Financial
Management •
•STRUCTURE •
Management
Information Systems •
SUSTAINABLE
DEVELOPMENT
Series 2
ORGANIZATIONAL
MANAGEMENT
•
Impact • Assessment
• Career Development •
Strategic Planning •
SYSTEMS • Supervision •
Objectives • Program
Module
3
Financial
Management
2/
Financial Management
Introduction
Before you Begin
Budgets and blueprints for your organization
Characteristics of good budgets
Step by step: Preparing a budget
Tips and tools: Some standard budget categories
Monitoring your budget
Variances
Vexing financial management issues
❐ Travel expenses
❐ Petty cash
❐ Income generation
❐ Procurement
❐ Inventories
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8
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Instituting effective financial controls
❐ Accounting controls
❐ Segregation of duties
❐ Managerial supervision
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x
Figures, Tables, and Exercises
Figure 1:
Exercise A:
Exercise B:
Financial management cycle
Using a format to facilitate budget monitoring
Identifying the types of costs your organization incurs
Annexes
Annex A:
Annex B:
Annex C:
Annex D:
Annex E:
Annex F:
Annex G:
Model budget formats
Travel authorization and expense report formats
Petty Cash vouchers and ledgers
Cash collection and contraceptive receipt/distribution formats
Requisition forms and local purchase orders
Internal questionnaires and checklists
Model financial reports
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For many managers, financial management is a mystery best left to those who toil with dusty
ledgers, sharp pencils, even sharper eyesight, and the word “No” to many seemingly “simple”
requests omnipresent in their conversations. While it is true that every organization needs
strong financial management – and dedicated staff to provide it – effective managers must
know basic information about, and have basic skills for, monitoring the fiscal health of their
organization and each of its programs. This module will not make every manager a financial
expert. This module will enable managers to:
☛ Review financial documents (budgets, reports, forecasts, procurement requests, income
and expenditure statements) with comprehension.
☛ Understand budget preparation and monitoring.
☛ Recognize the importance of implementing sound financial controls.
☛ Monitor the impact of changing program plans on resource requirements and
communicate effectively with financial staff.
☛ Use financial data and information for decision-making.
☛ Calculate realistic funding needs and identify appropriate sources.
☛ Minimize risks of financial difficulties for the organization.
There are several ways to describe an organization’s financial management cycle. Some analysts
tie financial management to receiving income and reporting income and expenditure to
organizational policy makers (such as the Board) and to donors. The diagram in Figure 1
below takes a more functional approach, drawing key functions to managers’ attention before
they focus on financial management. The module emphasizes the four critical aspects of
financial management depicted in each box, helping managers to understand the importance
of monitoring and institutionalizing financial controls.
Figure 1: Financial Management Cycle
Budgeting
Financial Reporting
Monitoring/Financial
Monitoring/Financial
Controls
Controls
Cash Flow
Procurement
Goods/Services
Financial management is a multi-faceted, comprehensive set of interlocking skills and systems
involving all the components depicted in Figure 1 and other aspects of sound management
(e.g., planning, monitoring, procurement, MIS). An effective manager must integrate and
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carefully monitor these aspects of an organization’s operations, balancing competing processes
and concerns to ensure that the organization has adequate resources at all times.
Clearly, financial management goes beyond traditional bookkeeping and accounting.
Financial management is about analyzing financial performance, identifying ways
to use resources efficiently, and finding creative means to use resources in order to
generate additional resources. Financial management activities include:1
✔ Matching available resources to planned activities.
✔ Ensuring effective teamwork, interdependent activities and systems, and good
communication or information flow between financial and program staff.
✔ Monitoring the efficiency of resource use.
✔ Identifying ways to reduce and recover costs.
✔ Developing, monitoring, updating, and reporting on operational budgets.
✔ Finding ways to finance new initiatives.
✔ Tracking resource use trends in order to determine future budget requirements, project
cash needs, and forecast financial growth.
✔ Developing long-term financial plans to meet future resource needs.
✔ Managing and investing future resources to make them profitable.
✔ Controlling and attempting to prevent major financial risks.
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Before You Begin…Some Questions for Managers. Tick
your responses to gather clues about priorities for
improvement.
❐ Do you have a financial system that provides
adequate information about your
organization’s income and expenditures on an
as-needed basis? Are you collecting data you
truly need or it is excessive?
❐ Are your financial reports accurate, clear,
complete, timely, and coordinated with your
programmatic reports?
❐ Do you have an integrated organizational
budget that reflects income and expenditures
from all sources?
❐ Do you regularly review and update your
budget?
❐ Can your accounting system monitor cost
centers and segregate costs (including
determining cost per unit)?
❐ Are you able to project and forecast resource
needs or shortfalls before they occur?
1
Adapted from FPMD. The Manager Series. “Understanding and Using Financial Management Systems to
Make Decisions,” Winter 1999 /2000, Volume VIII, Number 4. Boston, MA.
❐ Do you bring your financial and program staff together when preparing proposals or
designing new initiatives and for regular consultations or operational plan reviews?
❐ Can the same person request, approve, and sign a check for goods or services?
❐ Does your organization have annual audits by a professional outside accounting firm?
❐ Do you monitor or review all systems involved in financial management on a regular basis?
❐ Have you linked your financial management system to monitoring indicators and to
your organization’s strategic plan?
❐ Do you have a handbook or written policies that explain procedures and formats for
routine financial transactions (e.g., accounting for travel or imprest funds, petty cash,
requisitions or procurement, grants disbursements) to all staff? Do you regularly review
and provide training regarding these policies?
If the answer to any of these questions is No, you and your management team need to review
financial management policies and procedures in great detail and develop plans to improve
and strengthen them.
Budgets as Blueprints for Your Organization
Your organization’s budget is perhaps the most basic tool for sound financial management. A
budget encompasses several related financial management issues: specific costs for activities
or staff members; a plan of action for making expenditures; the number and kinds of human
resources required to implement the program, and, implicitly, the amount of money needed
to support an organization as it seeks to achieve its goals and objectives. Annex A contains
two types of budgets: a budget allocating specific costs to budget categories and line items,
and a cash flow budget.
Every good manager should institutionalize a rigorous budget monitoring and review process,
usually involving monthly income and expenditure reports (See an example in Annex G) or
spreadsheets. These reports can serve as a basis for quarterly or other reports required by
Boards and Directors or donors. The best managers also ensure that financial and program
staff meet together regularly and provide inputs that help a manager make appropriate decisions
about revising budgets, seeking increased revenues, or reallocating resources.
Characteristics of Good
Budgets2
A budget is a dynamic tool. It should reflect
management decisions regarding allocation of
resources, However, since a budget must be
viewed in the context of an organization’s
internal and external environments, it should
be altered according to changes in those
environments. Budgets and reports are used
by managers to review projected costs against
actual costs, to forecast cash needs, and even
2
Adapted from The Manager, Winter 1999/2000 op. cit.
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as a marketing tool to leverage funds to ensure coverage of all expenses. The following are
characteristics of a good budget:
✔ Budgets cover a defined set of activities. This means that every separate project or
program should have its own budget. It is important, however, for program managers
to combine all separate budgets into an organization-wide operations budget, and the
advent of computers makes this a relatively simple action. Monitoring the entire
organization’s fiscal health pays dividends because it allows a manager to determine
opportunities for becoming more cost-effective, to estimate cash flow more efficiently,
to use excess funds in one area to subsidize another under-funded area, and to predict
where additional resources may be needed.
✔ Budgets state the time period covered. It is advisable for managers to prepare annual
budgets, and to prepare them in tandem with annual work or operations plans.
However, from time to time, dividing the budget into months or quarters may facilitate
monitoring.
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✔ Budgets are realistic about expected revenues and expected costs. A budget
should be based on prudent cost estimates. Too often, managers under- or overestimate the costs of particular line items or budget categories. Consequently, some
organizations experience cash shortfalls or improper allocation of resources that
demoralize staff and compromise program implementation. Ask financial staff to seek
pro-forma invoices or cost estimates for major expenses (vehicles, computers, clinic
equipment, etc.) and recurring costs (office stationery, telephone and bank charges, staff
salaries, etc.) your office is likely to incur annually. This is one way to ensure good
costing as a basis for preparing a budget.
