into the permanent variances category because once this has
happened, there is no going back. The only way to recover the situation is to
make an action plan, eg to reduce spending on future items where lines are
overspending or increase activity levels where there are savings.

Permanent variances are therefore generally more serious and

management attention and corrective action is required to get back on
track.

Action planning
Having analysed the figures in management reports, it is then important to
work out appropriate corrective action, if needed. Figure 5.3 summarises
the actions open to managers to take on variances, once analysed using the
classifications systems described above.

Deciding on the action to take, will depend on many factors including:

knowledge of the project where it is now and what the activity plans
are for the next period

awareness of external factors eg inflationary trends, dependence

on other programmes meeting their targets

how serious the variance is

how controllable, or otherwise, the budget items are

what the impact would be to take no action

the funders rules and conditions.

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Figure 5.3: Action to take on budget variances

It is useful to use a Budget management action planner table (see Table 5.4)
to help manage and control your budget. It can be used to discuss action
plans with the project team and to monitor progress of the action plan.

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Table 5.4: Budget management action planner

Budget management action planner

1 2 3 4 5 6

Line item Variance Var. Contro- Impact on project Action required /

% or /$ Type llable? and grant if not by
corrected

Smile ($12,500) Temp. Yes The delay is CEO to contact

Trust 100% causing project donor and explain
Grant delays too as we this is causing
cannot buy vehicle project delays.

Salaries $2,000 Permt Yes Under spend due Contact donor to

to vacant post. explain why there
This is now filled are delays and
but project request use of
activities delayed under-spend to
which could cause hire additional staff
problems with for a short period
donor. to help catch up

Table 5.5: How to use the budget management action planner

Column heading What it means

1. Line item description The budget line that requires some corrective
action.
2. Variance % or monetary Include items that exceed +/- 10% variation
value from the budget and which represent a
significant sum.
3. Variance Type Permanent or temporary? Remember that
temporary variances will work their way
through the system but very large ones might
still have an impact, eg on cashflow.
4. Controllable? To what extent can you control use of the
budget, eg to restrict its use or make savings
if over-spent or stimulate its use if under-
spent.

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Column heading What it means

5. Impact on project & eg Cash flow, achieving targets, meeting

grant management if not timeframes, allowable costs.
corrected
6. Action required/by What should be done (and by who) to
minimise the impact and get the project back
on target and/or to meet donor
requirements? Eg budget reforecast or
adjustments; advise donor of delays or
request no-cost extensions; request
unrestricted funds to cover over-spends;
change activity plans; put efforts into
reducing costs or stimulate spending; etc.

Reporting to donors
It is worth remembering that donor agencies are themselves accountable to
stakeholders (trustees, government, tax-payers, etc.) and they rely on you to
provide them with the information they need.

Accountability
Financial accountability requires that you demonstrate to the donor that
their funds have been used for the purpose for which they were intended.
The reference point is the original funding application and guidelines are
usually provided with the confirmation of grant aid and the contract or
agreement signed by both parties.

It is important to comply with the conditions and meet reporting deadlines

to establish credibility and encourage confidence, and to make sure your
grant arrives on time.

Terms and conditions of grant aid

It is important always to check what you have agreed to do as part of the

agreement for funding from each of your donors. Conditions imposed by
donors vary enormously but can include:

Progress reports frequency, format and style of reports, usually

quarterly to coincide with release of grant instalments.

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Scope and designation of funds what funds may, or may not, be used
for; whether funds can be carried forward from one financial year to
the next.

Administrative overheads the specific items that are allowable or

excluded, or a percentage limit based on the total grant.

Budget line items specific budget headings/account classifications

which correspond with the original grant application.

Virement policy ie permission (or otherwise) to transfer surpluses in

the budget from one budget heading to another, and within what
limits.

Accounting method accruals or cash accounting.

Bank accounts and interest separate bank accounts are required by

some donors and/or they do not allow you to keep any interest
earned on sums invested.

Depreciation policy how to treat fixed assets purchased with a grant.

External audit some donors require a separate external audit.

The donor report

Donors require that an NGO is able to demonstrate financial soundness

before granting the release of funds. This is why the donor report is so
important.

In most cases the report will include a budget compared to actual summary,
accompanied by a narrative report on the activities being undertaken. See
Appendix 15 for a sample donor report.

Where there are several donors it is important to set up the accounting

systems so that the information required by the donor agency can be easily
retrieved. Otherwise the organisation will be involved in a tedious
information gathering exercise every time a report is required. The use of
cost centres is particularly useful here.

When putting together a report to donors do:

meet reporting deadlines (or request an extension)

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produce accurate and verifiable figures

not conceal under-spends or over-spends

explain any significant variations

keep the donor informed of any potential problems.

Finally, bear in mind that donors have a lot of experience of working with
groups like your own; they will almost always respond positively to requests
for advice.

Presenting financial reports

We spend a lot of effort when preparing reports so it is important that they
are used and not just put to one side. So do spend some time thinking
about who the reader is and what they will find most useful.

Exceptions reporting
Managers and Board members are busy people and they rarely have the
opportunity to read all reports that get sent to them. With financial reports
it is good idea to provide an exceptions report a brief cover note that draws
attention to key areas or need decisions.

The exceptions report is usually no more than one or two pages long and
should avoid using technical jargon. It should be brief and easy to read.

A suggested layout:

Overview of the period being reported ie dates covered; how figures

have been compiled; what activities are covered by the attached
reports; and author of report.

Significant variances - Highlight the most significant variances from the

budget and explain the reasons behind the variances. This should
not just concentrate on over-spending of budgets under-spending
can also be a problem, especially when related to donor-funded
projects.

Recommendations for action ie corrective action required to deal

with the key issues identified in the previous section.

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For example, strategies to avoid a cashflow crisis in future months;

revised activity plans to get projects back on target; restricting use of
vehicles where running costs are running too far over budget.

Presentation of figures
Negative figures in project financial management reports can be
represented in two ways: 1,234 or (1,234)

Figures are usually rounded to the nearest whole number the cents are
not relevant to the overall review of the results. The rounding action
sometimes results in totals or sub-totals being out by 1.

Alternative formats
Graphical formats for example using a bar chart for a budget compared to
actual report (as in Figure 5.4) or a pie chart for an Income & Expenditure
report are a welcome alternative to tables of figures, especially for people
who are less confident around numbers.

See also some very interesting ideas on alternative ways to present financial
information from Little Fish in Australia: http://www.littlefish.com.au

Figure 5.4: Using graphics for financial reports

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Similarly, rather than present figures, we might simply present a list of

statements such as in this example of an alternative Balance Sheet format
(see Appendix 9 for the usual presentation):

Milestone Project Financial position on 31 December 20xx:

a) Our programme equipment and vehicles after a deduction for

wear and tear had a value of UC112,091.
b) We had UC8,095 held as cash and in the bank.
c) The Smile Trust owed us UC10,000 for the final quarter grant;
and we had some outstanding fees and other small amounts
owed to us totalling UC2,459.
d) We owed a total of UC3,262 in unpaid invoices.
e) This means that if we paid off everything we owe from our
available funds, we would have UC17,292 to continue our
operations.
f) Our overall reserves, including the value of our equipment and
vehicles, total UC129,383.

Reporting to beneficiaries
Most NGOs recognise the need for downward accountability ie reporting
back to the communities they work with on what they have done with the
funds raised in their name. Few NGOs have set up systems to deliver it.
Most NGO systems focus on upward accountability, such as reporting to
donors, Boards and Head Offices.

To participate fully in an NGOs work, beneficiaries need access to

information about the NGOs plans, resources and activities. Increasing
transparency and accountability to beneficiaries has many benefits
including:

Strengthening trust and respect between NGO staff and beneficiaries

Improving the quality of programme decisions, as beneficiaries

provide feedback on how funds are being spent

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Empowering beneficiaries to make their own decisions on their own

behalf

Reducing the risks of inefficiencies and fraud

Encouraging finance staff to get more involved with NGO field work.

Introducing this level of financial transparency may naturally hit some

obstacles, such as adding to the burden of already busy staff. But if
sensitively done, the benefits generally far outweigh the costs.

How can NGOs provide financial reports to their beneficiaries?

Financial reports must provide information that is both useful for users and
in a style that is easy for users to understand. The following guidelines set
out some general principles which can help achieve this when preparing
financial reports for beneficiaries.

Content
Content should be relevant to local people, about the specific activities that
NGOs have carried out on their behalf. Simple reports in local currency
showing monthly expenditure compared to budget work well.

Expenditure can be summarised by activity, by geographical area, by budget

line or some combination of these. The total budget for each activity, area
or budget line should also be included.

As a rule of thumb, each financial report should have no more than 15 lines
of information: more lines make reports confusing.

Presentation
Publish reports in local languages and make use of pictures or simple
graphs as it is easier for some people to understand visual reports than
those just using numbers.

Aim to make financial reports publicly available at the community level. For
example:

use white-Boards or flip-charts to publicly display the results at NGOs

offices, health centres or distribution points, backed up with paper
copies of reports at the same places

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present regular reports to communities at community meetings or to

community leaders at project management meetings

publish summary reports in newspapers and other local media.

Who provides reports?

Financial reports can be provided either by an NGOs finance staff or by its
programme staff. Ideally finance and programme staff should work
together. For example, invite finance staff to explain reports at community
meetings.

For more ideas on how to report to beneficiaries and information about

Mangos Who Counts? campaign, please visit: www.whocounts.org.

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Summary: Twenty questions

Here are 20 questions to ask when reviewing financial
information:

Auditors report on the annual financial statements

1. How long ago was the last audit conducted?

2. What does the Auditors Opinion say is it qualified or unqualified?

Balance Sheet
3. Does the organisation have enough ready cash (see Cash at Bank
listed under Current Assets) to pay off its immediate debts (see
Creditors)?

4. How long could the organisation survive if all of its funding dried
up? (Calculate the survival ratio) How does this compare to last
year?

Income & Expenditure (or profit and loss) account

5. Is income and expenditure broadly in balance? (Look for net
income/expenditure)

6. Is there a significant increase or decrease in activity levels from the

previous year?

7. What is the balance of direct project costs vs. admin costs? Is it

reasonable for the size and nature of the organisation?

8. How donor dependent is the organisation? (Calculate the donor

dependency ratio)

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Budget monitoring report

9. Is expenditure broadly in line with the budget? (+ 10%)

10. Is income broadly in line with the budget?

11. Are there any significant variances? If so, have they been
satisfactorily explained?

12. What action is being taken to correct significant variances eg

under-spending as a result of delayed activity plans?

13. Are there any large bills outstanding which could substantially
affect the figures shown?

14. Are we owed any large sums of money? What is being done to
retrieve them?

15. Are there any un-budgeted expenses which may occur in the rest
of the year?

16. What is the projected end-year outcome? Is this outcome

satisfactory? If not, what steps can be taken to change the result?

Cashflow forecast
17. Is there enough cash in the bank to fulfil the activity plan in the next
six months?

18. What grants are due and are they still expected to come through
on time?

19. Are spare cash balances invested to produce the best return?

General
20. What non-financial figures are being produced to show how the
programme of activities is progressing?

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Chapter

6
6 Safeguarding Your Assets
It is more sensible to establish a system to deter fraud rather than one to discover
it.

This chapter:

Explains why we need internal control

Introduces the four actions of internal control
Introduces delegation of authority and separation of duties

Highlights the importance of cash control, physical controls and

checking routines

Discusses ways to manage and control fixed assets.

Managing internal risk

This chapter looks at managing the internal risks facing an NGO on a day-to-
day basis. We do this by introducing controls, checks and balances to
minimise losses and detect errors and omissions in the accounting records.

Controls are also very important in protecting all those who handle the
financial affairs of the organisation as they remove any suspicion of, or
temptation to, dishonesty.

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Four actions for internal control

A good way to think about and set up your internal control systems and
procedures is to use the Four Actions approach:

1. DIRECT: to encourage the right action

This means setting policy and giving clear instructions on who does what
and what processes to follow. For example, setting a Procurement policy
and setting out limits of authority in a delegated authority document.

This action is one we generally take before activity takes place.

2. PREVENT: to deter the wrong actions

Sometimes, there will situations where someone fails to follow the guidance
in the Direct stage. So we need to set up systems that will, as far as possible,
minimise the risk of opportunistic theft or loss due to incompetent actions.
This includes commonsense physical controls and checking actions during a
process.

These actions generally operate during implementation.

3. DETECT: identify if and where it has gone wrong

We cannot prevent all incidences of loss, so we then need to have systems
in place to pick these up after the process is completed (and learn from it
too). For example, cash counts, bank reconciliations and internal audit.

These actions take place after the activity has taken place.

4. CORRECT: put right the errors or losses detected

This includes correcting accounting records, changing policies to reduce the
chance of the loss happening again and retraining staff. This process of
learning links on to Direct as guidance is updated, so completing the cycle.

Where further action is needed, corrections take place on an ongoing basis.

Figure 6.1 summarises some of the key internal controls under the Four
Actions headings. Some controls can fall under more than one heading as
they have multiple effects.

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Figure 6.1: The Four Actions process

There are several key internal controls that we will look at through the lens
of the Four Actions:

Delegated authority and separation of duties

Cash control

Physical control

Checking routines

Reconciliation routines.

Delegated authority and separation of duties

Delegated authority falls under the DIRECT heading of controls. The Board
of Trustees delegates authority through the Chief Executive for the day-to-
day running of the organisation. In a large and busy organisation it is not
practical (or safe) to allow one person to make all the decisions and
authorise all transactions.

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The Chief Executive will, therefore, further delegate authority to members of

the staff team to relieve the load and to ensure smooth operation during
absences of key staff.

Delegated authority
Every organisation should decide in advance who should do what in finance
procedures. It is good practice to record what has been decided in a
delegated authority document. Its purpose is to clarify who has the authority
to make decisions, commit expenditure and sign legal undertakings on
behalf of the organisation so that there is no confusion about responsibility.
See an example in Appendix 2.

The delegated authority document should include instructions for such

duties as:

o Placing and authorising orders for goods and services

o Signing cheques
o Authorising staff expenses
o Handling incoming cash and cheques
o Access to the safe and petty cash
o Checking and authorising accounting records
o Signing legal undertakings.

The delegated authority document must be approved by the Board and

regularly reviewed to ensure it remains relevant. It should also outline
deputising arrangements to cover for absence of key personnel.

