Financial Management

Toolkit For NGO’s

Financial Management
Toolkit For NGO’s

Contract No.: 72053818C00001

Prepared for
Local Capacity for Local Solutions
USAID/Eastern and Southern Caribbean

Edited by the Caribbean Policy Development Centre

Contributors: Shantal Munro-Knight, Shelly Durant- Forde
Graphic Design: Alexandre Haynes

This study is made possible by the generous support of the American people through the United States
Agency for International Development (USAID). The contents are the responsibility of Local Capacity for
Local Solutions project and do not necessarily reflect the views of USAID or the United States Government.
United States Agency for International Development or the United States Government.
Acronyms/Glossary
Accountability: The legal duty, placed on an individual, group or organization, to explain how Fraud: A deliberate, improper action which leads to
funds, equipment or authority given by a third/external party has been used. financial loss to the organization.

Accounting Software: A computer application that records and processes accounting transactions
within functional modules such as accounts payable, accounts receivable,
payroll, and trial balance.
Assets: Assets are what your organization has, what is owed to you, what you have
invested in, and what you have deposited with others.
Audit Trail: A system that traces the detailed transactions relating to any item in an
accounting record.
Budget: A plan of activities expressed in monetary terms
Cash Flow: The difference between the amount of actual cash coming into an
organization such as grants and the amount of actual cash going out of an
organization in the form of expenses, such as salaries.
Cash Management: A broad term that refers to the collection, concentration, flow and
disbursement of cash. It encompasses a company’s level of liquidity, its
management of cash balance, and its short-term investment strategies.
Incremental Budgeting: Normally shows a percentage increase on the
former budgeted or actual figures.
Integrity: The ability of an organization to be
honest, uphold moral principles and act in
alignment with stated beliefs and community
agreements. Integrity builds the reliability,
honesty, and dependability of an organization.
Internal Controls: Methods to ensure the integrity of financial
and accounting information and the meeting
of operational and sustainability target/goals.
NGOs: Non-Governmental Organizations; A non-
profit citizens’ group organized and working
towards societal impact on a local, national or
international level.

Control Environment: The atmosphere in which people conduct their activities and carry out their
control responsibilities.

Control Activities: Procedures to ensure that an organization’s responses to risks are carried out.

Donor Funding: When a business or organization is financed by outside sources.

External Audit: An independent examination of an organization’s financial statements.

Financial Management: Actions taken to ensure the financial health of an organization, including but
not limited to: planning, organizing, controlling and monitoring the financial
resources of an organization
TABLE OF CONTENTS
1. Who is this toolkit for? 6 5. 2 Understanding the Burn rate 24
2. Purpose of Manual 6 5.3 Overspending 24
Objectives 6 5.4 Cash Management 24
What you will learn 6 5.4.1 Cash Flow 25
1. What is Financial Management 7
5.5 Forecasting 25
1.1 Importance of Financial Management to NGOs 7
6. Financial Recording 26
Principles of Financial Management 7
1.2 General Requirements of Strong Financial Management 7 6.1 Elements of strong financial recording 26
2. Elements of Financial Management 8 6.1.1 Recording financial transactions 29
Understanding the elements of financial management 8 6.2 Advantages of accounting software 29
3. Financial Planning 9 6.3 Cash vs Accrual Accounting 30
3.1 Financial Planning 9 6.4 Monthly Close and Reconciliation process 31
3.2 Financial Planning- Budgeting 9 6.4.1 Bank Reconciliation Statement 31
3.3 Creating a realistic budget 9
6.5 Manual Record Keeping 31
3.4 Five Steps to Developing a Budget 11
6.6 Books Of Accounts 31
3.5 Determining How much to Budget 12
3.6 Understanding how to budget Direct & Indirect Costs 12 7. Financial Reporting 32
3.7 Recording In – kind and Contingency Cost in your budget 14 7.1 Elements of a Good Financial Report 32
3.8 Organizing your Budget Presentation 14 7.2 Importance of records management 33
3.9 Chart Accounts 14 7.3 Audits 33
Reviewing and Approving Project Budgets 15 7.3.1 Common Audit Findings and Disallowed Costs 34
4. Spending Resources and Procurement 16 7.3.2 Tips for a successful Audit 34
4.1 Questions to consider when spending and approving resources 16
7.3.3 When should you conduct an Audit 34
4.1.1 Allowable Costs 16
8.0 Internal Controls 35
4.1.2 What costs are considered unallowable? 16
4.1.3 Examples of unallowable costs 16 8.1 Elements of Internal Control 36
4.2 Procurement 16 8.2 What is a Control Environment? 36
4.2.1 Procedures or Guidelines 17 8.3 Segregation of Duties 36
4.2.2 Establishing a process for procuring goods and services 17 8.4 Control Activities 37
4.2.3 Standarized Forms and Templates 17 8.4.1 Policies and Procedures for managing petty cash, check stock, and
4.2.4 Bidding criteria 18 cash advances 37
4.2.5 Internal Approval thresholds 19
8.4.1.1Petty Cash 37
4.2.6 Addressing Conflict of Interest 19
9.0 TEMPLATES 38
5. Monitoring and Managing Your Budget 20
5.1 Monitoring your Expenditure 20
5.1.1 Tips for monitoring your Budget 23

The author’s views expressed
in this publication do not
necessarily reflect the views of
the United States Agency for
International Development or
the United States Government.
THE LOCAL CAPACITY FOR LOCAL SOLUTIONS PROJECT
The United States Agency for International Development
(USAID) is funding a three-year Local
Capacity for Local Solutions project geared at improving the
managerial and operational capacity of non-governmental
organizations (NGOs) in the Eastern and Southern
Caribbean (ESC). The project will utilize innovative methods
that support organizations to be more efficient, effective
and sustainable. The project targets 10 countries, namely:
1) Antigua and Barbuda; 2) Barbados; 3) Dominica; 4)
Grenada; 5) Guyana; 6) St. Kitts and Nevis; 7) St. Lucia;
8) St. Vincent and the Grenadines; 9) Suriname; and 10)
Trinidad and Tobago. It aims to build the hard and soft skills
of NGOs working in the focal areas of the environment,
HIV/AIDS, youth/citizen security and lesbian, gay, bisexual,
transgender, or intersex (LGBTI).
RTI International is the prime implementer of the project.
RTI International is one of the world’s leading research
institutes, dedicated to improving the human condition
by turning knowledge into practice. Our staff of more
than 2,800 provides research and technical expertise to
governments and businesses in more than 40 countries
in the areas of health and pharmaceuticals, education
and training, surveys and statistics, advanced technology,
international development, economic and social policy,
energy and the environment, and laboratory and chemistry
services. For more information, visit www.rti.org. RTI
International is a registered trademark and a trade name of
Research Triangle Institute.
The Caribbean Policy Development Centre (CPDC)
delivers technical implementation. CPDC is a regional
non-governmental organization formed in 1991 and based
in Barbados. It is membership based and managed by
the NGO sector through its elected Board of Directors.
The mission of the organization is “to build civil society
organizations’ partnerships through engagement with
people, governments, and other relevant partners to
influence the design and implementation of policies that
empower and improve the lives of Caribbean people.”
WHO IS THIS TOOLKIT FOR? PURPOSE OF THE TOOLKIT

This toolkit is designed to be an interactive and practical guide for non-
governmental organizations (NGOs) desirous of improving and/or understanding
how to develop and enhance their financial management systems. While
different sized organizations might have different financial management needs
this toolkit caters to voluntary groups, small to medium sized organizations,
and medium to large organizations.
Objectives
• To strengthen the skills of NGO professionals in financial management;
• To analyze the key issues associated with the production and interpretation
of periodic financial reports;
• To effectively respond to the financial reporting requirements of various

stakeholders;
Voluntary groups with no paid staff or donor funding will find information to
• To increase knowledge of relevant internal controls required to protect
help them understand how to prepare a budget and establish basic financial
donor funds; and
controls and accounting records.
• To critically explore the fundamental importance of all aspects of budget
Small to medium-sized organizations with a few paid staff, premises, and
management in effectively managing donor funded projects.
maybe one or two donors should pay close attention to developing strong

budgeting processes, implementing good financial controls, and accurate

What You Will Learn
accounting records in an accepted format. This sized organization should
This toolkit will help you to gain an improved understanding of:
also focus on records management and external auditing.
• How to prepare a budget that meets your organization’s needs;
Medium to large organizations with more paid staff, their own premises,
• How to monitor and manage your organization’s budget;
and many donors should focus on guidance for well-developed accounting
• How to produce strong financial reports;
and financial systems, including a computerized accounting package, the
• How to maintain a healthy cash flow;
retention of experienced accounting staff, and professional annual audits.
• How to improve internal controls, mitigating the risk of fraud and improving

Regardless of your current stage of development, this toolkit will provide you overall efficiency and effectiveness; and
with information, tips, exercises, and templates that can help your organization • How to effectively manage an external audit.
to; implement, update or reorganize your financial management systems. At
the end of this toolkit, NGOs will be equipped with the knowledge to develop
effective and efficient financial systems.
 1 WHAT IS FINANCIAL MANAGEMENT?
Financial Management is defined as the efficient and effective management of
Exercise 1: Consider these principles and think about how your
organization manages its finances. How well is your organization doing
money, or funds so that an institution can achieve its objectives. It is the active in ensuring that these principles are adhered to?
process of looking after your organization’s short and long-term financial
1.2 GENERAL REQUIREMENTS OF STRONG FINANCIAL MANAGEMENT
health. It does not just concern finance staff. It is an integral part of overall
management and should be closely connected to project implementation
and the daily operations of an organization
Strong financial management requires that organizations ensure that they
have the necessary personnel, processes and procedures in place. As shown
1.1 IMPORTANCE OF FINANCIAL MANAGEMENT TO NGOS in diagram 1: these requirements include having qualified staff, accounting
software and clear checks and balances.
Financial management helps your organization to mitigate risks and also manage
scarce resources. Both of these things help your organization to make more
informed decisions and, ultimately, better achieve its objectives. Below are some
HIGHLY QUALIFIED STAFF
benefits of mitigating risks and managing scarce resources.

