Course Handbook

Practical Financial Management for NGOs

-- Getting the Basics Right

Taking the Fear Out Of Finance

 Practical Financial Management for NGOs – Getting the Basics Right

Course Handbook

Produced by Terry Lewis for

© Mango (Management Accounting for Non-governmental Organisations)

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Revised December 2009

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Table of Contents

Glossary i Which Accounting Records to Keep 44

Supporting Documentation 45
1 FINANCIAL MANAGEMENT FOR NGOS 1
Bank Book Basics 46
Why is Financial Management important for NGOs?1
Petty Cash Book 47
So what is Financial Management? 2
Full Bookkeeping Systems 48
What is Financial Control? 4
What is a Trial Balance? 49
Who is Responsible for Financial Management? 4
What are Financial Statements? 51
The Seven Principles of Financial Management 9
The Income and Expenditure Report 51
The Four Building Blocks of Financial Management10
The Balance Sheet 52
The Tools of Financial Management 12
What is Depreciation? 54
2 GETTING ORGANISED 13 Accounting for Shared Costs 55
Systems Design 13 5 FINANCIAL REPORTS 57
Financial Accounting vs. Management Accounting 14
Introduction 57
The Right System? 15
Who Needs Financial Reports? 57
The Chart of Accounts 15
What are the Annual Accounts? 59
Cost Centres 16
Interpreting Financial Statements 60
Cost Structures 18
Ratio Analysis – Quick Reference Formulas 62
Financial Policies and Procedures 18
Management Reporting 63
What is a Finance Manual? 20
The Cashflow Report 64
Standard Forms 21
The Budget Monitoring Report 64
Work Planning 21
Forecast Reports 66
3 FINANCIAL PLANNING 23 Analysing Budget Monitoring Reports 66
The Financial Planning Process 23 Variance Analysis techniques 67
What is a Budget? 25 Action Planning 70
Who needs Budgets? 26 Reporting to Donor Agencies 72
Types of Budget 26 Presenting Financial Reports 73
Budget Structures 29 Reporting to Beneficiaries 75
Budgeting Techniques 29 Summary: Twenty Questions 76
Top Down or Bottom up? 30 6 SAFEGUARDING YOUR ASSETS 77
Summary of Budget Terminology 31
Managing Internal Risk 77
The Budgeting Process 32
Delegated Authority 78
Good Practice in Budgeting 33
Separation of Duties 79
Using a Budget Worksheet 35
The Procurement Process 80
Summary: What makes a good budget? 37
The Reconciliation Process 82
The Challenge of Core Costs 38
Cash Control 84
The Challenge of Multiple Donor Programmes 39
Physical Controls 85
4 UNDERSTANDING ACCOUNTS 41 Top Tips on the Warning Signs of Fraud 88
Why Keep Accounts? 41 Dealing with Fraud and Irregularities 90
Accounting Methods 42

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7 MANAGING AUDIT 93
What is an Audit? 93
Internal Audit 94
External Audit 94
Summary: Different Types of Audit 97
What Does the Auditor Need? 98
USEFUL REFERENCES 99
APPENDICES

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Glossary
Account A record of monetary transactions, either written into a book
designed for the purpose or entered onto a computer file.
Account code A code for a specific type of transaction. Transactions are given a
code which describes what type of income or expenditure they
are, eg 5050 Transport costs, 5600 Office rent etc.
Accounting period A specified period for recording and reporting financial activity for
a given time, eg one year 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 our Reserves.
Acid test The ratio achieved by dividing Current Assets (excl. Stocks) by
Current Liabilities. It tells us if the organisation has sufficient funds
to pay off its debts immediately.
Apportionment The sharing of indirect costs between two or more cost centres in
proportion to the estimated benefit received.
Asset Any possession or claim on others which is of value to the
organisation. See also Fixed Assets and Current Assets.
Audit A formal check on the accounts by an independent person
(auditor).
Audit trail The ability to follow the course of any reported transaction
through an organisation’s accounting systems.
Authorisation This is the process of approval over transactions, normally the
decision to purchase or commit expenditure. Authorisation by a
budget holder is a way of confirming that spending is in line with
budget and is appropriate.
Back donor The original source of funds, where a grant is channelled through
an agency, such as an international NGO, on to an implementing
partner. The agency must report back to the original donor to
account for the use of the funds by the local 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.
Bank book A register which records all transactions passing through a bank
account. Also known as a cashbook or a Cash Analysis Book.

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Bank reconciliation The process of comparing the entries and ending balance in the
cashbook with the bank statement, and identifying 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 the Utilisation Ratio.
Capital expenditure Expenditure on equipment, property and other fixed assets 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.
Cashbook A book or spreadsheet that lists all of the receipts and payments
made in to and out of a particular bank or cash account.
Cash reconciliation Comparing the month end physical cash counted to the expected
month end balance in the petty cashbook.
Cashflow The difference between cash received and cash spent in a period.
Cashflow forecast A report that shows the expected timing of 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 organisation’s accounting system, with a description of each.
Core costs Central support costs shared by many projects. Also called
overheads or indirect costs.
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 Short-term sources of ‘finance’ (eg from suppliers, bank overdraft)
awaiting payment 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 Any person or other party who owes money to the organisation.

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Depreciation A proportion of the original cost of a fixed asset which is internally

charged as an expense to the organisation in the Income &
Expenditure Account.
Designated funds Unrestricted funds which have been accumulated over time and
earmarked for a particular purpose by the Trustees.
Direct cost A cost which can be specifically allocated to an activity,
department or project.
Donation in kind Where a grant or contribution to a project is made in the form of
goods or services, rather than a cash grant or donation.
Double entry The method of recording financial transactions whereby every
bookkeeping item is entered as a debit in one account and a corresponding
credit in another.
Exception report A short narrative report which highlights significant variances
and/or areas for concern to accompany the management
accounts.
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.
Financial accounting Recording, classifying and sorting historical financial data,
resulting in financial statements for those external to the
organisation.
Fixed asset An item of high value owned by the organisation for use over a
long period. Normally office equipment, vehicles and property.
Fixed assets register A list of the Fixed Assets of the organisation, usually giving details
of value, serial numbers, location, purchase date, etc.
Fund accounting Used to identify spending according to the different projects or
purpose for which the funds were granted.
General ledger The main accounting record where double-entry bookkeeping is
used. See also Nominal Ledger.
General funds Unrestricted funds which have not been earmarked and which
may be used generally to further the organisation’s objectives.
Often referred to as Reserves.
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.
Indirect cost A cost which cannot be specifically assigned to one activity,
department or project, eg the fee for the annual audit.
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
for correcting a recording error.

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Liabilities Amounts owed by the organisation to others, including grants

received in advance, loans, accruals and outstanding invoices.
Liquidity The level of cash and assets readily convertible to cash compared
to the 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 accounting The provision of financial information to management for the
purposes of planning, decision-making, and monitoring and
controlling performance.
Net book value (NBV) The cost of an asset less its accumulated depreciation to date.
Net current assets Funds available for conducting day-to-day operations of the
organisation. Usually 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,
within a specified time period. A complete list appears in the
Chart of Accounts, each with its unique ‘nominal code’.
Nominal ledger A book or computer programme which holds details of each of the
nominal accounts. Also known as General Ledger.
Organogram Organisation chart showing the management and departmental
structure of the organisation
Payment voucher An internal document raised for each payment. It provides a
unique reference number and evidence of authorisation.
Supporting documents are attached to it.
Petty cash book The day-to-day listing of petty cash paid out.
Prepayments Amounts paid in advance at a particular accounting period – eg
annual insurance premium.
Procurement The process of purchasing goods and services. Steps in the
process may include requesting, authorising, selecting suppliers,
ordering, receiving and paying.
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 cash book for the period with opening and
account closing balances.
Reconciliation Checking mechanism which verifies the integrity of different parts
of an accounting system. Especially balancing the cash book to the
bank statement.
Reserves Funds set aside from surpluses produced in previous years.
Restricted funds Income which has conditions attached to how used, usually with a
requirement to report back to the donor.

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Signatories People who are authorised to sign cheques on behalf of the

organisation.
Statutory deduction Amounts which must be taken from an employee’s pay before
they receive it, such as income tax or national insurance
contributions.
Supporting document The original documents that describe each transaction. These may
include, receipts, invoices, delivery notes, sign sheets etc
Transaction Any exchange of goods, services or money in return for other
goods, services or money. Most commonly receipts and payments.
Trial balance The list of debit and credit balances on individual nominal
accounts from which an income and expenditure statement is
prepared.
Trustee A member of an NGO’s most senior governing body, who shares
overall responsibility for the NGOs work.
Unrestricted funds Funds held for the general purposes of the organisation, for
spending within the stated objectives.
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.
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 The cut-off point for the annual financial accounting period.
Zero-base budgeting A method of preparing budgets which involves calculating
estimates from scratch, by considering each cost area afresh.

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1
Chapter

1 Financial Management for

NGOs
An Introduction to Financial Management and Control in the NGO Sector

This chapter:
 Explains why financial management is important for NGOs
 Clarifies financial management and financial control
 Describes the underlying principles of financial management
 Explains roles and responsibilities in financial management
 Outlines the building blocks and tools of financial management

Why is Financial Management important for NGOs?

In many NGOs financial management is given a low priority. This is often characterised by
poor financial planning and monitoring systems.
But NGOs operate in a rapidly changing and competitive world. If their organisations are to
survive in this challenging environment, managers need to develop the necessary
understanding and confidence to make full use of financial management tools.
Good practice in financial management will:
 help managers to 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 NGO 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!

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So what is Financial Management?

Financial management is not just about keeping accounting records. 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.

Financial management to an NGO is rather like maintenance is to a vehicle. If we don’t put

in good quality fuel and oil and give it a regular service, the functioning of the vehicle suffers
and it will not run efficiently. If neglected, the vehicle will eventually break down and fail to
reach its intended destination.
In practice, financial management is about taking action to look after the financial health of
an organisation, and not leaving things to chance. This will involve:

 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 organisation’s 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.

 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 – Plan, Do, Review – takes place on a continuous basis.

The Plan-Do-Review cycle is illustrated in Figure 1.1.

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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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What is Financial Control?

