ZHRC/HTI Financial
Management Training
Session 3: Budgeting, Accounting
and Financial Reporting
Learning Objectives
By the end of this session, participants will be able
to:
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Define the terms: budgeting, accounting, financial
planning and budgeting processes
Describe the financial planning and budgeting
processes
Describe importance of financial management
Explain good practices in budgeting
List the key financial reports that monitor the
organization’s financial affairs
Explain the process for preparing financial reports
Financial Planning Process
Financial Planning
• Both a strategic and operational process
linked to the achievement of objectives
• Involves building both longer-term funding
strategies and shorter-term budgets and
forecasts
'If you don’t know where you are going, then
you are sure to end up somewhere else.'
-- Mark Twain
The Planning Pyramid (1)
The Planning Pyramid (2)
• Once plans are set, the organization draws
up its budgets and cash flow forecasts to help
implement the plans
• Throughout the year, financial reports are
produced to compare actual performance to the
budget
• The review stage is very important as it
highlights areas where the plans did not
occur as expected
• This learning process helps identify revisions
needed to the plans
What is a Budget?
• It is an amount of money that an
organization plans to raise and spend for a
set purpose over a given period of time.
Importance of Budgeting (1)
• Planning
• Budgeting gives an accurate idea of the
project’s costs
• Fundraising
• A budget is a critical component of
negotiations with development partners
Importance of Budgeting (2)
• Project Implementation
• An accurate budget is needed to control the
project
• Monitoring and Evaluation
• A budget is a tool for evaluating the success
of a project
Who Needs and Uses a Budget? (1)
1. Governing Body: Needs budgets to
formally approve an organization’s budget
and monitor its progress.
2. Management Team: Needs budgets to
manage the progress of the organization
and monitor the funding situation.
3. Project Managers: Need budgets to
oversee the implementation of their
project activities.
Who Needs and Uses a Budget? (2)
4. Fundraisers: Need budgets to
accompany funding applications.
5. Finance Staff: Need budgets for cash
flow management.
6. Development Partners: Need budgets in
order to see how an organization intends
to spend its grants.
Budgeting Process
• The process should address the following
questions:
• What are the objectives of the project?
• What activities will be involved in achieving
these objectives?
• What resources will be needed to perform
these activities?
• What will these resources cost?
• Where will the funds come from?
• Is the planned result realistic?
Good Practice in Budgeting
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Clarity
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Timetable
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Have a budget development timetable and start
early
Estimating Costs
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Budget is clear and accurate
Make a list of all the inputs required and specify
the number and unit cost of each item
Forgotten Costs
•
There is a tendency in non-profits to
underestimate the true costs of running a project
for fear of not receiving funding for a project
Group Work:
Calculate Variance in a Budget
Report
Accounting, Financial Reports and
Making Sense of the Numbers
What is Accounting?
• The process of recording, classifying,
summarizing, interpreting and reporting
financial data to permit informed
judgments and decisions by users of the
information
Accounting Process (1)
1. Recording
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Transactions must be recorded in the books
of account
2. Classifying
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Group transactions of one nature at one
place. This is normally done in the general
ledger under different accounts
3. Summarizing
•
Transactions are summarized in financial
reports
Accounting Process (2)
4. Interpreting
• Interpreting accounting information helps
users make meaningful judgments about an
organization
• Percentage analysis and footnotes are often
used to help interpret the accounting
information
5. Reporting and Communicating
• This is done through distribution of accounting
reports and additional information such as
tables, graphs, ratios and diagrams
Accounting Process (3)
1.
Recording
5.
Reporting
4.
Interpreting
2.
Classifying
3.
Summarizing
Role of Accounting in ZHRCs/HTIs (1)
• To manage the approved organizational
and financial framework to ensure:
• Sound internal control and efficiency
• Effective revenue mobilization and collection
• Sound management of assets and liabilities
• Provision of accurate, complete, timely,
consistent and transparent financial
statements
• Provision of annual statutory accounts
Role of Accounting for ZHRC/HTIs (2)
• Assist the ZHRC/HTI to formulate a
realistic medium term financial plan and
annual budget, consistent with:
• National priorities, policies and objectives
• Service delivery targets
• Resource base, expected revenue, and
financial capacity
• Provide prudent, professional and
impartial financial advice
What Does Accounting Achieve? (1)
• Keep systematic records
• Protect property of the ZHRC/HTI
• Ascertain operational results and financial
position of the ZHRCs/HTIs
• Generate and disseminate information to
relevant decision makers
What Does Accounting Achieve? (2)
• Compliance with legal requirements
including:
• The Constitution of the United Republic of
Tanzania
• The Public Finance Act
• The Local Government Finance Act
• The Cost-sharing Manual
• Rules and regulations of the National Board of
Accountants and Auditors (NBAA)
Financial Reports
• One of the main reasons for keeping
accounting records is to provide
information about how the organization is
being run
• After setting up accounting systems and
budgets, the next step is to produce
financial reports that monitor the
organization’s financial affairs
What are Financial Statements?
• Products of the financial accounting
process
• They are a summary of all transactions for
a specified period of time and show the
financial position of the organization
Commonly Used Reports
• There are several primary reports
commonly used by organizations:
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The Trial Balance
The Income and Expenditure Report
The Budget Monitoring Report
The Balance Sheet
• Together, these reports provide useful
information about the status of an
organization
The Trial Balance
• An arithmetical check on the accounts
maintained
• It is also the basis for the preparation of
the annual financial statements
• The Trial Balance is the final stage of the
accounting process
• It is the result of recording all the transactions
that occur in an organization
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The Income and Expenditure Report
• In the not-for-profit sector, this report is
equivalent to the Profit and Loss Report or
Income Statement used in the private sector
• It records in summary form all income and
expenditures for the time period
• Income items appear first in the list, followed by
expenses
• The difference between total income and total
expenses, called the 'Outcome' or
'Surplus/(Deficit)', appears on the bottom line
Example of Income & Expenditure Account
Budget Monitoring Report
• Takes the budget for the reporting period
and compares it to the actual expenditures
for the same time period
• The difference between the budgeted and
actual amount is called the variance
• The ‘burn rate’ is an important component of
the budget monitoring report
Example of Budget Monitoring Report
The Balance Sheet
• A list of all the assets and liabilities of an
organization as of a particular date
• It provides a snapshot of the financial
position of an organization at a point in
time
Example of Balance Sheet
Management Reporting Flow Chart
Group Work:
Preparation of Training Budget
Key Points (1)
• Financial planning takes into account the
vision, mission, objectives, strategies, and
activity plans of an organization
• Budgeting is important at every stage of a
project
• Financial reports provide information about
how an organization is being run
Key Points (2)
• The most commonly used reports by nonprofit organizations are:
• Budget Monitoring Report
• Income and Expenditure Report
• Trial Balance and Balance Sheet