FINANCIAL SYSTEMS (ACCOUNTING SOFTWARE) AND PROCEDURES

Mitigate Risks
• Protects your organization’s reputation
• Holds individual’s accountable
• Minimizes fraud, theft and misuse
• Encourages compliance with donor policies
Manage Scarce Resources
STANDARDIZED FINANCIAL FORMS AND TEMPLATES
• Helps you to utilize resources
more effectively
CHART OF ACCOUNTS
• Strengthens ability to fundraise
• Increases financial sustainability BUDGETS THAT CONNECT WITH WORKPLANS
• Helps you to make more AND STRATEGIC PLANS
informed decisions
CLEAR FINANCIAL REPORTS

CHECKS AND BALANCES

Principles of Financial Management
There are some important principles of financial management which you must
Diagram 1: Requirements of Strong Financial Management
consider. Strong financial management requires that organizations be:
Source: RTI Financial Management Resources

1. Transparent in how they manage funds;

2. Accountable in how they utilize their resources; While these requirements represent the ideal situation for all organizations,
3. Ethical and act with integrity; smaller voluntary organizations should make sure that they have the three
4. Accurate in their finances so that they can ensure the viability of finances and
that they do not run short of resources; requirements identified below:
5. Consistent in their practices; and
6. Prudent, or efficient, in how they utilize funds. • Standardized forms and templates;
• Clear financial reports; and
• Checks and balances.
 2
Questions:
Why is financial management important for NGOs?
ELEMENTS OF FINANCIAL MANAGEMENT What are the general requirements that are applicable to your organization?
What are the four elements of financial management?

This toolkit will cover four main elements of financial
management 1) financial planning; 2) spending or
controlling funds; 3) monitoring the use of funds;
and 4) reporting on funds, both internally and to
external institutions.
2.1 UNDERSTANDING THE ELEMENTS OF
FINANCIAL MANAGEMENT
• Planning—During the planning stages of financial
management, you will handle tasks such as
preparing your budgets, planning activities, and
forecasting your work. It is critical that financial
planning happens in tandem with staff who
are implementing technical activities so that
you can ensure accuracy.
• Spending—During the spending phase, you want
to ensure that you are spending according to
your own institution’s internal policies as
well as any applicable donor policies or those
established by regulatory bodies. How you
spend and document your expenditure is key to
ensuring that you are efficiently and transparently
utilizing your organization’s funds.
• Monitoring—During the monitoring phase, your
focus should be on reviewing financial reports and
documentation, monitoring internal controls, and
conducting internal and external audits to ensure
that your financial spending is on target and that all
costs are allowable, allocatable, and reasonable.
Regular monitoring helps you to catch any
errors promptly and most of all, make good
decisions throughout the implementation of
your project.
• Reporting—Reporting involves both internal and
external reporting. Reporting to the donor provides
them with visibility into the financial health of your
project and whether you are spending the funds
as planned. You will also need to prepare regular
internal reports so that senior management and
Board members can provide effective oversight,
plan resources, and make financial decisions.
In the following sections we will examine specific
areas within each element of financial planning.

MONITOR
PLAN • REVIEW FINANCIAL REPORTS AND
DOCUMENTATION
• PREPARE BUDGETS
• ENFORCE INTERNAL CONTROLS
• PLAN ACTIVITIES • INTERNAL AND EXTERNAL AUDITS
• FORECAST

REPORT
SPEND • REPORT EXPENDITURES
ACCORDING TO DONOR
• SPEND ACCORDING TO DONOR AND REQUIREMENTS AS WELL AS
INSTUTIONAL INTERNAL POLICIES ORGANIZATIONAL POLICIES/
• SPEND IN LINE WITH FUNDING AND PROTOCOLS
BUDGETED COSTS
• BOOK AND DOCUMENT
EXPENDITURES

Diagram 2 above identifies areas that will be covered under each element of the financial management process.
Source: RTI Financial Management Resources
 3 FINANCIAL PLANNING
3.1 FINANCIAL PLANNING
Strong financial management begins with financial planning, and good financial
planning is directly related to implementation. The planning process involves six
steps as described in Diagram 3.
3.2 FINANCIAL PLANNING - BUDGETING
Budgeting is an important part of financial planning. It is the process of
setting attainable financial goals, forecasting future financial resources and needs,
monitoring and controlling income and expenditures, and evaluating progress
towards achieving the financial goals.
Resources are needed to properly and effectively implement a project. You will
need to create a strong budget in order to effectively complete a project. Having a
strong budget helps you to plan effectively. Budgeting can occur at many levels –
the activity level, the project level, and the organizational level.
3.3 FIVE STEPS TO DEVELOPING A BUDGET
As you develop your budget, consider the following questions. What is it that your
budget is helping you to achieve? When will you implement activities, how much
do they cost, and will you have the right level of resources at the right time to
implement the activities when you want to, and who needs to be involved in the
budget process?
THE FINANCIAL
1. Gathering Client Information
2. Establish Goals & Objectives
3. Analyzing Financial Situation
PLANNING 4. Developing and Presenting Financial Plan
PROCESS 5. Implementing Plan
6. Monitoring and Reviewing Financial Plan
Diagram 3: Steps in the planning process
Organizational Budget
An organizational budget is a collection of an organization’s individual budgets
intended to present a complete picture of its financial activity (this is applicable for
larger organizations with different departments and multiple projects). The budget
combines factors such as sales, project income, project expenses, operating
expenses, assets, and income streams which can be used for organizations to
establish goals and evaluate their overall performance
Project Budget
The Project Budget is designed to estimate the total cost of your budget. A Project
Budget template contains a broken down estimate of all costs that are likely to
be associated with the project before it is completed. Some projects have a large
number of costs associated with them such as labor cost, material procurement
cost and operating costs. The Project Budget itself is a very important document
which should be updated over the period of the project. It helps the project
manager check whether or not the project is in line with the established budget.
Activity Budget
Activity budgeting is a planning system under which costs are associated with
activities, and budgeted expenditures are then compiled based on the expected
activity level. Activity budgeting allows for a high degree of refinement in cost
planning, and focuses attention on the volume and types of activities occurring
within an organization. Unlike project budgeting, activity budgets analyze
opportunities and allocates resources for each activity.
 5
Here are some more tips to help you develop your budget.
1. IDENTIFY STAFF TO BE INVOLVED
The first step in developing your budget is to identify which staff will be involved. the funds available from the donor by the time that the activity takes place?
Involving more than just finance staff is important so that you can get opinions
from individuals that are implementing activities. For example besides project
technical staff, IT staff might help to identify costs related to IT equipment and
services and communications. It is one thing to identify how much something
may cost and another to brainstorm around which costs to include. Having the 5.
right people during the planning process will help you capture all of the relevant
activity and operational costs that you need to include in your budget.
2. COLLECT DATA AND IDENTIFY COSTS
Identify the source of your funds. Distinguishing the source of the funds dedicated
for certain activities is important. Donor funds for a project obviously cannot be
used on another project or cover overall organizational expenses if you run short
elsewhere. Understanding the restrictions on these funds is essential. This step
will also help you to ensure that you identify all of the relevant costs.
3. SET REALISTIC BUDGETS
Be as accurate and realistic as possible in your budget estimates. Do not take
shortcuts by including ambiguous lump sum amounts in your budget. You want
to build in enough resources to plan for the unexpected, but you also do not
want to over inflate your budget with a large buffer that you might not be able to
expend.
4. ALIGN INCOME WITH EXPENDITURE
Make sure that you are developing a budget that aligns with your income or
cash flow. For example, if you are developing a project budget, will you have
Most organizations receive funds incrementally, in small tranches over time, and
they have to align their budgets with available income in order to maintain a
healthy cash flow. Please make sure you are also considering the timing
of incoming funds and how it aligns with your projected expenditures.
PLAN FOR THE UNEXPECTED
Planning for unexpected events will help you to navigate them better. Throughout
the life of a project, there are always some things that happen that we cannot
anticipate and/or do not expect. Some of the more common issues involve
sudden donor cuts that may limit current project funding or future funding. Other
times, external funds may become more scarce, and you may be unable to
attract the level of funding that you need for non-project activities.
FIVE STEPS TO DEVELOPING A BUDGET
1. IDENTIFY STAFF TO BE INVOLVED
2. COLLECT DATA AND IDENTIFY COSTS
3. SET REALISTIC BUDGETS
4. ALIGN INCOME WITH EXPENDITURE
5. PLAN FOR THE UNEXPECTED
3.4 CREATING A REALISTIC BUDGET