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. And when this happens, managers will sleep soundly at night, beneficiaries will be
well served and donors will be happy with the results.

Financial control occurs when systems and procedures are established to make sure that
the financial resources of an organisation are being properly handled.

With poor financial control in an organisation:

 assets will be put at risk of theft, fraud or abuse;
 funds may not be spent in accordance with the NGO’s objectives or donors’ wishes;
and
 the competence of managers may even be called into question.

Who is Responsible for Financial Management?

It is important to understand an NGO’s 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.
 They are ‘not-for-profit’ (but note that they are still allowed to make surpluses).
 They have many stakeholders – an NGO is an alliance of many different interests.
 They are governed by a committee of volunteers – the ‘Governing Body’.
 They are 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
organisation’s legal status. Organisations are recognised either as a separate legal entity
(incorporated body) or as a loose collection of individuals (un-incorporated body).

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Most smaller NGOs are un-incorporated. This means that trustees bear full responsibility
and are held ‘jointly and severally’ (ie as a group and as individuals) responsible for the
affairs of the organisation.
So individual board members could be named in a legal action, as shown by the arrows
passing through the organisation’s boundaries in Figure 1.2.

Figure 1.2: Unincorporated NGO

Legal Liability

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).

Figure 1.3: Incorporated NGO

Legal Liability

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In this type of body, 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).
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.

 The Constitution
The way that an NGO is structured and registered will therefore have an impact on its legal
status, accountability and transparency. 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;
 the system of accountability – ie who is the governing body, its powers and
responsibilities;
 how it raises its funds.

 The Governing Body

The governing body is legally responsible and accountable for governing and controlling 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; and
 representing interests of stakeholders.

The governing body is often organised with a series of sub-committees – eg Finance,

Personnel or Project sub-committees.

 Board Members
Board members 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 Treasurer’s 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.

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.

Figure 1.4: Sample Organisation Chart – How authority is delegated

Governing Body
Delegated authority

Accountability
Chief Executive Officer

Finance Manager Operations Manager

Finance Team Project Officers

 Day to day responsibility

As the governing body 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.

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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.

 A Team Effort
In practice, everyone who works to achieve the objectives of an NGO has an important role
to play in financial management. Every opportunity must be taken to integrate financial
management into the day-to-day operational management of the organisation.
For this to happen, we have to get the basics right. We have to introduce robust systems
and procedures and be guided by some important principles which underlie sound financial
management.

Figure 1.5: Who is accountable?

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The Seven Principles of Financial Management

It is useful to identify a series of good practice principles, which can be used as a standard in
developing proper financial management systems in an NGO. These principles provide a
high-level guide for trustees and senior managers to help them make sure that their
organisation is using funds effectively and that staff are working appropriately.
Look upon each of the Seven Principles of Financial Management as goals to work towards.

 Consistency
The financial policies and systems of an NGO must be consistent over time. This promotes
efficient operations and transparency, especially in financial reporting. This does not mean
that systems may not be refined to cope with a changing organisation. Inconsistent
approaches to financial management could be a sign that the financial situation is being
manipulated.

 Accountability
The organisation must explain how it has used its resources and what it has achieved as a
result to all stakeholders, including beneficiaries. All stakeholders have the right to know
how their funds and authority have been used. NGOs have an operational, moral and legal
duty to explain their decisions and actions, and submit their financial reports 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
The organisation must be open about its work, making information about its activities and
plans available to relevant stakeholders. This includes preparing accurate, complete and
timely financial reports and making them accessible to stakeholders, including beneficiaries.
If an organisation is not transparent, then it may give the impression of having something to
hide.

 Viability
To be financially viable, an organisation’s expenditure must be kept in balance with incoming
funds, both at the operational and the strategic levels. Viability is a measure of the NGO's
financial continuity and security. The 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 in the NGO must operate with honesty and propriety. For
example, managers and Board members will lead by example in following policy and
procedures and declare any personal interests that might conflict with their official duties.

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The integrity of financial records and reports is dependent on accuracy and completeness of
financial records.

 Stewardship
An organisation must take good care of the financial resources it is entrusted with and make
sure that they are used for the purpose intended – this is known as financial stewardship.
The governing body (eg the Board of Trustees) has overall responsibility for this. In practice,
managers achieve good financial stewardship through careful 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 the organisation’s system for keeping financial records.

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’.

The Four Building Blocks of Financial Management

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

 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 organisation’s 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 a very simple matter to produce financial
reports which allow the managers to assess the progress of the organisation.

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 Internal Controls
A system of controls, checks and balances – collectively referred to as internal controls – are
put in place to safeguard an organisation’s 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 1.6: The Building Blocks of Financial Management – Getting the Basics Right

Figure 1.6 illustrates that all of the building blocks must be in place continuously. Effective
financial control will not be achieved by a partial implementation.
For example, there is very little point in keeping detailed accounting records if they are not
checked for errors and omissions; inaccurate records will result in misleading information,
which in turn could wrongly influence a financial management decision.
The building blocks are covered in detail in the remaining chapters. They are also used as
the basis for Mango’s Financial Health Check – a self-assessment checklist to help you build
your financial management systems. See Appendix 20 and also available for free download
here: http://www.mango.org.uk/Guide/HealthCheck

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The 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 highlighted in our working definition of
financial management on page 2 of this manual):
 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 study…etc.

 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, budgets…etc.

 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 reports…etc..

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

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2
Chapter

2 Getting Organised
Getting the basics right for your NGO

This chapter:
 Explains why it is important to design financial systems which are
right for your NGO
 Describes the two branches of accounting
 Introduces the Chart of Accounts and Project Cost Centres and
their important role in organising the accounts
 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

Systems Design
Systems design is one of the organising aspects of financial management. NGOs are quite
different from commercial organisations and state institutions, and financial systems have to
be adapted to meet their needs and resources.
The key tools to help to get your systems organised include:
 Organisation chart and job descriptions of staff
 Financial accounts structure – including a Chart of Accounts
and Project Cost Centres
 A ‘Finance Manual’ – or a file of established policies and
procedures
 A financial year planner

Financial systems design must also cater for the two distinct, but inter-dependent, branches
of accounting: financial accounting and management accounting.

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Financial Accounting vs. 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 which take place inside an organisation. Financial accounting is a system of
recording, classifying and summarising information for various purposes.
Financial accounting records can be maintained either using a manual or computerised
system (or a combination of both methods). Although it is important to comply with certain
accounting conventions and standards, the actual system adopted will depend on:
 the expertise and resources available;
 the volume and type of transactions;
 reporting requirements of managers;
 obligations to donors; and
 the communities NGOs work with.

One output of financial accounting is the annual financial statement, used primarily for
accountability to those external to the organisation. The routine output of financial
accounting throughout the year 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 reports produced by the management accounting process are
therefore primarily for internal use.

Financial Accounting: Management Accounting:

 Records transactions  Compares results against goals

 Classifies transactions  Determines reasons for

variations
 Reconciles records  Helps identify corrective action

= Summarises transactions  Forecasting & planning

 Presents financial data

 Analyses information

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They must be produced on a regular basis – usually monthly or quarterly depending on the
needs of the organisation – and as soon as possible after the reporting period so that figures
are relevant to managers’ discussions.

The Right System?

Every NGO is different – there is no such thing as a ‘model’ finance system. So there are a
number of considerations to take into account to find the right approach for your NGO:
 Structure – line management; 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 – how often and in what format do financial reports have
to be produced for the different stakeholders in your organisation?
 Resources of the organisation – 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 computers
 use of administrative staff

The Chart of Accounts

The Chart of Accounts is probably the most important organising tool for the accounting and
reporting processes.
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 income
and expense into a series of pre-determined categories or Accounts. These Accounts are
listed in the Chart of Accounts and are typically arranged in a logical order: Income and
Expenditure, Assets (things we own) and Liabilities (things we owe).

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Then, 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 organisation’s budget and financial reports, so promoting consistency and transparency.
Each organisation’s Chart of Accounts will be different. Typically, the layout will include
account name, reference number and a description for use of the account. An example of a
Chart of Accounts can be found in Appendix 1.
Note that the categories have been sorted not only by type of Account, but also into sub-
groups under ‘family’ headings – such as Administration, Personnel and Vehicle Running.
Family headings are especially useful for presenting summarised information. The coding
method used (in this case a numerical system but alphabetical systems are also used)
follows the same logic using a group of numbers for the same family of items.

Figure 2.1: The Chart of Accounts in a Finance System

Cost Centres
Some grants are given for a specific purpose – these are known as restricted funds because
they may only be used for a particular activity, rather than for general purposes. Such funds
must be accounted for separately 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.
In such circumstances it may be appropriate to identify activities within an organisation by
Cost Centre (or Activity or Budget Centre). Cost centres are typically applied to projects,
functions or departments which have their own budget and funding sources.

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The starting point for deciding on a cost centre structure is the organisation chart and donor
funding agreements.

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.
A useful way to graphically present cost centres is in the form of an ‘egg chart’ (see Figure
2.2 for Milestone’s chart).
Their cost centre structure and reference codes are shown in Appendix 1, page 2 of 2.

Figure 2.2: Milestone’s Cost Centres

There is no effective limit on the number of cost centres that can be used especially if a
computer accounting program is used. However, it is important to design the cost centre
structure carefully to prevent record keeping become burdensome and counter-productive.
Each cost centre is given a unique reference or code to identify it within the records.

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 How are cost centres used?

With cost centres in place, 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.

Cost Structures
As well as identifying the different types of expenditure for your organisation, you also need
to be able to classify them as either Direct or Indirect costs.
 Direct costs are those which are clearly related to a particular activity and can be
charged directly to the relevant Cost Centre. For example, in a training project, the
costs of room hire for a training event and the trainer’s salary.
 Indirect costs are those which are of a more general nature and relate to the
organisation as a whole or more than one activity. For example, head office rent,
the audit fee and the Chief Executive’s 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 their 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).

Financial Policies and Procedures

All organisations need to set down a series of financial policies and procedures to guide
operations and avoid misunderstandings.

 What is a policy?
A policy sets out a set of 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 NGO’s 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.
Policies should stand the test of time – whilst it is important to be flexible, NGOs should not
change policies too often.

