‫بسم هللا الرحمن الرحيم‬
Islamic University – Gaza
Faculty of Commerce
Department of Accounting
‫الجامعة اإلسالمية – غزة‬
‫كلية التجارة‬
‫قسم المحاسبة‬
The role of budget as a financial planning and
controlling tool in NGOs in Gaza strip
A Graduation Project Proposal
Presented to the
Faculty of Commerce
The Islamic University of Gaza
By
Sohaib Mqat
Ibrahim Abu Saada
Supervisor's name
Mr : Salah Shubair
August 2013
1
RESEARCH PROPOSAL
Chapter Tree :
Budget as a financial
planning, controlling tool
Chapter Two
NGOs and PNGOs
Chapter One :
CONTENTS
Dedication
Abstract
2
1.1 Research problem
1.2 Objectives
1.3 Significance of project (work)
1.4 Hypothesis
1.5 Methodology
1.6 Related work
1.6.1 Comments on related work
PAGE
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2.1 Overview
2.2 Structure of NGOs
2.2.1 What is the NGO ?
2.2.2 Legal status
2.2.3 Governance body
2.3 Importance of financial management for NGOs
2.4 Palestinian NGOs
2.4.1 Overview
2.4.2 General features of PNGOs
2.4.3 Summary
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3.1 What is Financial Control?
3.2 Tools of financial management
3.3 The Principles of Financial Management
3.4.1 What is Budget ?
3.5 Types of Budget
3.5.1 The Income and Expenditure Budget
3.5.2 The Capital Budget
3.5.3 The Cash flow Forecast
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3.6 Budget structure
3.7 What is budget for NGOs ?
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Chapter Tree :
Budget as a financial
planning, controlling
tool
Chapter four :
Case study Al- Wedad
organization
Chapter five :
Appendices
and
references
3
3.8 Why budgets are so complicated for NGOs?
3.9 Budget process
3.10 Steps in preparing budget
3.11 The budget compared to actual performance
3.12 Identify budget problems, look for solutions
3.14 Good Practice in Budgeting
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4.1 Overview Al-Wedad organization
4.1.1 Mission and vision
4.1.2.Objectives
4.1.3. Al-Wedad Programs and activities
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4..2 Budget as a planning tool in Alwadad organization
4.3 The benefits of using budget that the organization
seeks
4.4 Problems in financial planning process
4.5 Factors that affect using the budget
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5.1 Results
5.2 Recommendation
5.3 References
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‫بسم هللا الرحمن الرحيم‬
‫صدق هللا العظيم‬
‫‪4‬‬
Dedication
 To our lovely country Palestine.
 To our brave prisoners, who sacrifice their lives for freedom
and dignity of the Palestinian people.
 To our distinctive university, which is the pride for Students.
 To our professors and lecturers who gave us a helping hand and
assistance at any time.
 To our parent, who scarified everything in their life for us and
always we thank them for pushing up to success
 To our brothers and sisters, who are always blessed to our
success.
 To our friends, who support us all the time.
5
1.1 Abstract
Non-governmental organizations have established in Palestine with
the objective of enhancing coordination, consultation and cooperation
between member organizations working in different developmental
domains. Because the effects of Israel occupation and the security
measurements imposed by the Israel which divided Gaza Strip (GS) and
West Bank (WB) into disconnected areas.
NGOs sector in Palestine have the purpose of strengthening the
Palestinian civil society and contributing to the establishment of the
Palestinian state based on the principles of democracy, social justice,
rule of law, tolerance, and respect of human rights through networking,
building-up the capacity of NGOs, developing information management
center and mainstreaming of society concerns into public policies, plans,
activities and programs.
The NGOs’ concerns arises from subjective trends related to the
development of Palestine society and political, economic, social and
cultural developments so we notice that the extent of NGOs has spread
out also the importance of NGOs has increased because they have
important role in Palestinian society, they contribute effectively in
solving, helping many social , economic and educational issues and
problems in the community. Because of the importance of NGOs the
workers and employees have to concern in financial planning which
require more concern with considering the political and economic
conditions that Palestinians are living and which the reason that NGOs
working to serve the community , that conditions affect the decision
making and becomes more complicated .
Regardless of the various definitions of financial planning process there
is common agreement that define financial planning as Financial
planning is both a strategic and operational process linked to the
achievement of organizational objectives. It involves building both
longer term funding strategies and shorter term budgets and forecasts.
It lies at the heart of effective financial management.
Planning can help in directing efforts to fund raising and identify
resources and costs also it enables the organization to set programs and
activities for fund raising in coming period also planning works as a
guidance for management and employees and makes compatibility
between fund raising programs and organization’s goals.
6
The main tool in financial planning is the budget which enables the
management to plan organization’s activities to achieve overall goals of
the organization .
A budget describes an amount of money that an organization plans to
raise and spend for a set purposes over a given period of time.’
Once plans are set, the organization draws up its budgets and cash flow
forecast to help implement the plans. During the year financial reports
are produced to compare the budget with actual performance.