Creating realistic budgets are important. Unrealistic budgets can overestimate

expected income or underestimate project costs.
Here are some tips to creating realistic budgets:

• Prepare a comprehensive analysis of actuals vs. budgeted amounts;

• Compare actuals with budgeted by breaking down the annual work
plan into sub-periods (quarters);
• Analyze financial and actual performance as this helps to provide a
better understanding of the budget variances;
• Ensure prompt action and clear responsibility for deviation from
budgets by ensuring authorization of budgetary deviations; • Make sure that your budget has income as well as expenditures
• Integrate budgeting and accounting systems by incorporating the included, particularly at the organizational level. You want to account
work plan components and activities in the chart of accounts of the for all sources of cash to understand your cash flow situation and how
proposed financial accounting system. much funds you will have at a given period to implement activities and
operate.
When you are developing your budget, you should ensure that it includes • All budgets should specify the period that they cover. Ideally, budgets
the elements listed below. These elements help to certify that your budget are always broken down, at a minimum, by year so that you can see
is clear, easy to use and contains all of the information necessary to help you budgets annually. They may then roll up to a multi-year period.
plan. One of the most important elements that you should guarantee is that
your budget is aligned with your organizational/project objectives.

• Good budgets contain a detailed breakdown of costs including cost
per unit, and are organized by cost category, or type. Overall, they are
user-friendly and can be easily utilized by anyone not involved in the
budget process. If a budget can only be understood by those who
created it, your budget is not sufficiently clear.
Questions:
• Finance staff are the only persons that should be involved
in finance planning and budgeting. True or False?
• A good practice is to break down your budgets over
specific periods. True or False?
• Budgeting a large resource buffer helps to ensure a
realistic budget. True or False?
3.5 DETERMINING HOW MUCH TO BUDGET

One of the challenges NGOs are likely to face in developing their budgets is deciding
how much monies for each line item they should include in their budgets. In table 1
below you will find three tips for determining how much to budget.

Table 1: Determining how much to budget

Analyzing historical trends (like utilities and other basic

Analyze trends of
costs) will be helpful but, do not base your cost estimates
previous costs
on historical data alone.

Prices may have increased. Do make sure to get quotes

Obtain quotes for new 3.6 UNDERSTANDING HOW TO BUDGET DIRECT & INDIRECT COSTS
/ estimates on new and previous prices in order to make
costs
your budget as accurate as possible.
The distinction between direct and indirect costs can be difficult, but understanding this
difference is an important part of developing a strong budget. Importantly, allocating direct
Some costs may not be charged 100% to one project
and indirect costs are based on donor specifications and your organization’s policy.
or one department or activity. For example, if you have
Determine the
multiple projects, your office rent and operational costs
percentage of costs to
are likely shared among those projects. Staffing costs, Let’s define what are direct and indirect costs:
an activity/project
too, may be shared. Determine what the appropriate • Direct Costs—Direct Costs are costs that are directly attributable to implementation of
percentage of costs will be to each activity.
activities for a particular project. For example, the costs of travel, workshop expenses
and staff/consultant costs that will be working only on the project.

Finally, no matter how hard you try, there will always

• Indirect Costs—Indirect costs are those that cannot be attributed directly to one project
be costs that you forget to include in your budget or
and for which there is no basis for allocating costs. These are usually operational costs
those that you simply
that your organization uses continually and therefore cannot be charged to a specific
cannot anticipate at the
project. An example of an indirect cost may include administrative staff costs, rent,
budgeting stage. The key photocopying, and utilities. There are also times when you can allocate management
is to allow yourself some labor to projects, but time would need to be tracked according to projects that the
flexibility in your budget. manager has worked to support.

Question:
• Does your organization have a clear idea of what are its
main direct and indirect costs?)
Some donors may allow you to charge shared or indirect costs as a pro-
rated amount to the project. For example, office rent (and other operational
expenses) typically are costs on multiple projects or activities. If such
a cost is NOT part of your indirect rate, you may choose to charge a
percentage of that cost to multiple projects, based on an allocation that
is determined to be fair and appropriate.
Most organizations, however, have certain staffing and operational
costs that support more than one activity or project. These costs may
be considered either a direct or an indirect cost, as determined by your
institutional policy and practices.

QUESTION: ARE OFFICE SUPPLIES A DIRECT OR INDIRECT COSTS?

SCENARIO ANSWER: This can be handled in two ways. If your organization charges
an overhead rate which represents a percentage of all indirect costs,
then you can include the costs of office supplies in this rate. On the

SCENARIO 1: You are not sure how much your overhead (or indirect costs) are other hand, you can also determine a percentage of the costs and allocate it

and, as a result, your organization does not have an overhead rate. How would fairly across different projects as a direct charge; especially if there are projects

you go about covering your organization’s costs? which weigh heavily on office supplies.

Below see an example of what are allowable direct costs that can be
ANSWER 1: Make sure you list all organizational expenses that need to be included in your budget
covered and determine what expenses would be included in your overhead Common Direct Cost Budget Line Items
rate. If you are creating an overhead rate, you need to have a written document
Workshops / Training /
/ policy that states what is included within your overhead rate for that given Activity or training costs
Activities
period. Many organizations choose to direct bill their costs to donors or other
Services Includes expenses paid to vendors not under a sub-award
stakeholders, charging a fair allocation of expenses (that may change over the Travel Includes international and domestic travel
life of the project) in order to cover their costs. Doing so does not mean that Equipment Includes any equipment purchased under the project
donors cover all of your organization’s expenses. If your organization has one Materials / Supplies Office or project supplies, can include laptops
donor-funded project and is doing things other than this donor-funded project, Anyone who is not on an employment agreement or hired
Consultants
a portion of organizational expenses should be covered using other resources. under a sub-award

Subawardees Subawards and subgrants may be different line items

Source: RTI Financial Management Resources
3.7 RECORDING IN – KIND AND CONTINGENCY COST IN YOUR BUDGET

3.7 .1 WHAT IS IN-KIND SUPPORT?

In-kind support includes donated resources other than money, such as

• Goods (donated supplies)

• Services (donated services)
• People (free help)

In-kind expenses which are incurred during the running of a project on a no payment
basis, can be recorded in your budget to show your organization’s contribution to
the overal costs of the project. In-kind contributions provide an indication of the
level of community/group/industry support for the project. Some donors actively
require you to include a specific budget line showing in- kind support. Costs for
3.8 CHART OF ACCOUNTS
in-kind support in your budget must be realistic and verifiable. Some donors
One of the useful tools to help you organize your budget information is a Chart
may require evidence of service that has been provided free of costs including
of Accounts. A chart of accounts is a created list of the accounts used by an
reports, and signed declarations by the service provider.
organization to define each class of items for which money or the equivalent is

3.7.2 CONTIGENCY FEES spent or received. It identifies the type of cost or cost category so you can better
organize and track your budget. It allocates a code that allows you to identify

Different factors like how work will be performed, and what work conditions will costs easily. Make sure that you charge transactions to the correct activity or

be like when the project is executed, can affect your budget. You can plan for project by using a project or activity code.