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What makes a good policy?

 It is fair and realistic

 Is covers all situations likely to arise
 It meets legal requirements
 It 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.

 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. People are more
likely to adhere to policies if they had a say in making them.
Here are some ideas for you to consider.
Decide who will be involved in drawing up the policy

If the policy is to have an impact on how programmes are delivered, it makes sense to
include programme staff in the discussions.
Do some background research to gather the information you need 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:

 The purpose of the policy
 Why we need the policy
 Who the policy applies to
 The policy guidelines
 References (eg to other policies and procedures)

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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).

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 accounts staff for day-to-day operations but also serves as a
reference in case of query by programmes staff.

 What goes in a Finance Manual?

A finance manual might include sections on:
 Financial accounting routines
 The Chart of Accounts and cost centre codes
 Delegated authority rules (ie who can do what)
 The budget planning and management process
 Ordering and purchasing procedures
 Bank and cash handling procedures
 Management accounting routines and deadlines
 Management and control of fixed assets
 Staff benefits and allowances
 Annual audit arrangements
 How to deal with fraud and other irregularities
 Code of Conduct for staff and board members

The manual may also include some reference materials such as

 Organisation Chart
 Job Descriptions
 Standard forms

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; and it must be a ‘living’ manual, used
and implemented by everyone and regularly reviewed and updated.
The process of developing policy and procedures together is far more important that the
finance manual itself – people need to ‘own’ and implement them, rather than see them as
a ‘rule book’.

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Standard Forms
Standard forms are purpose-designed documents used to simplify or facilitate financial
administration routines [see Appendix 18 for some commonly used standard forms]. They
are one of the best ways to ensure that procedures are followed and understood by those
responsible for operating them. Standard forms can be used with almost any procedure but
especially where:
 information needs to be supplied by a third party before a transaction can take
place;
 a transaction requires to be checked and authorised; or
 financial information is being summarised or reconciled.

A note of caution in the use of standard forms: do not overdo the paperwork as too much
bureaucracy slows down the accounting process and overloads the authorisation routines.
Some typical uses for standard forms:
 Payment Voucher
 Purchase Order
 Travel and Subsistence Expenses claim
 Assets Register
 Vehicle Log
 Bank Reconciliation
 Journal Voucher
 Staff loan application

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 recording, reconciling and trial
balance
 Reporting schedules – especially to meet donors’ requirements
 Budgeting process
 Reviews – eg assets register, finance manual and insurance cover
 Year end procedures – eg preparation for audit
One of the best ways to do this is to use a yearly planning chart. 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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3
Chapter

3 Financial Planning
„Failing to plan is planning to fail.‟ (Chinese Proverb)

This chapter:
 Describes the planning process and how it links with financial
management
 Highlights different types of budgets and when to use them
 Describes different approaches to budgeting and how to use a
budget worksheet
 Looks at good practice in budgeting
 Introduces a tool for managing multiple-donor projects.

The Financial Planning Process

Financial planning is both a strategic and operational process linked to the achievement of
objectives. It involves building both longer term funding strategies and shorter-term
budgets and forecasts. It lies at the heart of effective financial management.
Financial planning does not start with budgets and numbers. Effective budgets can only be
produced as a result of good underlying plans. It is impossible to start a financial forecast
without a clear idea about what it is you want to do and how you intend to do it.

“If you don‟t 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.

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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’.
Mission

Most NGOs have a mission statement as part of their founding documents. 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 organisation’s work and state
in clear terms what it is that the organisation hopes to achieve over a given period of time. .
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.

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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, 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.

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 project’s 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?’

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Who needs Budgets?

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

Budgets are used by different people for different purposes.

 The Board of Trustees needs the NGO’s overall budget because it has to formally
approve it and monitor its progress.
 NGO Chief Executives need budgets to keep an eye on progress of the whole
organisation and the funding situation.
 Project managers need budgets to oversee the implementation of their project
activities.
 Fundraisers need budgets to accompany funding applications.
 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.

Types of Budget
Essentially, there are three main types of budget:
 The Income and Expenditure Budget
 The Capital Budget
 The Cashflow Forecast

 The Income and Expenditure Budget

The income and 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 and Expenditure budget]. The annual
income and expenditure budget is often broken down into shorter periods – quarterly, half
yearly or even monthly – to assist with monitoring progress.

 The 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 organisation’s 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:

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 Vehicles
 Office furniture and equipment
 Computer equipment
 Building construction
 Major renovation works

The implications for the income and expenditure budget should be noted – such as running
costs for vehicles. 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 and expenditure budget. This is most common in a project budget.

 The Cashflow Forecast

For good cash and 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. 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.
Whereas the income and 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.]
This then 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; or
 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 bank charges and interest.

The cashflow forecast is also useful where the organisation maintains substantial cash
reserves which need to be invested wisely to maximise investment income.

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How to prepare a cashflow forecast

To prepare a cashflow forecast, you will need all of the organisation’s activity plans and
budgets for the year. This exercise is best completed using a computer spreadsheet such as
Excel.
For each item of income and expenditure on the budget, you need to predict and plot on the
forecast sheet when cash will come in and go out. This is dependent on when activities are
planned to take place. Some activity is more predictable than others, eg monthly such as
salaries or annual such as insurance and audit fees. Other transactions are unpredictable,
eg repairs.
Once the budget has been broken down into each month based on the activity plans, it is
possible to calculate the net cash flow: ie whether there is more cash coming in or going out,
or vice versa. It is usual to also include an estimate of any bank balances held as reserves as
this will help manage our cash flow.

Tips on Preparing a Cashflow Forecast

1. Cashflow forecasts are not simply the budget broken down into 12 equal
instalments - you need to know when specific activities will take place. Eg for a
training project, when will the courses take place, when will costs have to be paid
and will the course fees be paid in advance?
2. Expenses must be entered on the cashflow forecast when the cash is expected to
leave the bank. So an invoice for January’s electricity will probably be received in
February and paid in March.
3. Some payment are paid monthly, such as salaries. But don’t forget that deductions,
such as income tax, are often paid to the authorities the month after salaries are
paid, or in some cases paid annually.
4. You need to take account of payment terms and income schedules. E.g. in some
countries, auditors require a 50% deposit of the audit fee before the audit and the
rest follows after the report is filed; so although this is an annual activity the actual
cash movement is affected by payment terms. Similarly, grant schedules dictate the
inflow of cash from donors.
5. For unpredictable expenses – e.g. equipment repairs – it is best to put a monthly or
quarterly sum.
6. Obvious but easily forgotten: you exclude non-cash transactions from the cashflow
forecast (eg donations in kind or depreciation) so if these are on the budget, they
have to be left off the cashflow.
7. If there is not enough money in the bank to pay for project activities, delays will
follow and donors will get upset – so cashflow forecasting is really important!

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Budget Structures
To facilitate planning and to enable control to be effective, many organisations try to ensure
that the overall structures of their budgets correspond closely to the organisation structure.
It is possible to organise budgets at different levels, eg by department, programme or
project.
Figure 3.2 shows Milestone’s budget hierarchy. Note that this reflects the cost centre
structure that we looked at in the last chapter. The lower level project budgets are
consolidated into the departmental budget. Departmental budgets are in turn consolidated
into one overall budget (see Appendix 11).
This structure allows budgets to be delegated and monitored at the project level, whilst
maintaining an overview at department and association level.
Figure 3.2: Milestone’s 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 year’s budget on the previous year’s 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. It is most useful for
organisations where activity and resource levels change little from year to year.

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A frequent criticism of this approach is that it does not encourage fresh thinking and may
perpetuate existing inefficiencies. It also makes it difficult to justify the figures to donors
since the original calculations may be long forgotten.

 Zero-based budgeting
An alternative approach is to start with a clean sheet – a zero base. Zero-base budgeting (or
ZBB) ignores previous experience and starts with next year’s 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 impose
a much greater workload on managers than incremental budgeting.
Activity-based budgeting is a special form of ZBB and is frequently used in the NGO sector to
create project budgets.

Top Down or Bottom up?

Figure 3.3: Top Down vs. Bottom up

Top down
Long-term objectives

Annual
Budget

Day-to-day
activities Bottom up

Since a budget is a financial plan that relates directly to the activities of the organisation, it is
important that those who will be responsible for project implementation are closely
involved with writing the budget.
If this is not done, the budget will surely be less accurate and the staff less likely to
appreciate the need to spend within budget or to reach fund-raising targets.
Where operations staff are involved in setting their budgets it is described as ‘bottom up’
budgeting – as opposed to ‘top down’ where budgets are imposed by senior managers.
Many organisations employ a mix of top down and bottom up approaches.

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Summary of Budget Terminology

Income & This budget lists all items of incoming funds and recurrent (ie
Expenditure 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.
Cash flow This budget shows the predicted flow of cash coming in and out of
forecast the organisation each month, with the purposes of identifying
periods of cash shortages or surpluses.
Balanced This budget shows that anticipated income is the same as
BUDGET STATUS

anticipated expenditure
Deficit This budget shows that anticipated income is less than anticipated
expenditure
Surplus This budget shows that anticipated income is more than
anticipated expenditure
Incremental This describes an approach to budgeting where the calculations
WRITING A BUDGET

are based on previous year’s budgeted or actual figures, with

APPROACHES TO

adjustments for new activities or known changes

Zero-base This describes an approach to budgeting where the budget is built
from ‘scratch’, and not based on previous budgets or figures.
Activity based This describes an approach to budgeting where the budget is built
up from a detailed activity plan (a form of zero-base budgeting).
Master This budget shows overall anticipated income and expenditure for
LEVEL OF BUDGET

the whole organisation for the year.

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 This budget shows income and expenditure for a specified project
programme or programme for the implementation period.
Multi-year This budget outlines anticipated income and expenditure, or
TIME PERIODS

cashflow, for two or more successive years.

Phased This describes a budget which has been broken down into smaller
time periods – usually monthly or quarterly – to reflect the budget
requirements for that period, according to levels of activity.
Donor This budget is produced in the format required by a funding
agency and usually accompanies a funding proposal.
SPECIALISED BUDGETS

Flexible (or This budget is regularly reviewed and updated to take account of
variable) changes in levels of activity
Funding grid This is a special budget which reconciles anticipated income
sources to the programme budget, to show which funding source
is funding what, and identify funding gaps.
Rolling This budget always covers a fixed period of months (eg 12
months). It is updated every month or quarter to include figures
for the fixed budgeting period.

