INITIAL ASSESSMENT
In seeking to arrive at a base level assessment the following questionnaire asks you to consider a
series of statements about the organisation’s finances. How you report these to your Board of
Trustees or Management Committee and more importantly to the funders and donors.
The scoring system is designed to make you consider each statement in turn but not “manufacture” a
result to leave you sitting in a comfortable average. In order to achieve 5 you must be certain that you
can demonstrate with appropriate evidence or documentation that the organisation carries out that
particular task.
For example, 2.12: A bank reconciliation is done each month for every bank account, usually
within three days of receipt of the bank statement, and signed off with either line manager or
Treasurer. Can you produce this documentation in a format that shows:




an opening balance from previous week or month
the total lodgements for that week or month
the total payments for that week or month
a closing balance that reconciles your outstanding lodgements and un-cleared cheques
matching the statement balance from the bank
If it is not possible to produce a bank reconciliation in this form then it is likely that you will score 0
because there is no evidence available.
To score 4 the organisation must be able to produce evidence that there are mechanisms in place
which with some work will help move the score to 5. In other words, there has been some thought put
into doing the work and it is substantially there and may need a bit of extra help and guidance to
complete the process.
If, on the other hand, you can only provide evidence which suggests a small element of the work or
task has been started but is substantially incomplete then you should score 1.
There is a glossary of terms at the end of the questionnaire which describes some of the words and
phrases contained within the text and you might find this helpful.
Finally as part of the Assessment process it would be helpful if at the first visit the following
information could be made available:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Bank Statements for all accounts held by organisation
Latest set of organisation’s accounts
Latest bank reconciliations for each account and petty cash held
Cashbook records – either hand written legers or computer records
Cheque journal
Receipt book
Letter(s) of Offer from funder(s) and conditions for claiming and reporting on expenditure
Chart of accounts / cost centres for each funder
Copy of Financial Policies and Procedures
NB – do not complete the questionnaire yet. This will be discussed
and done together on our first visit.
© Sector Matters 23 June 2011
SECTION 1 Planning & Budgeting
In advance of your financial year you should sit down and prepare an annual budget that reflects the
organisation’s expected income and expenditure for the coming year and how these relate to your
aims.
It is helpful if both your finance personnel and those engaged in delivering any of your programmes
sit and discuss what will happen and how much it will cost to make it happen.
Your budgeted costs are likely to fall into two categories – core or central costs and direct project
expenditure.
If you have a computerised accounting package then account codes are useful reminders to enable
you to capture all the expenditure associated with both the project and the organisation. You might
want to have a copy of these beside you as you prepare the budget.
If you have more than one project it is generally useful to identify the income and costs associated
with each project and match it against the projected expenditure. This should help you monitor
accurately the costs incurred and make reporting easier.
PLEASE NOTE – these statements are guidelines to best practice. If you have nothing relating to a
particular statement in place at present DO NOT WORRY we will work together towards finding the
ones applicable to your organisation and also to putting them into place during the course of the
preliminary visit and in writing the Action Plan.
PB
1.1
Statement of practice
Budgets are prepared in good time for all the costs of running the
5
organisation
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
1.10
1.11
1.12
Both finance and programme staff are involved in setting budgets
Project budgets are based on the costs of planned activities
Budget worksheets include explanatory notes and clear
calculations
A separate budget is prepared for core costs (overheads)
An apportionment of core costs shared between funders / cost
centres is clearly identified and calculated by an agreed formula
Organisational budgets are examined and approved by the Board
of Trustees (Management Committee)
A named individual (budget holder) is responsible for
implementing and managing each budget
Budget codes match (correspond with) accounting codes
All planned operational costs are adequately funded
The financial environment is regularly scanned to adjust budgets
for changes in costs such as inflationary rises, VAT and other tax
changes
A cash flow forecast is prepared every month
TOTAL SCORE for Planning & Budgeting
© Sector Matters 23 June 2011
SCORE
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
5
5
4
4
1
1
0
0
5
4
1
0
5
4
1
0
SECTION 2 Basic Accounting Systems
The primary aim of maintaining a financial record is to demonstrate that you have used the income
received for the purposes it was meant. Each cheque written or each electronic payment made
should have an accompanying invoice / purchase order to confirm that the payment was properly
authorised and then should be filed in cheque / payment number order as back up to your cash book
entries and bank reconciliations. Similarly every payment received whether in cash, by cheque or by
BACS transfer should be recorded in the cash book and referenced to the appropriate lodgement slip
or BACS reference on the bank statement.