✔ Budgets include indirect costs. One of managers’ most frequent problems with
budgeting is that they only capture direct costs such as salaries, rent, supplies, and
equipment. Yet, there are many indirect costs that influence how well an organization
or a program operates. Fringe benefits – e.g., leave, pensions, insurance – and
overhead (e.g., administration, services shared among various programs such as
photocopying, telephones). Even the costs of financial management and administration
(which cover several programs or functions simultaneously) are the two most common
kinds of indirect costs. They are often hard to estimate, However, as an organization’s
management structure becomes more complex, it is often advisable to hire a public
accounting firm to calculate an appropriate overhead rate. This rate can be applied as a
percentage of the entire budget, and is especially useful when preparing or negotiating
budgets with donors who may also not have considered some important indirect costs
required for supporting an effective program.
Step by Step: Preparing a Budget
Budgeting needs to be as precise as possible. This means that a manager and his or her team
should have all available information about the program, unit, or activity to be budgeted.
When preparing a budget, some key assumptions are always made. For example, financial
managers may assume that costs will remain relatively static during the period covered by the
budget. Or it may be assumed that the funds available are adequate for program or
organizational needs. Or planners may develop a budget and recognize that they must raise
adequate funds before implementation. These scenarios fall under two basic budgeting
techniques: zero-based budgeting (creation of an “ideal” budget before allocating available
funds) and allocation budgeting (basing the budget on funds already allocated).
STEP 1: Always begin by reviewing your plans – strategic, work, and operational. These
plans will tell you what activities are scheduled, what resources (human, financial, and
material) are needed, and when they must be available. Your budget and your formal
plans must be absolutely synchronized. That is, no activity or staff should appear in the
work plan that does not appear in the budget, and vice versa.
STEP 2: Always have up-to-date cost figures. For example, have your organization’s
Administrator or Human Resource Manager provide current salary and fringe benefits
for all full- and part-time staff. If you are planning major purchases, get three pro-forma
invoices from suppliers and select the one in which you have the most confidence. (This
is not always the lowest invoice; some suppliers are unreliable or have hidden costs like
shipping. Use your best judgement.) Ask your financial staff to conduct a “mini” audit
of administrative costs over the last year; assume that they will increase by
approximately 10-20%. Review what is happening to local currency. Is it losing or
gaining value? Since most donors expect local budgets to be in local currency, it may be
prudent to prepare your budget in a convertible currency (e.g., pounds sterling, dollars,
Deutsche marks, yen, French francs). Then apply a conversion rate you think is rational
and reflects currency inflation or deflation based on your experience over the last year
or two. This is one way of avoiding shortfalls due to currency fluctuations.
STEP 3: Always express your budget clearly so that anyone who is reading or working
with it understands what you are trying to fund or achieve. Calculate line items in the
following ways:
☛ For salaries and fringe benefits, calculate the line item 3 this way:
N20,000/month x 12 months plus 15% of the total salary as employer payments
towards pension as a fringe benefit: N20,000/month x 12 months x 0.15.
☛ For supervisory visits or travel for regularly scheduled meetings:
Travel: N8,000 x 4 trips (1 trip/quarter)
Per diem: N4,000/day x 3 days/trip x 4 trips
☛ For recurring administrative expenses: Bank charges: N1,000/month
x 12 months x 2 accounts
☛ For education and training, don’t forget to calculate each line item based
on the number of participants except for meeting rooms, resource persons,
and equipment rental:
❐ Travel and per diem: N2,500 travel allowance x 50 participants
Per diem: N 500/day for dinner and incidentals4
❐ Materials: N1,000 x 50 participants
❐ Hotel (bed and breakfast): N4,000 x 50 participants x 6 days5
2
Adapted from The Manager, Winter 1999/2000 op. cit.
For the purpose of this section, the currency being used is the Nigerian Nira. It is connoted by an “N.”
4
Often, at workshops, conference venues offer bed and breakfast, and lunch and teas are served to participants.
Remember these possibilities when you are budgeting.
5
Often, conference planners want participants to arrive early to attend the start of the conference, workshop, or
training. Always factor this indicating, for example, six days instead of five.
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5
☛ For purchased services (e.g., vehicle maintenance, audits, printing,
construction if your organization is renovating), examine the contract and
determine expected levels of service. For example, if your photocopier has
a contract, you can choose to make the line item an annual figure or break
it down into monthly costs through dividing it by “12”. Sometimes monthly
totals are easier to monitor and evaluate.
STEP 4: Always make sure your math is correct. Now, with computerized spreadsheets,
there are virtually no excuses for mathematical errors. Even if you are preparing your
budget manually, make sure that one or two people – especially from your finance staff –
review the budget for mathematical accuracy. Remember some of the “hidden” costs,
especially overhead or indirect costs. Apply them to the budget as a separate line item
after all costs and categories have been calculated to ensure that you apply the indirect
cost rate to all your organization’s administration and activities.
STEP 5: Always follow the guidelines or formats provided by donors. Nothing can be
more disruptive – or perhaps disqualify your organization from receiving support – than
choosing your own “approach” to budgeting. Donors often design their formats to
provide crosscutting information about all of the organizations they support.
Therefore, if you are not following the format, you may not be entered into their
management information or monitoring systems. A good manager is able to interpret
his or her normal financial management or budgeting categories in line with those of
donors.
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Below, coverage or contents of some standard budget categories are suggested but you
must conform to donor guidelines in order to raise funds. For successful organizations
with multiple donors, it may be useful to have a donors coordination meeting. There,
donors, management, and staff can discuss harmonizing some of the varying donor
requirements to reduce the burdens caused by complying with multiple, and varying,
formats, requirements, and stipulations. Many donors appreciate this pro-active
initiative.
Tips and Tools…Some Standard Budget Categories
Although it may seem redundant
because donor requirements often
appear to be paramount, it is helpful
for an effective manager to be
familiar with budget categories and
their corresponding activities or line
items. The following are some
suggested budget categories that
can – and should – be modified based
on your type of organization and
programs. You may also find that
there are several additional routine
or recurring items that should appear under each category. You should discuss, with your
program and financial staff sitting together as a team, what line items you might add . These
categories also may help your finance staff prepare a detailed Chart of Accounts, an important
tool for monitoring and segregating costs and keeping accurate records. A chart of accounts
is a listing of all accounts (e.g., types of assets, liabilities, income, and expenses) that an
organization is monitoring. It is listed in order of importance, and grouped by category and
sub-category. Each account is given a code number and description. The coding should not
be complex, but should provide enough information to make financial decisions. Some
organizations key their chart of accounts to their major budget categories.
Budget Categories
Line Items or Category Coverage
Salaries and Wages
Gross salaries and wages paid to full- or part-time employees
(including field staff or community-based workers). These
must be supported by time sheets signed by the employee
and his or her immediate supervisor.
Insurance, retirement and health schemes, allowances,
pensions, and all other benefits required by law (e.g.,
severance, P.A.Y.E., and gratuities such as 13th month).
These benefits are usually paid only for bona fide
employees, not consultants, volunteers, or seasonal workers.
These are fees for services paid to professionals such as
consultants, trainers, lawyers, editors, resource persons or
other contractual, temporary personnel such as temporary
office and accounting staff. Honoraria can also be paid to
persons rendering a special service, e.g., providing a
presentation or entertainment. Some organizations give
Board members honoraria for heading or serving on special
committees.
All office-related expenses needed to keep an organization
running such as postage, telephone, fax, e-mail, bank
charges, utilities, photocopying, mail (including courier mail
like DHL or shipping), staff recruitment costs, and
subscriptions.
Supervisory travel, field visits and staff meetings, fuel costs,
local travel costs (e.g., bus fare, train tickets, taxis), shortterm car rentals, mileage reimbursements for use of private
vehicles, air tickets and per diem. Note: It is better not to
include travel costs connected with education or
training here.