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The Budgeting Process

The process of preparing a meaningful and useful budget is best undertaken 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?

Once the budget has been agreed and the activity implemented, the process is completed
by comparing the plan (budget) with the eventual outcome (‘actual’), to see if there is
anything we have learnt or could do differently next time.
The budgeting process is one we go through almost on a daily basis without even realising,
as the example below demonstrates.

Example: Rudi goes to the Cinema

It is Friday afternoon and a teenage son – Rudi – rushes in from school asks his mother for
$10.00 as he’d 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, have a burger and then go to the cinema. 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 burger bar, visit cinema, bus journey home.
Resources: Money to cover the costs of bus fares, burger, cinema ticket and popcorn.
$
Travel 1.50 2 x 75c bus fares
Food 3.50 $3.00 for burger, 50c for popcorn in cinema
Tickets 3.00
TOTAL 8.00
Rudi’s mother decides that the plan is a reasonable one but gives him $8.00, not the $10.00
he originally asked for.

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The next day....…

On Saturday morning, Rudi’s mother asks how he enjoyed the evening. He reports that the
film was very good 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 burger bar, Rudi and his friends
arrived at the cinema to find that all the $3.00 seats were sold out and they had to spend an
extra $1.00 each on the more expensive seats.
This meant that Rudi did not have enough money left to buy popcorn in the cinema or to get
the bus back home again. Fortunately, he met the parents of some school friends in the
cinema lobby and they offered to give him a lift home after the film, which he gratefully
accepted.
So it all ended well, even though his plans did not go exactly as intended.

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.
Clarity and accuracy is key so it is important to keep notes on budgeting assumptions and
how calculations have been made.

 Timetable
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.

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 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 year’s budget and
add a percentage amount on top for inflation. While last year’s 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 make a list of all the inputs required and specify the
number and unit cost of each item. From this detailed working sheet, it is then a simple
matter to produce a summarised budget for each line item and is very easy to update if units
or costs change. Table 3.1 below provides a simple example of the budget worksheet
format.
See below for detailed guidance on how to use the Budget Worksheet and Appendix 12 for a
completed project budget worksheet.

 Contingencies
Try to avoid the practice of adding a ‘bottom line’ percentage for so-called ‘contingencies’ on
the overall budget. As a rule, donors do not like to see this and it is not a very accurate way
of calculating a budget. It is better to calculate and include a contingency amount for
relevant items in the budget – eg salaries, insurance, and fuel.
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:
 Staff related costs (eg recruitment costs, training, benefits and taxes)
 Start-up costs (eg publicity, legal costs)
 Overhead or core costs (eg insurance, utilities)
 Vehicle running costs
 Equipment maintenance and repairs (eg for photocopiers and computers)
 Governance costs (eg board meetings, AGM)
 Audit fees

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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 quantity and the cost per unit. The
final column provides the budget for each item.

Table 3.1 Budget Worksheet

A B C D E F G [D x E x F]

Ref. Description Unit type No. Unit Quantity Unit Cost $ Total cost $
1 Workshop costs
1.1 Room hire for workshop Days 4 1 25.00 100.00
1.2 Tutors’ fees Days 4 2 100.00 800.00
1.3 Tutors’ accommodation Nights 5 2 50.00 500.00
1.4 Lunch & refreshments Delegate 22 4 5.00 440.00
1.5 Course handbooks Delegate 22 1 5.00 110.00
1.6 Folders for papers Trainee 20 1 3.00 60.00
Sub total 2010.00

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

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 budget worksheet. An activity-based
budget is usually separated into sections, each with a sub total of costs. Each
block will have a unique number, as in the above example where 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 the 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 being costed on a per delegate 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 delegates (20 trainees
plus 2 facilitators).

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E Quantity This is useful where multiple items are required. For example, in line 1.4 in
the table above, we need to provide lunches for 22 delegates on 4 days as it is
a 4-day course. In line 1.3, we need to provide accommodation for 2 tutors.
Whereas in line 1.1 we only need to hire 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 delegate.
G Total cost This is calculated by multiplying no. units x quantity x unit cost. So, the cost of
lunch and refreshments for 22 delegates on each of 4 days at $5.00 per
delegate 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 Code The code used in the organisation’s accounting records (ie as 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.

More on Unit Types

Deciding on the unit type requires some careful thought as it is not always so obvious and it
does depend on how the items are usually sold or priced. See below for a checklist to help
you choose a unit type.

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 (eg per diem) 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

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Typical Budget Items: Examples of Unit Type:

Telephone & fax Month
Office stationery Month (or specify items, eg paper by the box, pens
by the piece )
Email subscription Month or lump sum per quotation
Postage Month
Repairs & renewals Month
Bank charges Month
Audit fees Lump sum per quotation
Project Costs
Room hire Days, month
Publicity costs advert entry, lump sum per quotation (eg
Publications/reference books Month or lump sum per quotation
Training materials Trainee, or specify per item
Professional fees (eg facilitator, Days
consultant)
Printing/photocopy Copy, delegate, lump sum per quotation
Inputs (eg trees, pipes, tents, tools, cattle) Piece, according to charging basis
Equipment (eg vehicle, computer, desk Piece, according to charging basis or lump sum per
etc.) quotation
Accommodation Night
Food Person, meal, day

Summary: What makes a good budget?

 Anyone could pick it up and use it to manage their activities:
 Easy to read
 Calculations are clear
 Fully-costed, justified and accurate
 Explanatory notes are provided
 Suitable for purpose:
 Appropriate level of detail for the user

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The Challenge of Core Costs

It is important to have a clearly stated policy on how your organisation will cover its core
costs. These costs have to be funded just like any other cost incurred in an NGO.
The starting point is to produce a separate budget for core costs so they do not get
overlooked or ignored.
There are essentially two ways – or a combination of both – to fund your core costs:
 Use unrestricted funds (ie money given to the organisation for general purposes) to
cover all or part of core costs; or
 Charge core costs out to projects using a pre-arranged apportioning ratio.
The diagram below shows how this works in practice for Milestone. Their restricted funds
come in and get recorded at project level; unrestricted funds come in centrally are used to
help pay for some of the core costs. Some project funds are also used to contribute to the
core costs of the Coordination Department.
The methods which can be used to charge out core costs to projects are covered in a later
chapter.

Figure 3.4: Financing Milestone’s Core Costs

Building
Dept.
02

Coordination
01

Furniture Vehicles
project project
03-01 03-02
Metalwork
Dept.
03

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The Challenge of Multiple Donor 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’ vs. ‘Travel’ vs. ‘Vehicle Running costs’
 It is not always clear who is paying for what activity or item.
 Different donors have different policies on core costs. It is not always clear if all the
core costs are covered.
 Sometimes double funding occurs for certain budget items whilst other items are
under-funded.

 Some Solutions
A carefully designed and detailed Chart of Accounts

If the Chart of Accounts is detailed enough, it will be able to cope with different donor
budget formats. For example, the category ‘Transportation’ in an NGO’s Chart of Accounts is
extended to:
 Fuel & Lubricants
 Vehicle Maintenance
 Vehicle Insurance
 Public transport
 Air travel
 Distribution costs…etc

Use the budget worksheet approach to cost all projects

Because this approach provides a very detailed budget it is possible to transfer the
information to any other budget formats as required. The level of detail provides maximum
flexibility.
Include some ‘indirect costs’ as direct project costs in project budgets

Include as many project costs as possible in the project budget, including a share of the
indirect project costs, such as office rent or a percentage of the Director’s salary.
Take care: all costs must be justifiable.
Prepare a ‘funding grid’

A funding grid is a special table which provides an overview of which donor fund is paying for
what part of a budget.

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It is an internal planning tool which should be updated regularly as new information

becomes available. 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 the gaps’.
 The final column identifies any double funding and remaining funding gaps.

Table 3.4 Example Funding Grid –Milestone Project (extract)

Milestone’s Confirmed Funding

UNREST’D
RESTRICTED FUNDS
FUNDS
Budget Total DFID Smile Vanguard General Total Surplus/
item Budget Trust donations expected (deficit)
funds
USD USD USD USD USD USD USD

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

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

In the example above, 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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4
Chapter

4 Understanding Accounts
An Introduction to the Mysteries of Accounting Concepts and Jargon

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:
 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 and avoids
suspicion of dishonesty.

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 Legal requirement
There is often a statutory obligation to keep and publish accounts and 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 detect trends.

Accounting Methods
Keeping accounts simply means devising appropriate methods for storing 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:
 Cash accounting
 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:
 Cash transactions which have no time delay since the trading and exchange of
monies 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 – so 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.

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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.
 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 and Expenditure Account summarising all income and
expenditure committed during a given period; and a Balance Sheet which demonstrates,
amongst other things, moneys owed to and by the organisation on the last day of the
period.

Table 4.1 Summary of differences between 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 Report Income & Expenditure 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 for a Schedule of Creditors and Debtors, identified for Milestone’s 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.

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:
 Receipt or voucher for money received
 Receipt or voucher for money paid out
 Invoices – certified and stamped as paid

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 Bank paying-in vouchers stamped and dated when money is taken to the bank
 Bank statements
 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:
 Payment Vouchers (PVs)
 Local Purchase Orders (LPOs)
 Goods Received Notes (GRNs)

 Books of account
The minimum requirements for books of account are:
 Bank (or Cash) Book for each bank account
 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:
 General/Nominal Ledger
 Journal or Day Book
 Wages book
 Assets Register
 Stock Control Book

Supporting Documentation
It is very important to maintain supporting documents in the form of receipts and vouchers
for all financial transactions. These should be cross-referenced to the books of account and
filed in date or number order.
Apart from being required by the external auditor to support the audit
RECEIPTS
trail, certified receipts also provide protection to those handling the
EXPLAIN:
money. Mislaid or incomplete records can result in suspicion of
mismanagement of funds.
 When?
Keep separate files for receipts for money coming into the organisation
 How Much?
and money going out. Mark invoices ‘paid’ with the date and cheque
 What? number to prevent their fraudulent re-use by an unscrupulous person.