These records are critical to helping you accurately reconcile the bank statement against your cash
book record at the end of each month.
BAS
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
2.10
2.11
2.12
2.13
2.14
2.15
Statement of Practice
Every payment made has a supporting document providing evidence
All cash or cheques received are receipted and a copy filed in
numerical order. (If you do not receive cash or cheques score 5).
All payments and receipts are recorded in cashbooks and should
include the date, a description and the amount
All cash received is counted and verified by two people before it is
securely locked away in a safe or drawer for the next bank
lodgement, preferably within forty eight hours.
Staff are aware of the cash indemnity limits contained within the
organisational insurance policy document and will ensure at all times
to adhere to these conditions.
There are separate cashbooks or spreadsheets maintained for each
bank, petty cash and business card (if held) accounts
Every entry in the cashbooks is cross referenced to a supporting
document
All cashbooks are updated at least once a month.
All cashbooks are written neatly in permanent ink or on computer
A standard Chart of Accounts is used to code or classify each
transaction.
Transactions are also classified by project or donor using a standard
list of "cost centres".
A bank reconciliation is done each month for every bank account,
usually within three days of receipt of the bank statement, and
signed off with either line manager or Treasurer. Differences are
examined and resolved quickly
The petty cash account reconciliation is completed every month and
agreed and signed off with either line manager or Treasurer.
Differences are examined and resolved quickly
The organisation maintains a record of amounts owed to (debtors)
and by others (creditors)
The depreciation charges on fixed assets is accounted for when
preparing annual budgets to allow reserves to accumulate for
replacement assets
TOTAL SCORE for Basic Accounting Systems
© Sector Matters 23 June 2011
SCORE
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
5
5
4
4
1
1
0
0
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
SECTION 3 Financial Reporting
Your Management Committee or Board of Trustees is ultimately accountable for the finances of the
organisation and need to be informed about the financial position on a regular basis to allow them to
take strategic decisions and to measure performance of specific projects which may have a
significant impact upon the organisation whether positively or negatively.
You also need to report on the various balances in your bank account/s and on any grants or income
owed to you at the end of any given period.
With this in mind report structure is very important and should contain headings that capture all
income and expenditure in the given period (month, quarter etc.) and then measure the results
against the budget (as discussed in Section 1).
If there are significant variances then it is important to satisfactorily explain these as the reports are
issued. To ensure reports are designed to give the right information to the right audience it may be
necessary to devise several formats which give the overall picture and then separately provide
project information in a form that can be easily used to report to a particular funder.
FR
3.1
Statement of practice
SCORE
The Board of Trustees (Management Committee) reviews financial
5 4 1 0
reports every month or at least every quarter
3.2
Senior managers discuss financial reports every month or at least
5
every quarter
Reports include details of cash and bank balances and include
5
amounts payable (debtors) and amounts owed (creditors)
3.3
3.4
Budget holders receive budget monitoring reports every month
3.6
Budget monitoring reports include explanations and comments
about variances (differences)
Financial reports are used to help make decisions
Financial information is shared with beneficiaries at least once each
year in an accessible way
Annual audits are up to date (signed within six months of the year
end)
3.9
1
0
4
1
0
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
Board members receive monthly or quarterly cashflow, budget
5
monitoring and income / expenditure account reports
3.5
3.7
3.8
4
TOTAL SCORE for Financial Reporting
© Sector Matters 23 June 2011
SECTION 4 Internal Controls
Internal controls are there to protect the organisation, staff and volunteers, to prevent errors and
unfortunately in some circumstances detect fraud. They also ensure that all assets belonging to the
organisation are accounted for and that records are kept up to date and helps contribute towards
strategic planning.
IC
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
Statement of practice
Cash is kept safely in a locked cashbox or safe in the custody of a named
individual
All cash received is banked intact, ie without any being spent. (If no cash
received, score 5).