Office supplies, clinic supplies, office furniture and
equipment, computers, printers, and software, bicycles,
motor cycles, and vehicles, cleaning supplies, supplies for
community-based workers (e.g., bags, badges, uniforms,
gum boots, umbrellas, diaries or registers). Note: Create a
register or inventory for all non-expendables (i.e.,
assets that do not deplete such as a vehicle).
Benefits
Fees and Honoraria
General Administration
Travel and Associated
Expenses
Supplies and Equipment
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Budget Categories
Education and Training
Purchased Services
Line Items or Category Coverage
Costs of travel (including local travel by bus or taxi as well
as international travel, as appropriate, including visas) and
per diem to all participants, trainers, and staff attending
the conference, workshop or seminar. Cost of venue
(meeting rooms and lodging), equipment rental, training
materials, tuition and/or registration fees, shared meals (e.g.,
tea breaks and lunches), special events (e.g., opening
reception or honoring special guests).
Office, clinic or facility rental, equipment and car leases,
office, clinic, equipment, and vehicle maintenance or repairs
(including those under contract), data processing, storage,
legal or audit fees, office or clinic renovation or partitioning,
printing, advertising or promotion, fees to Internet or web
site carriers.
Monitoring Your Budget
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Effective managers, after preparing a budget, must monitor it and determine whether or not
assumptions on which it was based were reasonable and the resources needed are available.
The budget should be reviewed on a monthly basis, concurrent with a review of the income
and expense report or spreadsheet. A manager’s role in the review process is key: if some
categories or line items are being underspent or overspent, the manager must investigate
and seek clarification. Then the manager must decide on the best course of action: reallocate
the budget (generally, donors expect to give advance approval for major reallocations), raise
more funds, or stay on course, allowing the budget to remain as is. For an effective manager,
inaction is not an option.
Maintaining Good Cash Flow
Although an effective manager need not be a financial expert, in order to make sound
management decisions, he or she must be familiar with basic accounting. For example, your
organization should decide what financial accounting method or system it will use.6 There
are two principal methods of financial accounting: cash basis accounting and accrual basis
accounting.
Whatever method is used, all ledgers, financial records, and reports should use the same
method. Some analysts prefer the accrual method because it gives a more accurate picture of
an organization’s cash position and overall fiscal health. Many donors, however, prefer the
cash basis because it is simpler to understand and manage. This is one time when program
and financial managers should seek expert advice and weigh the pros and cons of choosing
one method over the other, assist the organization to set up its financial management system,
ledgers, and charts of accounts, and develop “user-friendly” tools and mechanisms for systems
monitoring and updating.
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Some analysts distinguish between financial accounting and managerial accounting. Financial accounting
generally refers to the system used to record all financial transactions. Managerial accounting refers to the way in
which costs are determined.
Remember...There are two main types of accounting
systems
Cash Basis Accounting
Accrual Basis Accounting
Cash basis accounting is the most
simple: revenue is recorded when
received and expenses recorded when
paid. However, it can distort the true
cash position of an organization
because income may not be related to
the appropriate expenses, or payments
can be manipulated to make an
organization look more “cash rich”
(e.g., delay in paying bills so the balance
sheet looks better).
Under accrual basis accounting, revenue is
recorded when earned and expenses are
recorded when incurred without regard to
when cash changes hands. For example, if
an organization prepays its rent annually, it
is “expensed” in the ledger on a monthly
basis although it was paid earlier. Similarly,
an accrual system spreads depreciation
equally over the useful life on an asset. In
the accrual system, two ledgers are maintained: Accounts Receivable and Accounts Payable. These are updated as income is actually received or payments are
actually made.
Exercise…Using a format to facilitate budget
monitoring
This format can be used to facilitate budget monitoring and review. A prudent manager may
request that financial staff institutionalize it and fill it in on a monthly basis. Format review
can be a major agenda item at regular staff meetings.
9
Date
[Chart of Accounts]
Ref Code
Cost Category
Sites/Clinics(if applicable)
Project Name
Description
BUDGET PERFORMANCE MONITORING FORMAT
Budget
Approved
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Expenditure
Balance
Budget
Remarks
As mentioned earlier, a manager must monitor several kinds of costs. Among these are direct
versus indirect costs or fixed versus variable costs. An example of a direct cost is payment
to a trainer or for a venue for conducting a training course. An example of an indirect cost
may be headquarters rent or the assistance of a financial officer, because both must cover the
entire operations of an organization and cannot be specifically attributed to one project or
program. Most managers are able to easily quantify direct costs because they are specific.
Yet, indirect costs often contribute substantially to administration and management.
Therefore, financial staff should be encouraged to determine the indirect costs – or the cost
of doing business – for the organization. Usually, an accounting firm can provide the appropriate
technical support to determine the indirect costs and express it as an average rate, or
percentage, of normal operational costs. The indirect rate can then be included in budgets
submitted to donors or in projecting annual operating costs.
An example of fixed costs are those in a contract that specifies a monthly charge for a particular
service. On an annual basis, staff salaries are generally a fixed cost (the term “generally” is
used because it may be that a staff member receives a promotion or an increment as an incentive
during a year). Variable costs are those that may depend on market forces or fluctuations. A
simple example is the costs of stationery and information technology that may increase, or
even decrease, based on demand, currency fluctuations, and the costs of production.
Exercise…Identifying the types of costs your
organization incurs
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Sometimes, financial terminology seems confusing or overly theoretical. Sitting together
with your financial and program staff, conduct a simple exercise that can help everyone to
better understand these terms.
1. Divide a piece of paper into four sections.
2. Label each quarter as follows: at the top of the page, write “direct” in one quarter and
“indirect” in the other. Do the same thing at the bottom of the page, writing “ fixed” in
the first quarter and “variable” in the other.
3. Brainstorm about your organization’s routine expenses that fall into each category.
4. Note those expenses that may fall into more than one category. Are your systems
capable of monitoring and providing accurate data on all of these categories? Are there
linkages or patterns among them that suggest the need to monitor some categories
simultaneously?
5. How do these categories compare with your organization’s chart of accounts? Do you
need more or different categories to capture all the financial data you are monitoring?
Variances
If you are carefully and systematically monitoring your budget, you will discern income and
expenditure patterns that must be watched carefully. Among the most critical are variances;
that is, the difference between what was planned and the actual results. A manager must act
when variances appear. Managers should ask questions, conduct a variance analysis (see below)
and adopt a plan of action for addressing the variance. A variance is not always negative. For
example, an organization may generate more income or attract more donor support than was
originally assumed in designing the budget. Alternatively, an organization may receive an inkind donation, such as a building, eliminating the need to rent or renovate a facility. Most
often, however, a variance involves a shortfall or miscalculation that must be addressed in
order to ensure smooth operations.
Remember…Conduct a variance analysis when results
differ from plans.7
There are three primary types of variance analyses:
✔ Comparison of budgeted costs and actual costs or
expenditures.
✔ Comparison of the planned quantity of an activity or
purchase with the actual quantity.
✔ Comparison of the planned output with the actual
output.
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As a manager, when you realize there is a variance, ask questions and act. Bring in your
program and finance directors, or your accountant, to analyze the situation. Then, decide
upon and implement a concrete plan of action.
Vexing Financial Management Issues
Some recurring financial transactions can truly influence the “bottom line” and complicate
financial management. Among these are travel advances, petty cash, income or revenue
generated, requisition or procurement of goods and services, contraceptives and inventories
of supplies or non-expendable assets. Each will be discussed separately.
Travel Expenses
Program managers, staff members, volunteers or Board members, and even program
participants travel in furtherance of organizational programs, goals, and strategic objectives.
Travel expenses are often among the most troubling and difficult aspects of controlling an
organization’s budget and expenditures. Following are a few simple rules that, if implemented,
can reduce these problems:
h Always insist that a supervisor or manager approve travel before funds are allocated
and the trip is taken. The Travel Authorization Form in Annex B is designed to
facilitate the approval process.