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Authorisation rules
A delegated authority document should observe some basic rules:

Define the lowest level of authority. Those higher up the

management ladder will automatically have the same permissions.

Outline deputising arrangements to cover for absence of key staff.

Prevent anyone from authorising a transaction from which they will

personally benefit. This would make the individual vulnerable to
accusations of improper behaviour.

Avoid staff authorising payments to their managers they must

be signed by someone who is more senior in the management
structure (or the Board).

Limits or conditions must be clearly defined, eg a project officer

may be authorised to commit expenditure up to a specified amount,
within certain categories or within budget.

A breach of delegated authority rules is a serious matter and should be

dealt with through the organisations disciplinary procedures.

A note on authority for bank payments

Each organisation should have a panel of signatories from which to select

the required number of authorising signatures. There should be sufficient
people nominated to ensure efficient administration of bank payments. It is
usual to have more than one signature on a cheque to help avoid fraud.

Signatories should be regularly reviewed and the list updated when people
leave the organisation.

NEVER ask signatories to sign blank cheques for future use as this defeats the
whole purpose of having more than one signatory.

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Separation of duties
This is linked to delegated authority, but falls under the PREVENT heading
since it aims to remove the opportunity for theft and fraud. By sharing the
various duties within a finance procedure around a team, it protects those
involved and removes the temptation to mis-use funds. For example, it is
risky to allow one person to order some goods, then receive them and also
authorise the payment without someone else involved in the process.

Apart from weakening financial control, this puts too much responsibility on
one person and if they should leave the organisation or are absent for long
periods, then the finances will grind to a halt.

The process for buying goods and services is a very good example of the
practical application of delegated authority and separation of duties.

The procurement procedure

A Procurement procedure sets out the steps and conditions that have to be
followed by staff to acquire goods and services so that the objectives of the
organisation can be fulfilled efficiently and effectively. This is an example of
a typical DIRECT control action since it lays down rules to follow when
making purchases. But a well written procurement procedure also
incorporates the principles of separation of duties so it also encompasses
the PREVENT action. The procurement procedure:

outlines the process and authorities for ordering, receiving and

paying for goods and services (see below)

clarifies when it is necessary to obtain quotations from suppliers eg

2 quotations for all expenditure over $1,000

describes which method of payment or acquisition is to be used for

different goods and services eg when it is best to use petty cash,
bank transfers (eg salaries) or supplier accounts (eg stationery, fuel)

includes a list of approved contractors or suppliers, if used.

Each organisation must design a procurement procedure which suits its

own circumstances. Figure 6.2 shows some typical stages in the process of
purchasing a larger item with a supplier account (with the cash accounting
systems in place).

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Figure 6.2: Typical procurement process

Prepare Prepare Check &

specification, Purchase authorise Obtain
check budget Requisition requisition quotations

Issue
Receive
Purchase Select supplier
goods
Order (Purchasing panel)

Receive & Prepare & Pay supplier

check authorise Enter
invoice payment in
invoice Payment
Authority* cashbook*

[*assumes cash accounting system used]

A typical procurement procedure

1. Specify goods or services to be purchased, check budget

The standard, quantity and price of goods or services required, as described in the
activity plans, is specified clearly. The amount currently available in the budget for
the item to be purchased should be checked at the specification stage in case the
price has changed since the budget was prepared.

2. Prepare purchase requisition

An internal request is prepared usually on a standard form for that purpose to
formally request the purchase of the goods or services specified. The request will
include a description of the purchase and state why it is required.

3. Authorise purchase requisition

The purchase requisition will usually be checked and authorised by the budget
holder or other nominated person to verify that there is a genuine reason for the
purchase. The available budget will usually be checked again at this stage.

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4. Obtain quotations
Quotations from reputable independent suppliers are requested (in accordance
with internal procedures and donor rules) to make sure the organisation gets best
value for money and to minimise the risk of collusion.

5. Select supplier
Quotations are reviewed and a supplier is selected based on price, quality, delivery
times and after sales terms to ensure value for money. For larger purchases, it is
usual to have a Purchasing Panel a small group of managers who take
responsibility for selecting the supplier.

6. Issue (authorised) Purchase Order (PO)

The authorised Purchase Order is sent to the selected supplier with a copy kept on
file with the suppliers quotation. This is a legally binding contract.

7. Receive goods from supplier

When supplies are delivered and received, a Goods Received Note (GRN) is usually
signed to confirm receipt and a copy filed for later reference.

8. Receive and check supplier invoice

The invoice should be checked and matched up with the GRN, PO and quotation,
usually by the finance team.

9. Prepare and authorise payment authority

The Payment Authority is attached to the invoice and all the supporting
documents. It includes budget and accounting codes and must be checked and
authorised by the budget holder or other nominated person.

10. Pay supplier invoice

Payment should be made to the supplier within the specified payment terms,
usually 30 days.

11. Enter payment into cashbook

The final stage is to record the payment in the organisations books of account.

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Cash control
NGOs often work in environments where cash is the
preferred way to pay for goods and services. We have to take
special care with cash because it is vulnerable to theft. Cash
control is all about PREVENTING loss and misuse of cash.

Here are Seven Golden Rules for Handling Cash:

1. Keep money coming in separate from money going out

Never put cash received into the petty cash tin, it will lead to error and
confusion in the accounting records. All money coming in must be paid into
the bank promptly and entered into the records before it is paid out again.

Failure to do this could distort financial information. For example, a training

course charges $25.00 to each of the 10 participants. The cost of food and
room hire is $150.00 and this is paid from the course fees received on the
day. The balance of fees $100.00 is paid into the bank as Training Fees.

Why is this a problem? The cost of providing food and room hire has not
been recorded in the accounts and so will not appear in the financial report.
Similarly, as only the net amount of fees received was paid into the bank, it
would appear that only a few people actually attended the course.

2. Always give receipts for money received

This protects the person receiving the money and assures the person
handing it over that it is being properly accounted for. Receipts must be
written in ink, not pencil, and preferably from a numbered receipt book.

3. Always obtain receipts for money paid out

Sometimes this may not be possible. For example, when purchasing
materials from a market stall. In this case the cost of each transaction
should be noted down straight away so that the amounts are not forgotten
and these can then be transferred to a petty cash slip or internal receipt and
authorised by a manager.

Remember no receipt means there is no proof that the purchase was made.

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4. Pay surplus cash into the bank

Having cash lying around in the office is a temptation to a thief and the
money would be better managed and earning interest in a bank account. A
casual approach to cash on the premises might also lead to people wanting
to borrow from it many a sorry tale of fraud has started in this way. You
should always aim to pay cash received into the bank on a daily basis or, at
the very least, within three days of receipt.

5. Have properly laid down procedures for receiving cash

To protect those handling money, try to have two people present when
receiving cash. Both should count the cash and sign the receipt.

6. Restrict access to petty cash and the safe

Keys to the petty cash box and the safe should be given only to authorised
individuals. This should be recorded in the organisations Delegated
Authority document.

7. Keep cash transactions to an absolute minimum

Use cash only when all other methods are inappropriate. Wherever
possible, set up suppliers accounts and pay invoices by cheque or bank
transfer. The advantage of paying for most transactions through the bank is
that this has the effect of producing a parallel set of accounts in the form of
the bank statement. Also, it ensures that only authorised people make
payments and it reduces the likelihood of theft or fraud.

Physical controls
Physical controls are additional common sense precautions
taken to safeguard the assets of an organisation. They
generally fall into the PREVENT action heading.

Having a safe
Having a safe or a safe place to keep cash, cheques books and legal
documents is important for internal control. A proper safe is worth
considering especially if your organisation has to keep large sums of money
on the premises overnight. Safes are however, expensive and it may be
better to improve on banking procedures.

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Safeguarding fixed assets

Fixed assets may represent considerable wealth held in the form of land,
buildings, vehicles, machinery and office equipment and, often over-looked,
require special attention to ensure their value is maintained and that they
do not disappear through lack of vigilance.

Measures to safeguard these assets include keeping an Assets Register,

writing a vehicle policy and having a maintenance policy for equipment.

The assets register

An assets register should be set up with an entry or record sheet for each
item. Each asset should be tagged with a unique reference number for
identification purposes. The register will record important information
about each asset, such as:

o where and when the item was purchased and how much it cost
o where it is held or located
o how much it is insured for
o repair history
o serial numbers
o details of guarantees or warranties.
o depreciation rate and method, where relevant.

The record sheet should also state who is responsible for its maintenance
and security. The assets register should be checked by a senior manager or
committee member every quarter and any discrepancies reported and
appropriate action taken. See Appendix 19 for a sample assets register
record sheet.

Building and equipment maintenance policy

To preserve the value of buildings and equipment, an organisation must
have a pro-active policy of maintenance. For buildings this may require a
professional planned maintenance contract for which a realistic budget
must be provided.

Office equipment such as photocopiers and electrical equipment should

also receive regular services by qualified technicians to ensure they are safe
and operating properly.

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Insurance cover
Valuable assets should be insured to prevent loss to the organisation as a
result of every day risks such as fire, theft and natural disasters.

The decision whether or not to insure property is a good example of

managing risk weighing up the pros and cons of paying for insurance is a
common dilemma for managers.

Vehicle policy
Every organisation that owns vehicles should have a vehicle policy. This will
set down the policy on a range of issues such as:

o Depreciation
o Insurance
o Purchasing, replacement and disposal
o Maintenance and repair
o Private use of vehicles by staff
o What to do when accidents happen
o Driver qualifications and training
o Carrying of passengers.

The costs of repair and replacement must be also adequately reflected in

the budget process.

For each vehicle there should be a log of journeys so that the running costs
per KM can be assessed and private use closely monitored. (See Appendix
22 for a sample.) Once you have 12 months information on the costs of
running a vehicle, it is possible to calculate its average running costs per
kilometre.

See Table 6.1 for a worked example.

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Table 6.1: Calculating vehicle running costs

Vehicle make/model: Toyota Van

Date purchased: 26 December 2011

Purchase price: $20,000

Depreciation period 5 years, straight line method

/method:

Maintenance: Service every 6,000 km or every 3 months

KM run From 1 January to 31 December 2012:

KM on clock on 31/12/12 20,601
LESS KM on clock on 01/01/12 (201)
Total KM run during year: 20,400

1. Depreciation $

Purchase Price = $20,000

Depreciation period = 5 years
Annual depreciation charge = $20,000 / 5 4,000
2. Fuel consumption

Total fuel bills for the year 5,500

3. Maintenance costs

Total of invoices for the year for: repairs, service costs, spare 900
parts, tyres, etc

4. Insurance and tax

Insurance, road tax for the year 3,300

TOTAL VEHICLE RUNNING COSTS: 13,700

Cost per KM calculation:

Total costs for the year = $13,700 $0.67
Total no. of KM run 20,400 km

In conclusion, using the information from our accounts and the vehicle log
sheet, we can see that each kilometre run with the Toyota Van cost
approximately 67 cents.

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The reconciliation process

Reconciliation a DETECT action - involves verifying accounting records to
make sure that there are no errors or omissions that have so far gone
undetected. Records that should be reconciled at regular intervals are:

o Bank (cash) book

o Petty cash book
o Stock control records
o Salaries and deductions schedules.

Once the records have been successfully reconciled, the reconciliation

statement must be passed on to be independently checked with the source
records by a manager (or Board member in a smaller organisation), as
discussed below. The process may also highlight follow up actions, eg
actions to CORRECT the records.

Bank (cash) book

The bank (cash) book should be reconciled to the bank statement at least
once a month. The purpose of this exercise is to make sure that the
organisations own records agree with the banks records which are rather
like a parallel set of records. This is achieved by taking the closing bank
statement balance for a particular date and comparing it to the closing bank
book balance for the same date, then explaining the differences.

This is an important check not only for accuracy and completeness of

records, but also as an early indication of fraud.

Petty cash book

The petty cash should be counted and reconciled at least weekly. If the
imprest system is in use, this is a very easy operation as it is simply a matter
of counting up all the payments made since the last reimbursement and
counting the cash in the tin. The two totals together make up the total float.

If a discrepancy is found, it must be noted in the petty cash book as either

an expense unidentified or a surplus unidentified and allocated to an
appropriate category. Regular or significant discrepancies must be reported
to a manager.

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Stock records
Stock records must be checked against the supplies held in the store and
receipts from sales to ensure that no errors have crept in (and no stock has
crept out).

A sample stock control sheet for some T-shirts is reproduced in Table 6.2.
It shows the value of the stock the last time it was reconciled. Then it lists
new stock purchases and new sales. This gives us an expected stock value,
on paper at least. Note that the table lists both the cost value (ie what the
organisation paid the T-shirts supplier) and the resale value (ie what the
organisation expects to sell the T-shirts for).

However, when the T-shirts in the stock room are physically counted and
checked, the actual value is less than expected. (The brackets around the
bottom line figures indicate the stock value is short.)

What do you think might explain this difference?

Table 6.2: Sample stock control sheet

Cost Resale
value value
$ $
Value of stock at 1 Jan 200x 3,000 6,000
Add: Value of purchases between 1 Jan. to 31 Mar. 800 1,600
Deduct: Value of sales during the period 1,300 2,600
EXPECTED STOCK VALUE: 2,500 5,000
ACTUAL STOCK VALUE 2,450 4,900
Difference (50) (100)

This difference might be caused by one of several things:

The value of new purchases could be wrong eg the stock delivered

was short. This could happen if a delivery is not properly checked
against the delivery note and invoice when received from the
supplier.

The value of sales could be wrong eg the wrong amount could have
been charged or a sale not recorded or coded properly.

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Stock could have been stolen.

Stock could have been given out as gifts or for publicity purposes and
not recorded as such in the accounts.

Whatever the explanation, the difference has to be investigated and

systems reviewed if necessary. This demonstrates well the importance of
regular stock checks.

Wages book
The wages records, and particularly deduction records, are notorious for
containing inaccuracies and for abuse in the form of ghost employees (ie
people on the payroll who do not exist and where a salary is paid and
collected by a fraudster).

Wages records must be reconciled every month to ensure that the correct
deductions are being made and passed on to the relevant authority, to
avoid severe penalties and interest being imposed.

Checking accounting records

This is another key DETECT responsibility.