such eventualities by including a contingency fee in your budget. A contingency

The Chart of Accounts can be designed in such a way that it facilitates reporting
budget is money set aside to cover unexpected costs during the implementation
by Component, Activity and Disbursement Category. It contains a list of groups,
process. This money is on reserve and not allocated to one activity. It is normally
sub-groups & heads of accounts. The Chart of Accounts also identifies the flow
calculated as a percentage of the overall budget. Contingency costs should not
of each head of account into the Annual Financial Statements for the purpose
be used as a means to forgo accurately calculating your budget items.
of consolidation. It will be noted that the accounting software will automatically
consolidate the heads of accounts into sub-groups and groups and hence
no separate manual posting to these groups and
sub-groups needs to be done. This way it is easier
to provide reports and compare against your
spreadsheet for accuracy and errors. See example
1 of a Chart of Accounts below and example 2 which
shows how it looks in accounting software.
3.9 REVIEWING AND APPROVING
PROJECT BUDGETS
Budgets are always a snapshot in time. Although
you do not want to regularly change your budget (as
this would be disruptive to your organization’s cash
flow and planning), you do want to build in regular
reviews so that you can monitor your progress and
the accuracy of your spending vs. your budgeted
costs.
Example 1 of Chart of Accounts REVIEWING AND APPROVING PROJECT BUDGETS
In order to effectively review and monitor your budget
you should:
• Include multiple reviews to check for budget
accuracy and realistic figures; Questions/Reflections?
In the previous section we covered financial
• Evaluate your budget against actual
management with special attention on budgeting.
expenditure;
• Determine who approves your budget; and Can you answer these questions?
• Involve Board members at the organizational
level. • Why is it important to develop realistic budgets?
Once your budget is established, make sure that • What are the five steps in developing your budget?
• What are some examples of direct and in-direct
staff has access to budget information and that they
costs in your organization?
understand budget figures and structure. Doing so • What are the critical elements in the presentation
will help to reinforce their ability to manage budgets of your planning budget?
and create a culture where fiscal responsibility is
expected of all staff, not just those with a finance
function.
Example 2: REPLICA OF CHARTS OF ACCOUNTS IN ACCOUNTING SOFTWARE
Source: accountnexnetwork.com
 4 SPENDING RESOURCES AND PROCUREMENT
You have moved from the planning stages where
you have developed your budget, reviewed it and
finalized and/or approved it. In this second stage of
financial management you are spending resources.
4.1 ALLOWABLE COSTS
When considering whether costs are allowable or
not, three areas must be considered:
1. Your country’s laws;
2. Donor rules and regulations; and
3. Your institution’s own policies and procedures.
Allowable costs are usually the direct costs related to
implementation of the project. It might also include
some indirect costs as agreed between you and
your donor (refresh your understanding of direct and
indirect costs by reviewing the previous discussion).
In some instances, donors might ask you to produce
documentation of your organization’s policies and
procedures as proof that you have specific systems
or processes that you will use to guide expenditure.
4.1.1 WHAT COSTS ARE CONSIDERED
UNALLOWABLE?
Unallowable costs for donor funding usually fall into
one of the following areas:
• Do not directly benefit the project;
• Are not in accordance with donor regulations,
country laws, or your own institutional policies;
4.2 PROCUREMENT
• Are incurred before or after the period of
performance of the project award; and Procurement is defined simply as the process by
• Do not have documentation or proper which an organization acquires goods and services
approvals. or commissions work to be done on its behalf by an
external supplier.
4.1.2 EXAMPLES OF UNALLOWABLE COSTS
• Entertainment costs; Why is procurement important in financial
• Staff welfare costs; management:
• Penalty fees or fines; • Procurement accounts for a significant portion
• Luxury items; of every project or organization’s budget;
• It demonstrates stewardship, transparency
• Costs related to marketing or advocacy;
and accountability;
• Staff training costs if not directly related to
• It is about spending public funds, donor
the project; and money/tax-payer’s money; and
• Audit costs if the audit is not required by the • It impacts the credibility of the organization
donor; and its ability to achieve its mission.
1
Adapted from The African Capacity Building Foundation “A practical
handbook for financial management for community based and small
women’s organization in Africa” (2011).
4.2.1 PROCEDURES OR GUIDELINES
Regardless of the size of an organization, there is
the need for a documented policy on procurement
to ensure that purchases are done and contracts
are awarded on an objective, fair, consistent and
transparent basis. A formal policy ensures that:
procurements are made on a practical, open and
freely competitive basis; the organization obtains the
best value for money on all its procurements of goods
and services; and that procured goods and services
are delivered in the correct quantity and quality and
in a timely manner. Procurement policies do not have
to be complex.
Exercise:
Document your current procurement
processes.
• Review what you have written and then ask
yourself these questions.
• Is the process I have identified fair and
transparent?
• Is this the best way to get the best quality
goods and services for my organization and
the money I have to spend?
• Are the current policies in line with donor
specifications?
4.2.2 ESTABLISHING A PROCESS FOR 4.2.3 STANDARIZED FORMS AND TEMPLATES
PROCURING GOODS AND SERVICES
Your organization should have some standardized
Let’s look at some of the things that should be involved in
forms that are part of your procurement process.
your procurement process:
This should include:
• Requisitions – these are request forms used by staff
to ensure that they get approval to procure goods and • Quotation or Bid Evaluation Forms
services.
• Approvals - Your policy should establish the process • Requisition and Purchase Orders
• Travel Expense Report
of approvals, what amount requires approvals, who
approves and how approvals should be provided. • Payment Voucher
• Obtaining bids - Your organization should have a
• Petty Cash Voucher
policy about the number of bids that staff must obtain
for procuring goods of a certain threshold. It is a best • Assets Register
practice to obtain 3 bids for a certain threshold and • Vehicle Log Sheet
document the process.
• Bank Reconciliation Form
• Documentation of expenses - Consider what types
of documentation is required to monitor expenditure
(voucher forms, purchase orders etc) Section 9 of this toolkit provides sample templates
• Receipt of goods - Make sure that you obtain a receipt
for you to follow.
for goods that is signed by someone other than the
approver. Keep the receipt of goods as part of your
procurement records. Sometimes funders require
the original receipt from the service supplier and
Let’s take a closer look at some other aspects of the
documentation that the good was received by
your organization. procurement process.
4.2.4 BIDDING CRITERIA
• Make sure that you have a clear process for • Non-Competitive Method of Procurement
Things to Think About
obtaining, evaluating, and documenting bids
In non-competitive procurement, the organization
and the procurement process! These policies
Consider what sorts of things you want your policy either selects one company to provide the good or
will protect your organization and also be
to specify regarding the collection and evaluation service or invites certain suppliers to bid. The process
the policy by which auditors (and donors)
of bids. When does your organization require public will evaluate the procurement validity of your is not open to every supplier. Examples of this are:
advertisements for bids vs. limited competition? How organization. Single Source procurement ( this should be justified,
must bidders submit their bids to ensure that there perhaps this is the only the supplier, or given the
is fair competition? What is the criteria for evaluating You can use different processes for good and services. timing of delivery this is the only supplier that can
bids (price, availability, best value) and how might you For consultants, you can establish an evaluation gird deliver within the specific timeframe. This should be
pre-screen vendors? When would there be conflicts using excel and have a small independent panel or documented via email request for quotation from the
of interests with vendors that would prohibit you from different staff members independently review. For supplier)
contracting them? Who evaluates the bids and makes goods and services, you can create a sheet which
the determination of which vendor you will select? provides a view of the costs each service provider is • Restricted Tendering - You invite only a limited
asking, the advantages and disadvantages of each number of firms/suppliers to tender for the bid
• Make sure that your organization has a policy bid. • Restricted Request for Proposal - You identify
about the number of bids that staff must Bids can be competitive or non-competitive. the specific firms/suppliers and you invite them
obtain for each item it procures for the various specifically to submit a request for proposals.
thresholds. For example, for very small (or micro) Let’s examine each process.
• Restricted Request for Quotation - You identify
purchases of a certain amount, perhaps no bids
• Competitive Method of Procurement the specific firms/suppliers and you invite them
are necessary. For other smaller bids, perhaps
With competitive methods there is normally a request specifically to submit a quotation for the work.
only 2 bids are necessary. For larger goods or
services, your organization may determine for proposals from the organization which is widely
that three bids are necessary. Whatever your circulated sometimes nationally, regionally and You must understand donor specifications and your
procurement thresholds are, make sure your internationally depending on the scope of the project. own policies and procedures and have an agreement
policy clearly states how many bids must be There is no limitation on who can apply as long as to determine which process best suits the specific
obtained. they meet the requirements of the bid. Competitive circumstance.
methods promote transparency, economy and
efficiency, and limit conflict of interest.
4.2.5 INTERNAL APPROVAL THRESHOLD

Things to think about

• Be careful when determining your approval thresholds; those that are

too low may create additional administrative burdens for staff, creating

bottlenecks and delays in procurement.

• Procurement thresholds that are too high may lead to overspending and

procurement that put your budget at risk.

• Determine the levels of approval that are right for your organization.

• When does a Board Member need to approve a purchase, vs. a Director

or another manager or supervisor?

4.2.6 ADDRESSING CONFLICT OF INTEREST

Making sure that your organization has a clear policy that outlines conflicts of
interest and how to avoid them in the procurement process is critical.

Let’s review the operational procedures that should be in place for spending and
approving resources.