7
The Manager. “Understanding and Using Financial Management Systems to Make Decisions, “ op. cit.
h Always make sure that the travel is included in the budget. Very often, a staff person
will want to make a “spot check” or emergency trip that was not budgeted. This does
not mean that travel should be summarily denied. It does mean that if the trip is not
included in the budget, its importance should be determined and funds reallocated.
h Always insist that the travel advance is retired or liquidated before new funds are
released to the traveler. A good rule of thumb is that the travel expense report (see
Annex B) should be submitted within 10 days of the travelers’ return. Sometimes,
travelers have back-to-back trips and it is difficult to prepare and submit the form. In
any case, no traveler should take more than two trips without submitting a complete,
and approved, travel expense report.
h Always set rules for documentation of travel expenses. Receipts for lodging and
transportation should be appended to the travel expense report. Receipts should be
attached to document any other major expenses (visas, airport taxes, communication,
local transportation, business meals, photocopying or faxing, car rentals, etc.).
Generally, it is acceptable to set a threshold amount (i.e., the equivalent of $10-20)
below which a receipt is not required.
h Always ask the traveler to prepare a trip report so that you as a manager have additional
documentation of the trip and expenditures. If the purpose of the trip was to prepare a
major document (e.g., an assessment or curriculum), it may be produced in lieu of a trip
report. A good trip report will give you clues about program performance and potential
resource shortfalls, needs, or opportunities.
With regard to travel, clear rules and regulations are extremely important and they must be
communicated to all staff persons or others who are traveling. Procedures regarding accounting
for travel should also be included in employee handbooks or personnel policies.
Petty Cash
Petty cash is just what it says: “petty.” In other words, petty cash is not a slush fund or a
source for large payments. Petty cash is a small amount of money and should be used for
minor expenditures. A staff member should request reimbursement from petty cash if the
expenditure is ordinary and reasonable, and within the scope of the staff member’s duties
(e.g., taking a taxi to deliver a document, staying late and taking a taxi home to comply with a
deadline, paying for small-scale outside color photocopying, etc.).
Some organizations use imprests as a supplement to the petty cash system (e.g., giving a
clinic in-charge a small amount of money to replace expendable supplies such as Jik, gauze,
bandages, soap, and gloves). Usually it is prudent to require prior supervisors’ approval before
undertaking any activity for which petty cash or an imprest will be required. In any case, all
petty cash or imprests must be reimbursed only upon production of original receipts.
It is advisable to keep a simple petty cash or imprest book. Annex C contains examples of
petty cash ledgers and vouchers. With both systems, all accounts should be reconciled on a
weekly or bi-weekly basis since the amounts are small but critical to smooth operations. A
monthly petty cash or imprest report should be included in the overall income and expenditure
statement.
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NOTE: Petty cash should always be kept under lock and key, and a
specified administration or finance staff member should be responsible
for the entire system, including reimbursements, keeping the records,
and reconciling the books.
Process Points…What Does Petty Cash Cover?
Petty cash coverage may vary based on your organization’s mission or the way in which you
obtain services and supplies. Items that are sometimes paid with petty cash are:
Transport:
Bus fares, taxis, repairing bicycle
punctures, petrol (but not for long
trips)
Communication:
Stamps, use of cyber-cafes to send email, calls from a public telephone
(also specialized or small-scale
photocopying)
Cleaning needs:
Soap, detergent, bleach, antiseptic,
mops, floor or furniture polish
Office needs:
Paper, envelopes, pens, glue, string,
adhesive tape, pins, staples, labels
(only if there is a shortage. An
organization should order on a
quarterly basis to be more costeffective through volume discounts)
Sundries:
Matches, candles, paraffin, tea, sugar,
milk, emergency supplies
14
Income Generation
For most organizations, generating income is a bonus. It is an important step towards
sustainability and lends flexibility in undertaking new initiatives and allocating resources. In
Series 3 of this Manual, issues related to income generation and sustainability are discussed
in detail. However, it is probably a good idea to set rules for monitoring and accounting for
income generated by an organization.
First, it is useful to open a separate account for income or revenue that is generated. Not only
is this procedure an easy way to segregate donor funds from those independently raised by an
organization, it is often a donor or legal requirement. Second, it is important to explain, in
detail, how income will be generated as part of your program proposal, strategic, marketing,
or business plan, and in your regular financial reports. Some of the critical details include
methods of generating income, price per unit, source and amount of financial inputs from
the organization (e.g., commodities, fees for services, membership cards, per trainee cost for
a training course, etc.), and profitability ratios (e.g., the profit or revenue divided by the
financial inputs).
For some NGOs offering specific services,
such as health services, it is useful to have a
cash book or ledger to record cash
collections, income generated by fees, and
purchases. As a manager, you should shorten
the intervals for collecting and accounting
for cash as much as possible. For example,
for nearby facilities, a weekly cash collection
and report is advisable. Similarly, whenever
commodities and supplies are distributed,
they are the same as “cash.” Therefore, these
distributions should also be entered into a
ledger and kept as a form of inventory. Annex D contains sample formats or ledger sheets
for cash collections and contraceptive receipt or distribution. Non-health organizations can
adapt these formats to reflect their primary products or mission, such as IEC materials or
agricultural and environmental protection input kits.
Procurement
Although it appears to be a simple matter, procurement of goods and services is often a
major stumbling block for even a well-run organization. Procurement is an area requiring
very specific, written procedures and guidelines. Procurement procedures are very often
linked to financial control procedures to prevent fraud or waste of organizational resources.
Clearly, procurements are tied to the budget, and the larger the expenditure, the greater the
need for control.
Procurement ranges from the routine, day-to-day acquisition of supplies to tenders for
large- scale supply orders or long-term services. The stages in the procurement process should
be the same no matter what is being ordered:
h Managers should make sure that funds are available for procurement.
h A strict process should be followed – with specific criteria for evaluating pro-forma
invoices or responses to tender offers – that ensures the organization gets the best
value for its expenditures, or the best qualified vendor.
h Finally, a clear paper trail should be created so that an organization’s decision-making
process is documented and defensible.
15
Keys to an Effective Procurement
Process
Step 1: Examine the budget. Ask yourself: are funds
allocated for this specific expenditure? Are the costs or
expenditures allowable?
Step 2: Complete a requisition form for the
expenditure (See Annex E).
Step 3:
Solicit at least three bids or quotations from different sources for the
goods or services you are seeking. Attach them to the requisition form or
send a separate memorandum describing the procurement and your choice
of vendor or contractor. Sometimes an organization tenders when it needs
a large amount of a specific commodity or a continuous service over a
longer period. In that case, the bidding process should be competitive,
with written media advertisements, selection criteria, and review of each
respective bid before selection. A successful bid is one that demonstrates
reasonable cost and ability to meet contractual terms. A successful bid is
not always the lowest one.
Step 4:
Ask that a Local Purchase Order (LPO) be issued based on your selection
through Steps 1-3. Usually, a staff member in finance and administration is
in charge of, and should be able to provide guidelines to assist with, the
process. (See Annex E for a sample LPO.) LPOs are very important
documents and should be printed with sequential numbers to make them
easy to track. Some organizations buy or print LPO books for this reason.
Step 5:
Issue the LPO to the vendor, contractor, or supplier. The LPO should be
specific as to quantity, quality, time period for delivery, special requests (e.g.,
laminated paper, binders, tabs, size), and location for delivery. Each vendor
should be instructed that the LPO is only the request for delivery. A
vendor should provide a final invoice and delivery note before
expecting payment. Copies of the LPO and delivery note should be
attached to any request for payment submitted to the financial or
administrative staff.
16
Inventories
Some managers focus on cash transactions and forget that some of their other property or
fixed assets must also be monitored. This is especially true for health or other programs
that have a substantial turnover of supplies and commodities, including contraceptives.
Generally, fixed assets are also non-expendable properties – that is, they have a useful life
of more than two years. They should be insured and kept on a regular schedule for maintenance.
Commodities and supplies (office, clinic, training, art or printing) are usually expendable
supplies. They must also be monitored and replenished regularly to ensure their availability.