Managers
Managers, for example the Chief Executive, Programme Director and
Financial Controller in a larger organisation or Board members in a smaller
one, need to regularly check and authorise records to make sure
procedures are being followed correctly and transactions are valid.

Typically, these checks cover:

authorising staff expenses and receipts, to ensure they are valid

reviewing bank records and bank reconciliation statements to ensure

they are accurate, complete and up to date

counting the cash and checking and authorising the cash

reconciliation

counting stocks and checking inventory records

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reviewing order books to ensure delegated authority limits are

observed, orders are valid and with approved suppliers

signing off vehicle log sheets to verify journeys are valid

verifying the Assets Register is complete and accurately records the

NGOs assets.

Any evidence of non-compliance with procedures must be followed up by

appropriate CORRECTIVE action, for example training staff, re-writing
procedures or even disciplinary action in the case of improper behaviour.

Auditors
In addition to regular checks by management, every organisation should
have an annual audit, a more formal DETECT action. This topic is covered in
more detail in the next chapter.

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Chapter

7
7 Managing Audit
An independent check on accounting records and systems

This chapter:

Explains what an audit is

Describes the different types of audit
Provides an overview of the audit report

Gives advice on how to prepare for and manage the external audit.

What is an audit?
An audit is an independent examination of records, procedures and
activities of an organisation, resulting in a report on the findings. There are
two main types of audit:

Internal Audit undertaken for the benefit of those inside the

organisation, ie trustees and management.

External Audit primarily for the benefit of those outside the

organisation, eg stakeholders and funders.

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Why do NGOs need audits?

Audits are important for NGOs as they demonstrate a commitment to
transparency and accountability and bring credibility to the NGO. It is also a
legal requirement in most countries to have the financial statements
reviewed by an independent auditor once a year.

The audit should be a positive experience and not one to be feared. Use
your auditor to discuss ways of improving your accounting systems and
procedures.

Internal audit
Internal audit involves a structured review of systems and procedures, as
set by the Board and managers, to ensure efficient and effective practices. It
is not an internal policing function, rather an opportunity to improve
systems and build internal capacity. It may be carried out by someone
within or outside the organisation.

The independent review will include a range of checks, including:

financial accounting systems and procedures

management accounting systems and procedures

internal control mechanisms.

The Three Es influence an internal auditors approach:

Economy: paying no more than necessary for the resources needed.

Efficiency: getting the greatest benefit with the fewest resources.

Effectiveness: how successful we are at meeting objectives or doing

the right thing.

The internal auditors report will highlight their findings to the governing
body and management and make recommendations for action, where
needed. This could include a more detailed investigation, changing a
procedure or training a staff member.

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External audit
An external audit is an independent examination of the financial statements
prepared by the organisation. It is usually conducted for statutory purposes
(because the law requires it). External auditors may also be engaged to do
other specific assignments, (eg a fraud investigation).

Being independent means...

The auditor must not have been involved in keeping the accounting records and is not
personally connected in any way with the organisation being audited.

Although an auditors independence must be respected and observed at all

times, they are nonetheless providing a service for a fee you have a right
to expect value for money.

Purpose
The purpose of external audit is to verify that the annual accounts provide a
true and fair picture of the organisations finances, and that the use of funds
is in accordance with the aims and objects as outlined in the constitution.
The purpose of an external audit is NOT:

o To act as a fraud investigation

o To prepare the accounts
o To provide a certificate to say there are no problems
o Proof that internal control systems are effective
o Evidence that accounts are 100% error free.

Although it is not the prime role of the audit to detect fraud, this may of
course come to light during the checks that take place. Auditors have thus
been described as watchdogs not bloodhounds.

Appointment
An external audit can be conducted either as part of the annual review of
accounts or as a special review by a donor agency. It is conducted by a firm
of accountants with recognised professional qualifications.

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Auditors are appointed by the Board of Trustees (or Annual General

Meeting) or by a donor for a special audit. They are independent of the
organisation employing them.

What is involved?
Auditors only have a limited time in which to complete their work, so they
concentrate on testing the validity of a sample of transactions and results
rather than vigorously checking everything.

Auditor-speak de-mystified:
Material: An item is said to be material if it is considered to be significant to the users of
the financial statements.
Test basis: A representative sample, the rest of the transactions are assumed to be
similar to the sample tested

Figure 7.1: Sampling

Sampling involves checking a selection of records, for example:

a range of high value goods (represented by the slice in the diagram

in Figure 7.1) or

one months worth of transactions (the box in the diagram) or

a random set if transactions (the X marks in the diagram).

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Note that if there are errors or fraudulent transactions (as represented by

the black dots in the diagram), due to the sampling process, the auditor
does not guarantee to detect these.

The audit report

An external audit results in a report addressed to members, usually
presented and approved at the annual general meeting. The report gives an
audit opinion on the state of affairs of the organisation and operations for
the period.

If you have an opportunity to review your own or a partners financial

statement, it is worth looking closely at the auditor opinion to see what it
says. Everyone hopes for a clean audit report that is where the auditor
confirms that the financial statements fairly represent or give a true and fair
view of the organisations financial statements.

Auditor-speak de-mystified:
True means that the transaction did take place and that an asset exists.
Fair means that a transaction is fairly valued and that assets and liabilities are fairly
stated.

Modified audit opinions

The auditors do not always agree with the financial results presented by the
organisation. This could result in the auditor issuing what is known as a
qualified or modified opinion. There are two reasons why an auditor
would consider giving a modified audit opinion:

they conclude that the financial statements as a whole have

significant inaccuracies

they have not been able to find enough evidence to conclude that the
financial statements as a whole are free from significant errors.

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Table 7.1: External auditor opinions

Auditor opinion What it says and means

"The financial statements present fairly, in all

material respects... (or show a true and fair view
of...)"

Unmodified opinion. A 'clean' audit report.

Unqualified opinion

"The financial statements present fairly, in all

material respects... (or show a true and fair view
of...)"

Unmodified opinion. Still a clean audit

opinion but followed by a note on something
Unqualified opinion: that the reader needs to be aware of, eg an
with emphasis of matter outstanding legal action or a major
catastrophe.

"Except for the matters described above... the

financial statements present fairly (or give a true
and fair view of) ..."

Modified opinion. The accounts are basically

Qualified opinion: OK, apart from specific identified issues
subject to or described, eg an incorrect accounting policy,
except for or specific unsupported expenditure.

...the financial statements do not present fairly

(or give a true and fair view of)..."
Modified opinion. There so many significant
errors that the accounts do not give a true
Adverse opinion and fair view. This is serious.

"...because of the significance of the matter

described above ... we do not express an opinion
on the financial statements."
Modified opinion. The auditors are unable or
unwilling to give an opinion because the
Disclaimer of opinion records are so poor or incomplete. This is
very bad indeed.

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There are various degrees of modified opinion, depending on the

seriousness of the disagreement or concern with the financial
statements and records, as summarised in Table 7.1.

Where a modified opinion is given, the auditor must explain their

reasons in a 'Basis for Modification Paragraph' in the audit report. This
paragraph is normally placed before the opinion paragraph and details
the significant issues and errors they found during the audit.

If the auditors propose any adjustments or changes to the draft financial

statements, these must also be approved by the Board.

Management letter
Auditors often provide a Management Letter after the audit is completed.
This is separate to the audit report and is addressed to management. The
report highlights weaknesses identified in the internal control systems and
makes recommendations for improvements.

Managers have an opportunity to respond to the findings outlined in the

management letter and explain what action they will take.

Donor (or project) audit

On occasion, donor agencies may request an independent external audit of
records and activities and will appoint a qualified person to undertake a
review. The primary purpose of such a review is to check that grants are
being used as intended and in accordance with the budget in the original
funding agreement.

The auditor may wish to interview staff and committee members and even
request to observe the organisation in pursuance of its activities. Every co-
operation should be given during such visits and an effort made to be open
and honest about organisational strengths and weaknesses.

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What does the auditor need?

An auditor will need a quiet place to work where the checks can take place
without interruption. If individual staff members are to be interviewed, then
a private room where confidential discussions can take place will also be
required. Depending on the type of audit taking place, the auditor will
usually give advance notification of the records needed.

Do make sure that all the records are up-to-date and properly filed as this
will facilitate the routine checks and cause minimal disruption for the
organisation. This will also help to save on audit fees.

Here is a checklist of records and other documentation which might be

requested by the auditor:

Table 7.2: An auditors checklist

Group of Records Description of item

A. Primary records Cashbooks completely up to date to the year-end
of account: File of invoices/vouchers for all items of expenditure
File or book of receipts for money received
Bank statements, paying in slips and cheque books
Wages book and records
General ledger, if kept
B. Summaries and A Trial Balance and/or a summary of all receipts and
reconciliation payments by budget category
statements: Bank reconciliation statements for all bank accounts
at the year-end cut-off date
Petty cash reconciliation statement to the year-end
cut-off date
Stock sheets
C. Schedules: Schedule of Creditors (money owed by the
organisation)
Schedule of Debtors (money owing to the
organisation)
Schedule of Grants Due
Schedule of Grants Received in Advance
Fixed Assets Register

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Group of Records Description of item

D. Other information: A letter from bankers to confirm balances [this will
be requested by the auditors themselves]
Constitution of the organisation
List of Committee members and staff
Minutes of Board and management meetings
Donor agencies funding agreements and audit
requirements

Summary
Table 7.3: Different types of NGO audit

Area: Internal External Donor/Project

Main purpose Check effectiveness Verify the published Check that funds
of systems & accounts give a used in accordance
procedures true & fair view with the funding
agreement.
Focus of review Systems and Financial Grant agreement
(starting point) Procedures statements &
manual underlying records
Appointed by Management (but Board (or Donor, but may use
have direct line to members) normal external
the Board) auditor if on
approved list
Scope As per planned All financial Usually limited to
schedule based on transactions in the the project and
risk assessment. accounts, whole related grant
May be for a specific organisation funding.
department, grant
or period.
Report includes Findings and Auditors opinion Usually, auditors
recommendations and Management opinion(s) and
for improvements letter recommendations
Employed by The NGO or external External body External body
body (outsourced) (sometimes donor
themselves)
Qualifications No formal Must be qualified & Usually qualified &
requirement registered registered
accountant accountant

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Chapter

8
8 Fraud and Corrupt Practices
How to manage when things go wrong

This chapter:

Defines fraud and its impact

Explains how to detect and deal with fraud
Describes corruption and how it manifests itself

Looks at the risks of bribery on NGOs

Discusses how to implement a zero tolerance approach to bribery.

What is fraud?
There will be occasions when internal control systems fail to prevent losses
through theft, fraud or other irregularities. Fraud includes theft of goods or
property, falsifying expenses claims and falsification (or destruction) of
records to conceal an improper action.

Fraud is Intentionally lying or cheating to gain an advantage or to cause someone

else to make a loss

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Fraud does not include:

accounting errors

actions condoned by established practice

cases where no loss is incurred.

Other irregularities include unauthorised activities for private gain: eg

borrowing from petty cash, use of vehicles or abuse of telephones and other
equipment for private business. Although these activities are less serious
than fraud they must still be taken seriously as they represent abuse of
NGO resources.

Fraud has a damaging effect on the organisation with wide-ranging

consequences if not properly managed. Imagine a stone falling into a pond:
the initial splash is the loss of funds or equipment but it does not stop there,
as Figure 8.1 illustrates.

Figure 8.1: The ripple effect of fraud

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Top tips on the warning signs of fraud

Remember: Prevention is better than cure!

The following ideas may be an early indication of fraud or abuse. Use them
with care!

From the accounting records:

Lots of corrections to the manual cashbook this may include

extensive use of white-out or blocked out figures

Pristine records ie a manual cashbook that looks as if they have all

been written on the same day in the same hand. Could be an
indication of rewritten/duplicate books

Delayed banking of cash received shown up by bank reconciliation.

Could be unauthorised borrowing of cash.

Records not being kept up to date ie deliberately delayed so

managers cannot detect false accounting going on.

Missing supporting documents eg certain bank statements

destroyed to cover someones tracks, or a project officer who
regularly claims to have lost receipts.

Debtors rising unexpectedly eg if debtors have paid but the cash is

being pocketed. This may occur if there are poor controls in issuing
receipt books as someone could take an unused book and issue valid
receipts without them ever being entered into the accounting
records.

Hand written supporting documents with errors and corrections on

them. Indicates possible changes made after the goods or services
were purchased.

Cash counts not reconciling to the accounts but reconciling at the

next cash count possible borrowing of funds by the safe key holder.

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Reports:
Budget monitoring reports showing inconsistent behaviour between
line items - eg project-related expenditure is under-spent due to
delays except for fuel which is over-spent. This could indicate abuse
of the vehicle.

Vehicle log books not maintained in an appropriate level of detail.

This could indicate abuse of the vehicle.

Budget monitoring reports delayed to cover up something?

Non-financial areas:
Working very long hours first in last out of the office? Could mean
that they have to work more to cover their tracks?

Never taking holidays cant afford for someone else to see what
they are doing!

Change of lifestyle or spending patterns dont match their income (eg

designer clothes, social habits, expensive car...)

Creating smoke screens where someone is making a false

accusation about another team member to give them time to cover
their tracks or make a getaway!

And some Ideas on fraud prevention:

Make sure you have robust internal control systems in place.

Visit projects, and see if the activities carried out roughly match the
expenditure.

Share financial reports with beneficiaries, and ask if they think they
have had value for money.

Hold regular meetings with other staff at all levels (eg project and
administrative staff, Board members, etc) to discuss financial reports,
making budgets and reports openly available.

Help non-finance staff and managers improve their financial skills, for
instance by reading Mango's Guide to Financial Management
(available on the CD-Rom in your training pack.)

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How to deal with fraud

Incidents of fraud and other irregularities require sensitive handling to
minimise the long-term impact. It is important to be prepared to deal with
any occurrences of fraud or financial irregularity by having a written
procedure which covers steps that need to be taken.

Deterrence
The procedure should state clearly that routine controls, checks and
balances are in place to safeguard the assets of the organisation. The
controls also protect staff from any suspicion of, or temptation to, fraud or
other impropriety. Paid staff and volunteers are therefore obliged to co-
operate fully with internal control procedures and failure to do so will be
dealt with as appropriate within the organisations disciplinary code.