 Who? Well maintained files provide invaluable information to the

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

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Bank Book Basics

The Bank Book – or Cash Book 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 (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

Bank Reconciliation

The Bank Book should be checked with the bank’s records – the bank statement – at least
once a month. This is called the bank reconciliation. The purpose of this process is to make
sure that the organisation’s own records agree with the bank’s records and to pick up any
errors 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.

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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 bank’s 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 19 (page A24) for a
blank form to help you with this process.

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:
 fixed float or imprest system
 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.

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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.

 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). It is
like a series of ‘pigeonholes’ used to sort basic financial information and is especially useful
when an organisation has several projects and different donors requiring different reports.
The General (or Nominal) Ledger has one page for each category of income, expenditure,
assets and liabilities and information is ‘posted’ from the other accounting books into each
pigeonhole. It 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:
 Sales ledger and sales day book (but only if you have sales)
 Purchase ledger and purchase day book
 Stock ledger
 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.

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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
and failure to do so could result in a heavy fine. Be sure to familiarise yourselves with the
arrangements of your own Department of Taxes and get hold of the latest tax deduction
tables.
Larger organisations should also keep a separate Wages Book, which brings together all
information on staff salaries and deductions. These can be purchased from stationery
suppliers in a pre-printed format and they help to facilitate the year-end reconciliation or
available as add-ons to accounting software packages.

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: Trial Balance leading to financial statements

Trial Balance

Debit Balances on on Credit Balances on

Accounts Accounts

Expenses Income Assets Liabilities

Income and 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. Figure 4.2 illustrates which figures from the Trial Balance end up
where in the annual financial statements.

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‘Source ‘Books of
Documents’ original entry’
How it
all fits
Petty Cash
together
receipts Petty Cash
Figure 4.3: How it all fits together

Book
Receipts for money
paid or received

Banking slips & Cash (Bank)

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bank statement Book
TRIAL
 BALANCE
Payment
Vouchers General
Ledger
Invoices
Other Ledgers
and Day Books
Journal
Mango FM1 Course Handbook

Vouchers
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What are Financial Statements?

Financial statements are a product of the financial accounting process. They are a summary
of all the transactions for a specified period and show the financial position of an
organisation.
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 an annual external audit.
The simplest of all financial statements is the Receipts and 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 and 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.

The Income and Expenditure Report

In the not-for-profit sector, the equivalent of the Profit and Loss Account is the Income and
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; and
 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 Accumulated
Funds.
Note that there should be an accompanying Balance Sheet for the same date that the
Income and Expenditure Account is prepared at.

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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.

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 and 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.
Fixed assets

These are the 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

These are 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.
Liabilities are also divided into current liabilities 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.)
Accumulated Funds

Accumulated Funds and Reserves are separated out from other liabilities and act as a
balancing item on the Balance sheet. They 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 since, in an NGO, the funds are held in
trust for the organisation in pursuance of its objectives.

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Liquidity

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 deemed to be very liquid, while money tied up in a
building is clearly not liquid at all.
Working capital

This is the same as net current assets, that is, the short-term assets remaining if all
immediate debts were paid off. These are the funds that the organisation has available as a
cushion or safety net for running the organisation’s operations.
The table below summarises the main components and typical layout of a balance sheet,
although note that terminology does vary.

Table 4.2 Components of a Balance Sheet

Component: Description:

FIXED ASSETS: The less liquid assets – those having a significant value lasting more
than one year.
CURRENT ASSETS: The more liquid assets – can usually be converted into cash within
one year.
- Cash Funds held in the bank and as cash.
- Debtors Money owed to the organisation such as loans and unpaid sales
invoices.
- Prepayments Value of items paid for in advance such as insurance premiums or
equipment rental.
- 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, unpaid bills.
- Grants in Advance Grants received for a particular purpose but not yet spent in full, so
carried forward to the next financial year.
OTHER LIABILITIES: Longer term commitments and General Funds.
- Reserves Money set aside for specific purposes, eg replacing equipment.
Although designated funds, they form part of the organisation’s
General Funds.
- Accumulated Funds Accumulated surplus of income over expenditure achieved since the
organisation opened.

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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 the way that accountants deal with 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 it is 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. The table below shows how the equipment is depreciated over its useful life (all
figures are rounded to nearest dollar).

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

Note that when using this method, the asset is never completely written off. At the end of
the 4th year 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.

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Accounting for Shared Costs

Core costs are usually shared out between cost centres in a pre-arranged ratio. This can
either take place as the transaction is entered in the accounting records or 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, for example:
 Number of employees in the projects
 Number of cost centres
 Size of each project budget
 Project staff costs
 Amount of space used by department
 Number of clients/beneficiaries
 Actual consumption, eg kilometres travelled, photocopies made.

There is no hard and fast rule for allocating overheads to projects; rather logic should be
applied and the criteria chosen should be justifiable.
For example, in allocating central support staff salaries to projects, the number of employees
in the project could be used; and for apportioning the cost of office rent, the actual space
occupied by project staff is applicable.
Whatever method is chosen, it must be fair and justified, and once established it should be
applied consistently.

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5
Chapter

5 Financial Reports
Making Sense of the Numbers

Introduction
This chapter:
 Identifies the who, what, when and why of financial reporting
 Explains how to interpret financial statements using trend and
ratio analysis
 Explains how to compile and use the information in management
accounts
 Outlines the important features of donor reports
 Outlines reasons for reporting to our beneficiaries

Who Needs Financial Reports?

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

Financial reports are needed primarily by those responsible for managing the organisation
and by current and potential donor agencies; but those responsible for financial
management of an NGO also need to ‘give an account’ of their stewardship to a wide range
of stakeholders.

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Table 5.1 summarises the main users of reports and why they need this information.

Table 5.1: Who needs financial information about NGOs?

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
NGO’s objectives.
Donors To make sure that their grants are being used as agreed and that
the project’s objectives are being 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 does
departments not abuse it 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.

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. It is not surprising, therefore that we need different kinds of
reports for different users, as summarised in Table 5.2 below.
 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 and
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.

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Table 5.2: Different Reports for Different Users

Programme management Stakeholder accountability

Management Accounts: Budget Board report

Internal Monitoring report and Cashflow
report

Donor report
Donor progress report Audited Financial Statements
External (financial and narrative)
Annual Report
Reports to beneficiaries

What are the Annual Accounts?

We return to the Balance Sheet and Income and Expenditure Account. These annual
financial statements show in summarised form:
 where money has come from;
 for what purpose it has been received;
 how it has been spent; and
 what the outcomes of operations are.

They should be prepared as soon as possible after the end of the financial year – for example
within six weeks – and made ready for the external audit. The organisation’s constitution
will often specify the deadline for presentation of accounts to the members.
The Annual Accounts, accompanied by the Annual Report, form the main publicity and
information package available and will be of interest to many users. 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; and
 meet the requirements of auditors.

If an NGO’s 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.

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Interpreting Financial Statements

The aim when reviewing an NGO’s 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 don’t 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 and Expenditure statement we use two
types of financial analysis:
 Trend analysis which asks: How are we doing compared with the last period?

 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 Account

You can use ratios on the Income and 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
and Expenditure statement to give an indication of the relative importance of items on the
Balance Sheet.
A ‘Survival Ratio’ can be calculated by dividing general reserves , sometimes called ‘free
reserves’ (that’s the part of the Accumulated Funds which are unrestricted, not held as
capital and for general use) by total income (from the accompanying Income and
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 reduce.
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. 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 organisation’s
(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.

 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 Accounts 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.
Figure 5.1: Management Reporting Flow Chart

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 Which reports?
The main reports that will be useful to managers are the:
 Cashflow Report
 Budget Monitoring Report
 Forecast Report

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 monies received daily
 Request special payment terms from major suppliers (and stick to them)
 Pay certain overheads by instalment – eg insurance premiums
 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.)

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We can see the Plan-Do-Review process in action in Rudi’s trip to the Cinema. 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. If we
look at the variance column in Rudi’s Budget Compared to Actual Report (REVIEW) in Table
5.3 it is possible to see the story behind the figures...
Table 5.3 Rudi’s Budget Compared to Actual Report
A B C D E
Budget Item Budget Actually Variance Budget
Spent 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%

For example, we can see the effect of Rudi arriving too late to buy the cheaper cinema
tickets: he spent USD 1.00 (or 33%) more than planned on the entrance fee. And because
he then didn’t have enough money left to buy his bus fare back home (he got a free lift
home instead) he also 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 Rudi’s case, he learnt that he needs to get to the cinema early 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:

a. Budget variance $ X 100 Under-spends will result in a positive %

Budget for period $ and over-spends will produce a negative
%
b. 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%
% Budget Utilised (or ‘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 from the second quarter onwards
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 run 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?

Here are some key areas to focus on when you pick up a Budget Monitoring Report:
 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 tor program me?
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, Project inputs, Admin costs etc)? 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?

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 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: trust your instincts
and follow up your concerns.

A note on Commitments

Commitments refer to (significant) expenses which have been incurred for a project or
organisation in a particular period but haven’t 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 favourable variance happens when:
 actual income is higher than the budgeted amount, or
 actual spending is lower than budgeted (but note that this is not always good news
for an NGO).

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An adverse 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.

Sometimes a variance on a report will be due to an error in the figures rather than a change
in plan, for instance a mis-coding in the accounting records.

Figure 5.2: What causes variances?

Timing
[Temporary variance]

Price Quantity
[Permanent [Permanent
variance] variance]

We classify variances using the three criteria in Figure 5.2 to highlight where management
attention and action is required. This helps to decide if the variance is temporary or
permanent – will the variance continue or will it work through the system out over time?
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 are therefore generally less of a concern
and no corrective action is required.

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Example
The project plans to purchase a vehicle in month 1 but supplies are 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.

Permanent variances

Variances caused by changes in the price or quantity of particular budgeted items generally
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.
These variances are therefore generally more serious and management attention and
corrective action is required.

Example
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

Figure 5.3 summarises the actions open to managers to take on variances, once analysed
using the classifications systems described above.