THE 12 STEPS ARE:

1. Identify The Need For The Procurement; 7. Evaluate Bids According To The Stated Criteria;

2. Specify The Requirements To Fulfill The Need; 8. Award Contract Or Purchase Order;

3. Verify The Award Budget To Ensure That The Cost Of Procurement Is 9. Track Progress And Assure Compliance With Terms Of The

Within It; Procurement;

4. Request Any Necessary Approvals; 10. Receive And Inspect Deliverables;

5. Identify Potential Vendors And Suppliers For Procurement; 11. Pay The Vendor Or Supplier; And

6. Solicit Bids For The Goods Or Services; 12. Add Goods To The Inventory List.
 5 MONITORING AND MANAGING YOUR BUDGET

Monitoring and managing your budget is an important aspect of financial When you are managing your budget, you must be aware of various areas
management. You want to make sure that you are not overspending, that the including:
budget estimates remain accurate, and that you are following established
budgeting guidelines. • Monitoring your expenditure;
• Understanding your Burn Rates;
Successfully managing your budget involves understanding three major areas: • Overspending;
• Reallocation of funds;
1. The structure of your budget (the major line items and how costs are • Understanding cash flow requirements; and
classified); • Forecasting project expenditures;
2. Monitoring and analyzing your expenses against your actual budget and
your income; and In this next section we look at these areas more closely.
3. Adhering to the written policies of your organization regarding procurement
and spending, as well as that of your donor’s, if applicable. 5.1 MONITORING YOUR EXPENDITURE

Your project’s budget costs categories help guide you in monitoring and
reporting on your expenditures. The cost categories of your budget help set the
framework for how to track your budget expenditures and report them to the
donor or track your own organizational budget. Look at an example of common
Remember
budget categories and line items on the next page.
COMMON BUDGET CATEGORIES AND LINE ITEMS

SALARIES

LABOR
FRINGE BENEFITS

PROJECT ACTIVITIES

TRAVEL

EQUIPMENT
OTHER DIRECT COSTS
MATERIALS AND SUPPLIES

COMMUNICATION

CONSULTANTS

SUBCONTRACTS OR SUBGRANTS

OVERHEAD FEES OR INDIRECT RATE INDIRECT

Diagram 4: Common Budget Categories and Line Items

Sources: RTI Financial Management Resources
5.1 MONITORING YOUR EXPENDITURE
As you monitor your budget you should regularly analyze actual expenses against budgeted line items in order to review
variances. Here is an example below

LINE ITEMS BUDGET ACTUAL VARIANCE

SUPPLIES $3,000 $2,300 $700

Monitoring the budgeted amount against
what you actually spend helps you to

LABOR $7,000 $9,000 ($2,000) track exactly where you are overspending.
In this budget the highest area of over –
expenditure is in labor

WORKSHOPS $5,000 $4,000 $500

There has been an

TOTAL $15,000 $15,800 ($800) overspend in this budget

Diagram 5: Monitoring your Budget

You can see that this budget is over by $800 in total but much more in labor, whereas there is a surplus in supplies
and workshop. Sometimes you can reallocate expenses between line items but you want to be careful in doing so. You
should ensure that you can still complete activities by making such adjustments, and that you are also respecting any
donor guidelines.
HERE ARE SOME USEFUL TIPS FOR MONITORING As you monitor your budget, it is important to keep To better understand the difference between
YOUR BUDGET. your eyes on your costs. In particular, you should accrued and committed costs look at the examples
make sure that you continuously monitor your
below.

TIPS expenditure, your actual costs, accrued costs and

committed costs. Look at these examples below to
A practical example of an accrued costs is services
from vendors, like consultants and subcontractors,
get a clear understanding of the differences between
5.1.1 TIPS FOR MONITORING these costs and what you look for as you monitor. that have performed work on your project through the
YOUR BUDGET current date but have not yet submitted an invoice.
• Examine your expenses and budget vs. Types of Costs to Monitor
actuals each month;
Costs that have been
• Explore why some expenditures are over Actual Costs (Booked)
incurred and booked
or under budget for particular line items; Costs you have incurred
Accrued Costs
• Look for potential errors in how costs but not yet booked
may have been booked;
• Conduct a forecast to project future costs Costs you have formally
committed to via written
and how this will affect your budget;
agreements (e.g.,
• It is always good to have two ways for purchase orders, grants,
Committed Costs
documenting information. You can contracts) and are
contractually obligated to
use a spread sheet and an accounting
provide but that have not
program. This helps you to detect and yet been physical spent
correct errors.
Source: RTI Financial Management Resources

Example of Committed Costs

Examples of Accrued Costs • The balance of available funds committed to
• Costs for services of consultants, subcontractors or subcontractors or grantees through signed agreements
already in place
vendors already performed, but where they have not yet
• Example of Subcontract
submitted an invoice • Ceiling Amount = $3,000,000
• Staff vacation that is accrued but not yet taken • Available Funds = $1,000,000
• Expended (Booked) = $400,000
• Other pro-rated benefits for staff (severance, etc.)
• Remaining Balance = $600,000
5. 2 UNDERSTANDING THE BURN RATE 5.3 OVERSPENDING 5.4 CASH MANAGEMENT
The burn rate is the rate at which you are spending If you are monitoring your budget and believe that Cash management is an important aspect of
your budget. Burn rates are often a monthly rate of you are at risk of overspending here are some things managing your budget. Good cash flow management
spending, but you could also examine your burn rate that you should do immediately: helps you to meet your financial obligations
on a quarterly or annual basis. Why are burn rates
and continue your activities. Cash management
important? Your burn rate is simply an examination • Check the accuracy of your forecast;
refers to the collection, concentration, flow and
of how quickly or slowly you are spending your • Determine what costs can be reduced
or shifted to keep your project within disbursement of cash. Cash flow is the difference
budget. It can be one measure of how quickly
an organization is implementing its activities but budget and still implement activities to between the amount of actual cash coming into an

it could also indicate if you are over spending or achieve targets; organization, such as grants, and the amount of
under spending. • Discuss with management or your donor actual cash going out of an organization in the form
your options for realigning your budget of expenses, such as salaries.
Example of Calculating your Burn Rate or reducing the scope of work; The objectives of cash management are to ensure
• Determine what costs can be reduced or
EXPENDITURES PER MONTHS ACTUAL EXPENDITURES that:
shifted in order to remain within budget
• Cash resources are properly safeguarded;
JUNE $50,000
and still implement planned activities;
JULY $60,000 • Cash is used effectively and exclusively
AUGUST $45,000 and
for the intended purpose (not for personal
SEPTEMBER $80,000 • Discuss with your stakeholders or
use);
OCTOBER $70,000
management your options for realigning
DECEMBER $30,000 • Receipts are safeguarded, recorded and
TOTAL $335,000 your budget. banked; and
BURN RATE $5 5 , 8 3 3
• Payments are authorized and accurately
Typically, you want to spend your budget as you
Divide your overall total by the number
recorded.
intended. If you are using organizational funds, you
of months you have been spending.
may have an incentive to save funds and economize
Source: RTI Financial Management Resources your budget. If you are using donor funds, however,
you often need to return any unused funds and
Your burn rate is considered “healthy” when you are
therefore you should spend as much as possible.
implementing on schedule and your expenditures
Strike a balance in spending your budget, being
are in line with budgeted costs.
prudent but also spending it when you will have to.
 FORECAST EVERY MONTH

5.4.1 CASH FLOW

As indicated previously, cash flow is the net amount of cash that you have to
implement project activities, and takes into account cash inflows and outflows.
There are factors and risks which you must take into account when managing
your cash flow. Take a look below as we examine the associated factors and risks
involved in cash flow management.

FACTORS RISKS

• INACCURATE PROJECTIONS OF
• TIMING OF ACTIVITIES AND TIMING OF ACTIVITIES MAY MEAN
PAYMENTS TO VENDORS YOU SPEND MORE CASH THAN
ANTICIPATED

5.5 FORECASTING
• IT TAKES LONGER THAN
• TIME IT TAKES TO RECEIVE OR ANTICIPATED TO RECEIVE AN
LIQUIDATE AN ADVANCE FROM A ADVANCE AND/OR LIQUIDATE Forecasting should be a monthly exercise where staff and management assess
DONOR, IF APPLICABLE ONE (PREVENTING THE NEXT
activities to be completed, their cost, and what will be paid to vendors or individuals.
ADVANCE REQUEST)
Regular financial forecasting is important, regardless of whether your institution
receives advances or not. Forecasting helps you to understand your institution’s
• IT TAKES LONGER THAN
• TIME IT TAKES TO RECEIVE A cash needs and maintain a healthy cash flow. Do not simply ‘flat-line’ or use an
ANTICIPATED TO RECEIVE A
REIMBURSEMENT
REIMBURSEMENT average of your monthly expenditures to develop your forecast. While you may
have some consistency in your expenditures, there are times when you may have
spikes in expenditures. Knowing the timing of these spikes will be important to
ensuring that you have enough cash on hand to cover them.
 6 FINANCIAL RECORDING
6.1 ELEMENTS OF STRONG FINANCIAL RECORDING

Financial records are the backbone of strong financial management; you cannot be
fiscally responsible without good records. Systems and procedures to efficiently
and accurately record financial transactions are critical to ensuring sound financial
management. Below we identify some of the elements of strong financial recording.