Types of irregularity
The procedure will identify different types of irregularity, how seriously they
are viewed, and how they will be dealt with. For example, all instances of
theft and fraud will be viewed as Gross Misconduct and result in immediate
dismissal and loss of terminal benefits. It should include a clear statement
on the circumstances in which the Police will be informed. This must take in
to account local circumstances and cultural practice.

Detection

A procedure for reporting suspicions of irregularities should be made clear

to all. This should make it easy for people to report concerns in confidence
and without fear of retribution.

When an irregularity is reported or detected, record the details in writing

and report it immediately to a manager. Follow up all reports or suspicions
immediately, do not allow rumours to spread or let the trail go cold.

Investigation
When an incident is reported, it must be dealt with quickly and sensitively.
Look for corroboratory evidence before instigating a formal investigation. If
all the evidence points to an irregularity, the individual(s) involved should be
formally interviewed with a third person present to take notes.

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Protect documents and records by either removing access to them by those

involved in the irregularity or by suspending the people involved during the
investigation. Depending on the nature of the irregularity, an investigation
could be conducted by a senior manager or Board member, the internal
auditor, the external auditor or, in more serious cases, the Police.

The aftermath
Dont under-estimate the long-term and less tangible impacts of fraud. It
will involve a lot of a managers time during the investigation and
afterwards. In particular:

People will be distressed by the experience and need to be

supported. Colleagues will suffer all the mixed emotions of
bereavement: anger, guilt, disappointment and loss. They may worry
that their jobs are under threat.

New staff may need to be recruited and trained.

The media may get hold of the story and ask for information

Donors will need reassuring that their resources are safe and the
project will not suffer.

Summary
Keep RISKS LOW in mind when managing a fraud or similar incident:

DO Report the incident to a superior or Board member

Investigate incidences, gather the facts
Secure the assets and records
Keep calm!
Swiftly act
DONT Look the other way
Overlook the fall out of a fraud
Withhold information to protect others

Above all, remember that prevention is better than cure!

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What is corruption?
Corruption happens in all countries of the world and
affects all levels in society. But its affects are most
severely experienced in the developing world and by the
poorest in society ie the communities that NGOs work
with most often.

Corruption is the misuse of entrusted power for private gain.

Transparency International

More than $1 trillion is paid globally in bribes each year. That means $1 out
of every $30 of GDP is being paid in bribes (World Bank Institute 2004).

It is estimated (by The Economist 2010) that as much as 25% of Africas

GDP is cost of corruption in Africa.

Bribery is estimated to raise the average Kenyan familys annual cost

of living by 15%. (Transparency International 2011).

Corruption debases democracy, undermines the rule of law, distorts markets, stifles
economic growth, and denies many their rightful share of economic resources or life-
saving aid. Kofi-Annan, former General Secretary of the UN

Corruption appears in many different forms including bribery, fraud, sexual

exploitation, cronyism and money laundering.

See Table 8.1 for definitions of typical corrupt practices.

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Table 8.1: Key definitions

Bribery The offering, promising, giving, accepting or soliciting of an

advantage as an inducement for an action which is illegal,
unethical or a breach of trust. Inducements can take the
form of gifts, loans, fees, rewards or other advantages.

Collusion An agreement, usually secretive, which occurs between two

or more people to limit open competition by deceiving,
misleading or defrauding others. It can involve price-fixing,
illicit payments to influence purchasers or misrepresenting
the independence of the relationship between the colluding
parties (eg resulting from nepotism and cronyism).

Corruption The misuse of entrusted power for private gain, which can
be both personal gain and gain or advantage to a company
or organisation.

Cronyism The appointment of friends and associates to positions of

authority, without proper regard to their qualifications.

Embezzlement Fraudulently acquiring funds or property entrusted to your

care but actually owned by someone else.

Extortion The practice of obtaining something, especially money or

property, through force or threats.

Facilitation A form of bribery made with the purpose of expediting or

payments facilitating the performance by a public official of a routine
governmental action and not to obtain or retain business or
any other undue advantage. Typically demanded by low
level, low income officials in exchange for providing services
to which one is legally entitled without such payments.

Fraud Wrongful or criminal deception intended to result in

financial or personal gain.

Money laundering A process whereby the identity and origin of illegally

obtained money, such as bribes, are concealed or disguised.
The objective is to make illegally obtained money to appear
as if it comes from a legitimate source.

Nepotism The practice among those with power or influence of

favouring relatives or friends, especially by giving them jobs.

Sexual Where someone uses their position to gain sexual favours.

exploitation

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Bribery and the NGO sector

Bribery is the most common form of corruption affecting poorer
communities.

Bribery is
The offering, promising, giving, accepting or soliciting of an advantage as an inducement
for an action which is illegal, unethical or a breach of trust.

NGOs are at particular risk of paying bribes due to the nature of their work.

Key risk factors for NGOs:

The countries NGOs operate in have high rates of corruption.

NGO work involves frequent contact with public officials, eg for

licenses, crossing borders.

NGOs have regular relationships and often work in partnership

with government agencies.

The humanitarian nature of NGO work means they need to get

things done quickly.

NGOs, unlike companies, do not base decisions on where to

operate according to the levels of corruption.

NGO structures involve working with local partners and Third Party
agents.

NGO operations are decentralised and field staff make local

decisions.

In many countries it is illegal to receive and pay a bribe. This is an important

risk factor for NGOs and their staff to consider. But NGOs must also
recognise that bribery is unethical and they have a moral obligation to fight
bribes in their work. Paying bribes embeds and sustains corruption.

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Bribery is not victimless: it affects all communities but affects the poor most.

Bribery is always a two-way transaction there is a payer and the

receiver therefore, if we cut off the flow of bribes, bribery cannot
happen. This is the basis for the argument for a zerotolerance
approach to bribes.

Zero tolerance approach to bribes

Mango supports a zero-tolerance approach to bribery. We recommend all
NGOs create an anti-bribery policy and train their staff to use it.

The anti-bribery principles put forward by Bond and a group of international

NGOs in 2010 provide a strong framework for an anti-bribery policy and
action plan. (See Anti Bribery Principles and Guidance for NGOs at
www.bond.org.uk ). The Seven Principles focus on internal policies and
practice, plus the principle of collective NGO action:

Figure 8.2: Seven principles for zero tolerance

High level
commitment

Monitoring
Risk
and
assessment
evaluation

Internal
+
Collective
policies action
Dissemination Robust anti-
and bribery
communication procedures
Due
diligence on
partners &
agents

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Seven anti-bribery principles for NGOs

1. High-level commitment
The Board of Trustees and senior management should commit to and oversee the
implementation of a policy of zero-tolerance, recognising that bribery is contrary to
fundamental values of integrity, transparency and accountability and undermines
organisational effectiveness.

2. Risk assessment
Bribery risk assessment should form part of each organisations overall and
ongoing risk management process.

3. Devise and implement robust anti-bribery procedures

Organisations should devise, implement and maintain robust procedures, which
are proportionate to the risks and to the size, resources and complexity of the
organisation.

4. Due-diligence assessment of partners, agents and contractors

The organisation should assess the bribery risk associated with entering into
partnership or contracting arrangements with other entities and then carry out
periodic due diligence based on that risk assessment. Partnership or contractual
arrangements should check that these organisations have policies and procedures
which are consistent with these Principles and Guidance.

5. Dissemination and communication

The organisation should establish effective internal and external communication of
its policy and procedures. The organisation should undertake training and
awareness programmes to ensure staff, agents and partners are aware of the
potential risks, how bribery might affect them, what they should do if they are
offered a bribe, and the consequences should they be found to have made or
received a bribe.

6. Monitoring and evaluation

Implementation of anti-bribery procedures should be monitored as part of overall
risk management and internal control processes. Periodic reviews of anti-bribery
procedures should be made and reported as part of governance and accountability
processes. Organisations that are exposed to higher risks should consider external
verification and assurance of their anti-bribery procedures.

7. Collective action
The organisation should commit to sharing information and strengthening
collective action to prevent bribery.

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To implement the zero tolerance approach, there are five key tactics to
follow:

Figure 8.3: Five tactics for anti-bribery action

Assess risk
The first stage of developing a zero-tolerance to bribery is to identify where
your NGO is at risk of encountering bribes:

Identify the key risk areas linked to your operations, eg working with
partners, procurement, recruitment etc.

Identify what the bribery risk is likely to be, eg facilitation payments,

jobs for favours

Assess the frequency of the bribery risk

Assess the consequence if the bribe is not paid, eg delays to projects.

With this information, you can then prioritise action to reduce the risk of
bribes now and in the future.

There are many techniques to capture and measure risk and your
organisation may already have a preferred approach. Table 8.2
illustrates an example template.

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Table 8.2: Example risk assessment template

Risk Assessment Table Organisation/Dept: Mango - Training Dept.

Priority
Possible consequences if
Key risk area What is the bribery risk? Frequency of bribery risk for
bribe is not paid
action
1 Sending training Customs officials want money to Monthly (most get through Customs do not release boxes. H
materials by release the box. OK) Materials don't arrive for the
courier training, affecting quality of
service.

2 International travel Officials request bribes at border Frequent travel, experience Staff delayed; flights could be H
crossings, for visas on entry, varies but estimate 6 to 10 missed; training services will
airport departure points, Police times a year suffer if trainer does not arrive in
checks on roads to airport. time.

3 Working with Potential for money laundering. Rare, partners are closely Loss of contract income. M
training partners vetted and relationship
developed over time.
4 Working with Partners may not have zero- Unknown, will vary according Partners may not fulfil agreed M
training partners tolerance policy to area of operation objectives.

How to use the risk assessment table

Column 1: Identify the red flag key risk areas based on where and
how you operate, who you work with (eg with partners, using agents,
working with government agencies), what projects you run (eg
emergencies, construction) etc.

Column 2: Identify the bribery risks for each key risk area ie how
will bribery manifest itself?

Column 3: Estimate how often a bribe is likely to be encountered.

Column 4: What are the consequences if the bribe is not paid this is
to help recognise how serious the risk is and which area to prioritise
action.

Column 5: Rank the risk areas according to those that you need to
work on first (eg High, Medium or Low or 1, 2 and 3).

Action plan: for each item, prepare a response to show options for
minimising the risk.

The following pages share some ideas on how to resist and avoid paying
bribes.

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Strategies for safely resisting bribes

It is important to do whatever we can to resist paying bribes until we can
find a longer-term solution through techniques to avoid bribes through
project design.

All staff should be trained in these techniques to give them confidence to

resist bribes safely.

Resisting techniques

Be prepared

o Dont give impression that there is a time pressure

o Learn from NGOs who dont pay
o Have backup eg witnesses, someone who understands
the local language and environment
o Make it clear you dont pay bribes from the outset (eg it is
illegal to pay bribes in my country).

Find allies
o Eg someone in a position of authority.

Deflect approaches
o Brush it off smilingly
NGOs dont
pay bribes
o Play ignorant.
Halt the meeting if it looks as if a bribe will be requested

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Strategies for avoiding and reporting bribes

Avoiding bribes techniques

NGOs dont
Active zero tolerance policy pay bribes
o Identify and mitigate risks of bribery
o Embed into organisation culture, train staff
o Give staff the confidence to say no
o Establish reputation for not paying bribes
o Robust internal controls
o Whistle-blowing procedures.

Design out bribes in project design

o Remove urgency, build in longer timescales if starting up in a

new country
o Careful selection of agents and partners
o Work around high risk practices, eg dont pay per diems
o Local knowledge, eg which ports and routes are corruption-free?
Which government departments or officials are less corrupt?

Record and report incidence of bribes

o Record and share internally

o Report externally, eg other NGOs, Embassies, anti-corruption
agencies, media.

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Consider collective action

If enough NGOs (and companies) resist paying bribes and share
information, some endemic corrupt practices will be forced out. Publicising
known regular corrupt practices in the local media such as the infamous
road block on airport roads could also have a positive impact.

It is also worth contacting the local Transparency International chapters or

embassies for advice on local resistance strategies, and to report corrupt
practices to them.

Corruption hits hardest at the poorest in society.

Mary Robinson, former President of Ireland

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References

Financial Management and Accounting:

1. A Practical Guide to Financial Management for Charities and Voluntary Organisations.
Kate Sayer. Directory of Social Change, 2003.
2. Accounting and Finance for Charities: For Love and Money. David Wise. ICSA
Publishing/Prentice Hall Europe, 1998.
3. The Good Financial Management Guide For The Voluntary Sector. Paul Palmer,
Fiona Young, and Neil Finlayson, 2005.

Strategic Financial Management:

4. The Virtuous Spiral A Guide to Sustainability for NGOs in International Development.
Alan Fowler. Earthscan/INTRAC, 2000.
5. Income to Impact: Financial Stewardship of Public Sector and Not-for-profit
Organisations. Adrian Poffley. Directory of Social Change, Second Edition, 2010.
6. Not Just For A Rainy Day? Guidelines on developing a reserves policy and putting it into
practice. Shirley Gillingham and John Tame. NCVO 1997.

General and Project Management:

7. Managing Without Profit The Art of Managing Third-sector Organizations. Mike
Hudson. Published by Penguin Group, Third edition, 2009.
8. The Complete Guide to Business and Strategic Planning for Voluntary Organisations.
Alan Lawrie. Directory of Social Change, Third Edition, 2007.
9. The Complete Guide to Creating and Managing New Projects for Voluntary Organisations.
Alan Lawrie. Directory of Social Change, Third Edition 2010.
10. Good Trustee Guide. Published by NCVO (UK), Fifth Edition, 2008.

Fundraising and Proposal Writing

11. The Worldwide Fundraisers Handbook. Michael Norton and Resource Alliance.
Directory of Social Change, Third Edition 2009.
12. Writing Better Funding Applications a practical handbook with worked examples.
Michael Norton and Michael Eastwood. Directory of Social Change 2009.

