Financial Standard
for grants above DKK 200,000
It can be a challenge to assess and establish whether financial systems and procedures are adequate to ensure
accountable and transparent handling of funds, while limiting requirements to those that can be realistically met.
This question is especially relevant in the case of organizations handling donor funds in a partnership between two
or more organizations.
This standard is intended to set out minimum requirements as well as to assist both the Danish organization and the
local partner organization in the South in guiding and evaluating their capacity-building in the field of financial
management.
This standard does not replace section 4.3 of the “Guide to administration of grants from the Civil Society Fund”, but
elaborates by specifying what CISU regards as the minimum set of procedures, tasks and checks required from the
partner organisations to ensure responsible handling of funds from CISU.
The Danish partner is expected to be able to fulfill the requirements from the project’s start. The administration fee
amounting to 7% of the budget is a contribution towards the Danish partner sustaining an appropriate financial
capacity throughout the project period. If needed, capacity-building of the local partner in the field of financial
management can be financed as a project activity described in the application. Local partners have the first 6 months
of the project to ensure that the project’s financial management fulfils the requirements. After 6 months, the local
financial management capacity is expected to match the standard.
The standard is divided into 4 sections + appendices:
1. Budgets
2. Accounting
3. Financial reporting
4. Internal controls
Appendices
If nothing else is specified, each point applies to all organizations in the project partnership, i.e. Danish partners as
well as local partner organizations, lead partners as well as sub-partners.
Each section specifies required and recommended procedures and briefly sets out how to do them in order to guide
practical implementation.
1.
Budgets
1.1 Local partner(s): If there are multiple donors or projects, an overhead budget must show how much of total local
administrative and staff costs are covered by the project funding.
Danish partner: An overhead budget is not required as the Danish partner receives up to 7% of the grant total
for overheads.
How to do it: See an example of an overhead budget in Appendix 1 (also referred to as a core cost budget).
1.2 Annual project budgets and any major budget revisions must be approved by the organizational leadership.
How to do it: The budget is presented by the treasurer or manager at a board meeting. The budget approval is
stated in the minutes of the meeting, which are then filed responsibly.
Recommendation.
It is recommended to establish how much deviation from the project budget must be approved by the board of
trustees. This makes the division of responsibilities between management and board of trustees clearer to all
parties.
2. Accounting
2.1 An accounting system using digital cashbooks in connection with a chart of accounts must be in place.
How to do it: Mango’s Accounting Pack is recommended as an adequate system.
Link: http://www.mango.org.uk/Guide/MangoAccountingPack
Note: This is not a full double-entry accounting system.
2.2 Without exemption, all monetary transactions must be entered into cashbooks. No entries can be deleted. An
erroneous entry must be corrected by a new separate entry.
How to do it: bank transactions are entered into a separate bank cashbook for each bank account.
Cash transactions are entered into a petty cash book.
2.3 All supporting documents must be given a reference number which is also indicated in the entry in the cashbook.
How to do it: Reference numbers are written in chronological order on the supporting document with a
permanent marker, usually at the time it is entered into the cashbook to ensure correct referencing.
2.4 Prior to entry, all supporting documents must be approved and signed by a person other than the one who
enters it into the general ledger.
How to do it: Usually the person responsible for the activity relating to the expense is the signatory,
thereby taking responsibility for the correctness of the expense. The project manager can also take
responsibility for signing all supporting documents. The financial management policy should set out the
authorization procedure for the board of trustees to approve.
2.5 All supporting documents not yet entered into the general ledger must be kept physically separate from the ones
already entered.
How to do it: Keep all supporting documents waiting to be entered in a separate tray or binder and the ones
already entered in another binder.
2.6 All supporting documents entered into the general ledger must be marked to show that entry has been done.
How to do it: This requirement can be fulfilled simply by writing the reference number on each supporting
document at the time of entry into the general ledger or with a signature from the bookkeeper.
2.7 All supporting documents must be kept in a physical archive for at least 5 years after the project has ended.
How to do it: Keep binders with supporting documents in a safe storage place and ensure the management’s
approval before disposal after at least 5 years.
2.8 If a part of the chart of accounts does not correspond directly to the approved budget codes/headings it must be
made clear how the approved project budget relates to the accounting.
How to do it: A conversion table can be used to establish the link between each budget item and the chart of
accounts. This will help the bookkeeper when assigning expenses to accounts, and it will help the accountant
producing reports on expenditure compared to each budget item allocation. See Appendix 2 for a conversion chart
format.
Recommendation
A full double-entry accounting system is recommended as this ensures a higher degree of entry verification, entry
checking and account balancing. Systems like QuickBooks and Pastel are recommended.
3. Financial reporting
To be used internally in the organization and between the partners. It is NOT to be sent to CISU.
3.1 Financial reports are produced at least every 3 months, and are approved by the management and staff
responsible for those activities for which expenditure has been incurred.
How to do it: A column showing the expenditures for a given period, broken down by project budget item, is
shown next to:
- a column showing allocations pertaining to the same budget items for the same period of time
- a column showing the variation in expenditure from the budget items in amount
3.2 Significant deviations between expenditures and budgeted allocations are commented upon in writing by the
budget holder(s).
How to do it: This can be done in a separate column next to the expenditure, budget and variation columns.