• Highly skilled AND trained staff is essential for proper financial records and
management. Staff must know how to properly use accounting software (as
applicable).
• Segregation of duties (ensuring that the individual that approves expenses is
not the same one that records the financial transaction) is also important.
• Linking financial transactions with their proper supporting documentation,
too, will help to en sure that any future questions on costs can be answered.
• Having a “close out” process will establish when transactions have to be
entered. This should be done ideally, on a monthly basis. This close out process
will ensure that all expenditures for the month are recorded in a timely manner.

The accounting cycle is a series of activities that compiles an organization’s transactions

at the end of a reporting period in order to prepare important financial statements.
Many organizations do not understand this process fully. The charts below help guide
you in preparing the activities to compile the organization’s transactions for a particular
period.
FLOW CHART OF ACCOUNTING Financial / Accounting
Cash / Bank
TRANSACTIONS Transaction Non-Cash
Transaction Transaction

Journal Entry

All transactions to be routed as entries through the

Cash Book:
Cash transactions in the Cash Book.
Bank transactions in the Bank Book.
For any other transaction, a separate Journal Book
will be maintained, wherein entries not affecting

Advances, Deductions and other transactions for

which Subsidiary Books have been maintained
are to be posted to these Books in addition to
the General Ledger
All transactions to be posted to the
General Ledger Monthly statements of accounts are
to be prepared from the General &
Subsidiary Ledger and only the cash/
bank balances will be taken from the
Cash Book

Monthly/Quarterly/Annual Reports are

prepared from these statements of
accounts
Diagram 6: Flow Chart Of Accounting Transactions
 REVENUE CYCLE PAYMENT CYCLE
Adjusting Journal
Entries

General Journal

Sales Invoice Sales Journal Purchases Journal Suppliers Invoice

Accounts Recievable Cash/Check

General Ledger
Listing Disbursement

Cash/Checks Receipts Cash/Check

Deposit Slip Check
Journal Disbursement

Financial Statement

Diagram 7: Revenue Cycle / Payment Cycle

 . • A brief description of the expense and what it was used for;
• Name of the vendor that provided the good or service;
• The type of expense, or chart of account code, to indicate if the
expense was a supply item, a utility bill, vehicle fuel, etc; and
• The project or activity that the expense was for and where it was
charged.

6.2 ADVANTAGES OF ACCOUNTING SOFTWARE

We recognize that not everyone can afford a sophisticated software system.
But even a simple software package is preferred to doing your accounting
manually and keeping only hard records. Simple accounting software can
help protect your organization, reducing the risk for errors, increasing
6.1.1 RECORDING FINANCIAL TRANSACTIONS
Always record or enter financial transactions into your accounting system as efficiency, and helping to protect important financial information.

soon after payment as possible. Failure to do so increases the likelihood

that an error can be made. It also decreases your visibility on your Advantages of Accounting software

finances and can jeopardize your cash flow. Small organizations with • User-friendliness;

limited funding can do this easily using an excel sheet. Organizations that • Functionality with regards to producing financial reports that meet

need to report systematically on donor funding should invest in the use of your organizational and donor reporting needs;

accounting software. • Multi-user access;

• Support multiple codes;

6.1.2 RECORDING EXPENSES • Multi-currency (if applicable); and

• Transferability (files can be easily transferred to different employees
The following items are important to record:
• The exact amount (no rounding) of the transaction should be accurately at different points in time and provides an easy to follow trail).

recorded;
• The date the expense was made (not when the transaction was Organizations with limited staff may not always be able to enter transactions
recorded); the same time. This is why it is important to have both Microsoft spreadsheet
and accounting programs especially for small to medium sized organizations.
6.3 BANK RECONCILIATION STATEMENT
The purpose of a bank reconciliation statement is
to confirm the cash book balance with the bank
statement. Bank reconciliations should be done
monthly to compare the transactions in the cashbook
with the bank statement and resolve any discrepancies
between the two.
The following stages are required:
• Compare cash book with bank statement;
• Correct all clerical errors in the cash book;
• Record all differences;
• Adjust timing differences;
• Common problems associated with bank
reconciliation statements:
• Statements are not reviewed;
• Statements signed without a detailed
review; and
• Currency exchange differences are not
factored into the reconciliation.
Sometimes the cash book and bank balance do not
reconcile. This is mainly due to:
• Errors by Bank; Wrong entries made into the
organization’s account by the bank.
• Informational Differences.
These can happen when transactions effected at the
bank do not correspond with entries in the
cash book, which can be caused by:
• Bank charges;
• Interest earned;
• Standing orders; and
• Dishonored ‘bounced’ cheques
Bank Reconciliation Statements should be prepared
monthly. The steps to be followed are given below:
Within ten days following the end of every month,
bank statements should be obtained from the bank.
With online banking, statements can be retrieved
at an even faster rate. You can check to see if your
bank offers online banking services and what are the
fees.
• Soon after receiving the bank statement
from the bank, the balance appearing therein
or any other item for settlement.
• All debits charged by the bank for bank
charges or commissions and all credits
for the interest and others that appears
in the monthly bank statement should be
scrutinized carefully before accepting them
as correct and before recording those debit/
credits in the cash book.
• Checks older than six months from date of
issue should be written back into the cash
book noting the reference number and date
of payment voucher
• Correction of Mistakes: Correct mistakes
when they have been discovered. It is
important to correct mistakes by doing
another entry on the date of discovery and
NOT by overwriting, erasing, correcting the
wrong entry and any resulting changes in the
voucher or cash book.
Adapted from: www.sicommoef.in Financial Management Manual. Integrated
Coastal Zone Management. Prepared by: Davinder S Jaaj & Co., Chartered
Accountants

should be reconciled with that shown in the

• Timing Differences;
cash book by preparing the bank reconciliation
• Un-presented Checks; Checks issued by the
statement.
organization but are yet to be presented by
the recipient. • Each month the bank reconciliation statement
• Un-credited Checks; Deposited checks, should be reviewed carefully to investigate
which are yet to be credited to the long outstanding checks deposited or issued
organization’s account by the bank.
 6.4 MANUAL RECORD KEEPING 6.5 BOOKS OF ACCOUNTS
While not preferred, some very small volunteer organizations may want to use The following is the list of books of accounts that can be maintained to record all
simple, paper-based record keeping systems. Below we provide some steps that the financial transactions of the Project.
will ensure that even with a manual recording system there is some structure and • Cash Book
process to your financial records. • Petty Cash Book
• General Ledger
Steps to Streamlining your Manual Record Keeping2 • Check Issue Register
• Purchase Book
• Sort and store all paperwork, receipts and payments in 12 separate
months;
• Keep all original documents and date all correspondence ;
• Record all transaction dates and payment amounts;
• Save all online financial transactions by month and financial year in your
inbox and in a separate folder on your hard drive;
• Backup all electronic records on an external hard drive or other storage
device other than your computer’s internal hard drive;
• Capture nearly all of your income and expenses in statements from both
your bank and credit card accounts; and
2
Adapted from: www.sicommoef.in Financial Management Manual. Integrated Coastal Zone Management.
• Request that all statements and bills be sent on a monthly basis - Prepared by: Davinder S Jaaj & Co., Chartered Accountants

allowing you to reconcile all financial records each month.

HOW TO STREAMLINE
Questions:

• What are the objectives of cash management?

• Identify two factors and two risks associated with managing your cash flow.

• What is the burn rate and what does it tell us about budget management?

• What are six operational procedures that should be in place for spending and

approving resources?
 7 FINANCIAL REPORTING
There are two types of financial reporting – financial accounting
and management accounting. They are integrally linked. Financial
accounting is the process of recording transactions, reconciling
accounts, and producing summary reports that managers can then
evaluate. Management accounting is the analysis of financial records
and actions taken to monitor risks and correct errors or reduce risk.

7.1 ELEMENTS OF A GOOD FINANCIAL REPORT

• Shows variances between spent costs and budgeted costs;

• Details costs and income;
• Rolls up to show spending and income by major budget line item; Please note that for internal financial reporting you will want to provide
greater detail by showing the specific costs of each major budget line.
• Is frequently produced; and
• Informs you on your organization’s financial health. A B C D E
Cumulative Cumulative
Diagram 8 provides an example of a financial report done by quarters, Expended as Total Expended Remaining
Budget Line Expended as
of Q3 in Q4 Budget
Items of Q4
Total Budget (Expenditures
but your financial report can also be done by months. This report (Previous
for Quarter) =B+C
=A-D
Expenditures)
shows the total budget by each line item, the cumulative amount
expended for the previous quarter, the total cumulative amount Labor $150,000 $60,000 $70,000 $130,000 $20,000

of the budget that has been expended, and the remaining budget, Equipment $90,000 $80,000 $10,000 $90,000 $0

which is the difference of the budget and the total cumulative amount Grants $300,000 $100,000 $20,000 $120,000 $180,000
Services $400,000 $410,000 $10,000 $420,000 ($20,000)
expended. Donors may have their own specific formats but this is a
In direct
general template that might be useful. $95,000 $70,000 $10,000 $80,000 $15,000
costs
Contingency ????