Bribery and Corruption

13. Anti Bribery Principles and Guidance for NGOs, Bond 2010, www.bond.org.uk
14. Corruption perceptions index, Transparency International,
www.transparency.org

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Appendices

Appendix 1: Milestones Chart Of Accounts 1

Appendix 2: Delegated Authority Document 3
Appendix 3: Bank Book Receipts Page 4
Appendix 4: Bank Book Payments Page 5
Appendix 5: Petty Cash Book 6
Appendix 6: Bank Reconciliation Form 7
Appendix 7: Receipts & Payments Account 8
Appendix 8: Income & Expenditure Account 9
Appendix 9: Balance Sheet 10
Appendix 10: Notes to the Accounts 11
Appendix 11: Consolidated Budget 12
Appendix 12: Budget Worksheet 13
Appendix 13: Cashflow Forecast 13
Appendix 14: Budget Compared To Actual Report 15
Appendix 15: Donor Report 16
Appendix 16: Budget Forecast 17
Appendix 17: Financial Management Work Plan 18
Appendix 18: Sample Expenses Claim Form 19
Appendix 19: Sample Fixed Asset Register 20
Appendix 20: Sample Payment Voucher 21
Appendix 21: Sample Bank Reconciliation Form 22
Appendix 22: Sample Vehicle Log Sheet 23
Appendix 23: A Checklist for Good Practice 24
Appendix 24: Integrating Financial Management Checklist 25
Appendix 25: Mangos Health Check 27
 FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

Appendix 1: Milestones Chart Of Accounts

Page 1 of 2

Account Description Code Comments

INCOME: DONOR
- DFID 1010 For grants received from this donor
- Smile Trust 1020 For grants received from this donor
- Vanguard Society 1030 For grants received from this donor
INCOME: GENERAL
- Bank Interest 1110 Interest received on bank accounts
- Donations & fundraising 1120 Fund-raising activities, miscellaneous donations
- Sales 1130 Sales of trainees work
- Training fees 1140 Course participants contributions
EXPENDITURE: ADMINISTRATION
- Audit/accountancy 3010 Audit fees, other accountancy expenses
- Bank charges 3020 Service fees, interest charged on OD balances
- Board meetings 3030 Room hire, refreshments, AGM expenses
- Depreciation 3040 Cost of depreciation of fixed assets
- Postage & stationery 3050 Postage, office and photocopier consumables
- Publicity 3060 Posters, leaflets, advertising training courses
- Rent & utilities 3070 Office rent, insurance and utilities
- Repairs & renewals 3080 Servicing, small items of equipment, office repairs
- Telephones/fax 3090 Telephone accounts, not repairs
EXPENDITURE: PERSONNEL
- In-service training 4010 Course fees, meals & accommodation
- Recruitment 4020 Recruitment advertising costs, interview expenses
- Salaries & benefits 4030 Gross salaries, housing, medical aid and pensions
- Travel & subsistence 4040 Per diem, meal and overnight allowances, bus fares
EXPENDITURE: VEHICLE RUNNING
- Fuel 5010 Petrol, diesel and oil costs
- Vehicle insurance/tax 5020 Vehicle Insurance premiums and road tax
- Vehicle maintenance 5030 Service, repairs, tyres, spare parts, car wash
EXPENDITURE: TRAINING
- Fees & honoraria 6010 Guest speakers & external trainers fees/expenses
- Food & accommodation 6020 Room hire, food for trainees
- Training materials 6030 Tools, protective clothing, papers, pens, metal, concrete,
etc

Mango 2016 A1
 FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

Page 2 of 2

FIXED ASSETS:
- Office Equipment 0110 Computers, printers, desks, chairs, etc.
- Project Equipment 0120 Large tools and training equipment
- Vehicles 0130 Cars, mobile workshop
CURRENT ASSETS:
- Bank Deposit Account 0210 High interest call account
- Bank Current Account 0220 Cheque account
- Petty Cash 0230 For adjustments to the petty cash Imprest float
- Debtors & prepayments 0240 Money owed to us (eg unpaid training fees) or prepaid
amounts for goods/services not yet received
- Advances 0245 Staff loans and working advances
- Grants receivable 0250 Grants due for this year but not yet received from
donor
- Stocks 0260 Stocks of raw materials, eg wood and metal
LIABILITIES:
- Creditors & accruals 0510 Unpaid suppliers invoices and accrued expenses
- Grants In advance 0520 Donor funds received for future activities
- Reserves 0530 Funds designated for use in future years

PROJECT COST CENTRES

Description Code Comments

- Co-ordination 01 Transactions to be allocated to the Co-ordinators

Department

- Building Department. 02 Transactions to be allocated to the Building Trades

Department

- Metalwork Dept. 03 Transactions to be allocated to the Metalwork

Department as a whole

- Metalwork: Furniture 03-01 Transactions to be allocated to the Furniture section of

Project the Metalwork Department only

- Metalwork: Vehicles 03-02 Transactions to be allocated to the Vehicle section of

Project the Metalwork Department only

A2 Mango 2016
 FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

Appendix 2: Delegated Authority Document

AREA OF AUTHORITY: LIMITS APPLIED: DESIGNATED PERSONS:

1. Legal documents (where Any two from:
not covered below) Ch, Tr, Se, CE.
2. Leases on property and Up to $25,000 Any one from: Ch, Tr, Se, CE.
equipment Over $25,000 Any two from: Ch, Tr, Se, CE.
3. Current Account Cheques up to $2,000 Any two from: Ch, Tr, Se, CE,
one other designated BM
Over $2,000 Any two from: Ch, Tr, Se, one
other designated BM.

4. Bank Account Transfers Up to $25,000 Any two from: Ch, Tr, Se, CE,
one other designated BM
Over $25,000 Any two from: Ch, Tr, Se, one
other designated BM.
5. Staff advances/loans Max. $2,000 CE (or in case of CE, Ch or Tr)
6. Staff expenses LM for all staff below CE level
Ch or Tr for CE
7. Board Member expenses Ch or Tr
8. Orders for Goods & Up to $1,000 SO, providing within budget
Services Up to $5,000 OM, providing within budget
Up to $25,000 CE, providing within budget
Up to $50,000 Ch or Tr, providing within
Over $50,000 budget
Any 2 BM and minuted by full
Board Meeting.
9. Petty Cash expenditure Up to $50 (single transaction) AO
Over $50 FC
10. Safe Keys FC and Tr
11. Receipt of cash & cheques AO
12. Banking of cash & cheques AC
13. Annual / sick leave LM
14. Maternity / Paternity CE (or in case of CE, Ch or Tr)
Leave
15. Contracts of Employment All staff Ch, Tr or S

KEY: Ch = Chairperson; Tr = Treasurer; S = Secretary; BM = Board Member

CE = Chief Executive; OM = Operations Manager; FC = Financial Controller;`
AO; Accounts Officer; AC = Accounts Clerk; SO = Senior Officer; LM = Line Manager.

Mango 2016 A3
A4
MILESTONE PROJECT: Bank Book Receipts January Year 9
1 2 3 4 5 6 7 8 9 10 11

AN ALY SIS O F R ECEIPT S CAT EGO RY

Date Details of transaction Recpt. Cost Total Grant Grant Donations Sales Training Other
No. Centre UC* DFID SMILE & fundrg Fees [add code]
1010 1020 1120 1130 1140
03/01 Cash received for sales goods 46m 03 250.00 250.00

10/01 Donation from Mrs Dlamini 21c 01 100.00 100.00

21/01 Course fees 03b 02 2,000.00 2,000.00

23/01 Misc. sales 04b 02 500.00 500.00

Appendix 3: Bank Book Receipts Page

28/01 Course fees 47m 03-01 1,500.00 ` 1,500.00

th
30/01 4 qtr, SMILE grant 05b 01 10,000.00 10,000.00
FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

PAGE TOTAL 14,350.00 - 10,000.00 100.00 750.00 3,500.00

Plus: Balance brought forward from last month: 7,894.96
Less: Total Payments for the month: (11,692.08)
Balance carried forward to next month 10,552.68

*UC = Unit of currency

Mango 2016
 MILESTONE PROJECT: Bank Book Payments January Year 9

Mango 2016
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
AN ALY SIS O F P AY M ENT S CAT EGORY
Date Payee/ details of transaction Cheque Cost Amount Postage & Rent, Ins Repairs & Tel/fax Salary & Travel & Fuel Food & Training Other
or ref. Centre Paid Staty & Utilities Renewals Benefits Subs Accom. Materials [add code]
no. UC * 3050 3070 3080 3090 4030 4040 5010 6020 6030

03/01 SPM Lettings 13571 01 400.00 400.00

03/01 Petty cash imprest 13572 02 176.54 14.00 15.00 30.00 73.00 44.54

03/01 Safeway Insurance Co. - office 13573 01 789..00 789.00

04/01 Newmans Garage December 13574 03 1362.00 1362.00

04/01 NGO Assembly room hire 13575 01 50.00 50.00

04/01 Pat's Restaurant deposit 13576 01 150.00 150.00

Appendix 4: Bank Book Payments Page

04/01 H. Brown December travel 13577 02 65.35 65.35

10/01 JS Supplies December 13578 02 672.34 75.75 288.70 307.89

10/01 SEB Electricity December 13579 01 375.21 375.21

11/01 Pat's Restaurant balance due 13580 01 675.00 675.00

11/01 D&J Timber Supplies stocks 13581 02 1,085.19 1,085.19

12/01 Office Supplies Ltd, desk/chair 13582 01 1,000.00 1,000.00

[0110]
13/01 Petty cash imprest 13583 01&02 199.15 65.44 20.56 7.50 86.15 19.50
FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

21/01 Jo Joshi - Nov/Dec. travel 13584 03 135.00 135.00

25/01 Telecoms phone bill 13585 01 657.30 657.30

29/01 J. Joshi January salary 13586 03 2,300.00 2,300.00

29/01 H. Brown volunteer allowance 13587 01 800.00 800.00

29/01 P. Khan - volunteer allowance 13588 03-02 800.00 800.00

PAGE TOTAL: 11,692.08 155.19 1,564.21 309.26 657.30 3,900.00 222.85 1,478.15 948.00 1,457.12 1,000.00
* UC = Unit of currency

A5
A6
MILESTONE PROJECT PETTY CASH BOOK
Period covered: 1 to 12 January Year 9
ANALYSIS OF PAYMENTS
Date PCV Details of transaction or Cash Cash Cash Postage Repairs & Travel & Fuel Food & Training Other
No. cheque reference In Out Balance & staty Renewals Subs Accom Mats.
UC* UC* UC* 3050 3080 4040 5010 6020 6030
Appendix 5: Petty Cash Book

3/1 Cash balance brought forward: 23.46 - 23.46 - - - - - - -

3/1 - Top up cheque no. 013572 176.54 - 200.00
3/1 1 Milk & coffee for office - 10.57 189.43 10.57
3/1 2 Calculator batteries - 9.99 179.44 9.99
5/1 3 Stamps - 7.00 172.44 7.00
6/1 4 Petrol Jos van. Bldg dept - 45.00 127.44 45.00
7/1 5 Fax paper - 13.49 113.95 13.49
10/1 6 OHP materials, pads & pens - 29.45 84.50 9.95 19.50
10/1 7 Petrol for Hari's car - 35.65 48.85 35.65
11/1 8 Oil for Haris car - 5.50 43.35 5.50
12/1 9 DHL to New York - 35.00 8.35 35.00
FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

12/1 10 Lunch/bus fare, Treasurer - 7.50 0.85 7.50

PAGE TOTAL: 200.00 199.15 0.85 65.44 20.56 7.50 86.15 - 19.50
A B C

*UC = Unit of currency Total A must = B + C

Mango 2016
 FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

Appendix 6: Bank Reconciliation Form

Milestone Project, Bank Reconciliation

Bank account details: RNU Bank, Current account no. 00067891

Bank statement date: 31 January Year 9
Bank statement sheet number: 37

A. Balance as on bank statement: 12,024.98

Less payments in cashbook, not on statement

04/01 chq no. 13575 NGO Assembly (50.00)

25/01 chq no. 13585 Telecomms Co. (657.30)
29/01 chq no. 13586 J. Joshi (2,300.00)

B. Total deduction (3,007.30)

Plus receipts in cashbook, not on statement

28/01 Course fees 1,500.00

C. Total addition 1,500.00

Less receipts on statement, not in cashbook

None

D. Total deduction 0.00

Plus payments on statement, not in cashbook

Bank charges 35.00

E. Total addition 35.00

F. Balance in Bank Book [A-B+C-D+E] 10,552.68

Reconciliation performed by: A.D.Ministrator
Signed: ADM Date: 7 Feb Y9
Reconciliation checked by: A. Treasurer
Signed: AT Date: 9 Feb Y9

Mango 2016 A7
 FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

Appendix 7: Receipts & Payments Account

Receipts and Payments Account for the Milestone Project

1 January to 31 December Year 8
UC UC

Opening balance cash and bank 2,880

RECEIPTS
Donor grants Received:
DFID 48,000
SMILE Trust 43,000
Donations & fundraising 750
Training fees 13,540
Sales 11,406
Bank interest 832
Total receipts 117,528

PAYMENTS
Personnel costs 46,580
Training expenses 20,588
Vehicle running expenses 14,886
Audit/accountancy 510
Bank charges 455
Board meetings 2,156
Postage & stationery 4,768
Publicity 396
Rent & utilities 9,985
Repairs & renewals 689
Telephones & fax 9,450
Office Equipment 1,850
Total payments (112,313)

Closing balance cash and bank 8,095

UC = Unit of Currency

A8 Mango 2016
 FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

Appendix 8: Income & Expenditure Account

Milestone Project
Statement of Income & Expenditure for the year ended 31 December Year 8

Year 7
INCOME: UC UC UC
Donor Income:
-DFID 48,000 45,000
-SMILE Trust 48,000 96,000 45,000
Other Income:
-Donations & Fundraising 6,750 6,600
-Training Fees 14,640 12,250
-Sales 11,765 6,768
-Bank Interest 832 33,987 698
TOTAL INCOME: 129,987 116,316

EXPENDITURE:
Personnel Costs 52,580 48,780
Training Expenses 20,588 18,743
Vehicle Running Expenses 15,686 12,670
Depreciation 12,455 13,633
Administration:
-Audit/Accountancy 587 500
-Bank Charges 455 387
-Board Meetings 2,057 1,480
-Postage & Stationery 4,838 6,776
-Publicity 396 325
-Rent & Utilities 9,994 6,524
-Repairs & Renewals 539 324
-Telephones & Fax 9,341 28,207 6,803
TOTAL EXPENDITURE: 129,516 116,945

EXCESS OF INCOME /(EXPENDITURE) FOR THE YEAR: 471 (629)

UC = Unit of Currency`

Mango 2016 A9
 FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

Appendix 9: Balance Sheet

Milestone Project
Balance Sheet as at 31 December Year 8

Year 8 Year 8 Year 7

Note UC UC UC

Fixed Assets
Tangible Assets 1 112,091 122,696

Current Assets
Cash at bank and in hand 8,095 2,880
Grants Receivable 10,000 5,000
Debtors 2 2,459 1,000
20,554 8,880

Current Liabilities payable within 12 months

Creditors and accruals 3 3,262 2,664

Net Current Assets 17,292 6,216

Net Assets 129,383 128,912

Represented by:

FUNDS 4

General Purposes Fund 13,292 6,216

Designated Fund Equipment
Replacement 4,000 -
Designated Fund Fixed Assets 112,091 122,696

Total Funds 129,383 128,912

[UC = Unit of Currency]

A10 Mango 2016

 FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

Appendix 10: Notes to the Accounts

Note 1 Fixed Assets

UC UC
Value at 1 January 122,696 130,329
Plus: Additions during the year 1,850 6,000
Less: Depreciation for wear & tear (12,455) (13,633)
112,091 122,696

Note 2 Schedule of Debtors as at 31 December Year 8

Description UC
Training fees due for Year 8 courses 2,100.00
Misc. sales invoices 359.00
Total Debtors & Prepayments 2,459.00

Note 3 Schedule of Creditors& Accruals as at 31 December Year 8

Payee Description UC
ML Electricity Co. December electricity bill 375.21
Telecomms Ltd December telephone a/c 657.30
City Stationers Ltd Photocopying paper 145.25
Newman's Garage December petrol, new tyres 1,362.00
J. Joshi Travel expenses for December 135.00
PWC Audit fee for Year 8 audit (est.) 587.00
Total Creditors & Accruals 3,261.76

Note 4 Accumulated Funds

Year 8 Year 7
UC UC
Balance at beginning of the year 128,912 129,541
Plus surplus/(less deficit) for period 471 (629)
Balance at the end of the year 129,383 128,912

The designated fund for fixed assets (or Capital Fund) represents the resources invested
in the organisations tangible fixed assets, and which are therefore not readily available
for other purposes.