All cheques are signed by at least two authorised signatories
A record of batch payments by BACS is maintained detailing beneficaries
and amounts payable and is signed off by at least two authorised
signatories
Cheques are signed only when all the details have been properly entered
(signatories should never be asked to sign blank cheques)
Bank reconciliations are checked by someone who did not prepare them
There is a written policy detailing who can authorise expenditure of
differing types and up to what value
All transactions are properly authorised
Cash payments are authorised by someone other than the cashier
Different steps in the procurement process, (eg ordering, receiving and
paying) are shared among different people where practical
Expenses claims for staff advances are checked by the same person who
authorised the advance
Staff salaries (including advances and loan deductions) are checked each
month by a senior manager
Statutory deductions (eg payroll taxes) are properly made and paid on
time
All fixed assets (eg vehicles, computers, equipment) owned by the
organisation are insured and controlled using a fixed asset register
There is an approved Policies and Procedures manual in place which is
relevant to the organisation and known by staff. The manual is regularly
updated to take account of changing legislation and new funder
requirements
An accountant, independent examiner or auditor, in accordance with the
conditions within your governing document and to comply with Charity
Commission legislation, is selected by the Trustees
TOTAL SCORE for Internal Controls
© Sector Matters 23 June 2011
SCORE
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
5
5
4
4
1
1
0
0
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
SECTION 5 Income Management
Grants provide a significant part of the income received by voluntary and community organisations. It
is therefore important that the organisation is familiar with the terms and conditions contained in the
letter of offer from each of its funders. This ensures that your project delivers on the proposed
outcomes and you are clear on the timing of the release of the grant. Sometimes the grant is paid in
full in advance or perhaps a part payment is made and then it is the organisations responsibility to
demonstrate to the funder how the grant has been spent before remaining balances can be released.
This could mean submitting quarterly claims in arrears based on receipted expenditure. These
conditions may impact upon cash flow which in turn may mean that arrangements need to be made
with your bank to provide overdraft facilities or just await the arrival of the grant.
When reporting on expenditure to a particular funder there should be consultation between project
and finance staff to maintain consistency and pick up on any conditions attached to the grant and
projected outcomes.
Income can also be generated by other means including fundraising activities, service charges,
donations and through tender opportunities. The organisation must be clear on the purposes for
which the money is generated and how and when it is to be spent. Donations are generally regarded
as unrestricted income and the organisation has the freedom to allocate such income as it deems
appropriate.
IM
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
5.9
5.10
Statement of practice
SCORE
There is a signed Service Level Agreement / Letter of Offer in place
5 4 1 0
for each grant
Senior managers check that the grant conditions are reasonable
5 4 1 0
before signing agreements
Grant conditions on procurement, banking and record keeping are
5 4 1 0
known by finance staff, budget holders and procurement officer (s)
There is compliance with the terms and conditions in grant
agreements
Funders receive financial reports in the right format and on time
Funders financial and narrative reports are consistent and clearly
linked to each other
Donations are receipted and banked in full without costs being
deducted
Tenders are prepared using "full cost recovery" method to
incorporate all service delivery and on-cost charges
Fundraising income is identified with event and banked in full before
costs are allocated
Funds received are identified as either restricted or unrestricted
income and are never "borrowed" to subsidise other projects or
activities
TOTAL SCORE for Income Management
© Sector Matters 23 June 2011
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
SECTION 6 Staffing
It is important that staff are both confident and competent to perform the financial functions for the
organisation. This is necessary to allow the Trustees and senior management to make the right
decisions in a timely manner based on up to date information that is presented. This should be in a
clear format and include all the factors that need to be considered when taking decisions that affect
the direction of the organisation. Depending upon the size of your organisation it may not be
affordable to have full or part time finance staff to maintain records and deliver on the reports
required. However, if the lead officer, manager or director is required to keep check on finances they
should have a basic understanding of the finance role.