Diagram 8: Example of financial Report Total $1,035,000 $720,000 $120,000 $840,000 $195,000

Source: RTI Financial Management Resources

7.2 IMPORTANCE OF RECORDS MANAGEMENT •• ‘True’: the transaction did take place and that an asset exists.
•• ‘Fair’: the transaction is fairly valued and the assets and liabilities are fairly
• It is a best practice to retain records for a minimum of 3 years
stated.
following the date of the procurement OR the submission of the
final report for the project if it is a donor-funded project. Organize Examples of Audit Opinion
and label files so that you can easily locate them if audited.
• Back up all electronic documents on a regular basis to ensure that Unqualified: The accounts give a true and fair view.
information does not get lost or damaged! Qualified: Subject to -The accounts are okay, apart from specific issues that need to
be addressed e.g. an incorrect accounting policy or specific unsupported expenditure.
Qualified: Disagreement -There are so many errors that the accounts do not give a
7.3 AUDITS
true
There are various and fair view.
different types of audits. Qualified: Disclaimer -The auditors are unable to give an opinion because the records
External audits are are poor and incomplete.

those conducted by
a third-party. Internal Auditors will examine all of your practices against donor rules and regulations,

audits may range from as well as your own institutional policies. Take a look below for some of the

routine spot-checks to major elements that auditors will review. Make sure that you prepare in advance

more in-depth reviews. for an audit and always remain in compliance.

An external audit is
a legal requirement that should be carried out annually under the leadership Here are some areas that auditors will want to examine:
• Allowable vs. unallowable activities/costs
of management. The purpose of an external audit is to give an independent
• Internal controls
opinion on the financial statements prepared by management. These can be
• Cash management
used to monitor the organizations risk and growth areas. An audit results in a • Asset management
report which gives an ‘audit opinion’ about whether the financial statements give • Indirect rate and costs (as applicable)
a ‘true and fair’ view of the organization’s finances and operations for the period • Procurement practices
• Program income
in review.
• Reporting
• Grants made to other organizations
7.3.1 COMMON AUDIT FINDINGS AND DISALLOWED COSTS

Auditors might take note of these practices to inform their audit findings.
• Lack of timesheets;
• Unreasonable or inconsistent compensation practices;
• Lack of supporting documentation;
• Procurement practices inconsistent with donor regulations;
• Travel practices or policies inconsistent with donor regulations;
and
• Internal policies not followed.

7.3.2 TIPS FOR A SUCCESSFUL AUDIT

• Organize your documentation in advance;
• Create a clear scope of work for auditors;
• Meet with the auditor before and after the audit;
• Provide timely responses to any questions the auditor may have;
• Promptly review and respond to any findings in the management
letter; and
• Immediately seek to address any issues to prevent future
findings.

78
56

1
34

02
7.3.3 WHEN SHOULD YOU CONDUCT AN AUDIT

/2
12
d

08
s en re
expi
78
nk

56
Some donors may require that you have an external audit on a regular

E
NAM
Ba

SUR
3
12
basis. If they do, make sure that you include the cost for it in your project
budget. Not all organizations have the resources to arrange for an external
audit to be conducted annually. If a donor does not require it, you may want
to consider conducting regular spot-checks by assigning non-finance staff
(or Board members) to conduct a check on random transactions to check
for their accuracy, the level of the documentation for the expense, and
whether or not the procurement of the good or service was in compliance
with your own organization’s policies.
 8 INTERNAL CONTROLS
Internal controls are measures or processes used by an organization to
Weaknesses in Internal Controls

The following are some common weaknesses that exist with internal controls:
ensure its quality and effectiveness in operations, financial reporting, and
• Opening of bank accounts without relevant organizational
compliance with applicable laws and regulations.They also help safeguard
approval;
assets and ensure their proper use and management; ensure the accuracy
and efficiency of data; and help your organization comply with donor • Exceeding cash advance limit;
requirements and instill donor confidence. Overall, internal controls • Regular (weekly/monthly) cash counts not done;
provide needed checks and balances to make sure that your institution
• Assets identification not done;
is operating efficiently and effectively.
Internal controls ensure that: • Backup of all electronic documents not maintained off-site;
• Complete and accurate accounting records are kept; • Use of wrong exchange rates;
• Assets of the organization are safeguarded; some donors recommend
• Vehicle logbook not properly completed;
that all assets remain the property of the donor until the project is
completed) • Misuse of office vehicle for private purposes;
• Errors and fraud are prevented and can be detected;
• Bank reconciliation statements not reviewed;
• Provides reasonable assurance to customers and funders that
transactions are recorded properly and in a timely manner • Money given to individuals not accounted for in time;
• Statutory and relevant regulatory requirements are adhered to; and • Invoices not attached to payment vouchers;
• Staff adhere to all financial policies and procedures.
• Purchasing procedures not followed;

• Withholding taxes;

• Fixed assets register not maintained;

• Filing system not organized;

• Petty cash payments not recorded correctly;

• Seeking approval for reallocation of donor funds;

• Petty cash limits not set.

8.1 ELEMENTS OF INTERNAL CONTROL
Areas of internal controls include control environment, risk assessment, Institutional Culture that establishes
control activities, information and communication, and monitoring. Control Enviornment a positive and supportive attitude
for maintaning internal controls
Let’s focus on two important aspects of internal control, the control
environment and control activities.

8.2 WHAT IS A CONTROL ENVIRONMENT? Assessing possible risks, their

Risk Assessment significance and likelihood, and how
The control environment represents the various measures taken by
to manage or mitigate them
management to protect the assets of the organization. It is the foundation
of all other components of internal control by providing discipline and
structure. It sets the tone and institutional culture for the value attributed to
check and balances, integrity, and transparency. The control environment is Policies and procedures that help to
critical to the development of control activities, the policies and procedures Control Activities control risks
that control risks.

8.3 SEGREGATION OF DUTIES

One of the best practices for internal control is ensuring segregation
Information and Information systems for making more
of duties. Segregation of duties separates the responsibilities of
informed management decisions
staff to ensure that no one has sole responsibility for overlapping Communication
tasks where fraud could occur. For example, the duties that should be
segregated among different staff include authorizations, recordkeeping,
reconciliation, and custody of assets. This means that a staff member that
authorizes a transaction should not be the same one that records financial Monitoring progress, checking for
Monitoring errors, ensuring overall compliance
transactions or reconciles accounts.
and due diligence

Source: RTI Financial Management Resources

8.4 CONTROL ACTIVITIES
8.4.1 POLICIES AND PROCEDURES FOR MANAGING PETTY CASH,
CHECK STOCK, AND CASH ADVANCES
8.4.1.1 PETTY CASH
Petty cash policies should outline:
• Appropriate uses of petty cash and maximum amounts authorized;
• Amount of cash to be stored in petty cash box at any given time;
• Who is authorized to provide cash;
• How it is secured and stored; and
• Who reconciles petty cash and when.
8.4.1.2 CHECK STOCK SAFE GUARDS AND PROCEDURES
Checks should be:
• Pre-numbered and in sequential order;
• Locked in a secure location;
• Signed only by authorized signatories;
• Blank checks should never be signed; and
• It is a best practice to have all checks signed by at least two
authorized individuals, or signatories.
8.4.1.3 BEST PRACTICES FOR ISSUING ADVANCES
• The employee or third party fills out an advance request form (that you have
already prepared in a standard template);
• The advance is reviewed and, if appropriate, approved;
• The institution disburses the funds and records the advance in the accounting
system; and
• The employee or third party liquidates the advance within a limited
timeframe and records the expense. Ensuring that all advances are paid
back within a relatively short time frame is important for minimizing risk!
It is advisable that individuals liquidate advances in full within 30 days.
Advances that are outstanding longer than 30 days are less likely to be
repaid, increasing the chances that the organization will have to write-
off the expense as a loss.
Remember good financial practices helps your organization to mitigate risks and
manage scare financial resources.
We have come to the end of our financial management toolkit. Were we successful?
Did you learn about the following:
• How to prepare a budget that meets your organization’s needs;
• How to monitor and manage your organization’s budget;
• How to produce strong financial reports;
• How to ensure you have a healthy cash flow;
• How to improve internal controls, mitigating the risk of fraud and
improving overall efficiency and effectiveness; and
• How to effectively manage an external audit.
• Look out for other capacity development materials coming soon on
financial management.
 • Template 1- SIMPLE BUDGET TEMPLATES

9 TEMPLATES Project Name : Capacity Building For NGOs

Project Manager: John Doe

Project Totals
Budget $7500
Actual $7800
Variance $300

Approved Name Item Estimated Cost Actual Cost Difference

Yes Mary Doe Training Fees $2000 $2000 $0
Materials and
No Rock Stationery $0 $300 $300
Supplies
Yes Windies Centre Venue Rental $1500 $1500 $0
Saving our Planet
Yes Project Coordination $4000 $5000 $0
NGO