Mango 2016 A11

 FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

Appendix 11: Consolidated Budget

Milestone Consolidated Budget

1 January to 31 December Year 9

Cost Centre Budgets:

01 02 03
Total Co-ordination Building Metalwork
Budget Dept. Dept. Dept.
INCOME UC UC UC UC
DONORS DFID 90,000 20,000 35,000 35,000
Smile Trust 90,000 18,000 36,000 36,000
Vanguard Society 15,000 0 0 15,000
OTHER Bank Interest 1,000 1,000 0 0
Donations & fundraising 8,000 2,000 3,000 3,000
Sales 24,800 0 15,300 9,500
Training Fees 42,500 100 21,200 21,200
Total Income: 271,300 41,100 110,500 119,700
EXPENDITURE
ADMINISTR- Audit/accountancy 4,500 1500 1500 1500
ATION Bank charges 600 200 200 200
Board Meetings 1,200 400 400 400
Depreciation 6,000 2,000 2,000 2,000
Postage & stationery 7,500 2,500 2,500 2,500
Publicity 1,500 500 500 500
Rent & utilities 9,000 3,000 3,000 3,000
Repairs & renewals 1,500 500 500 500
Telephones/fax 6,300 2,100 2,100 2,100
STAFF Salaries 47,700 0 23,850 23,850
Housing costs 7,200 7,200 0 0
Medical insurance 8,600 0 4,300 4,300
In-service training 4,500 1,500 1,500 1,500
Recruitment 0 0 0 0
Travel & subsistence 3,000 1,700 650 650
VEHICLE Fuel 9,000 4,000 2,500 2,500
RUNNING Vehicle Insurance 18,000 6,000 6,000 6,000
Vehicle maintenance 24,000 8,000 8,000 8,000
TRAINING Fees & honoraria 3,000 0 1,500 1,500
Food & accommodation 16,000 0 8,000 8,000
Training Materials 92,200 0 41,500 50,700
Total Expenditure: 271,300 41,100 110,500 119,700
Surplus/deficit 0 0 0 0

A12 Mango 2016

 Milestone project: Metalwork Department Budget Worksheet (Direct Project Costs)

Mango 2016
Budget Period: 1 January to 31 December Year 9

Line Budget Item Unit Type No. Frequ- Unit Total Notes Account
ref. Units ency Cost code
UC* UC*

A Project Staff Costs 30,300

Appendix 12: Budget Worksheet

A1 Metalwork trainer salary Month 12 1 1775 21,300 1 x full time post 4030
A2 Government taxes Month 12 1 212.5 2,550 Approx. 12% of salary 4030
A3 Medical Insurance Lumpsum 1 1 4,300 4,300 20% of salary (rounded up) 4030
A4 Staff training Day 5 2 150 1,500 2 x 5 days technical training in RSA 4010
A5 Meal allowances Day 10 12 4 480 Average 10 days per month 4040
A6 Study tour bus fare Person 2 1 85 170 To Johannesburg 4040

B Project Inputs 76,700

B1 Fuel Kilometer 5,000 1 0.5 2,500 Estimate based on last year 5010
B2 Insurance for project vehicle Lumpsum 1 1 6,000 6,000 As per quotation 5020
B3 Vehicle maintenance Quarter 4 1 2,000 8,000 Estimate based on last year 5030
FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

B4 Fees for guest tutors Day 3 4 125 1,500 4 workshops, 3 days each 6010
B5 Food & accommodation Participant 20 4 100 8,000 18 trainees plus 2 trainers, 4 workshops 6020
B6 Training materials Lumpsum 1 4 12,675 50,700 Raw materials and tools as quotation 6030

TOTAL DIRECT PROJECT COSTS 107,000

* UC = Unit of Currency

A13
A14
Milestone Project Summary Cash Flow Forecast: 1 January to 31 December Year 9
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

Incoming cash
DFID grant 18,000 0 0 24,000 0 0 24,000 0 0 24,000 0 0

Smile Trust grant 0 0 22,500 0 0 22,500 0 0 22,500 0 0 22,500

Vanguard Society grant 0 0 7,500 0 0 0 7,500 0 0 0 0 0

Appendix 13: Cash flow Forecast

Bank Interest 40 5 0 0 71 0 0 74 0 26 96 0

Sales income 2,000 2,000 2,000 2,000 2,000 2,000 1,500 1,800 2,000 2,000 2,500 3,000

Donations 0 0 2,000 0 0 2,000 0 0 2,000 0 0 2,000

Training fees 3,500 7,000 0 7,000 3,500 0 0 7,000 3,500 0 7,500 3,500

A. TOTAL CASH IN 23,540 9,005 34,000 33,000 5,571 26,500 33,000 8,874 30,000 26,026 10,096 31,000

Outgoing cash
Administration costs 2,000 2,000 5,000 2,000 2,000 7,100 2,000 2,000 2,000 2,000 2,000 2,000

Staff costs 5,600 5,600 5,600 5,600 5,600 5,600 6,200 6,200 6,200 6,200 6,200 6,400

Vehicle Running costs 22,000 2,500 2,500 3,000 2,500 2,500 3,000 2,500 2,500 3,000 2,500 2,500

Training programme 1,000 25,000 2,000 2,000 25,000 1,000 2,000 25,000 2,000 1,000 25,000 200
FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

B. TOTAL CASH OUT 30,600 35,100 15,100 12,600 35,100 16,200 13,200 35,700 12,700 12,200 35,700 11,100

C. Net cash flow [A - B] (7,060) (26,095) 18,900 20,400 (29,529) 10,300 19,800 (26,826) 17,300 13,826 (25,604) 19,900
D. Cash balance at start of
8,095 1,035 (25,060) (6,160) 14,240 (15,289) (4,989) 14,811 (12,015) 5,285 19,111 (6,493)
month

E. Cash balance at end of

1,035 (25,060) (6,160) 14,240 (15,289) (4,989) 14,811 (12,015) 5,285 19,111 (6,493) 13,407
month [C + D]

Mango 2016
 Milestone Project - Budget Compared to Actual Report: 1 January to 31 March Year 9

TOTAL 1 January to 31 March VARIANCE VARIANCE

BUDGET BUDGET ACTUAL (adv)/fav % NOTES
UC* UC UC UC UC
Income (actual = receipts)

Mango 2016
Donors DFID 90,000 25,000 25,000 0 0%
Smile Trust 90,000 25,000 25,000 0 0%
Vanguard Society 15,000 3,750 6,350 2,600 69% Project tools purchased/reimbursed early
Other Bank Interest 1,000 250 205 (45) -18%
Donations 8,000 2,000 350 (1,650) -83% Fundraising strategy to be reviewed
Sales 24,800 6,200 5,462 (738) -12%
Training Fees 42,500 14,167 14,500 333 2%
TOTAL 271,300 76,367 76,867 500 0.7%

Expenditure (includes commitments)

Administration Audit fees 4,500 0 0 0 0%
Bank charges 600 150 105 45 30%
Board Meeting 1,200 150 127 23 15%
Appendix 14: Budget Compared to Actual Report

Depreciation 6,000 0 0 0 0% Year end book adjustment

Post & stationery 7,500 1,875 636 1,239 66% Delay in printing the annual report
Publicity 1,500 375 200 175 47%
Rent, ins. & utilities 9,000 2,250 2,100 150 7%
Repairs & renewals 1,500 375 327 48 13%
Telephones/fax 6,300 1,575 1,982 (407) -26% Aware of problem, making efforts to
FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

Staff Salaries & benefits 63,500 15,875 15,150 725 5% improve

In-service training 4,500 1,125 1,000 125 11%
Recruitment 0 0 0 0 -
Travel & subs. 3,000 750 835 (85) 11%
Vehicle Running Fuel 9,000 2,250 3,675 (1,425) -63% Error on our original budget request
Vehicle Insurance 18,000 17,500 17,500 0 0% review
Vehicle maintenance 24,000 6,000 5,608 392 7%
Training Fees & honoraria 3,000 750 500 250 33%
Food & accomm. 16,000 4,000 4,930 (930) -23% Costs for April course incurred in this
Training Materials 92,200 23,050 26,450 (3,400) quarter
-15% Costs for April course incurred in this
TOTAL 271,300 78,050 81,125 (3,075) -4% quarter

A15
SURPLUS/(DEFICIT) 0 (1,683) (4,258) (2,575)
 DFID No.12345
STATEMENT OF ACTUAL EXPENDITURE FOR QUARTER ENDING: 30 Sept Year 9
AND ESTIMATED EXPENDITURE FOR QUARTER ENDING: 31 Dec Year 9 Rate applied: 3.75

A16
1 2 3 4 [2 - 3] 5 6 7 8 [7 - 4]
Annual Budget last Actual last Balance Spent to Spent to Budget next Grant See
Budget items: Budget quarter quarter remaining date date quarter request note
GBP GBP GBP GBP GBP % GBP GBP

Administration Audit fees 1,200 0 0 0 1,267 106% 0 0

Bank charges 160 40 29 11 91 57% 32 21
Board Meeting 320 27 23 4 303 95% 27 23
Appendix 15: Donor Report

Depreciation 1,600 0 0 0 0 0% 1,600 1,600

Post & stationery 2,000 500 426 74 1,814 91% 187 113 1
Publicity 400 100 43 57 189 47% 200 143
Rent, ins. & utilities 2,400 600 586 14 1,745 73% 573 560
Repairs & renewals 400 100 57 43 212 53% 187 143
Telephones/fax 1,680 420 572 (152) 1,548 92% 415 567 2
Staff Salaries & benefits 16,933 4,233 4,280 (47) 12,411 73% 4,280 4,327
In-service training 1,200 300 859 (559) 1,170 98% 30 589 3
Recruitment 0 0 0 0 36 - 0 0
Travel & subs. 800 200 210 (10) 585 73% 195 205
Vehicle Fuel 2,400 600 773 (173) 2,622 109% 874 1,047 4
Running Vehicle Insurance 4,800 0 40 (40) 4,720 98% 0 40
Vehicle maintenance 6,400 1,600 1,297 303 5,087 79% 1,307 1,004
Training Fees & honoraria 800 200 400 (200) 653 82% 147 347
Food & accomm. 4,267 1,067 1,027 40 3,501 82% 1,040 1,000
FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

Training Materials 24,587 6,147 6,157 (11) 18,455 75% 6,133 6,144
TOTAL 72,347 16,133 16,780 (647) 56,409 78% 17,226 17,873
Total apportioned to DFID: 24,000 5,324 5,537 (213) 18,615 78% 5,385 5,599
% apportioned to DFID: 33% 33% 33% 33% 33% 33% 31%

Schedule of DFID grants received/due:

GBP
Qtr 1 6,667
Qtr 2 5,867
Qtr 3 5,867
Qtr 4 5,599
TOTAL 24,000

Mango 2016
 Milestone Project - Budget Forecast to 31 December Year 9

TOTAL Actual - 1 January to 30 September TOTAL Forecast Q4 TOTAL

BUDGET Q1 Q2 Q3 to 30 Sept Oct-Dec ANTICIPATED

Mango 2016
Income UC UC UC UC UC UC UC
DFID 90,000 25,000 22,000 22,000 69,000 21,000 90,000
Smile Trust 90,000 25,000 25,000 25,000 75,000 15,000 90,000
Vanguard Society 15,000 6,350 0 8,500 14,850 0 14,850
Bank Interest 1,000 205 196 226 627 200 827
Donations 8,000 350 895 3,250 4,495 800 5,295
Sales 24,800 5,462 4,670 6,785 16,917 7,000 23,917
Appendix 16: Budget Forecast

Training Fees 42,500 14,500 6,900 11,200 32,600 9,500 42,100

TOTAL 271,300 76,867 59,661 76,961 213,489 53,500 266,989
Expenditure
Audit fees 4,500 0 4,750 0 4,750 0 4,750
Bank charges 600 105 125 110 340 120 460
Board Meeting 1,200 127 924 85 1,136 100 1,236
Depreciation 6,000 0 0 0 0 6,000 6,000
Post & stationery 7,500 636 4,568 1,598 6,802 700 7,502 AGM costs were under estimated
Publicity 1,500 200 350 160 710 750 1,460 Expect the major event in November
Rent, ins. & utilities 9,000 2,100 2,243 2,199 6,542 2,150 8,692 Expenditure levels are generally on track.
Repairs & renewals 1,500 327 256 213 796 700 1,496 Major repairs expected in the month of December
Telephones/fax 6,300 1,982 1,678 2,145 5,805 1,558 7,363 Phone rates were raised by phone company
Salaries & benefits 63,500 15,150 15,340 16,050 46,540 16,050 62,590 On track
In-service training 4,500 1,000 167 3,222 4,389 111 4,500 Last Qtr will not be very busy
FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