This review stage is very important to the financial planning process
since it will highlight areas where the plans did not happen as expected.
This learning process will help to identify revisions which need to be
made to the plans.
NGOs in Palestine specially in Gaza have weaknesses in financial
planning and it’s tools so it’s necessary to study and verify the main
problems and barriers which sometimes affect NGOs adoption for a
budget as a planning tool
1.2 Statement of the problem
There is a real problem in non-governmental organizations
in planning and preparation of budgets and we have formulated
research problem by answering these two questions :
1- What is the extent of using budget as a financial planning tool in
non-governmental organizations in Gaza Strip ?
2- what are the most important problems that obstruct the use of
budget as a financial planning tool in NGOs?
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1.3 Objectives
This research aims to define the role of budget in non- governmental
organizations and its effect on decision making and financial planning
specially in managing those organizations in Gaza strip and the extent of
use it to identify the barriers of using budget’s data in decision making
and financial planning
The main objectives are :
 Identify the role of budget as a financial planning tool and the
extent of organization’s reliance on it .
 Clarify and check out causes of weakness in using the budget as a
financial planning tool at NGOs.
 To define the reliance degree of organizations on the budget in
financial planning .
1.4 Significance of the project (work) :
The importance of this study comes from those reasons :
1- This study is very important because of supportive role of NGOs
for Palestinian authority toward the community, obviously NGOs
have a great and effective role in supporting social and economic
growth due to critical circumstances that Palestinians are living
like occupation, Israeli siege on Gaza strip and violation of rights
…etc.
2- NGOs prominent role in the local community whether social
development or setting general policies even participating in
setting regulations and policies, and because of importance of
financial planning in managing physical and human resources to
achieve objectives of the company and which considers the most
important element that the company’s success can rely on .
3- This study considers the recognition tool to the extent of person’s
awareness who are responsible for or managing nongovernmental organizations by knowing and dealing with the
financial tools and connection, effectiveness between financial
management and making managerial decisions .
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1.5 hypotheses
This study is looking for these assumptions :
First : there is a relationship between the use of budget as a financial
planning tool and the sector which the organization working in and the
natural of organization’s work .
Second: there is a relationship between the budget as a planning tool
and the number of employees in the organization.
Third : there is a relationship between the budget as a planning tool
and the qualification for decision makers in the organization
Forth : there is a relationship between the budget as a planning tool and
the organization’s age
Fifth : there is a relationship between the budget as a planning tool and
the existence of clear managerial hierarchy
Sixth : there is a relationship between organizational objectives and
preparing the budget .
Seventh : there is a relationship between financing programs and
activities and the use of budget as a financial planning tool
Eighth : there is a relationship between the budget as a planning tool
and the understanding of the organization for the objectives and goals
they are seeking to achieve .
Ninth : there is a relationship between the budget as a planning tool and
to obtain financing
Tenth : there is a relationship between the budget as a planning tool
and the existence of problems in setting and formulating financial plans
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1.6 Methodology
The research will employ descriptive, theoretical and investigation
methods involving qualitative approaches.
The fieldwork will be based on survey and sample interviews.
Both primary and secondary data sources will be used.
steps to be taken as follow:
1- The researchers will conduct semi-structured interview with
accountants and lecturers as an experts in accounting science, these
interviews will be used as an assistant tool for questionnaire designing.
2- Literature review will be based on published and unpublished
materials such as papers, books, special studies about nongovernmental organizations , and other libraries
3- Case study which will be conducted on non-governmental
organization
1.7 Related work
Helles 7/8/2005 :
This study aims to explain The Role of Budget as a Planning and Control
Tool in the Palestinian Civil Society Organizations and the researcher
clarified that the most of organization’s society, examines budget
planning, implementation and performance evaluation practices by
utilizing a questionnaire survey of 100 Civil Society Organizations CSOs
located in Gaza Strip.
Most of the CSOs prepare long- range plans and operating budgets, and
they follow a definite budget procedures and implementation
methodology. Uses budget as a means of management communication,
to judge performance, and control performance by investigating
variances, and budget used to forecast the
future. The study Contributes toward filling a gap in the literature on
the use of budgets as a planning and control tool in developing
countries. Most prior studies were mainly confined to advanced
countries.
10
the study stated that the organizations have long term plans and
prepare annual budgets , the purposes to achieve the following :
1- using the budget as communication tool
2- To evaluate management performance and helping in forecasting
3- To assist achieving overall goals and objectives of the organizations
and effective tool in allocation resources .
Atta al Omari August 2005 :
This study aims at assessing the degree of effectiveness of the budget as
a planning and control tool in one of the largest United Nations
organizations operating in the Gaza Strip, i.e. the United Nations Relief
and Works Agency (UNRWA). This Organization provides basic
humanitarian services to a
population of about 4.2 million Palestine refugees living in Jordan,
Lebanon, Syria, West Bank, and Gaza Strip.
