Practical Financial Management for NGOs – Getting the Basics Right
Course Handbook
Produced by Terry Lewis for M 2
(M F P
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2009
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UK
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. 1081406 . 3986178
Table of Contents
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Glossary A
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Chapter
1 1 Financial Management for NGOs An Introduction to Financial Management and Control in the NGO Sector
T
:
E
C
D
E
O
NGO
Why is Financial Management important for NGOs? I
NGO
.T .
B
NGO
I . , .
G
:
NGO
, NGO NGO
.
S
!
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2009
1
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So what is Financial Management? F
I
. .
Financial management entails planning, organising, controlling and monitoring the financial resources of anorganisation to achieve objectives.
F
NGO
I
.
, I
.
, .
I
, ,
.T
:
Managing scarce resources
NGO
W. ,
,
.
Managing risk
A (
,
).R .
Managing strategically
F
.T ,
.
Managing by objectives
F
.T Plan, Do, Review
T
2
P
D R
1.1.
F
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1.1
H
D
W
,
.
T . H
, .
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3
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What is Financial Control? A
T .A
,
. ,
.
Financial control occurs when systems and procedures are established to make sure hat t the financial resources of an organisation are being properly handled.
W
:
,
;
NGO
;
.
Who is Responsible for Financial Management? I
NGO
.
What is an NGO?
T
, NGO .
W. ,
:
T .
T
T
T
T
(
). NGO
. G ,
B S
. .
Legal Status
T
NGO .O
(
4
)
(
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2009
).
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H
NGO
T
.
(
)
. S
, 1.2.
F
F
1.2:
G
Legal Liability
W
incorporated,
( F
1.3: I
F
1.3).
G
Legal Liability
M
2009
5
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,
. limited liability. T
,
,
(
W
,
USD1.00).
NGO
.
The Constitution
T
NGO , C
.E A
M :
NGO A
T .
,
NGO;
;
, ;
.
The Governing Body
T
.T
legally responsible
NGO .
I G
C
,B
D
B
,B
,E
;
(
)
;
C
E
; .
T P
P
F
Board Members
B
volunteers(
) .
Honorary Officers
,T
,
I. ,
C
,
.
,
6
T
:
S .
.T
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2009
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T Chairperson (CEO), T
C
E
O NGO.
.I
Treasurer’s
T
, T
.
E
, .
Board members are ultimately responsible for the financial affairs of the organisation and they cannot escape this duty except byresigning from the governing body.
F
1.4:
C
D e l e g a t e d a u t h o r i t y
H
Governing Body A c
Chief Executive Officer
Finance Manager
Operations Manager
Finance Team
c o u n t a b i l i t y
Project Officers
Day to day responsibility
A
CEO,
,
. T
CEO
, .W , cannot delegate total responsibility .
M
2009
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M
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B .
F
1.4
. A
,
.
I
A Team Effort
,
NGO . E .
F
,
. W
.
F
8
1.5:
?
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The Seven Principle s of Financial Management I
, NGO. T .
L
.
F Consistency
T
NGO
T .
,
.T I
.
.
Accountability
T ,
.A . NGO
,
,
.
Accountability is the moral or legal duty, placed on anindividual, group or organisation to explain how funds, equipment or authority given by a third party has been used.
Transparency
T
, .T
, ,
I
.
, .
Viability
T
, ,
.V
NGO'
.T NGO .
Integrity
O
, ,
NGO
.F
B .
M
2009
9
M
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H
T .
Stewardship
A . T
(
B
T
)
.I
,
, .
Accounting Standards
T .A .
Tip: Use the 7 principles as a checklist tohelp identify relative strengths and weaknesses in your own organisation.To help you remember, a usefulmnemonic formed by taki ng the first letter of each of theprinciples is‘CAT VISA’.
The Four Building Blocks Financial of Management T
B
NGO . .
Accounting Records
E A . .
Financial Planning
L
, .
Financial Monitoring
P , .
10
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Internal Controls
A
, . T . A
F
.
1.6:
F
B
B
F
G
B
. E
1.6
. F
, ;
, .
T
T. M
F
H
C .S
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://
.
.
.
/
A
20
/
.