Recruitment 0 0 135 0 135 0 135

Travel & subsistence 3,000 835 569 789 2,193 731 2,924 Estimate based on activity plan
Fuel 9,000 3,675 3,257 2,900 9,832 3,277 13,109 Estimate based on activity plan
Vehicle Insurance 18,000 17,500 50 150 17,700 0 17,700
Vehicle maintenance 24,000 5,608 8,603 4,865 19,076 4,900 23,976 Estimate based on activity plan
Fees & honoraria 3,000 500 450 1,500 2,450 550 3,000 On track
Food & accomm. 16,000 4,930 4,350 3,850 13,130 3,900 17,030
Training Materials 92,200 26,450 19,667 23,090 69,207 23,000 92,207
TOTAL 271,300 81,125 67,482 62,926 211,533 64,597 276,130
SURPLUS/(DEFICIT) - (4,258) (7,821) 14,035 1,956 (11,097) (9,141)

A17
A18
Financial Management Work Plan
KEY: - - - - - = daily x = no. weeks JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
FINANCIAL ACCOUNTING ROUTINES
Banking Daily ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Payroll Monthly x x x x x x X X x x x x
Prepare Payment vouchers/cheques Daily ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Prepare/check Purchase Orders Daily ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Reimburse/reconcile p.cash / advances Weekly xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx
Update Cash Book Weekly xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx
Bank reconciliation Monthly x x x x x x X X x x x x
Trial Balance Monthly x x x x x x X X x x x x
Filing Daily ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Update stock records Weekly xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx
Reconcile stock records Monthly x x x x x x X x x x x x
YEAR END
Year-end reconciliation Annual -----------
Prepare financial statements Annual -----------
Prepare year-end schedules Annual -----------
Auditor's visit Annual x
Appendix 17: Financial Management Work Plan

Income Tax annual return Annual -----------

BUDGETING
Prepare first draft budgets Annual xxxx
Revise budgets Annual x x
Budget to Board for approval Annual x
REPORTS
Prepare Budget Monitoring Report Quarterly x x X x
Prepare Cash Flow Report Monthly x x x x x x X x x x x x
Prepare Donor Reports
FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

- DFID Quarterly x x x x
- USAID Quarterly x x X x
REVIEWS
Assets Register Quarterly x x X x
Insurance cover Six months x x
Chart of Accounts Annually x
Delegated Authorities Six months x x
Pay award Annually x
Update Finance Manual Annually x

Mango 2016
 FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

Appendix 18: Sample Expenses Claim Form

Expenses/Cash Advance Claim Form

NAME: ____________________________

POSITION: ____________________________

Date Details of journey and/or Receipt Amount

type of allowance being claimed: attached claimed

TOTAL CLAIMED :

I confirm that the above expenses have been/will be* necessarily incurred by me during
the course of my duties.
* Delete as appropriate

SIGNED: _________________________ DATE: _____________

AUTHORISED: ___________________________ DATE: _____________
RECEIVED BY: ___________________________ DATE: _____________

Mango 2016 A19

 FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

Appendix 19: Sample Fixed Asset Register

Fixed Assets Register

REF:

Name of Asset:

Description:

Make/Model: Serial No.:

Date Of Purchase: Supplier:

Purchase Price: Invoice No:

Location Of Asset:

Depreciation Period: Depreciation

Method:

Depreciation/Repairs/Insurance Schedule:

Date Details Cost / Valuation

A20 Mango 2016

 FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

Appendix 20: Sample Payment Voucher

Payment Voucher

Date: Amount:

Supplier or payee Cheque No. or

details PCV Reference:

Invoice No.: Order No.:

COST CENTRE Or BUDGET CATEGORY /

DEPT. REFERENCE: CODE:

DETAILS OF PAYMENT OR REQUEST FOR FUNDS:

HAVE ESTIMATES/QUOTATIONS BEEN OBTAINED? YES/NO

If yes, please attach copies and indicate preferred supplier with reasons.

If no, please state why not obtained.

CHECKED BY:

ORIGINATED BY: AUTHORISED BY:

DATE: DATE:

ENTERED IN RECORDS DATE:

BY:

Mango 2016 A21

 FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

Appendix 21: Sample Bank Reconciliation Form

Bank Reconciliation Form

Bank account details:
Bank statement date:
Bank statement sheet number:

A. Balance as on statement:
Less payments in cashbook, not on statement
(e.g. un-presented cheques)

B. Total deduction

Plus receipts in cashbook, not on statement

(e.g. unbanked income)

C. Total addition

Less receipts on statement, not in cashbook

(e.g. income received directly into bank account)

D. Total deduction

Plus payments on statement, not in cashbook

(e.g. direct debits & bank charges)

E. Total addition

F. Balance in Bank Book [A-B+C-D+E]

Reconciliation performed by:

Signed: Date:
Reconciliation checked by:
Signed: Date:

A22 Mango 2016

 Vehicle Log Sheet
Vehicle registration no:_________________________

Mango 2016
DATE OF DESTINATION/JOURNEY DETAILS DEPT. KM READING FUEL PURCHASED DRIVER
JOURNEY START FINISH COST # LITRES SIGNATURE
Appendix 22: Sample Vehicle Log Sheet

Vehicle Log sheet

FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

Total KMs run / petrol purchased this month

A23
 FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

Appendix 23: A Checklist for Good Practice

A. Minimum Requirements
Standard Why
A valid supporting document for every Protection for staff, evidence and details of
transaction, (securely filed and stored for the transaction.
minimum period required.)
A cash book for every bank account, reconciled To organise and summarise transaction
every month. information; check for errors and omissions.
A Chart of Accounts used consistently in the Principle of consistency; to facilitate production of
accounting records and budgets financial reports.
A budget detailing costs and anticipated Planning, fundraising, control and reporting.
income for all operations.
Clear delegation of authority from governing To know who is responsible for what and within
body through the line management structure. what limits.
Separation of duties sharing finance admin To prevent temptation to steal and reduce
duties between at least two people opportunity to commit fraud; to share the load.
Annual financial statements preferably Accountability to stakeholders; transparency.
audited by an independent person.

B. Good Practice
Standard Why
Additional accounting records when staff To meet statutory and audit requirements; for
employed (wages book) or assets owned control purposes.
(Assets Register).
Budgets based on real activity plans, which Realistic, more likely to meet targets.
include the full cost of running a project.
Budgets with clear calculations and notes. Easy to read and make adjustments. Easy to justify
calculations.
Separate core costs budget. Encourages active management and financing
strategy for core costs
Monthly cash flow forecast. Helps to identify and take action to avoid short-
term cash flow problems.
Use of Cost Centres for multiple donors and/or To separate restricted funds and related
projects. transactions to facilitate reporting to managers and
donors.
Funding grids for multiple donors situations. To avoid double-funding situations and identify
areas of shortfall.
Budget monitoring reports each month. To monitor progress; control purposes.
Written policies and procedures To prevent confusion about organisation rules and
expected practice.
Diversified income mix of restricted and Less vulnerable to financial shocks; helps to build
unrestricted funds. up reserves.
A reasonable level of reserves. Less vulnerable to financial shocks; helps overcome
cashflow problems

A24 Mango 2016

 FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

Appendix 24: Integrating Financial Management Checklist

Not true
Some-
Statement of practice

times
True
1. The Chief Executive takes an active interest in financial management issues. 3 2 1

2. Programme staffs job descriptions set out specific financial management roles
3 2 1
and responsibilities.
3. Programme staff receive financial management training, either on formal
3 2 1
courses or as on-the-job training.
4. Senior managers lead by example and comply with the financial policies and
3 2 1
procedures.
5. Programme staff generally comply with accounting requirements and
3 2 1
procedures.
6. Programme staff never complain that financial policies and procedures are too
3 2 1
bureaucratic or impractical.
7. If any member of staff does not follow the policies and procedures, this leads to
3 2 1
some kind of sanction or warning (as opposed to people getting away with it).
8. Finance policies and procedures written down (for example in a Finance Manual)
3 2 1
and circulated to all staff.
9. Non-finance staff are consulted on the practicality and user friendliness of
financial paperwork (e.g. vehicle log sheets, payment forms and expenses 3 2 1
claims).
10. Finance staff and programme staff meet regularly to discuss programme plans
3 2 1
and progress on objectives.
11. Programme staff receive regular budget monitoring reports and use them for
3 2 1
managing their programmes?
12. The Chart of Accounts (a list of accounts codes/categories) is made available to
3 2 1
programme staff.
13. The finance staff are known to be approachable and willing to discuss queries
3 2 1
with programme staff.
14. The finance department valued by the organisation e.g. it is adequately
3 2 1
resourced; it is represented on the management team.

15. Finance staff are involved in the strategic planning process. 3 2 1

16. Budgets are delegated, and managed and implemented at project level. 3 2 1

17. Finance staff are involved in the annual budgeting process. 3 2 1

18. Programme staff are involved in the annual budgeting process. 3 2 1

19. The senior financial officer never complains of being bogged down by day to day
3 2 1
paperwork and authorisation duties.
20. Senior programme staff are authorised to sign documentation on behalf of the
3 2 1
NGO, within specified limits (e.g. purchase orders, cheques, contracts).

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 FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

Instructions

Go through the 20 questions and answer them as honestly as possible, circling the number
which most closely reflects the situation in your NGO.
Add up your scores. Then use the table below to assess the level of integration of financial
management in your NGO, and the impact that might have on your work.

Scores:
20-30 Your organisation has a low level of integration of financial management. This
could lead to misunderstandings and conflict between programme and finance
staff teams; inefficient procedures; and ineffective use of resources. Staff may
waste time, and not feel confident about finances. Plan a strategy to raise the
profile of financial management in the organisation so that it eventually becomes
second nature for everyone, and embedded across the organisation.

31-49 Your organisation has a reasonable level of integration of financial management.

But you could easily improve matters with some careful planning. Further
improvements may be very useful, helping prevent misunderstandings and
conflict; making procedures more efficient; helping staff do their jobs better and
more efficiently; and making more effective use of resources. For instance, a good
first step might be to review the findings of the self-assessment with some of your
managers and discuss what you can do better.

50-60 Congratulations! Your organisation has a high level of integration of financial

management. But dont be complacent make sure that the culture of financial
management stays embedded in your organisation. Use every opportunity to keep
financial management issues on the agenda. For example, make sure that new
staff and Board members receive regular training and financial information. And
make sure finance staff keep up their friendly and hard working attitude!

A26 Mango 2016

 FINANCIAL MANAGEMENT ESSENTIALS FOR NGOS

Appendix 25: Mangos Health Check

Mangos Health Check

How healthy is financial management in your

not-for-profit organisation?

Version 3
2009

Mango 2016 A27

 Mangos Finance Health Check

Contents
Introduction .................................................................................... 1
Sections:
1 Planning & budgeting .................................................................................... 3
2 Basic Accounting systems .................................................................................... 4
3 Financial reporting .................................................................................... 5
4 Internal controls .................................................................................... 6
5 Grant management .................................................................................... 7
6 Staffing .................................................................................... 8
Interpreting your score .................................................................................... 9
Additional Resources .................................................................................... 10
Glossary .................................................................................... 11

About Mango
Mango is a UK based charity which exists to strengthen the financial management of not-for-profit
organisations, including NGOs. Mango publishes freely available tools, like this one, as well as
running training courses and providing finance staff to work with NGOs. See www.mango.org.uk for
more details.

What can Mangos Health Check do?

Mangos Financial Health Check can help you assess the health of your organisations financial
management. It is designed as a self assessment tool so that you can identify the areas where you
need to improve.
The Health Check is a set of statements of good practice. They cover all the key areas of NGO
financial management. For each statement, you need to consider how well your own organisation is
in line with good practice. By the end of the Health Check you will be able to tell if the financial
management in your organisation is healthy or sick - and whether you need to call a doctor!
You may like to run the Health Check again after a year or two, to assess and monitor your progress.

What can Mangos Health Check NOT do?

Every organisation is different and financial management systems must reflect this. A one size fits
all approach cannot work. But the key aspects of good practice are the same for most organisations
most of the time. The Health Check focuses on those key aspects. They are the foundation stones of
good practice.
Mangos Financial Health Check only provides a general indication of the health of your
organisations financial management. It is not an exhaustive list of all aspects of financial
management.

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 Mangos Finance Health Check

It is not an audit and it does not describe a standard set of procedures which are relevant in every
situation. It is not appropriate to set a score as a pass rate for partner assessment. It is not
appropriate to compare scores of two organisations and make conclusions about differences
between them.

Who is Mangos Financial Health Check designed for?

It has been particularly designed for small and medium sized not-for-profit organisations (or field
offices). This may include Non Governmental Organisations, schools, medical centres, churches etc.
It is not designed for the head offices of international organisations.

How to use Mangos Health Check

The Health Check can be run by any member of staff or a trustee. You do not need specialist
financial skills to complete it. It includes explanations of each section and a glossary of the financial
terms used.
The most useful way to use this tool is to complete it in a 2-3 hour workshop meeting, with input
from the Treasurer, Chief Executive Officer, Senior Managers, and a selection of budget holders,
finance staff and field staff (ideally 5- 7 people).
Taking each statement of best practice in turn, discuss whether it is true, or is in place, or happens in
your organisation. Agree on a score based on what actually happens, not what is supposed to
happen, or what is documented in your finance manual. The scores available are 5,4,1 and 0 only.

Explanation Score
Our practice is totally in accordance with the statement 5
Close to 5, but not quite there 4
Close to 0, but not that poor 1
This is not in place, or is not true or does not happen 0

Clearly a degree of judgement is required to decide between 4 or 1, and it is not an exact science.
If you cannot give yourselves a clear cut 5 or 0, you need to decide which one you are closer to.

Often the real value in this exercise is not the score itself so much as the conversations and the
details of issues discussed.
Make good notes and keep a list of action points as they come up.

Ring the score for each statement. Add up the total for each section and transfer it to page 9 to get
a total. Then interpret the score using the guidance given.