S
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
6.9
6.10
Statement of practice
The Board includes someone with the skills needed to oversee all
financial activities
The finance staff have the skills, financial knowledge and competencies
needed to carry out all financial activities
Managers and programme staff have the financial skills they need to
manage budgets and implement controls
Finance staff and budget holders work together well in payments
processing and budget monitoring
Different roles within the finance function are clearly defined, known and
followed in compliance with the directions contained within the
organisation's Procedures Manual
Senior staff lead by example in following control procedures
Finance staff are recruited freely and fairly on the basis of merit only
All staff receive the training and support they need to carry out their
financial management responsibilities
Finance staff and managers have the confidence to present financial
information and reports at Board of Trustee level and are adequately
prepared in advance of meetings to provide explanations on identified
variances (under / over spend) that may affect the projected outcome
for the project and / or the organisation
Senior staff have the necessary competencies to contribute to the
Annual Report by commenting knowledgeably on the organisation's
financial activity and are informed on the requirements of Charity
Commission for NI legislation pertaining to financial reporting
TOTAL SCORE for Staffing
Interpreting your scores
© Sector Matters 23 June 2011
SCORE
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
5
4
1
0
5
5
4
4
1
1
0
0
5
4
1
0
5
4
1
0
5
4
1
0
In tables below record your scores from Sections 1 – 6 and then compare these with the
columns on the right. Add up final scores to determine your organisations financial health
status.
SECTION
Your score
1. Planning & Budgeting
2. Basic Accounting Systems
3. Financial Reporting
4. Internal Controls
5. Income Management
6. Staffing
TOTAL SCORE
High Risk
0-25
0-30
0-20
0-40
0-15
0-20
0-170
Medium
Risk
Low Risk
26-40
41-50
31-50
51-60
21-35
36-40
41-60
61-75
16-25
26-35
21-30
31-40
171-260 261-360
INDICATORS
Your score is less than 170
Your score is between 171
and 260
You are financially on the
Your financial health is not
critical list.
bad.
Your financial management is With some good practice in
poor and needs some serious place you have highlighted
corrective action. You run the those areas which could be a
risk of not being able to
lot better. Assess those with
deliver your programmes and poorest results and start to
thus face problems with your discuss with your Trustees
funders, donors and
and senior managers ways in
supporters. You need to meet which with a serious effort
urgently with your Trustees
your procedures and ways of
and senior managers to look
managing finance can make
at an action plan which will be sure that you deliver on aims
implemented in the
and objectives. Your action
immediate future with regular plan should start with those
reviews on progress reported areas where control and
to the Trustees. Don’t
management is weakest
hesitate to call in help
because that is where
sometimes a view from the
attention to detail could help
outside in can make
make the improvements in
corrective action more easily
other areas more easily
manageable.
managed when you get there.
Your score is over 261
Your financial health is
good.
However, there is no room for
complacency. Look carefully
at the scores in each section.
Although you may have
scored well in some areas
effective financial
management requires high
scores in all six areas. If there
are some showing room for
improvement then an action
plan to correct the weakest
areas needs to be devised
and implemented.
GLOSSARY OF TERMS
Cost Centre
© Sector Matters 23 June 2011
The term used to describe each project your organisation runs in
accountancy terms. If you have 5 projects then it should follow
Core Costs
Chart of Accounts /
Accounting codes
Cash flow
Cash indemnity
Bank reconciliation
Debtors
Creditor
Budget monitoring reports
Service Level Agreement
Fixed Asset Register
© Sector Matters 23 June 2011
that you will prepare 5 separate budgets to reflect the activities in
each.
This represents the costs incurred in running the organisation.
These will include rents, telephone, stationery (unless project
specific), electricity, gas and any other costs associated with
“opening the doors”.
Description of the codes used to identify costs in your
accountancy software.
Working document that reflects the cash position of the
organisation at end of each month. Will start with an opening
balance and record the cash in and out of the bank accounts.
A term used in your insurance policy to advise of the amount of
cash that can be kept on the premises either in locked drawer,
safe or cash boxes, carried in night safe bag, kept at home of
named individuals.
An exercise to be completed each time statement is received to
cross check the statement balance against book recorded
balance. Differences should be matched to un-cleared
lodgements or cheque payments not cashed.
Individuals or other organisations who owe your organisation
money.
Individuals or other organisations to which your organisation
owes money.
Records financial activity of project and organisation against
agreed budget and notes reasons for differences in under or over
spend.
Letter from funder detailing the expected outcomes from funding
provided. May also be described as Letter of Offer.
Contains record of purchases of equipment such as computers,
printers, project equipment, furniture, motor vehicles. Should
have details of date of purchase, cost, where located, when
disposed of, disposal proceeds