Financial Management Training: Budgeting, Accounting & Financial Reporting

1. ZHRC/HTI Financial Management Training Session 3: Budgeting, Accounting and Financial Reporting

2. Learning Objectives By the end of this session, participants will be able to: • Define the terms: budgeting, accounting, financial planning and budgeting processes • Describe the financial planning and budgeting processes • Describe importance of financial management • Explain good practices in budgeting • List the key financial reports that monitor the organization’s financial affairs • Explain the process for preparing financial reports

3. Financial Planning Process

4. Financial Planning • Both a strategic and operational process linked to the achievement of objectives • Involves building both longer-term funding strategies and shorter-term budgets and forecasts 'If you don’t know where you are going, then you are sure to end up somewhere else.' -- Mark Twain

5. The Planning Pyramid (1)

6. The Planning Pyramid (2) • Once plans are set, the organization draws up its budgets and cash flow forecasts to help implement the plans • Throughout the year, financial reports are produced to compare actual performance to the budget • The review stage is very important as it highlights areas where the plans did not occur as expected • This learning process helps identify revisions needed to the plans

7. What is a Budget? • It is an amount of money that an organization plans to raise and spend for a set purpose over a given period of time.

8. Importance of Budgeting (1) • Planning • Budgeting gives an accurate idea of the project’s costs • Fundraising • A budget is a critical component of negotiations with development partners

9. Importance of Budgeting (2) • Project Implementation • An accurate budget is needed to control the project • Monitoring and Evaluation • A budget is a tool for evaluating the success of a project

10. Who Needs and Uses a Budget? (1) • Governing Body: Needs budgets to formally approve an organization’s budget and monitor its progress. • Management Team: Needs budgets to manage the progress of the organization and monitor the funding situation. • Project Managers: Need budgets to oversee the implementation of their project activities.

11. Who Needs and Uses a Budget? (2) • Fundraisers: Need budgets to accompany funding applications. • Finance Staff: Need budgets for cash flow management. • Development Partners: Need budgets in order to see how an organization intends to spend its grants.

12. Budgeting Process • The process should address the following 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 planned result realistic?

13. Good Practice in Budgeting • Clarity • Budget is clear and accurate • Timetable • Have a budget development timetable and start early • Estimating Costs • Make a list of all the inputs required and specify the number and unit cost of each item • Forgotten Costs • There is a tendency in non-profits to underestimate the true costs of running a project for fear of not receiving funding for a project

14. Group Work: Calculate Variance in a Budget Report

15. Accounting, Financial Reports and Making Sense of the Numbers

16. What is Accounting? • The process of recording, classifying, summarizing, interpreting and reporting financial data to permit informed judgments and decisions by users of the information

17. Accounting Process (1) • Recording • Transactions must be recorded in the books of account • Classifying • Group transactions of one nature at one place. This is normally done in the general ledger under different accounts • Summarizing • Transactions are summarized in financial reports

18. Accounting Process (2) • Interpreting • Interpreting accounting information helps users make meaningful judgments about an organization • Percentage analysis and footnotes are often used to help interpret the accounting information • Reporting and Communicating • This is done through distribution of accounting reports and additional information such as tables, graphs, ratios and diagrams

19. Accounting Process (3)

20. Role of Accounting in ZHRCs/HTIs (1) • To manage the approved organizational and financial framework to ensure: • Sound internal control and efficiency • Effective revenue mobilization and collection • Sound management of assets and liabilities • Provision of accurate, complete, timely, consistent and transparent financial statements • Provision of annual statutory accounts

21. Role of Accounting for ZHRC/HTIs (2) • Assist the ZHRC/HTI to formulate a realistic medium term financial plan and annual budget, consistent with: • National priorities, policies and objectives • Service delivery targets • Resource base, expected revenue, and financial capacity • Provide prudent, professional and impartial financial advice

22. What Does Accounting Achieve? (1) • Keep systematic records • Protect property of the ZHRC/HTI • Ascertain operational results and financial position of the ZHRCs/HTIs • Generate and disseminate information to relevant decision makers

23. What Does Accounting Achieve? (2) • Compliance with legal requirements including: • The Constitution of the United Republic of Tanzania • The Public Finance Act • The Local Government Finance Act • The Cost-sharing Manual • Rules and regulations of the National Board of Accountants and Auditors (NBAA)

24. Financial Reports • One of the main reasons for keeping accounting records is to provide information about how the organization is being run • After setting up accounting systems and budgets, the next step is to produce financial reports that monitor the organization’s financial affairs

25. What are Financial Statements? • Products of the financial accounting process • They are a summary of all transactions for a specified period of time and show the financial position of the organization

26. Commonly Used Reports • There are several primary reports commonly used by organizations: • The Trial Balance • The Income and Expenditure Report • The Budget Monitoring Report • The Balance Sheet • Together, these reports provide useful information about the status of an organization

27. The Trial Balance • An arithmetical check on the accounts maintained • It is also the basis for the preparation of the annual financial statements   • The Trial Balance is the final stage of the accounting process • It is the result of recording all the transactions that occur in an organization

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29. The Income and Expenditure Report • In the not-for-profit sector, this report is equivalent to the Profit and Loss Report or Income Statement used in the private sector • It records in summary form all income and expenditures for the time period • Income items appear first in the list, followed by expenses • The difference between total income and total expenses, called the 'Outcome' or 'Surplus/(Deficit)', appears on the bottom line

30. Example of Income & Expenditure Account

31. Budget Monitoring Report • Takes the budget for the reporting period and compares it to the actual expenditures for the same time period • The difference between the budgeted and actual amount is called the variance • The ‘burn rate’ is an important component of the budget monitoring report

32. Example of Budget Monitoring Report

33. The Balance Sheet • A list of all the assets and liabilities of an organization as of a particular date • It provides a snapshot of the financial position of an organization at a point in time

34. Example of Balance Sheet

35. Management Reporting Flow Chart

36. Group Work: Preparation of Training Budget

37. Key Points (1) • Financial planning takes into account the vision, mission, objectives, strategies, and activity plans of an organization • Budgeting is important at every stage of a project • Financial reports provide information about how an organization is being run

38. Key Points (2) • The most commonly used reports by non-profit organizations are: • Budget Monitoring Report • Income and Expenditure Report • Trial Balance and Balance Sheet