M
2009
11
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The Tools of Finan ial Management T
,
, .W ( 2
):
Planning
P
.I
.P
.
Tools: S
,
,
,
,
,
,
.
Organising
T
,
,
,
.I , Tools: C
F
,
M
,
,
Controlling
A
,
. ,
,C
A
.
. Tools: B
,
,
,
,
, ...
,
, .
Monitoring
T .M , . Tools: E
, ,
,
, ,
,
C ?
12
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Chapter
2 2 Getting O rganised Getting the basics right fo your NGO
T
:
E NGO
D
I
D
L
E
C
A
P
C
C
Systems Design S
. NGO , .
T
:
O
F
C P
A F
A
C
A
C
M
F
, :
, .
M
2009
13
M
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H
Financial Accounting vs. Management Accounting F
, . Financial Accounting
T .F ,
.
F (
). A ,
:
;
;
;
;
NGO
.
O
, .T . Management Accounting
M
, T. .
Financial Accounting:
R
Management Accounting:
☺
C
14
C D
R
H
=
S
F
P
A
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T .
The Right System? E
NGO
S. NGO:
Structure
;
(
;
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,
, ).
.
Activities
Volume and type of financial transactions
. ?
Reporting
?
,
Resources
? A
:
The Chart of Accounts T
C
A .
T
NGO. W A ,
.
, .
T
, A
E
C ,A
A (
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, C
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A
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A
A
1.
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F
, R
. V T.
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F
2.1:
C
A
F
Cost Centres S ,
. S
. T . I Cost Centre(
A
B
C
). C
, .
16
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H
T . E
M
:C
(
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B
D :
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A
2.2:
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T
F
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C
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, .
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.
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2009
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How are cost centres used?
W
,
?
,
.
,
?
T
, .
Cost Structures A
, .
D
Direct costs
C
CF
.
,
, .
Indirect costs
C
F. T
E
,
,
.
(
)
.
W ,
I.
.T
,
, (
).
Financial Policies and Procedures A .
What is a policy?
A ,
V. I
P
NGO
, F.
. P
B O.
, .
P
, NGO .
18
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What makes a good policy?
I
I
I
I
What are procedures?
P
T . F. ,
V
P .
P
.T ,
.
T .
Developing Financial Policies
I
, .P
, . H
.
Decide who will be involved in drawing up the policy
I
, .
Do some background research to gather the information you need to develop the policy
F NGO
,
, .
Write the policy document
U
:
T
W
W
T
R
(
)
M
2009
19
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H
Circulate the draft policy for feedback
I (
).
What is a Finance Manual? T
F
O I
M . T
F
P
R
F
. .
What goes in a Finance Manual?
A
:
F
T
D
T
O
B
M
M
S
A
H
C
O
J
S
C
A (
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C
T C D
B
F
M
:
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;
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T , .
20
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Standard Forms S A
19
T .
S . :
;
;
. :
A note of caution
. S
:
P
V
P
O
T
A
V B
J
S
S
E
R L R V
Work Planning F
.I , :
Financial accounting routines
Reporting schedules
Budgeting
Reviews
Year end procedures
,
,
O
.T S
M
A.
2009
17
.
21
M
22
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Chapter
3 3 Financial Planning ‘Failing to plan is planning to fail.’ (Chinese Proverb)
T
:
D
H
D
L
I
.
The Financial Planning Process F .I I.
.
F
E I
.
. .
“If you don’t know where you are going then you are sure to end up somewhere else” Mark Twain
The Planning Pyramid
NGO
I S
P
.
.
M
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23
M
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H
T V
F
M .
3.1
A
, .
Vision
T NGO
.F W
P
,
U
N
.
Mission
M
NGO ,
,
.I .
Objectives
O (
. O G
S
O
) ..
Strategies
S
(
S
O
)
. T
24
.
M
2009
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H
Activity Plans
T
, ,
A .
(
) .
A
,
A
,
,
O
, D. .
T .T .A
...
,D ,
.
What is a Budget? A budget describes an amount of money that an organisationplans to raise and spend for a setpurpose over a given period oftime.’
‘
A
: Planning
A
, T
. .
Fundraising
T
T . NGO
,
,
.
Project implementation
A
, .W
,
T .
.B
, .