Comments
Mango welcomes comments on its tools and publications. Please send any comments or suggestions
you might have on the Health Check to: guide@mango.org.uk. Thank you!
The Health Check is also available in other languages here:
http://www.mango.org.uk/Guide/HealthCheck

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 Mangos Finance Health Check

Section 1 Planning & budgeting

Budgeting is about working out how much your planned activities are likely to cost. Both
programme and finance staff should be involved in setting budgets, to create a foundation for good
cooperation and coordination during spending and budget monitoring.

Budgets have a crucial role to play in strong financial management. Budgets should be approved by
the Board of Trustees, to check they reflect the planned strategic direction of the organisation.
Project managers can use a budget to guide implementation and check on progress. Overhead costs
that are shared by many projects also need to be carefully controlled by an assigned budget holder.

The codes used for your budget lines need to correspond to the codes used in your accounting
system. Otherwise it will be difficult to track actual spending against expected spending in your
budget monitoring reports.

A cash flow forecast is as important as a budget. It constantly looks 3-6 months into the future,
starting with the actual cash available now. It helps you to prioritise the timing and scale of planned
activities and to spot cash flow problems in good time.

Ref Statement of best practice Score

Budgets are prepared in good time for all the costs of running
1.1 the organisation 5 4 1 0
Both finance and programme staff are involved in setting
1.2 budgets 5 4 1 0

1.3 Project budgets are based on the costs of planned activities 5 4 1 0

Budget worksheets include explanatory notes and clear
1.4 calculations 5 4 1 0

1.5 A separate budget is prepared for core costs (overheads) 5 4 1 0

Organisational budgets are approved by the Board of
1.6 Trustees 5 4 1 0
A named individual (budget holder) is responsible for
1.7 implementing and managing each budget 5 4 1 0

1.8 Budget codes match (or correspond to) accounting codes 5 4 1 0

1.9 All planned operational costs are adequately funded 5 4 1 0

1.10 A cash flow forecast is prepared every month 5 4 1 0

Total score for planning & budgeting

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 Mangos Finance Health Check

Section 2 Basic accounting systems

Every financial transaction should be backed up by a supporting document, e.g. a receipt, invoice or
sign sheet (eg for many travel reimbursements). This is the evidence that a specific transaction has
taken place.

Every transaction involving paying out or receiving money should be written down in a cashbook. It
can be kept in a physical cashbook or petty cashbook, on an Excel spreadsheet or as part of a
computerised accounting package. Every entry in the cashbooks should be referenced back to the
relevant supporting document.

It is important to check the accuracy of the accounting books at the end of each month by carrying
out two essential reconciliations. The bank statement balance is compared to the bank cashbook
closing balance. A physical cash count is done to check the closing balance in the petty cash book.

Accounting works by assigning codes to each transaction entered in the cashbooks. The unique list of
accounting codes that an organisation uses is called its Chart of Accounts. Another set of codes
can be used to assign transactions to a specific project or donor. These are called cost centre codes.

Ref Statement of best practice Score

Every payment made has a supporting document providing
2.1 evidence 5 4 1 0
All cash or cheques received are recorded on pre-numbered carbon
2.2 copy receipts (if no cash/cheques received score 5) 5 4 1 0
All payments and receipts are recorded in cashbooks (date,
2.3 description, amount) 5 4 1 0

2.4 There is a separate cashbook for each bank and cash account 5 4 1 0
Every entry in the cashbooks is cross referenced to a supporting
2.5 document 5 4 1 0

2.6 All cashbooks are updated at least once per month 5 4 1 0

2.7 All cashbooks are written neatly in permanent ink or on computer 5 4 1 0

A standard Chart of Accounts is used to code (or classify) each
2.8 transaction in the cashbooks 5 4 1 0
Transactions are also classified by project or donor using a standard
2.9 list of cost centres 5 4 1 0

2.10 A bank reconciliation is done each month, for every bank account 5 4 1 0

2.11 A cash count reconciliation is witnessed and recorded each month 5 4 1 0

The organisation keeps track of amounts owed to others (eg
2.12 suppliers) and owed by others (eg staff) 5 4 1 0

Total score for basic accounting systems

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 Mangos Finance Health Check

Section 3 Financial reporting

The Board of Trustees need financial reports to oversee the finances of the organisation. Managers
need up-to-date figures to monitor projects and make decisions. Donor agencies need reports to
check the use of their money, and often as a condition for further funding. Increasingly,
organisations are sharing financial information with beneficiaries to increase accountability and build
confidence. An annual external audit verifies the accuracy of the financial statements.

The monthly financial reports should include an Income and Expenditure report showing money
coming into the organisation and how it was spent. If the report compares the amount spent against
budget, it is called a Budget Monitoring Report. The budget is supposed to be a tool not a straight
jacket. Project managers should use financial reports to help make decisions so that the money is
used efficiently and effectively to achieve desired outcomes.

It is also important to report on balances held at the end of each month or quarter. Balances
includes the amount of money held (cash and bank), as well as amounts owed to the organisation
(such as unaccounted working advances) and owed by the organisation (eg to suppliers / tax
authorities).

Reports should be produced showing the relevant level of detail according to their use (eg for a
single project or donor) or consolidated. Reports should also have the right format for their use, eg
donor formats as per grant agreements, standard formats for annual audited accounts, accessible
formats for beneficiaries, user friendly formats for managers.

NB: Donor reports are considered in Section 5: Grant Management.

Ref Statement of best practice Score

3.1 The board reviews financial reports every quarter 5 4 1 0

Senior managers discuss financial reports at least once every three
3.2 months 5 4 1 0
Reports include details of cash and bank balances, amounts due (eg
3.3 from staff) and owed (eg to suppliers) 5 4 1 0

3.4 Budget holders receive budget monitoring reports every month 5 4 1 0

Budget monitoring reports include explanations and comments
3.5 about differences 5 4 1 0

3.6 Financial reports are used to help make decisions 5 4 1 0

Financial information is shared with beneficiaries at least once per
3.7 year, in an accessible way 5 4 1 0
Annual audits are up-to-date (signed within 6 months of the year
3.8 end) 5 4 1 0

Total score for reporting

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 Mangos Finance Health Check

Section 4 Internal controls

NGOs use a lot of different internal controls to make sure that:

Assets are safeguarded

Accounting records are accurate and up to date
Fraud and errors are prevented and detected
Staff are protected
Note: the other sections of the Health Check also include important controls. For instance cash and
bank reconciliations are important for checking accuracy of accounting records and identifying fraud.

Ref Statement of best practice Score

Cash is kept safely in a locked cashbox or safe, in the custody of
4.1 one individual 5 4 1 0
All cash received is banked intact, ie without any being spent
4.2 (if no cash is received, score 5) 5 4 1 0

4.3 All cheques are signed by at least two authorised signatories 5 4 1 0

Cheques are signed only when all the details have been
4.4 properly filled in (ie no signatories ever sign blank cheques) 5 4 1 0
Bank reconciliations are checked by someone who did not
4.5 prepare them 5 4 1 0
There is a written policy detailing who can authorise
4.6 expenditure of different types or value 5 4 1 0

4.7 All transactions are properly authorised 5 4 1 0

Cash payments are authorised by someone other than the
4.8 cashier 5 4 1 0
Different steps in the procurement process, (eg ordering,
4.9 receiving and paying) are shared among different people. 5 4 1 0

4.10 Expenses claims for staff advances are checked by the same 5 4 1 0
person who authorised the advance
Staff salaries (including advances and loans deductions) are
4.11 checked each month by a senior manager 5 4 1 0
Statutory deductions (eg payroll taxes) are properly made and
4.12 paid on time 5 4 1 0
All fixed assets (eg vehicles, computers, equipment) owned by
4.13 the NGO are insured and controlled using a fixed assets 5 4 1 0
register
There is an approved policies and procedures manual in place
4.14 which is relevant to the organisation, and known by staff 5 4 1 0

4.15 A properly registered audit firm is selected by the trustees 5 4 1 0

Total score for internal controls

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 Mangos Finance Health Check

Section 5 Grant management

Most NGOs get at least some of their funding as grants from donor partners. It is important to have
a grant agreement in place that outlines the amounts and timings of funds to be transferred.

Donors tend to fund specific projects with specific budgets which form part of the agreement.

The grant agreement may also contain a number of grant conditions, including procurement rules
and reporting requirements. Programme and Finance staff need to work together to ensure
consistency between the narrative and financial reports about the same project.

Often NGOs work with several different donors at the same time. It is very important to keep track
of which donor is funding which project (or part of a project). It is very bad practice to borrow
money received from a donor for a specific project for another purpose.

Ref Statement of best practice Score

5.1 There is a signed grant agreement in place for each grant 5 4 1 0

Senior Managers check the grant conditions are reasonable
5.2 before signing agreements 5 4 1 0
Grant conditions on procurement are known by finance staff,
5.3 budget holders and procurement officer(s) 5 4 1 0
There is compliance with the terms and conditions in grant
5.4 agreements 5 4 1 0

5.5 Donors receive financial reports in the right format and on time 5 4 1 0
Donor financial and narrative reports are consistent and clearly
5.6 linked to each other 5 4 1 0
Donor funds are kept for the activities they are meant for and
5.7 never borrowed for other activities 5 4 1 0

Total score for grant management

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 Mangos Finance Health Check

Section 6 Staffing

Good financial management is dependent on staff with the right skills, support, and attitude to carry
out their responsibilities. All staff have a role to play in financial management. The accounting staff
are part of a wider team including the Executive Director, Programme Managers and the Board.
Integrating good financial management into programmes involves budget holders and finance staff
working hand in hand through all the stages of the financial cycle (plan-do-review).

It may be difficult to assess the technical competence of accounting staff. Good indicators are the
timeliness of reports, the neatness of files and records in the accounts office, and auditors
comments or recommendations.

Ref Statement of best practice Score

The board includes someone with the skills needed to oversee all
6.1 financial activities 5 4 1 0
The finance staff have the skills (and qualifications) needed to carry
6.2 out all financial activities 5 4 1 0
Managers and programme staff have the financial skills they need to
6.3 manage budgets and implement controls 5 4 1 0
Finance staff and budget holders work together well in payments
6.4 processing and budget monitoring 5 4 1 0
Different roles within the finance function are clearly defined, known
6.5 and followed 5 4 1 0

6.6 Senior staff lead by example in following control procedures 5 4 1 0

6.7 Finance staff are recruited freely and fairly on the basis of merit only 5 4 1 0
All staff receive the training and support they need to carry out their
6.8 financial management responsibilities 5 4 1 0

Total score for staffing

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 Mangos Finance Health Check

Interpreting your score

Record your score for each section in this table. Then compare it to the columns on the right and
ring or shade the appropriate risk assessment for each section. Finally add up your total score and
see the advice below.

Section Your High Medium Low

Score Risk Risk Risk
1. Planning and budgeting 0 - 25 26 - 40 41 - 50
2. Basic Accounting Systems 0 - 30 31 - 50 51 - 60
3. Financial reporting 0 - 20 21 - 35 36 - 40
4. Internal controls 0 - 40 41 - 60 61 - 75
5. Grant management 0 - 15 16 - 25 26 35
6. Staffing 0 - 20 21 - 30 31 - 40
Total Score 0 - 150 151 - 240 241 - 300

Your score is over 240

Well done! Your financial management is in good shape. The risks of not being able to
complete your work because of financial problems are low. But do also consider the risk
assessment in each section: effective financial management requires strength in all six
areas. Use this opportunity to make improvements and further reduce your financial risk.

Your score is between 151 and 240

Not bad! There is clearly some good financial practice in place, but still plenty of room for
improvement. There is a risk that financial problems will prevent you from doing your work.
Low scoring sections require immediate attention from managers.

Your score is less than 150

Work to be done! You have serious problems. Your financial management is not in good
health. There is a high risk that you will face financial problems in the near future: funds
may be misused, or donors may withdraw their financial support. Managers and trustees
should meet urgently to discuss how the situation can be improved. You should consider
calling in assistance as soon as possible. This must be dealt with right now.

Mango 9
 Mangos Finance Health Check

Glossary

A code for a specific type of transaction. Transactions are given a code

Account code which describes what type of income or expenditure they are - e.g. 5050
Transport costs, 5600 Office rent etc.
Comparing the month end balance on the bank statement to the month
Bank reconciliation end balance in the cashbook and identifying any differences.
The best possible estimate of the cost of a set of activities over a given
Budget period of time, and of how you are going to pay for those activities
A book or spreadsheet that lists all of the receipts and payments made in
Cashbook to and out of a particular bank or cash account.
Comparing the month end physical cash counted to the expected month
Cash reconciliation end balance in the petty cashbook.
A report that shows the expected timing of receipts and payments for
Cash flow forecast the next 3-6 months (or longer).
Chart of accounts A list of all account codes, including a description of each code.
Core costs Costs shared by many projects. Also called overheads or indirect costs.
A label for a group of costs which are looked at together. For instance,
Cost centre different projects are often treated as different cost centres.
A review of the year-end financial statements carried out by a
External audit professionally qualified and legally registered auditor resulting in an
opinion about whether they give a true and fair view.
An item of high value owned by the organisation for use over a long
Fixed asset period. Normally office equipment, vehicles and property.
A register (list) of the assets owned by the organisation, including details
Fixed asset register such as: reference number, date bought, purchase price, and location.
An internal document raised for each payment. It provides a unique
Payment voucher reference number and evidence of authorisation. Supporting documents
are attached to it.
The cashbook where cash transactions are recorded, and the supporting
Petty cash records documents relating to each transaction.
The process of purchasing goods and services. Steps in the process may
Procurement include requesting, authorising, selecting suppliers, ordering, receiving
and paying.
A register (list) of receipt books as they come from the printers showing
Receipt book register dates when each one is issued, finished and returned.
The process of comparing information held in two sets of records that
Reconciliation describe the same transactions.
The original documents that describe each transaction. These may
Supporting document include, receipts, invoices, delivery notes, sign sheets etc
Amounts which must be taken from an employees pay before they
Statutory deductions receive it, such as income tax or national insurance contributions.
Any exchange of goods, services or money in return for other goods,
Transaction services or money. Most commonly receipts and payments.
A member of an NGOs most senior governing body, who shares overall
Trustee responsibility for the NGOs work.
A sum of money entrusted to someone to spend on behalf of the
Working advance organisation, which needs to be accounted for.

10 Mango