Certain rules apply for both expendable supplies and non-expendable equipment. For example,
inventory records should be kept for both kinds of items. A physical inventory should be
conducted on a regular basis (quarterly, semi-annually, or annually) and the organization’s records
with regard to stock should be updated. In fact, the records can serve as a checklist so that no
item is overlooked in the inventory. The forms in Annex D can also be used as inventory
formats to be adapted for your specific use.
Some tips about expendable supplies and
contraceptives:
Expendable supplies should be:
✔
✔
✔
✔
✔
✔
Stored in a clean, well lighted, well
ventilated area.
Kept off the floor on shelves or palettes.
Logged in based on a FEFO system, that is
First Expired, First Out.
Kept in a locked area to which only
authorized personnel have access.
Kept on separate register pages or on
cards to facilitate stock taking and
inventories.
Accounted and signed for by all staff
who receive them. Formats should be
developed for this purpose.
17
Instituting Effective Financial Controls
This is among the most challenging aspects of financial management for the manager and
financial professional alike. This is, in part, because financial controls are essentially rules,
policies, and procedures that must be consistently applied, adhered to, and enforced.
Management’s attitude toward controls – that is, whether management promotes an
environment in which controls are valued or is lax in their enforcement – can make a significant
difference in the effectiveness of an organization’s financial management. Control policies
and procedures are designed primarily to:
h Ensure that accounting records are complete and accurate.
h Institute safeguards, checks, and balances so that expenditures are properly approved
and made as budgeted.
h Safeguard assets and curtail misappropriation or theft.
h Prevent and detect fraud and errors.
h Protect staff.
h Ensure proper utilization of resources.
h Support the preparation of reliable and timely financial reports.
Control procedures generally involve some comparisons of information from different sources
to verify and validate requests, expenditures, and reports. Usually, organizations have three
kinds of control procedures: accounting controls, segregation of duties, and managerial
supervision.
Accounting controls
Accounting controls are usually maintained by the financial management staff and involve
comparisons between data sources to verify the accuracy of transactions and recording. Some
of the comparisons8 that should routinely be conducted include:
h Comparing cash receipts as recorded by a cashier or cash clerk with information on the
numbers of patients or clients recorded in a register or ledger.
h Comparing total receipts with the amount deposited in the bank.
h Counting cash to verify that the cash on hand agrees with the cash balance recorded in
18
the cash book.
h Reconciling bank statements to compare cash book entries with entries in the bank
statement.
h Controlling stock inventory by comparing the physical stock with the accounting
records or stock cards.
h Comparing actual expenditures and revenues with budgets.
Any variances or discrepancies should be immediately documented and reported to senior
management. Senior managers should undertake a review of the circumstances and any action
needed, being fair, but firm.
Segregation of duties
The concept is simple, but its applications are often difficult. Basically, segregation of duties
means that one person should never be responsible for all aspects of a transaction. In
other words, one person checks the work of another. For example, one person should not
order or make a requisition for purchase, review the pro forma invoices, approve the selection
of the vendor, and sign the check for payment. Also, the person who keeps cash should not
maintain the cash book or do bank reconciliations. The person who prepares the payroll
should not pay salaries, while the person who makes payments should not approve them.
Three important financial management functions that should routinely be handled by different
people are:
h Custody – physical responsibility for cash, stores, commodities, vehicles, major
equipment, etc.
h Recording – making entries into the main accounts or ledgers from which reports are
made.
h Authorizing – approving purchases and other uses of resources.
8
Based on materials from Abt Associates, Bethesda, MD, Cambridge, MA and Johannesburg, RSA.
Managerial supervision
An effective manager will ensure that staff members at all levels and members of the Board
understand an organization’s internal controls, policies, and procedures. He or she will insist
on written policies and procedures, and regularly review controls for currency and effectiveness.
The manager should also not circumvent or ignore controls or problems that they uncover.
Most important, an effective manager should be a model of compliance. In fact, he or she
should be a primary advocate, adhering to sytems disciplines, reviewing reports systematically,
and asking questions about any discrepancies or ambiguities. Annex F contains some very
useful checklists, prepared by Abt Associates, to monitor internal controls and their
effectiveness.
Remember…There are some “Thou Shalt Nots…”
Here are some simple principles for
maintaining internal controls.
✔ Thou shalt not have a financial
management system without written
procedures that are regularly reviewed and
updated.
✔ Thou shalt not enter into transactions
without supporting documentation such as
original receipts, invoices, LPOs, and
internal approval documents (e.g.,
requisitions, travel authorization forms).
✔ Thou shalt not leave cash and checkbooks
unsecured. A few specific persons should be
given the responsibility for maintaining secure physical custody of these items.
✔ Thou shalt not manage an entire transaction without cross-checking by another person.
✔ Thou shalt not forget to thoroughly review requests for approval and financial reports
as received and to ask about any variances between the budget or prior reports and the
current requests or reports.
✔ Thou shalt not ignore evidence of abuse of physical assets such as vehicles or major
equipment.
Reporting on Your Organization’s Finances
Reporting on an organization’s finances generally takes two forms: reports needed for sound
internal financial management, controls, and decision-making and reports required by external
donors (See Annex G “Grantee Financial Report”). Both are extremely important, but
often managers focus more on the external than the internal reports. Yet, the internal reporting
system may be even more critical because it will help a manager avoid small problems becoming
major ones.
Organizations must conduct an annual audit, both for their own internal fiscal discipline
and also to comply with donor requirements. Audit results will provide important insights
into areas of successful financial management, or areas needing improvement. Although most
19
financial reports required by donors are formatted, it is often useful to provide a more detailed
narrative to explain some of the financial issues or changes that have occurred since preparing
the budget or the first report. The audit report may provide useful information for this purpose.
Annex G also contains a good internal report format such as an income and expenditures
statement. This sample is manually prepared but the advent of spreadsheets or software
applications means that a manager should be able to receive accurate and timely reports at a
monthly interval. A manager should also provide regular (at least quarterly) reports to an
organization’s Board to inform them about the organization’s cash position and needs. If the
Board has a Finance Committee, a prudent manager will engage them in reviewing financial
data, making forecasts of potential revenues or shortfalls, and identifying new donors.
Internal monthly financial reports can be issued with any frequency or combined in any
configuration required by donors: quarterly, semi-annually, or annually. A prudent manager,
however, will ask for internal biweekly or monthly reports as a matter of course. Frequent
reports help monitor and protect against downturns in the organization’s fiscal health.
Sometimes, donors ask that key data and information be appended to the financial report.
Data may include copies of bank statements and bank reconciliation exercises; lists of salaries
and benefits paid from donor funds; acknowledgement of contraceptives or other supplies
received; reports on the currency exchange rates over a period; and a list of unpaid obligations
for the period covered by the report. Whatever the stipulations, follow the donors’
guidelines. If there are no guidelines, you may wish to review Annex G for a model financial
report.
20
Bright Idea… Avoid some of these managerial pit-falls:9
✔ Chronic crisis management, leading to last-minute,
often more expensive, solutions that contribute to
inefficient management and missed opportunities.
✔ Unrealistic price setting that may create a situation
in which an organization cannot recover its costs or
incurs greater losses.
✔ Inaccurate analyses of the real cost of doing
business, such as a failure to consider fixed or indirect
costs when preparing budgets or forecasting resource
needs.
✔ Dependency on a single funding source or donor,
which leaves the organization vulnerable if the donor
reduces or suspends funding.
✔ Failure to react to environmental changes that can
lead to missed opportunities to generate or attract new
funding or failure to budget for new regulatory or other
requirements (e.g., licenses).
✔ Lack of managerial skill in analyzing, using, and
communicating financial information such that a
manager is unable to recognize potential risks or make
appropriate decisions about the use of scarce resources
or the generation of new ones.
9
Adapted from The Manager, op. cit.