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Figure 5.3: Action to take on Variances

Action Planning
Having analysed the figures in management reports, it is then important to work out
appropriate corrective action, if needed. 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
 donor rules and conditions.

It is useful to use a Budget Management Action Planner table to help you manage and
control your budget. It can be used to discuss action plans with manager and the project
team and to monitor progress of the action plan.
See Table 5.4 for an example format and Table 5.5 for an explanation of how to use it.

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Table 5.4: Budget Management Action Planner Format

Budget Management – Action Planner

1 2 3 4 5 6
Line item Variance Varianc Contro Impact on project and
description % or £/$ e Type -llable? grant if not corrected Action required / by
Smile Trust ($12,500) Temp. Yes The delay is causing CEO to contact donor and
Grant 100% project delays too as we explain this is causing
cannot buy vehicle project delays.
Salaries $2,000 Perm’t Yes Under spend due to Contact donor to explain
vacant post. This is now why there are delays and
filled but project request use of under-
activities delayed which spend to hire additional
could cause problems staff for a short period to
with donor. 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 value Include items that exceed +/- 10% variation 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.
5 Impact on project & grant eg Cash flow, achieving targets, meeting timeframes,
management if not corrected allowable costs.
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.

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Reporting to Donor Agencies

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.
 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.

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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)
 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 fully
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. 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. This sometimes may result in figures
being out by 1.

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 Alternative formats

Figure 5.4: Using graphics for financial reports

Budget Compared to Actual Report

1 January to 31 December 2008
50
45
Budget
40
Actual
US Dollars 000s

35
30
25
20
15
10
5
0
DFID Smile Trust V.Society Training Other
Fees
Income source

Graphical formats – for example using a bar chart for a budget-actual report (as in Figure
5.4) or a pie chart for an income and expenditure report – are a welcome alternative to
tables of figures, especially for people who are less confident around figures.
Similarly, rather than present figures, we might simply present a list of statements such
as in this example of an alternative Balance Sheet format:

Milestone Project Financial position on 31 December 2008:

a) Our programme equipment and vehicles – after a deduction for wear and tear –
had a value of UC112,091.
b) We had UC8,095 help 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 UC 17,292 to continue our operations.
f) Our overall reserves, including the value of our equipment and vehicles, total
UC129,383.

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

Reporting to Beneficiaries
Most NGOs recognise the need for downward accountability – ie reporting to the
communities they work with. But few 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 NGO’s work, beneficiaries need access to information about the
NGO’s 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
 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.
Some good practice ideas on how to practically report to beneficiaries include:
 Making information easier to understand by using graphical presentations
 Using white-boards outside offices to display budgets, the amounts of funds
available for each area and a monthly update of expenditure.
For more ideas on how to report to beneficiaries and information about Mango’s “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 Auditor’s 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’)
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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6
Chapter

6 Safeguarding Your Assets

„It is more sensible to establish a system to deter fraud rather than one to discover it‟.‟

This chapter:
 Explains the importance of introducing internal controls
 Outlines the principles of delegation of authority and separation
of duties
 Highlights the importance of cash control and reconciliation
 Discusses ways to manage and control fixed assets
 Provides some tips on how to detect fraud
 Gives advice on how to manage incidences of fraud and other
irregularities

Managing Internal Risk

Here we are concerned with managing internal risks facing an NGO on a day-to-day basis.
This is achieved with a series of controls, checks and balances, which, if operated properly,
will avoid 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.
There are several different categories of internal controls:
 Delegated authority
 Separation of duties
 Reconciliation
 Cash control
 Physical control

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Delegated Authority
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 to expect one
person to make all the decisions and authorise all transactions. 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 Document

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:
 Placing and authorising orders for goods and services
 Signing cheques
 Authorising staff expenses
 Handling incoming cash and cheques
 Access to the safe and petty cash
 Checking and authorising accounting records
 Signing legal undertakings

The Delegated Authority document must be approved by the governing body and should be
reviewed every year to ensure it is still appropriate to current needs. It should also outline
deputising arrangements to cover for absence of key personnel. A breach of delegated
authority is a serious matter and should be dealt with accordingly.

 Authorisation rules
When writing a delegated authority document there are some basic rules which should be
observed:
 The lowest level of authority is defined – it is taken for granted that those higher up
the management ladder will also have the same authority.
 No one should authorise any transaction from which they will personally benefit.
This makes the individual vulnerable to accusations of abuse.
 Sub-ordinates must not authorise payments to managers – they must be passed to
someone who is more senior in the management structure.

Any limits or conditions that apply to delegated authority must be clearly defined. For
example, a person may be authorised to commit expenditure up to a specified amount or
within certain categories of expenditure or within budget.

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Separation of Duties
In order to protect those operating the procedures and to prevent any temptation to mis-
use funds, there must be a separation of the various duties within the finance procedures.
For example, the duties of ordering goods, receiving goods, authorising the payment,
keeping the accounting records and reconciling the accounts should not fall entirely on the
shoulders of one person. 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.
As far as possible then, duties should be shared between the staff team and/or committee if
there are only one or two staff members.

 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. See below for the typical stages in a procurement process.
This is a prime example of separation of duties in action. The procedure will:
 outline the process and authorities for ordering, receiving and paying for goods and
services (see below);
 describe which method of payment or acquisition is to be used for different goods
and services – for example, when it is acceptable to use petty cash (this should be
rare), bank transfers (eg salaries) or suppliers’ accounts (eg stationery, petrol);
 clarify when it is necessary to obtain quotations from suppliers – eg 2 quotations for
all expenditure over $100;
 include a list of Approved Contractors or Suppliers, if used.

 Signing cheques
Each organisation should have a panel of cheque signatories from which to select the
required number of authorising signatures; there should be sufficient people nominated to
ensure efficient administration of payments. Signatories should be regularly reviewed and
the list updated when people leave the organisation.
It is usual to have more than one signature on a cheque to help avoid fraud.

 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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 Checking and authorising accounting records

A key responsibility of managers (the Chief Executive or Financial Controller in a larger
organisation or a Treasurer in a smaller one) is to check and authorise records, count the
petty cash and review orders for supplies, from time to time.

The Procurement Process

Each organisation must design a procurement procedure which suits its own circumstances.
Figure 6.1 shows some typical stages in the process to demonstrate separation of duties in
action.
Note that the procurement stages described here are for major orders not small cash
purchases.

Practical Financial Management for NGOs

Figure 6.1 Typical Procurement Process

Procurement Process Flow Chart

Prepare Prepare Check &

specification, Purchase authorise Obtain
check budget Requisition Requisition quotations

Receive
Issue Select Supplier
goods
Purchase (‘Purchasing Panel’)
Order

Prepare & Pay Supplier

Receive & authorise
check Invoice Enter payment
Payment
invoice in Cashbook
Authority

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 clarified so that it is clear what needs to be purchased. 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.

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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.

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 Purchase Order (PO)

A Purchase Order is sent to the selected supplier with a copy kept on file with the supplier’s
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 organisation’s books of account.

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The Reconciliation Process

Reconciliation 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:
 Bank Book
 Petty Cash Book
 Stock control records
 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 line manager or a
committee member. As noted above, this checking duty is a key responsibility of the
manager or Treasurer.

 Bank Book
The Bank Book should be reconciled to the bank statement at least once a month. The
purpose of this exercise is to make sure that the organisation’s own records agree with the
bank’s 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. Discrepancies must be reported to a manager.

 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 below in Table 6.1. 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).

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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 6.1 Sample Stock Control Sheet

Cost Value Resale value

$ $
Value of stock at 1 Jan 200x 3,000.00 6,000.00
Add: Value of purchases between the period 1 Jan. to 31 Mar. 200x 800.00 1,600.00
Deduct: Value of sales during the period 1,300.00 2,600.00
EXPECTED STOCK VALUE: 2,500.00 5,000.00
ACTUAL STOCK VALUE 2,450.00 4,900.00
Difference (50.00) (100.00)

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.
 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 would have to be investigated and systems
reviewed if necessary. This demonstrates well the importance of regular stock
reconciliation.

 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. Failure to do so could result in severe
penalties and interest being imposed – and cause discontent amongst the staff.

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Cash Control
It is important to observe the Seven Golden Rules for Handling Cash as
follows:

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 into the
organisation must be paid into the bank promptly and entered into the records before it is
paid out again. Failure to do so will distort financial information.
For example, a training course is run by an organisation and a charge of $25.00 is made 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 entered into
the accounts and cannot therefore be reflected in a financial report. Similarly, as only the
net amount of fees received has been paid into the bank, it would appear that only a few
people actually attended the course and the income generating potential of running such a
course has been disguised.

2. Always give receipts for money received

This affords protection to 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; 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 and
authorised by a line manager. Remember – no receipt means there is no proof that the
purchase was made.

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 if it were 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. Every attempt should be made to pay cash into the bank on a
daily basis or, at the very least, within 3 days of receipt.

5. Have properly laid down procedures for receiving cash

To protect those handling money, there should always be two people present when opening
cash collection boxes, etc. Both should count the cash and sign the receipt.

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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 organisation’s Delegated Authority document.

7. Keep cash transactions to an absolute minimum

Petty cash should only be used to make payments when all other methods are
inappropriate. Wherever possible, suppliers’ accounts should be set up and invoices paid by
cheque. The advantage of paying for most transactions by cheque 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.

 Having a safe
Having a safe – or a safe place – to keep cash, cheques books, legal
documents, etc. is an important consideration. 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 if
resources are tight then it may be better to improve on banking
procedures.

 Insurance cover
It is the responsibility of the Chief Executive to ensure that there is adequate insurance cover
so that if ‘assets’ are lost, damaged or stolen they can be replaced or compensated. There
are many different types of insurance to consider, including
 Office contents against fire and theft
 Buildings against fire, floor and storm damage
 Vehicles against accident and theft.
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.

 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.
The measures to safeguard these assets will include Assets Registers, a vehicle policy and
maintenance policies for equipment.

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The Assets Register

An Assets Register should be established 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:
 where and when the item was purchased and how much it cost
 where it is held or located
 how much it is insured for
 repair history
 serial numbers
 details of guarantees or warranties.
 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 18 (page A22)
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.
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:
 Depreciation
 Insurance
 Purchasing, replacement and disposal
 Maintenance and repair
 Private use of vehicles by staff
 What to do when accidents happen
 Driver qualifications and training
 Carrying of passengers

The costs of repair and replacement must be also adequately reflected in the budget
process.