Comments should address the reason for deviations and steps to be taken to address the issues concerned.
3.3 Financial reports are shared between the Danish and local partner organizations to ensure transparency in
expenditures. This allows for both organizations to be involved in developing action plans to keep the project on
track.
How to do it: Financial reports, complete with a narrative explanation of exceptional budget items, are sent to
the partner organization for their comments and recommendations to start the conversation. This results in
agreed action plans.
3.4 The Danish partner organization is responsible for fulfilling the external reporting procedures in relation to CISU.
How to do it: Procedures and formats for financial reporting to CISU are found on CISU’s website www.cisu.dk.
Recommendation
Consider producing financial reports on a monthly basis regarding the most active budget items in order to
strengthen the possibility of timely corrective action, if expenditures deviate significantly from the budget.
The benefits of additional financial information should be weighed against the cost of producing it.
It is recommended that each financial report be shared with the partner organization prior to its being approved by
the board of trustees, in order to enable the partner dialogue to be shared with the board of trustees.
The financial report should include a column showing the variation in expenditure from the budget items in
percentage.
4. Internal controls
4.1 Bank reconciliations must be performed monthly and also be checked and signed by someone else.
How to do it: The bank reconciliation compares the month end balance on the bank statement for a particular
month to the month end balance in the bank cashbook for that same month.
These two lists must add up to the same amount. If they do not, the reason must be identified. This is how the
accountant each month “audits” his/her own work to identify and eliminate mistakes. This is why this central
accounting procedure must be performed on a monthly basis by the accountant and checked and signed by
another relevant person. See an example of a bank reconciliation form in Appendix 3.
4.2 Petty cash reconciliations must be performed at least monthly and reviewed by someone more senior who signs
as proof they have done so.
How to do it: Cash reconciliations are usually done by the cashier.
See an example of a cash reconciliation form in Appendix 4.
4.3 The cashbox must be kept locked and administered by someone other than the bookkeeper.
How to do it: The cashier should be a central and trusted person, for example the manager, project officer or
another person in the finance team. The financial management policy should state who administers the
cashbox. This separation of duties ensures that two or more persons help verify each other’s handling of
supporting documents.
4.4 A policy for financial administrative procedures should describe the delegation of work and the division of
functions between staff.
How to do: This financial standard can be used in developing the policy. Remember to obtain the board of
trustees’ approval of the policy and regularly update it, if, for example, there is a change of staff or
organizational structure.
4.5 A fixed assets register should be in place describing the volume and value of all fixed assets of a significant
value.
How to do: A fixed assets register contains a description of what each asset is, time of purchase, purchase price,
and name of the person authorizing the purchase. Assets to be registered are usually computers, motorbikes,
cars, other machines and buildings, if these are owned rather than rented.
4.6 If cheques are used, they must be handled safely and responsibly.
How to do it: Cheques are kept in a locked place in the custody of only one person. There must be no presigned cheques in the chequebook, and the most recently used cheque is entered into the general ledger as
soon as possible.
4.7 If the budget holder is not the buyer, the purchase must be authorized in writing by the budget holder before the
purchase. A large purchase requires the obtaining of more than one quotation and authorization by at least two
signatories prior to the purchase.
How to do it: Authorizing powers can be delegated, when this is clearly stated in the policy for financial
administrative procedures.
The partner organizations in collaboration define in writing the numerical limit in local currency between small
and large purchases.
Recommendations
Cash reconciliations should be done on a weekly basis at the local partner to keep track of expenditures.
To the extent possible, a written agreement should be made with the bank stating that the bank renounces its right
to offset debt on other accounts by deducting from the account that holds the funding from CISU.
Consider doing the petty cash reconciliations on a weekly basis at the Southern partner, as a significant part of the
transactions handled can be expected to be in cash.
Appendix 1
Example from Mango’s financial guide. www.mango.org.uk.
Appendix 2
Account
code
Account names
INCOME
EXPENDITURE
Budget item number and
name
Amount in
currency
Comments
Appendix 3
BANK RECONCILIATION FORM
Office:
Bank Statement Date:
Currency:
Month:
Bank Statement Sheet Number:
Amount
Balance on bank statement
Less payments in accounts, not on statement (eg unpresented cheques)
Total Deduction:
Less receipts on statements not in accounts (eg income received by bank)
Total Deduction:
Plus payments on statements not in accounts (eg bank charges)
Total Addition:
Plus receipts in accounts not on statement (eg income not yet banked)
Total Addition:
Adjusted balance on the bank statement:
Balance on bankbook:
Prepared by:
Date:
Format from Mango’s Accounting Pack. www.mango.org.uk.
Format adapted from Mango’s Accounting Pack, www.mango.org.uk.
Column Totals
Description
Cash Reconciliation
= expected cash in box
Comments
- Petty cash spent
Total float amount
Ref.
No.
Office:
Date:
Authorised By:
Differencen between actual and
expected:
Prepared By:
Date:
Cash Count
Column Totals
Description
Sum of column totals:
Petty cash spent
Ref.
No.
Total in tinbox:
Total
Currency:
PETTY CASH FORM
Total
Period:
Your NGO Name
Ref.
No.
Page
Column Totals
Description
of
Total
Appendix 4