Annex A
Model Budget Formats
21
Financial Management Module v. 1
Family Welfare & Counseling Center, Nyeri, Kenya
Period - January 2001 to December 2001
LOCAL COSTS
KSHS
$
SALARIES AND WAGES
Project Director (20% time) @ Kshs.3,450/mon x 12 mos
41,400
591
66,240
946
2 each @ Kshs.1,380/mon x12 mos x 2
33,120
473
1 Clinical cytologist @ Kshs 1,380/mo x12 mos
16,560
237
Project Accountant (at 20% time) @ Kshs 2,760/mon x12 mos
33,120
473
Project Accounts Assistant @ Kshs 575/mo x12 mos
6,900
99
132,480
1,893
@ Kshs. 552/mon x 12 mos x 60
397,440
5,678
17 Depot holders/Senior housekeepers
@ Kshs 345/mon x 12 mons x 17
70,380
1,005
2 Project Coordinators (40% time)
2 each @ Kshs.2,760/mon x12 mons
2 Project Assistants (each at 50% time)
10 Hall Wardens
@ Kshs.1104/mon x 12 mos x10
60 Peer Counsellors
Sub-total, Salaries & Wages
817,640
11,395
FEES and HONORARIA
6 external facilitators to conduct initial and refresher training courses for
new and old peer counselors and depot holders @ Kshs 10,000/week x
six weeks
60,000
857
GENERAL ADMINISTRATION
Stationery and Office Supplies @ Kshs.6000x12 mons
72,000
1,029
Telephone @ Kshs.2,500/mon x 12 mos
30,000
429
Bank Charges @ Kshs.1,500/mon x 12 mos
18,000
257
Postage, fax @ Kshs.3,000/mon x12 mos
36,000
514
Financial Management Module v. 1
LOCAL COSTS
KSHS
$
Photocopying @ Kshs.6,000/mon x 12 mos
72,000
1,029
Computer stationery @ Kshs.5,000/mon x 12 mos
60,000
857
288,000
4,114
@ Kshs.20 per km x 400 km/mo x12 mos using university vehicle
96,000
1,371
Outreach for peer counsellors by public means @Kshs.1500x12mon
18,000
257
114,000
1,629
Pap smear Reagents (Haemotoxylin,E.A36,O.gg Carbowax)
100,000
1,429
30 video cassettes @ Kshs.400 each (VHS-240)
12,000
171
Dubbing 30 cassettes at @ Kshs.150 each
4,500
64
Power Stablizer
7,000
100
150 T-Shirts @ Kshs.400 x 150
60,000
857
One Compaq Deskpro 450 MHZ computer
136,290
1,947
One HP printer base 1100
40,280
575
One APC UPC 500 VA
14,440
206
50 badges @ Kshs.150 x 50
7,500
107
One Sterilizer Medium size @ Kshs.15,000
15,000
214
15 Condom dispensers @Kshs.1,000x15
15,000
214
412,010
5,886
Sub-total, General Management
TRAVEL AND ASSOCIATED EXPENSES
Fuel for project-related travel
using public vehicle
Sub-total, Travel & Associated Expenses
SUPPLIES AND EQUIPMENT
Sub-total, Supplies and Equipment
Financial Management Module v. 1
LOCAL COSTS
KSHS
$
PURCHASED SERVICES
1,000 FLE Magazines ("KU Peer")/semester x 2 semester
@ Kshs.100 each x 1,000 x 2
74,000
1,057
Insurance of Project equipment @ Kshs.10,000 per year
10,000
143
Maintenance of Project equipment @ Kshs.10, 000 per year
10,000
143
48,000
686
30,000
429
172,000
2,457
40,000
571
481,000
6,871
11,100
159
30,000
429
Transport and lunch allowance for 2 internal facilitators @ Kshs.1,000
per day x 5 days
10,000
143
23 old peer counselors meals & Accom. @ Kshs.1,000X 6daysX23
Stationery for 23 new peer counselors @ Kshs.300x23
138,000
6,900
1,971
99
Hiring of hall facilities @ Kshs. 1,500/day x 5 day
7,500
107
Transport and lunch allowance for 2 internal facilitators @ Kshs.1,000
per day x 5 days
Meals for 17 depot holders @ Kshs.500xl7x5 days
10,000
42,500
143
607
Stationery for 17 depot holders @ Kshs.300xl7
5,100
73
Secretarial Services
@Kshs.4,000/mon x 12 mos
Life Planning Skills orientation package
@ Kshs. 200 x 150packages
Sub-total, Purchased Services
EDUCATION AND TRAINING
10 days initial training for new peer counselors
Transport and lunch allowance for 2 internal facilitators @ Kshs.1,000
per day x 10 days x 2 facilitators X 2 sessions
Two back to back sessions to be conducted for 37 new peer counselors
Meals & accom for the 37 new peer counselors @ Kshs.1,000X13
daysX37
Stationery for 37 new peer counselors @ Kshs.300x37
Hiring of hall facilities @ Kshs. 1,500/day x 10 day X 2 session
5 days refresher training for old peer counselors
5 days refresher training for depot holders
Financial Management Module v. 1
LOCAL COSTS
KSHS
$
Hiring of hall facilities @ Kshs. 1,500/day x 5 day
7,500
107
Basic computer training for 60 students @Kshs 4,000/student x 60
200,000
2,857
1 day Chairmen & Dean s update Workshop for 35 persons
Stationery @ Kshs. 500/person x 20 persons
Lunch for 35 persons @ Kshs. 2,000/person/day
10,000
70,000
143
1,000
Sub-total, Education and Training
1,069,600
15,280
TOTAL LOCAL COSTS
3,033,250
43,332
General Administration
Travel and Associated Expenses
Supplies and Equipment
Purchased Services
977,640
288,000
114,000
412,010
172,000
13,966
4,114
1,629
5,886
2,457
Education and Training
1,069,600
15,280
3,033,250
43,332
x 35 persons x 1 day
Budget Summary
Fees and Honoraria
TOTAL LOCAL COSTS
Exchange rate (US$) = Kshs 70
Additional funding US$ equivalent = $20,000
Total Local Cost Yr 2 Budget for KU = $17,852
Balance of funding b/fwd Yr 1 = $5,486
TOTAL FUNDING = $ 43,338
Financial Management Module v. 1
Sample B: Cash Flow Budget for AFYA Clinic 10
AFYA CLINIC
AFYA CLINIC CASH FLOW BUDGET FOR THE 5 MONTHS ENDING MAY, 2001 (In Nira)
January
February
March
400,450
(459,908)
251,734
Patient Fees -Inpatient
1,145,667
1,145,667
1,345,667
1,345,667
1,345,667
Patient Fees - Outpatient
2,750,100
2,750,100
2,950,100
2,950,100
2,950,100
Laboratory Fees
1,375,050
1,375,050
1,475,050
1,475,050
1,475,050
0
0
3,000,000
0
0
50,000
0
50,150
50,150
50,150
5,320,817
5,721,267
5,270,817
4,810,909
8,820,967
9,072,701
5,820,967
10,454,493
5,820,967
7,061,260
Salaries
3,279,175
3,275,175
3,279,175
3,579,200
3,576,200
Drugs/medical supplies
1,875,000
0
120,000
2,875,000
0
Building/equipment
maintenance
125,000
125,000
125,000
125,000
125,000
Utilities
266,667
266,667
266,667
266,667
266,667
Administrative/office
301,166
301,166
301,166
301,166
301,166
0
0
0
1,500,000
0
Cash at start of month
April
May
4,643,526
1,240,293
Cash Receipts
Donations
Interest/Other Income
Total Receipts
Total Cash Available
Payments
expense
Purchase of car
Purchase of medical
equipment
Total Payments
0
250,000
0
0
0
6,181,175
4,559,1751
4,429,175
9,224,200
4,609,200
Cash at end of the month
(459,908)
2551,734
4,643,526
1,240,293
2,452,060
10 Source:
Abt Associates. Fundamentals of NGO Financial Sustainability, 2000.
Annex B
Travel Authorization
and Expense Report Formats
Travel Expense Report
Project ______________
DATE:
Travelor
Office
___________________
___________________
Page ______ of _______
Week Ending _________
Sunday Monday Tuesday Wednesday Thursday Friday Saturday Paid by Charged
Traveler to Project
From: Place
To: Place
Ticket (airplane,
bus, train)
Mileage
Visa/Airport Tax
Hotel/Lodging
Per Diem
Taxis
Communication
Other
Previous page total:
Purpose of travel___________________________________________________
All payments except per diem should be supported by documentation.