• Template 2 – Simple Budget Templates

Financial Report for the Period : to
Programme:
Project Title: Project ID:
Expenditure Details
Expenditure Approved Project Funding Expended Variance Variance % Explanation of
Item(from funding Funding by Recipient Variance
agreement project
budget, expenditure
is to include asset
purchases

Example 1
Example 2
Example 3
Example 4

TOTAL
EXPENDITURE

As authorized representative(s) of the ___________________________

I/We hereby certify that all expenses detailed above were incurred in achieving the objectives for which the funding was provided and all terms and
conditions of the Funding Agreement have been compiled with.
________________________ /__________/20
Signature:
Full Name:
Position:
• Template 3 - A BIT MORE COMPLICATED Budget Template
In -Kind
Purpose of Inv. Grant Actual/
Name Description Support Variance
Payment No Funds Net cost

Project Activity
• Template 5 - CASH FLOW BUDGET
Internal Capac- Michelle Tutor
212 $1200 $300 $1500 0
ity Building Taylor Fees

Internal Capac-
Confer-
Venue
SAMPLE CASH FLOW BUDGET (by quarter of the year)
252 ence $3000 $0 $3000 0
ity Building Rental CASH FLOW 1ST Quarter 2nd Quarter 3rd Quarter 4th Quarter
Building
Comprehensive Tutor
259 Rayan Gill $2000 $1500 $3000 $500
Training Fees
Comprehensive 260 Tasty Food Catering $5000 $1000 $4500 $1500 Beginning $5000
Cash Balance
Comprehensive Rock Materials
269 $4200 $0 $2200 $2000
Training Stationery and Supplies Project Fund- $70,000
ing 1
Project Fund- $20,000 $10000
ing 2
You can also have a separate format for your timeline which can be very simple.
Total Inflow $25,000 $70,000 $0 $10,000
• Template 4 - Organizing your Budget Presentation
Planning Budget and Timeline Cash
Source of Funds: The Sisters Funding Program Expenditure
Total Planned Facilitators $15000
Project Bud- Value
Cost Category Sept -18 Oct-18 Nov-18 Dec-18 Consultants $35000 $15000
get (thru Dec-18)

Venue Rental $5000 $5000 $5000

Travel Expenses $25,000 $12000 $3000 $3000 $4000 $2000
Facilitators $10,000 $ 8000 $2000 $2000 $2000 $2000
Total $20,000 $40,000 $20,000 $3000
TOTAL
EXPENDITURE
$35,000 $20,000 $5000 $5000 $6000 $4000 Expenditure
Quarterly Net $5000 $30000 -$20,000 $7000
ACTUAL COST INFORMATION
Cash Flow
Cost Category Actual Cost Sept-18 Oct-18 Nov-18 Dec-18
Travel Expense $8000 $3000 $0 $5000 $0 Cumulative $5000 $35,000 $15,000 $22,000
Facilitators $7800 $2000 $2000 $2000 $1800 Net Cash
TOTAL Flow
$15,800 $5000 $2000 $7000 $1800
EXPENDITURE
Planned Spending
$20,000
thru Dec-18

Actual Spending
$15,800
thru Dec-18

(Example Align Income with Expenditure- Page 11 Point 4)

 • Template 7 - FINANCIAL RECORDING TEMPLATE
• Template 6 - Quarterly Cash Flow Projection
CHART
OF AC-
CHQ INVOICE DESCRIP- AC-
DATE NAME COUNTS AMOUNT
NUM NO. TION
REFER- COUNT
ENCE

Bob Cave Catering Employment

2018/1/1 25 2547 604-02 Training- $1200
Catering Services Catering

The Capacity
Airfare to
2018/1/1 26 24586 Travel 245-04 Building- $5984
Grenada Travel
Place

• Template 8 - Simple Bank Reconciliation (can be

done manually) BANK RECONCILIATION

Adapted from www.resourcesaver.com

SIMPLE TEMPLATES
SAVE TIME & MONEY
Adapted from Southbayrobot.com
• Template 9 - Month End Procedures
(createdTemplate
by Kate 10-Masters)
Month End Procedures (created by Kate Masters)
Action
1 Bank Reconciliation
2. Inter-company Accounts
Enter transactions
3 Agree inter-company accounts
Payroll
Accounts Receivable
Project Budgets
Revenue Recognition
Trial Balance
Reports
Review and adjust as necessary
Review and adjust as necessary
Review and adjust as necessary
Review, print, file. Make notes
on explanations/commentary
Present reports to managing
committee –monthly
Present reports to managing
committee –quarterly
• Template 10 - Payment Voucher
Company 1 Company 2
Description Template 11-Payment Voucher
Company 1 LOGO CAN GO HERE
Company 2 PAYMENT VOUCHERS
Company 1 to Company 2 Project Name:_______________________
Company 2 to Company 1
Disbursement: ____________________
Company 1 to Company 2 Date:____________________________ Voucher No: ______________________
Company 2 to Company 1
Objective: __________ Activity:____________________________________________________
Enter Wages
Enter Taxes and Insurance Paid to: ______________________________________________________________________________
Review Aged A/R Report-action as
Details:
required _____________________________________________________________________________________________
_____________________________________________________________________________________________
Reconcile Budgets in Spreadsheet and _____________________________________________________________________
Accounting Program
Agree Balance in Spreadsheet and Cheque Cash Cheque #: _______________ Amount: $______________________________
Accounting Program
Ref: Invoice/Quotation No: ________________
Calculate Project Funds spent and post
to Project Revenue
Approved by: _________________________________ Co-Approved by: _________________________
Print and First Review Received by: ______________________________ Date: __________________________________
Agree all balances to supporting
evidence
Print and file after final review
Profit and Loss for month
Profit and Loss year to date
Balance sheet for month
Profit and Loss for month
Profit and Loss year to date
Balance Sheet
Profit and Loss for month
Profit and loss for year to date
Balance Sheet
Cash Flow forecast
Profit and Loss for quarterly
Profit and loss for year to date
Balance Sheet
Cash Flow forecast
Template 11 - INVOICE • Template 12 - QUOTATION

TEMPLATE 12-INVOICE
Template 13-Quotation
INVOICE Your Company Name Quotation
Your Company Slogan
DATE 10/30/2018
DATE INVOICE NO YOUR COMPANY
Street Address Quotation # 100
Street Address City, State ZIP Code Customer ID ABC123
Phone: Enter Phone number here Fax: Enter Fax number here
City, ST ZIP Code

Phone Quotation For: Quotation valid

until: 11/09/2018
Fax
Name Prepared by: Name
Email Company Name
Street Address
INVOICE TO
City, ST ZIP Code
Street Address Phone

City, ST ZIP Code

Comments or Special Instructions: None
Phone

Fax
SALESPERSON P.O. NUMBER SHIP DATE SHIP VIA F.O.B. POINT TERMS
Email
Due on receipt
SALESPERSON JOB PAYMENT TERMS DUE DATE
Due on Receipt QUANTITY DESCRIPTION UNIT PRICE TAXABLE? AMOUNT
QUANTITY DESCRIPTION UNIT PRICE LINE TOTAL $ $
34 Item 1 T
Product Product description $Amount $Amount
44.00 1,496.00

Product Product description $Amount $Amount

Product Product description $Amount $Amount

$
Subtotal SUBTOTAL
1,496.00
Sales Tax
TAX RATE 8.60%
Total
Adapted from Word $
SALES TAX
128.66
$
TOTAL
1,624.66
THANK YOU FOR YOUR BUSINESS!
 THANK YOU FOR YOUR BUSINESS!
• Template 13 - SALES RECEIPT
• Template 14 - PURCHASE ORDER
Template 14-Sales Receipt

Sales Reciept
Company Name
ƒŽ‡•‡ ‡‹’–
‘’ƒ›ƒ‡
Company Slogan
Company Slogan

Invoice
Name Invoice Number
Sold to No
Company Name Date Invoice Date
Street Address
City, ST, ZIP
Code
Phone | Fax

Payment Method Check No. Job

Quantity Item No. Description Unit Price Discount Line Total

Total
0%
Discount
If you have any questions concerning this invoice, use the following contact information: Subtotal $0.00

Contact Name, Phone Number,

Email
Sales Tax 0.00%

Template 15- Purchase Order

www.vertex42.com
• Template 15 - PETTY CASH VOUCHER • Template16 -SIMPLE PETTY CASH VOUCHER ARIA

Deluxeprinting.com

Arixta.com
 For more information on the project please contact the Caribbean Policy Development Centre
or RTI International Project Office based in Barbados.

‘Halsworth’ RTI International Project Office

Suite C, 2nd Floor

Welches Main Road Lewis Tower

Rockley
Christ Church
St. Michael, Barbados Barbados
Telephone: 572-5257
www.cpdcngo.org Cellular: 246-838-4174

CPDCNGO