Monitoring and evaluation
T
, : D
I
. ?
M
2009
25
M
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H
Who needs Budgets? “A budget tells your money where to go; otherwise you wonder where it went.” J. Edgar Hoover
B
.
T
NGO
B
.
NGO C
E
.
.
F
F
. .
D
.
NGO
C
.
Types of Budget E
,
:
T
I
T
C
T
C
E
B
B F
The Income and Expenditure Budget
T
( ) A
11T . , .
The Capital Budget
A F A
. A
, E.
26
:
M
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V
O
C
B
M
H
T A. I . T
.
.
The Cashflow Forecast
F
, .
T
(
)
I. (
)
,
. W , S. A
T
13
.
:
;
;
;
.
H
, :
D
D
B
.
T .
M
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How to prepare a cashflow forecast
T
, T .
E
.
F
, T
.
S .
, .O
.
,
O
, :
,
I. .
C
F
1. C
12 .E ,
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2. E .S
J
F
M
.
3. S
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.
4. Y
. E. . ,
50% ; S
. ,
. 5. F
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6. O
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. 7. I
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28
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Budget Structures T
, .
I
,
,
. F
3.2
M
(
N. .T D . 11).
A
T
, .
F
3.2:
Milestone Master Budget
Building Dept Budget
Metalwork BudgetDept
Furniture project Budget
Coordination Dept Budget
Vehicles project Budget
Budgeting Techniques T
.Y ,
.
Incremental budgeting
T
, ,
I
.
I. .
M
2009
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H
A I . .
Zero-based budgeting
A ZBB)
Z
T NGO ,
.
( ZBB . . ,
.Z .H
, .
ZBB
A
NGO
.
Top Down or Bottom up? F
3.3:
D
.B
Top down
Long-term objectives
Annual Budget
Day-to-day activities
Bottom up
S
, .
I
, .
W . M
30
.
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H
Summary of Budget Terminology I E
T E G D U B F O S E P Y T N I A M
T
( )
.
T
C
,
,
,
,
. T
C
,
S U T A T S T E G D U B
O T S E H C A O R P P A
&
B
T
D
T
.
T
T E G D U B A G N I IT R W
T
I
, T ,
.
T
A
( T E G D U B F O L E V E L
).
T . LI A T E D
T
C
. T . T
S D O I R E P E M I T
, ,
.
T ,
.
T
D
. S T E G D U B D E IS L A I C E P S
F F
( )
T T , ,
.
T
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12
). I .
M
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31
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H
The Budgeting Process T .T
W
W
W
W
W
I
: ? ? ? ? ?
?
O
, (
)
(
),
. T
, .
C
Example:
I F $10.00
R H $10.00.
H
.
,
H ,
Objective:
T
Activities:
B
Resources:
M
.
: .
,
,
, ,
.
,
.
$ T F T TOTAL
1.50 3.50 3.00 8.00
2 75 $3.00
, 50
R
$8.00, .
32
M
2009
$10.00
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....
O S
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H
.
A $3.00 .
$1.00 T
,R
R F
.
, ,
. S
,
.
Good Practice in Budgeting
Clarity
S
, (
,
)
. C .
Timetable
T , T . ,
.
Budget Headings
W
, C
A
.T I
. .
O
B
P
S
, .I .
M
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H
Estimating Costs
I
E
.
, .W ,
.
O F .
. .
3.1
S
B
W
A
12
.
Contingencies
T A.
, I
. ,
,
.
E .
Forgotten costs
T
NGO H
.
,
)
:
34
S
S
O
V
E
G
A
(
,
( (
,
,
)
( (
)
, AGM)
M
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Using a Budget Worksheet 3.1
T.
4
20
. T
,
.T
. Table 3.1 Budget Worksheet A
B
C
D
E
Ref.
Description
Unit type
No. Unit
Quantity
1
F
G [D x E x F]
Unit Cost $
Total cost $
Workshopcosts
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
O N
2010.00
( C
A
) ,
3.2.
Table 3.2: Budget Worksheet Columns
A
.
L A
.
,
.E
, 1. B
A
D
.T .
C
T
.F
.T
,
1.4 S
D
.
T
F 22
1.4, 2
, .
.
, (20
).
M
2009
35
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