I certify that the above are accurate:
Grand total:
Amount due project:
Amount due travelor:
Signature: _______________________________________
DATE:
_________
Total
Financial Management Module v. 1
Travel Authorization Request Form
Name of Project _________________________________________
Traveler Type (Employee, Consultant, Trainee, Other) ___________
Purpose of Trip _________________________________________
______________________________________________________
Travel Dates: From______________ To Itinerary: _____________
Date
Departure
Arrival
Mode
Estimated Per Diem
________
________
________
________
________
________
________
________
________
________
________
________
________
________
________
________
________
________
________
________
___________________
___________________
___________________
___________________
___________________
___________________
Travel Related Expenses:
Total Advance Requested:
___________________
To be completed by the traveler and reviewed by the accountant:
Have all expense reports been filed?
Are all advances accounted for?
________Yes ________No
________Yes ________No
Accurate and Approved:
___________________________
___________
___________________________
___________
Traveler
Date
Department Head
Date
___________________________
___________
___________________________
___________
Project Manager
Date
Project Director
Date
Note: Any traveler with outstanding balances due from previous trips
will not be approved for further travel.
Annex C
Petty Cash Vouchers and Ledgers
Financial Management Module v. 1
Example: A simple petty-cash book
Date
Details
Voucher
Amount
Received
1.4
2.4
3.4
8.4
11.4
To imprest (original funding)
Stamps
Bus fares
Telegram
Stamps
Bicycle puncture
Stationery
1
2
3
4
5
6
12.4
Kerosene
7
15.4
TOTAL
40.00
8.40
5.30
4.20
2.20
2.70
5.60
3.80
40.00
Balance
16.4
Paid out
32.20
7.80
Balance B/F
7.80
To imprest (replenishment)
32.20
Financial Management Module v. 1
Petty Cash Voucher
No: 3466
Date:_______________
Purposes & Payment
Amount
Shs.____________________________________________
________________________________________________
Received by:
Checked by _______________________________
___________________
Paid by___________________________________
Signature
Annex D
Cash Collection
and Contraceptive Receipt/Distribution
Formats
Register for Non-Expendable Properties
Name of Project ________________________________ Site ____________________________
Period Covered _______________
Date of
Acquisition
Description of
Property
Person completing format ____________________________
Cost
Serial
Number
Location
Condition
Tag
Number
Remarks
Contraceptive or Supplies Control Card
Name of Project ________________________________ Site ____________________________
Period Covered _______________
Date
Description
Person completing format ____________________________
Ref
# Received
# Issued Balance on
Hand
Remarks
Annex E
Requisition Forms and Local Purchase Orders
Financial Management Module v. 1
PURCHASE REQUISITION
To:
Finance and Administration
FROM:
Date:
Please procure the following materials/services for my use:
Quantity
Estimated
Unit Cost
(Kshs.)
Description/Supplier
_______________________
Date
_______________________
_______________________
_______________________
_______________________
_______________________
_______________________
_______________________
_______________________
_______________________
_______________________
_______________________
Checking/Approvals
Department Head
Procurement Officer
Finance Director
CEO/Ed
LPO Number Date
LPO Issued
Estimated
Total Cost
(Kshs.)
This form should be completed by the ultimate user of the materials/services. A properly
completed and approved copy should be attached to the payment voucher.
Financial Management Module v. 1
NAME OF PROJECT ________________________
PAYMENT REQUISITION/VOUCHER
Bank account No. ________________________ Voucher No. ________________
Amount ________________________________ Date
________________
Check No. ______________________________ Cost category ________________
Payee ______________________________________________________________
Purpose ____________________________________________________________
___________________________________________________________________
___________________________________________________________________
Payment requisitioned by ______________________________________________
Check received by ________________________ Date _______________________
Checked/approved by:
Supporting documentation & other details attached/checked
____________________
Additions/calculations of attached documentation checked
____________________
Payment reviewed
____________________
Payment approved
____________________
COST CATEGORIES*
0000
Salaries & Wages
0000 Travel & Associated Expenses
0000
0000
0000
Benefits
Fees/Honoraria
General Administrative
0000 Supplies & Equipment
0000 Purchased Services
0000 Education & Training
* Cost categories based on your organization's Chart of Accounts.
Financial Management Module v. 1
LOCAL PURCHASE ORDER (LPO)
Phone:________________
P.O. Box ______________
Fax:__________________
Date: _________________
To: ____________________________________________
From: __________________________________________
YOUR ORGANIZATION S NAME HERE
________________________________________________
Please supply the following goods:
Qty
Particulars
NO. 6085
Signed: _____________________________
Quote above Order No. on all Invoices and Delivery Notes.
Annex F
Internal Questionnaires and Checklists
Example: Internal Control Questionnaire for Cash Management
Answer
Yes
Question
1. Is the accounting department separate from the cashier?
2. Is there a ledger system of accounting?
3. Is the accounting system maintained by a trained bookkeeper and/or
accountant?
4. Is there a safe location for cash deposits such as a bank or
safe?
5. Does the facility deposit each day's receipts without delay?
6. Where is the deposit made (bank, safe, etc.)?
7. Are deposits made by someone other than the cashier or
bookkeeper?
8. Does a responsible employee other than the cashier (depositor)
investigate any cash taken out of the deposit location?
9. Are the cashier's duties segregated from the recording of the cash
receipts or accounts receivable?
10. Does someone outside the cashier department make ledger entries?
11. Does someone other than the cashier handle the petty cash fund?
12. Does the cashier handle only one fund? If not, list others.
13. Is there a withdrawal co-signature authority process?
14. Does the cashier assume full responsibility for the receipts from the
time they are received until the time they are handed over for the
deposit?
15. Is the cash adequately safeguarded (physically) within the facility?
Cash Receipts
1. Is an independent listing of cash receipts prepared before they are
submitted to the cashier or bookkeeper?
2. Are cash receipts deposited intact each day?
3. When cash sales occur, are all receipts pre-numbered?
4. Are all receipts accounted for daily, and do they match with the cash
collections?
5. Are duplicates of the deposit slips retained and reconciled to the
corresponding amounts in the cash receipts records?
6. Does someone prepare a daily report of cash balances?
7. Is the bank deposit made by someone other than the cashier or
bookkeeper?
Methods
1. Are receipts recorded by cash registers or other mechanical device?
No N/A
2. If so, are machine totals independently verified by those outside the
area?
3. Does the facility use cash receipt books?
4. If so, are the receipts re-numbered?
5. Does a person other than the cashier independently check the
numerical sequence and daily totals?
6. Are the receipts matched with the cash collections?
7. Are the unused receipt books properly safeguarded?
8. If none of the above is used, is an equivalent system used? Explain.
9. Do adequate controls exist to prevent misappropriation of cash by the
cashier, for example, b fictitious discounts, waivers, allowances, etc.?
Based on all of the information above, comment on the adequacy of internal control.
For all weaknesses indicated,
Originally reared by:
Date:
Reviewed in subsequent examination by:
Date:
Notes:
Observation
Example: General Control Environment
Question
Answer
Yes
No
Observation
N/A
1. Does the organization have an organizational chart?
2. Does the organization have a chart of accounts or an
organized financial accounting system?
3. Are there accounting and internal control manuals, and do they
set forth accounting procedures?
4. Does the organization have an internal auditor or equivalent
person?
5. If there is an internal auditor, is he or she independent from the
internal control processes?
6. If there is an internal auditor, are there internal audit reports
available? Have they been reviewed recently?
7. Is the general accounting and bookkeeping department
completely separate from the cash receipts and cash
disbursement function?
8. Is the general accounting and bookkeeping department
separate from the sales, purchasing, or operational
departments?
9. Are expenses and costs under budgeted control? In other
words, is there a budget plan to which others can compare
performance?
10. Are key and material bookkeeping entries approved by senior
management personnel?
