Meeting Agency Reporting Requirements

1. Meeting Agency Reporting Requirements Lakewood Resource & Referral Center 212 2nd Street Suite 204 Lakewood, New Jersey 08701

2. The topics we’ll be covering • It’s all in the Management - Why Financial Management • What is Financial Management • Setting up a bookkeeping system for our organizations

3. Good practice in financial management will: • help managers to make effective and efficient use of resources to achieve objectives and fulfill commitments to stakeholders • help NPOs to be more accountable to donors and other stakeholders • help NPOs gain the respect and confidence of funding agencies, partners and beneficiaries • give the NPO the advantage in competition for increasingly scarce resources • help NPOs prepare themselves for long-term financial sustainability. • help NPOs gain the respect and confidence of funding agencies, partners and beneficiaries • give the NPO the advantage in competition for increasingly scarce resources • help NPOs prepare themselves for long-term financial sustainability.

4. 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 organization 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.

5. The 7 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 NPO. • Consistency • Accountability • Transparency • Viability • Integrity • Stewardship • Accounting Standards

6. The 4 Building Blocks of Financial Management • Accounting Records Every organization 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 organization is being managed and whether it is achieving its objectives. • Financial Planning Linked to the organization'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 Financial reports allow the managers to assess the progress of the organization. • Internal Controls Checks and balances – collectively referred to as internal controls – are put in place to safeguard an organization's assets and manage internal risk.

7. Effective management of NPOs demands: • Planning Tools: Strategic plan, business plan, activity plan, budgets, work plans, cash flow forecast, feasibility study…etc. • Organizing Tools: Constitution, organization charts, flow diagrams, job descriptions, Chart of Accounts, Finance Manual, budgets…etc. • Controlling Tools: Budgets, delegated authority, procurement procedure, reconciliation, internal and external audit, fixed assets register, vehicle policy, insurance...etc. • Monitoring Tools: Evaluation reports, budget monitoring reports, cash flow reports, financial statements, project reports, donor reports, audit reports, evaluation reports…etc..

8. In summary, financial management is all about: • Managing scarce resources • Managing risk • Managing strategically • Managing by objectives

9. Setting up a bookkeeping system for our organizations

10. What is the Right System? Every NPO is different – there is no such thing as a ‘model’ finance system. But there are a number of considerations to take into account to find the right approach for your NPO: • Structure – line management; number of staff, their functions and where they are based; operational structure (e.g. department, branch, function). Organograms are useful here. • Activities of the organization – 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? • Resources of the organization – what financial, equipment and human resources are available to help manage the finances? • Reporting requirements – how often and in what format do financial reports have to be produced for the different stakeholders in your organization?

11. Considerations for identifying the right system contd. All of these considerations will help one to decide the most appropriate: • method for keeping accounting records; • coding structure for transactions; • financial policies; and • financial reporting routines.

12. Steps to Developing a Bookkeeping System • Develop an organization chart and job descriptions of staff. • Produce a budget based on activity plans. • Develop a financial accounts structure – including a Chart of Accounts and Project Cost Centers. • Develop a ‘Finance Manual’ – or a file of established policies and procedures. • Keep financial records • Produce financial reports or statements

13. 1. Developing an organization chart The way that an NPO is structured and registered has an impact on its legal status, accountability and transparency. Every NPO should have a founding document such as a Constitution or Memorandum and Articles of Association. The constitution describes, amongst other things: - the name and registered address of the NPO; - the objects of the organization and target group; - the system of accountability – i.e. who is the governing body, its powers and responsibilities; and - how it raises its funds.

14. Developing a budget A budget is derived from an organization's: • Vision • Mission • Goals • Objectives • Strategies • Activities

15. Developing a financial accounts structure based on: • Chart of Accounts • Cost Centers Chart of Accounts The Chart of Accounts is probably the most important organizing tool for the accounting and reporting processes. The chart of accounts is a list of codes representing different categories or groups of transactions carried on by an NPO. • NPOs buy a wide variety of goods and services to help achieve their objectives • They also receive different kinds of income – grants, donations and membership fees 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. Then, when a transaction takes place, it is recorded in the books of account and categorized according to the guidance held in the Chart of Accounts

16. Developing a financial accounts structure based on: • Chart of Accounts • Cost Centers Cost Center Restricted funds must be accounted for separately to demonstrate to the donor how the funds have been utilized. This is known as fund accounting and requires that such fund will have a separate code. Thus every cost item concerning the fund’s activities is listed under that code.

17. Developing a finance manual A finance manual is a document containing the financial policies of an NGO. A financial policy is a rule governing the handling of an NPO’s finances. It includes a Statement of Delegated Authority which describes everyone’s financial roles What Financial Policies Do We Need? An overall Financial Policy will contain policies that relate to a number of areas such as: • Donor or income policies (e.g. receipts, deposits) • Budgeting policies • Expenditure policies (e.g. amounts, payments, requisitions, non-budgeted expenditure) • Travel policies (e.g. car hire, class of airfare or hotel, per diems) Auditing policies • Assets policies (e.g. purchasing, utilisation, maintenance and disposal – vehicle policies go here). • Petty cash policy • Salary policy • Staff loans • Opening and operating a bank account.

18. While developing the policy: • Make sure you have enough information to develop the policy. • Clarify why the policy is needed. Write a short paragraph or sentence to explain the need. (e.g. We need a per diem policy because staff are doing regular work out of town, and they need to know in advance what money will be available for them). • Define any terms that need defining. (e.g. “Per diem” means daily allowance.) • Clarify the purpose of the policy. What do you want the situation to be as a result of having the policy? (e.g. This policy is intended to ensure consistency. • Clarify organisational principles that underpin the policy (e.g. transparency, consistency). Note these in writing. • Clarify who the policy will apply to. Write this down. (e.g. All staff travelling out of town overnight on project business). • Clarify the existing situation. Write a short paragraph/sentence that does this. (e.g. This was always decided on an ad hoc basis before.) • Put it all together and then circulate the draft policy for feedback.

19. Keeping Financial Records Our financial records will be most beneficial when we keep accurate books of accounts. To keep accurate books, we need to have the following: • A bank account with a cheque book. • A daily record system with receipts and petty cash vouchers. • A monthly record system with a petty cash book and a cash book for recording and analysing income and expenditure. • Every financial transaction must go through the following steps: • The transaction (money is spent or received) takes place. • The transaction is recorded in writing as proof that it has taken place. This could be in the form of a receipt issued by you for money received, or a receipt issued to you by the supplier when you pay for something. If the payment is electronic, then you will receive confirmation in a print-out. If you pay by cheque, or are paid by cheque, you may not receive a receipt or issue one. Instead, the transaction will be recorded in your bank statement. • The transaction is then recorded in an accounting book. For all money received and spent, this record will be in the cash book (either manually or on computer). • A summary is made of all transactions and written in a monthly statement. • A summary of all transactions for the year is written in an annual statement.

20. Summing it All Up • Why Financial Management • Setting up a Bookkeeping System • What is Financial Management

21. Thank You!! Q&A