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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 18, page A25 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 below for a worked example.
Table 6.2: Calculating Vehicle Running Costs

Vehicle make/model: Toyota Hiace Van

Date purchased: 26 December 2007
Purchase price: $20,000
Depreciation period /method: 5 years, straight line method
Maintenance: Service every 6,000 km or every 3 months
KM run From 1 January to 31 December 2008:
Km on clock on 31/12/08 20,601
LESS Km on clock on 01/01/08 (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 parts, tyres, etc 900
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 Hiace Van cost approx. 0.67 cents.

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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 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 look 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
‘teeming and lading’?
 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
someone’s 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.
Reports:
 Budget monitoring reports showing inconsistent behaviour between line items - eg
project-related expenditure is under-spent due to delays – except for fuel which his
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 are
having to do extra work to cover tracks?
 Never taking holidays – can’t afford for someone else to see what they are doing!

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 Change of lifestyle – spending patterns don’t 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 (find out how: www.whocounts.org).
 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.)

Figure 6.2: The Ripple Effect of Fraud

Funding
withdrawn

NGO’s credibility
suffers

Extra work for

managers
NGO
Staff morale
objectives
suffers
unfulfilled Activities delayed

Beneficiaries lose
out

NGO survival
under threat

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Dealing with Fraud and Irregularities

There will be occasions when internal control systems fail to prevent losses through theft,
fraud or other irregularities.
Fraud is defined as: a deliberate, improper action which leads to financial loss to the
organisation. This includes theft of goods or property; falsifying expenses claims; and
falsification (or destruction) of records to conceal an improper action.
Fraud does not include:
 accounting errors
 actions condoned by established practice
 cases where no loss is incurred.

‘Irregularities’ include unauthorised activities for private gain: eg ‘borrowing’ from petty
cash; use of vehicles; or abuse of telephones and other equipment.
Inevitably, the impact of fraud has a damaging effect on the organisation. 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 6.1 above illustrates.
Incidents of fraud and 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 and to 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 organisation’s 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 will result in immediate dismissal and loss of terminal benefits. A clear
statement of the organisation’s policy on the circumstances in which the Police will be
informed must also be made. This must take in account local circumstances.

 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; report it
immediately to a superior. Follow up all reports or suspicions immediately; do not allow
rumours to spread or let the ‘trail’ go cold.

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 Investigation
When an irregularity comes to light, 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.
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. The policy will
identify who is responsible for conducting a formal investigation. This will depend on the
nature of the irregularity; it could be conducted by the senior manager, the internal auditor,
the external auditor or, in more serious cases, the Police.

 The Aftermath
Don’t 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 will be worried that their own jobs are under threat.
 New staff may need to be recruited and trained.
 Donors will need reassuring that their resources are safe and the project will not
suffer.
 Summary
Here are some tips on how to deal with fraud and other irregularities – to keep RISKS LOW:

DO
 Report the incident to a superior or Board member
 Investigate incidences, gather the facts
 Secure the assets and records
 Keep calm!
 Swiftly act
DON’T
 Look the other way
 Overlook the ‘fall out’ of a fraud
 Withhold information to protect others

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Above all, remember that prevention is better than cure!

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7
Chapter

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 kinds of audit:
 The Internal Audit
 The External Audit
As the name implies, an external audit is primarily for the benefit of those outside the
organisation, eg stakeholders and funders. Internal audit is undertaken for the benefit of
those inside the organisation, ie trustees and management.
The audit should be a positive experience and not one to be feared; it is an opportunity to
receive feedback on strengths and weaknesses in systems. Use your auditor to discuss ways
of improving your accounting systems and procedures.

 Why do NGOs need audit?

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.

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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.
The internal auditor’s report will highlight findings and make recommendations for action,
where needed. It may be carried out by someone within the organisation, or an outsider
may be engaged to carry out an 'internal audit'.
An internal audit will include a range of checks as part of the independent review, including:
 financial accounting systems and procedures;
 management accounting systems and procedures;
 internal control mechanisms.
The internal auditor reviews the adequacy of the design of the systems of procedures, and
checks that they are being appropriately implemented. A report is presented to the
governing body and management, who respond by taking corrective action, perhaps
changing a procedure, or training a staff member.
The ‘Three E’s’ influence an internal auditor’s 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’.

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).

 Purpose
The purpose of external audit is to verify that the annual accounts provide a true and fair
picture of the organisation’s 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:
 To act as a fraud investigation
 To prepare the accounts
 To provide a certificate to say “there are no problems”
 Proof that internal control systems are effective
 Evidence that accounts are 100% error free

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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.
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. Being
independent means that 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.

 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. Although an auditor’s 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.

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

 The audit report

An audit results in a report addressed to members which gives an ‘audit opinion’ as to the
‘true and fair’ view given by the financial statements (of the state of affairs of the
organisation and operations for the period.)

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.

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If the auditors do not agree with the financial results as presented by the organisation, they
may issue a report saying that, in their opinion, the accounts are not fine. This could be
disastrous for an NGO seeking donor support.
The table below summarises the types of opinion.

Table 7.1: The status of the External Auditor’s Opinion

Auditor Opinion Comment

Unqualified The accounts do give a true and fair view – 'clean' audit report.
Qualified: Subject to The accounts are basically OK, apart from specific identified issues, eg an
incorrect accounting policy, or specific unsupported expenditure.
Qualified: Disagreement There are so many errors that the accounts do not give a true and fair view.
Qualified – disclaimer The auditors are unable to give an opinion, because the records are so poor or
incomplete. This is very bad indeed.

If the auditors propose any adjustments or changes to the draft financial statements, these
must also be approved by the Board. The audit report is addressed to the members and it is
usual to formally accept the report at the Annual General Meeting.
Auditors will also often provide a Management Letter. 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 or evaluator will almost certainly wish to interview staff and committee
members and may 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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Summary: Different Types of Audit

Area: Internal External Donor/Project

Main purpose Check effectiveness Verify the Check that funds

of systems & published used in accordance
procedures accounts give a with the funding
‘true & fair’ view agreement.
Focus of review Systems and Financial Grant agreement
(starting point) Procedures manual statements &
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 project and
risk assessment. the accounts, related grant
May be for a whole funding.
specific organisation
department, grant
or period.
Report includes Findings and Auditor’s Usually, auditor’s
recommendations opinion and opinion(s) and
for improvements Management recommendations
letter
Employed by The NGO or External body External body
external body (sometimes donor
(outsourced) themselves)
Qualifications No formal Must be Usually qualified &
requirement qualified & registered
registered accountant
accountant

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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.
Ensure 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. A checklist of records and other documentation which might be requested by the
auditor follows over page.

 An Auditor’s Checklist

Group of Records Description of item

A. Primary records  Cash Books 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 moneys 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 payments by
reconciliation 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
D. Other  A letter from bankers to confirm balances [this will be requested
information: 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

Acknowledgement: Grateful thanks to Samantha Musoke, ACA, of ACLAIM Africa, Uganda, for her input to this
chapter.

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Useful References

Financial Management and Accounting:

1. Practical Financial management for NGOs. A distance learning CD-Rom. Terry Lewis
and Alex Jacobs. Fahamu/Mango, 2005
2. Basic Accounting for Credit and Savings Schemes. N., Elliott, Oxfam, 1996.
3. A Practical Guide to Financial Management for Charities and Voluntary
Organisations. Kate Sayer. Directory of Social Change, 2003.
4. Accounting and Finance for Charities: For Love and Money. David Wise. ICSA
Publishing/Prentice Hall Europe, 1998.
5. The Good Financial Management Guide For The Voluntary Sector. Paul Palmer, Fiona
Young, and Neil Finlayson, 2005.

Strategic Financial Management:

6. The Virtuous Spiral – A Guide to Sustainability for NGOs in International
Development. Alan Fowler. Earthscan/INTRAC, 2000.
7. Income to Impact: Financial Stewardship of of Public Sector and Not-for-profit
Organisations. Adrian Poffley. Directory of Social Change, Second Edition, 2010.
8. 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:

9. Managing Without Profit – The Art of Managing Third-sector Organizations. Mike
Hudson. Published by Penguin Group, Third edition, 2009.
10. The Complete Guide to Business and Strategic Planning for Voluntary Organisations.
Alan Lawrie. Directory of Social Change, Third Edition, 2007.
11. The Complete Guide to Creating and Managing New Projects for Voluntary
Organisations. Alan Lawrie. Directory of Social Change,Third Edition 2010.
12. Good Trustee Guide. Published by NCVO (UK), Fifth Editon, 2008.

Fundraising and Proposal Writing

13. The Worldwide Fundraiser’s Handbook. Michael Norton and Resource Alliance.
Directory of Social Change, Third Edition 2009.
14. Writing Better Funding Applications – a practical handbook with worked examples.
Michael Norton and Michael Eastwood. Directory of Social Change 2009.

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15. Proposals that Make a Difference – How to write effective grant proposals, a manual
for NGOs. (Interactive CD-Rom). Oxford Learning Space/fahamu 1998.
16. Avoiding the Waste Paper Basket: A Practical guide for applying to grant making
trusts. Tim Cook. London Voluntary Service Council 1999.
17. How to Write in Plain English by The Plain English Campaign PO Box 3, New Mills,
High Peak SK22 4QP, UK. Also available free via website
http://www.plainenglish.co.uk .
18. Writing for Change – an Interactive Guide to Effective Writing. (CD-Rom and guide).
Alan Barker and Firoze Manji. Fahamu/IDRC. 2000.