11. Are periodic financial statements prepared and submitted to
management?
12. If so, are they designed to alert management to significant
fluctuations in costs, revenues, assets, etc.?
13. List the names of those employees who exercise the
following functions. Are any of these functions performed by
the same people?
Accountant
Bookkeeper
Cashier
Internal Auditor
Purchasing
Payroll
Department Head
Based on all of the information above, comment on the adequacy of internal control. For all weaknesses
indicated, scommend corrective action to be taken. Update this checklist to monitor the effectiveness of
the corrective action.
Originally prepared by: __________________________________________ Date: ____________________
Reviewed in subsequent examination by: ____________________________ Date:____________________
Notes:
Example:Internal Control Questionnaire: Payroll
Answer
Observation
Yes
No
N/A
Question
1. Are payroll duties effectively rotated?
2. Are vacations of payroll clerks enforced?
3. Are wage rates authorized in writing by the designated supervision
manager?
4. Is the payroll double-checked as to the hours worded, rates, payroll
deductions, and taxes?
5. If the payroll is delivered by check, are the checks re-numbered?
6. Are blank checks in a secure area?
7. Are the workers identified by their supervisors or other system for
validating employment?
8. Are unclaimed wages relatively insignificant?
9. Are audits of the payroll system periodically made by outside
"independent" auditors?
10. During disbursement of cash payrolls, is the area of disbursement
secure?
11. Have payrolls stayed relatively steady in all departments, without
hidden fluctuations?
12. Are payroll checks or cash disbursements only picked up by the
employee?
13. Is the process for adding an employee to the payroll in control and
done through cross-authorization procedures (with more than one
manager's signature)?
Based on all of the information above, comment on the adequacy of internal control.. For all weaknesses
indicated, recommend corrective action to be taken. Update this checklist to monitor the effectiveness of the
corrective action.
Originally reared by:
Date:
Reviewed in subsequent examination by:
Date:
Notes:
Example: Internal Control Questionnaire: Medical Inventories and Supplies
Answer
Question
Yes
No
Observation
N/A
1. Are the following items kept under the strict control of a few
designated employees?
Medicines?
Bandages?
Topical ointments?
Gases?
Disposable and reusable medical instruments such as
syringes and needles?
2. If practical, are inventories recorded monthly in bookkeeping or
other accounting records?
3. Are receipts for issuance made for withdrawal of inventories?
4. Are withdrawals allowed only under a specific system of
designated authorizations?
5. Are adequate inventory levels maintained?
6. Are physical inventories taken at lest yearly (or periodically
throughout the year)?
7. Is the inventory supervised by an independent manager or
equivalent?
8. Is the merchandise labeled and classified properly?
9. During inventories of larger stores, are pre-numbered inventory
tags or an equivalent system used?
10. Is an overall review periodically made of slow-moving or
obsolete inventory?
11. Is adequate accounting control exercised over items kept in
patient areas (e.g., near nursing areas)?
12. If periodic inventories are maintained, are they annually
reconciled to actual amounts by means of a complete physical
inventory?
13. Do all inventory records show quantities, unit costs, and
aggregate values?
14. Are the inventory records maintained by and accessible to
individuals other than those who have access to the inventory?
15. Are inventories maintained in more centralized storage areas
(as opposed to being disbursed throughout the facility)?
Based on all of the information above, comment on the adequacy of internal control. For all weaknesses
indicated, recommend corrective action to be taken. Update this checklist to monitor the effectiveness of the
corrective action.
Originally reared by:
Reviewed in subsequent examination by:
Notes:
Date:
Date:
Example: Internal Control Questionnaire: Purchase and Expense Management
Answer
Question
1. Does the organization have a purchasing department?
2. If so, is it independent of the accounting department?
3. Is it independent of the receiving department?
Yes
No
Observation
N/A
4. Are purchases made only after respective authorization signatures
are made according to policy?
5. Are all significant purchases channeled through the purchasing
department?
6. Are purchase order authorizations required of all significant
purchases?
7. Do certain items et purchased through competitive bidding?
8. If so, is the review made of the bids independent and objective?
9. Are purchase prices thoroughly reviewed and checked by a
knowledgeable employee?
10. At the time of receipt, are purchased quantities checked against
actual receipt quantity?
11. Is the receiving department denied access to the purchasing
records?
12. Does the receiving department fill out the receipt of goods
documentation?
13. Are copies of the receiving reports sent to the accounting or
bookkeeping department? (if not, how are accounting records
updated?)
14. Are copies of the receiving reports sent to the purchasing
department? (If not, how are purchasing orders reconciled to
actual goods received?
15. When goods are returned to vendors, are credits obtained?
16. Do safeguards exist for the proper accounting of partial shipments
being received against orders?
17. Does a responsible official approve payment of purchasing
orders?
18. If purchases are paid directly out of cash, is the system for
purchase authorization, inventory receipt, quantity verification, and
cash disbursement authorization intact, independent of each
other, and capable of being tracked)?
Based on all of the information above, comment on the adequacy of internal control. For all weaknesses
indicated, recommend corrective action to be taken. Update this checklist to monitor the effectiveness of the
corrective action.
Originally reared by:
Reviewed in subsequent examination by:
Notes:
Date:
Date:
Example: Internal Control Questionnaire: Petty Cash Management
Question
Answer
Observation
Yes No N/A
1.
2.
Are the cash slips re-numbered?
Do different employees periodically take charge of the fund?
5.
Is the amount of the petty cash fund small enough so as to make
replenishment a frequent occurrence?
Is there a maximum amount that may be drawn from the petty cash
fund? If so, state the amount.
Are receipts/vouchers maintained for each expense?
6.
Do regulations prohibit the cashing of checks from the fund?
7.
Does an independent and responsible employee reconcile the total
vouchers with the remaining cash amounts before the fund is
replenished?
8.
Do the vouchers explain the nature of the expense?
9.
Are the amounts written out in words on the vouchers?
3.
4.
Does only the custodian of the petty cash fund have authorization to sign
10. receipts/vouchers and authorize disbursements?
11. Are there surprise checks of the the cash fund?
Have steps been taken to address any past abuse of the petty cash
12. funds?
Based on all of the information above, comment on the adequacy of internal control. For all weaknesses
indicated, recommend corrective action to be taken. Update this checklist to monitor the effectiveness of the
corrective action.
Originally reared by:
Date:
Reviewed in subsequent examination by:
Notes:
Date:
Annex G
Model Financial Reports
Financial Management Module v. 1
Grantee Financial Report (GFR)
Project ID # ________________
Organization_______________________________
Project Title________________________________
Project Director_____________________________
Project Start Date ______________ Project End Date ______________
This project covers the following period:
Period #______________
From _______
To _______
Section One: Status of Budget
(Column 1)
Budget Category
Approved
Budget
Amounts
(Column 2)
Expenditures
this Period
(Column 3)
Expenditures
to Date
Salaries
Benefits its
Fees/Honoraria
General
Administration
Travel
Supplies/Equipment
Purchased Services
Education/Training
TOTAL
Note: Organization must attach written explanation for any
significant expenditures not included in the budget or any
expenditures in excess of the budget.
(Column 4)
Balance of
Budget
Financial Management Module v. 1
Section Two: Status of Project Funds
A.
Balance on hand at the beginning of period
______________
B.
Total local currency received during period
______________
C.
Total foreign currency received during period
______________
Conversion rate to local currency ______________ (Attach bank advice)
D.
Total interest earned on project account (if any)
______________
E.
Balance on hand at end of period
______________
F.
Bank statement balance at end of period
______________
G.
Difference (attach bank reconciliation)
______________
Section Three: Status of Program Income
A.
Did the program earn income during this period?
____Yes ____No*
B.
If yes, balance of income on hand at beginning of period ______________
C.
Interest earned this period on income.
______________
D.
Income spent during this period
______________
E.
Balance on hand at end of period
______________
*Please briefly describe how the program earned income.
Please attach a schedule of all persons paid from program
funds during this period.
I certify that all the information is correct and complete.
Name: ____________________________
Title: ___________
Signature: _________________________ Date: ___________