100 © Mango 2009

 Appendices

Appendix 1: Milestone’s 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 14
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 Standard Forms 19
Expenses/Cash Advance Claim Form 21
Fixed Assets Register 22
Payment Voucher 23
Bank Reconciliation Form 24
Vehicle Log sheet 25

Appendix 19: A Checklist for Good Practice 26

Appendix 20: Mango’s Health Check 27
Appendix 1: Milestone’s 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 2011 A1
 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-ordinator’s

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 2011
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 2011 A3
A4
MILESTONE PROJECT – January 2009
1 2 3 4 5 6 7 8 9 10 11
ANALYSIS OF RECEIPTS CATEGORY

Date Details of transaction Recpt. Cost Total Grant Grant Donations Sales Training Other
No. Centre UC* DFID SMILE & fundr’g 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

PAGE TOTAL 14,350.00 - 10,000.00 100.00 750.00 3,500.00

Plus: Balance brought forward from last month: 7,894.76

Less: Total Payments for the month: (11,692.08)
Balance carried forward to next month 10,552.68

*UC = Unit of currency

© Mango 2011
 MILESTONE PROJECT – January 2009
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
ANALYSIS OF PAYMENTS CATEGORY

© Mango 2011
Date Payee/ details of transaction Cheque Cost Amount Postage Rent, Ins Reprs/ Teleph. Salary Travel Fuel Food & Training Other
Or ref. Centre Paid & Stat’y & Utilities Ren Fax & Ben. & Subs Accom. Materials [add
no. UC * 3050 3070 3080 3090 4030 4040 5010 6020 6030 code]
03/01 SPM Lettings 13571 01 400.00 400.00
03/01 Petty cash reimbursement 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 Newman’s Garage – Dec .a/c 13574 03 1362.00 1362.00
04/01 NGO Assembly – room hire 13575 01 50.00 50.00
04/01 Pat's Restaurant – food deposit 13576 01 150.00 150.00
04/01 H. Brown – Dec. expenses 13577 02 65.35 65.35
Appendix 4: Bank Book – Payments Page

10/01 JS Supplies - Dec. a/c 13578 02 672.34 75.75 288.70 307.89

10/01 SEB – Electricity Dec. 13579 01 375.21 375.21
11/01 Pat's Restaurant – food (final) 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 reimbursement 13583 01&02 199.15 65.44 20.56 7.50 86.15 19.50
21/01 Jo Joshi - Nov/Dec. expenses 13584 03 135.00 135.00
25/01 Telecoms – Phone bill 13585 01 657.30 657.30
29/01 J. Joshi - Jan. 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 1564.21 309.26 657.30 3900.00 222.85 1478.15 948.00 1457.12 1,000.00
* UC = Unit of currency

A5
A6
MILESTONE PROJECT

Period covered: 1 to 12 January 2009

ANALYSIS OF PAYMENTS
Date PCV Details of transaction Cash Cash Cash Postage Repairs & Travel & Fuel Food/ Training Other
No. or cheque reference In Out Balance & stat’y Ren. subs Accom Mats.
UC UC UC 3050 3080 4040 5010 6020 6030
3/1 Cash balance brought forward: 23.46 - 23.46 - - - - - - -
3/1 - Top up cheque no. 013572 176.54 - 200.00
Appendix 5: Petty Cash Book

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 – Jo’s 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 - 5.50 43.35 5.50
12/1 9 DHL to New York - 35.00 8.35 35.00
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 2011
Appendix 6: Bank Reconciliation Form

Milestone Project, Bank Reconciliation

Bank account details: RNU Bank, Current account no. 00067891

Bank statement date: 31 January 2009
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 09
Reconciliation checked by: A. Treasurer
Signed: AT Date: 9 Feb 09

© Mango 2011 A7
Appendix 7: Receipts & Payments Account

Receipts and Payments Account for the Milestone Project

1 January to 31 December 2008
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 2011
Appendix 8: Income & Expenditure Account

Milestone Project
Statement of Income & Expenditure for the year ended 31 December 2008

2007
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 2011 A9
Appendix 9: Balance Sheet

Milestone Project
Balance Sheet as at 31 December 2008

2008 2008 2007

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 2011

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 2008

Description UC
Training fees due for 2008 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 2008

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 2008 audit (est.) 587.00
Total Creditors & Accruals 3,261.76

Note 4 – Accumulated Funds

2008 2007
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 organisation’s tangible fixed assets, and which are therefore not readily available
for other purposes.

© Mango 2011 A11

Appendix 11: Consolidated Budget

Milestone Consolidated Budget

1 January to 31 December 2009

Cost Centre Budgets:

Total 01 02 03
Budget Co-ordination Building Metalwork
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 42,500 500 21,000 21,000

Total Income: 271,300 41,500 110,300 119,500

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 41,500 110,300 119,500

A12 © Mango 2011

 Milestone Project: Metalwork Dept. Budget Worksheet (Direct
Project Costs)

© Mango 2011
Budget Period: 1 January to 31 December 2009
Ref Budget Item Unit Quantity Unit Cost Total Notes Account
Type UC UC Code
A Project Staff Costs 30,300
A1 Metalwork trainer salary Month 12 1,775 21,300 1 Full time post 4030
Appendix 12: Budget Worksheet

A2 Social Security & employer’s tax Month 12 213 2,550 12% of salary 4030
A3 Medical insurance Lumpsum 1 4,300 4,300 20% of annual salary, rounded to nearest 100 4030
A4 Staff training and development Days 10 150 1,500 For team training and technical training in RSA 4010
A5 Meal allowances during field trips Days 120 4 480 Estimate 10 days per month on average 4040
A6 Study tour bus fare Person 2 85 170 By road to Johannesburg 4040

B Project Inputs 76,700

B1 Fuel Kilometre 5,000 0.50 2,500 Estimate based on previous year 5010
B2 Insurance for project vehicle Lumpsum 1 6,000 6,000 Insurance as per quotation 5020
B3 Vehicle maintenance Quarter 4 2,000 8,000 Estimate based on previous year 5030
B4 Fees for guest tutors Person-days 12 125 1,500 4 workshops 6010
B5 Food & accommodation Participant 80 100 8,000 18 participants plus 2 trainers x 4 workshops 6020
B6 Training Materials Workshop 4 12,675 50,700 Raw materials and tools for trainees 6030

Total Direct Project Costs: 107,000

A13
A14
Milestone Summarised Cashflow Forecast: 1 January to 31
December 2009
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
Appendix 13: Cashflow Forecast

Vanguard Society grant 0 0 7,500 0 0 0 7,500 0 0 0 0 0

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
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 available 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 available 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

© Mango 2011
month [C + D]
 Milestone Project – Budget Compared to Actual Report: 1 January to 31
March 2009
TOTAL 1 January to 31 March VARIANCE VARIANCE
BUDGET BUDGET ACTUAL (adv)/fav % NOTES

© Mango 2011
Income (actual receipts) UC UC UC UC UC
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%
Depreciation 6,000 0 0 0 0% Year end book adjustment
Appendix 14: Budget Compared To Actual Report

Post & stationery 7,500 1,875 636 1,239 66% Delay in printing the annual report
Publicity 1,500 375 200 175 47%
Rent & 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 improve
Staff Salaries & benefits 63,500 15,875 15,150 725 5%
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 review
Vehicle Insurance 18,000 17,500 17,500 0 0%
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 quarter
Training Materials 92,200 23,050 26,450 (3,400) -15% Costs for April course incurred in this quarter
TOTAL 271,300 78,050 81,125 (3,075) -4%
SURPLUS/(DEFICIT) 0 (1,683) (4,258) (2,575)

A15
 DFID No.12345

A16
STATEMENT OF ACTUAL EXPENDITURE FOR QUARTER ENDING: 30-Sep-09
AND ESTIMATED EXPENDITURE FOR QUARTER ENDING: 31-Dec-09 Rate applied: 3.75

1 2 3 4 [2 - 3] 5 6 7 8 [7 - 4]
Annual Budget Actual Balance Spent Spent Budget Grant See
Budget items: Budget last Qtr last Qtr remaining to date to date next Qtr claim Report
GBP GBP GBP GBP GBP % GBP GBP note no.
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 Running Fuel 2,400 600 773 (173) 2,622 109% 874 1,047 4
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
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

© Mango 2011
TOTAL 24,000
 Milestone Project Budget Forecast to 31 December 2009

© Mango 2011
TOTAL Actual - 1 January to 30 September TOTAL Forecast TOTAL
BUDGET Quarter 1 Quarter 2 Quarter 3 To 30 Sept Quarter 4 ANTICIPATED
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
Appendix 16: Budget Forecast

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
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.
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
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 / Weekly xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx
advances
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
Income Tax annual return Annual -----------
Appendix 17: Financial Management Work Plan

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
- 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 2011
 Appendix 18: Sample Standard Forms

Expenses/Cash Advance Claim Form

Fixed Assets Register

Payment Voucher

Bank Reconciliation Form

Vehicle Log sheet

© Mango 2011 A19

 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 2011 A21

 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

A22 © Mango 2011

 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 2011 A23

 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:

A24 © Mango 2011

 Vehicle Log Sheet
Vehicle registration no:_________________________

© Mango 2011
DATE OF DESTINATION/JOURNEY DETAILS DEPT. KM READING FUEL PURCHASED DRIVER
JOURNEY START FINISH COST # LITRES SIGNATURE
Vehicle Log sheet

Total KMs run / petrol purchased this month

A25
Appendix 19: 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

A26 © Mango 2011

Appendix 20: Mango’s Health Check

Mango’s Health Check

How healthy is financial management in your

not-for-profit organisation?

Version 3
2009

© Mango 2011 A27

 Mango’s 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 Mango’s Health Check do?

Mango’s Financial Health Check can help you assess the health of your organisation’s 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 Mango’s 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.
Mango’s Financial Health Check only provides a general indication of the health of your
organisation’s financial management. It is not an exhaustive list of all aspects of financial
management.

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 Mango’s 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 Mango’s 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 Mango’s 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 in 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: [email protected]. Thank you!

2 © Mango
 Mango’s 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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 Mango’s 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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 Mango’s 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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 Mango’s 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

4.2 All cash received is banked intact, ie without any being spent 5 4 1 0
(if no cash is received, score 5)
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

4.8 Cash payments are authorised by someone other than the 5 4 1 0

cashier
Different steps in the procurement process, (eg ordering,
4.9 receiving and paying) are shared among different people. 5 4 1 0
Expenses claims for staff advances are checked by the same
4.10 person who authorised the advance 5 4 1 0
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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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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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 auditor’s
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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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.

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 Mango’s 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 employee’s 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 NGO’s 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.

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