This study has resulted in making a number of recommendations, the
most important of which are as follows:
1- There is a well-established need for training on budget
preparation and control for all staff whose duties require such
tasks. Training courses to this effect need to be provided.
2- Rather than leaving the budget preparation and implementation
to a single staffer in the program departments, the establishment
of a budget implementation team in each department to evaluate
performance is recommended.
3- Urge staff in the upper ranks to have a deeper involvement in the
budget preparation and implementation.
4- Establishing necessary mechanisms to improve internal
departmental budgetary control, such as the
periodic budget reviews.
11
Comments on related work :
We can say that these related work have achieved its research
objectives in their ways whereas one of them focused on work
identifications in non- governmental organizations and
another one focused on budget definition and its benefits in
NGOs and it clarified stages of preparing the budget and
identified good practices for the budget in governmental units.
Some of them tried to set acceptable patterns of the budget for
donors or financers.
However there are several related work talk about budget and
its importance otherwise all of them are not treating the
budget as a financial planning tool in NGOs in Gaza strip .
they didn’t consider that most of NGOs in Gaza are restricted to
donors instructions and they're doing their budget according
to the existence of financing so their budget is not annually or
monthly .
Except Helles work which is considered an accurate one and it
stated that it's very important to consider financial planning
and joining employees in organization's financial planning .
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CHAPTER Tow : NGOs and PNGOs :
2.1 Overview
This chapter aims to study and explain the budget, its definitions, idea
and state the role of budget as a financial planning tool and the rules
and basis that the budget rely on .
Any activity whether it was social or economic aims and tends to
achieve specific goals and there are various tools and ways that enable
any activity to go on and reach goals successfully, the need for standards
a raised to differentiate between tools and ways that perform the same
goal or objective which is to reach the best ways of goals by least cost .
The importance of budget helps NGOs to implement developmental
plans so before an organization begins to exert efforts it should set a
well-known developmental plan which called Budget . budget as a
financial pattern plays an important role in creating business activities
and units which aren’t aim to earn profits , budget and financial
planning are consider integrated subject or concept then the budget is
consider the appropriate framework for economic project and
businesses.
Planning can help by directing efforts in financing process , identifying
resources , costs by using the budget and enables the organization to set
clear programs for their financing to the future periods by using
research, working, implementing, evaluating so it works as a guidance
for employees and volunteers and make consistency between financing
programs and the objectives of the NGO.
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2.2 Structure and Governance of NGOs
It is important to be aware of NGO’s structure and legal status to
understand who is responsible for what in financial management.
2.2.1 What is an NGO?
The term ‘non-governmental organization’ tells us more about what it is
not, rather than what it is. NGOs operate in a wide range of fields and
come in all shapes and sizes. Whilst each one is
unique, most share some common features:
o Their prime motivation is a desire to improve the world
o They are ‘not-for-profit’ (but they are still allowed to make
surpluses).
o They have many stakeholders – an NGO is an alliance of many
different interests.
o They are governed by a committee of volunteers – the ‘Governing
Body’.
o They are private autonomous organizations, independent of the
State.
2.2.2 Legal Status
There are a number of different ways of registering as an NGO and this
will determine the organization’s legal status. Organizations are
recognized either as a separate legal entity
(incorporated body) or as a loose collection of
individuals (un-incorporated body).
Most NGOs are un-incorporated. This means that trustees bear full
responsibility and are held ‘jointly and severally’ (i.e. as a group and as
individuals) responsible for the affairs of the organization. So individual
board members could be named in a legal action.
2.2.3 The Governing Body
The governing body is legally responsible and accountable for
governing and controlling the organization. This means that if anything
goes wrong in the NGO then the law holds the members of the
governing body responsible.
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It has many different names – Council, Board of Directors, Board of
Trustees, Executive or Governing Board – and several functions
including:
 Responsible for deciding on policy and strategy;
 Custodianship of the financial and other assets of the
organization;
 Appointing and supporting the Chief Executive; and
 Representing interests of stakeholders.
The governing body is often organized with a series of sub-committees –
e.g. Finance, Personnel or Project sub-committees.
2.3 The importance of financial management for NGOs :
In many NGOs financial management is given a low priority. This is
often characterized by poor financial planning and monitoring systems.
but NGOs operate in a changing and competitive world. If their
organizations are to survive in this challenging environment, managers
need to develop the necessary understanding and confidence to make
full use of financial management tools.
Good practice in financial management:
 Helps managers to be effective and efficient stewards of the
resources to achieve objectives and fulfill commitments to
stakeholders.
 helps NGOs to be more accountable to donors and other
stakeholders.
 Gains the respect and confidence of funding agencies, partners
and those served.
 Gives the NGO the advantage in competition for increasingly
scarce resources.
 Helps NGOs prepare themselves for long-term sustainability and
the gradual increase of self-generated funds.
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2.4 Palestinian non- governmental organizations
2.4.1 Overview :
The growth of such NGOs over the past two decades has given them
an increasingly important role and has led them to form a distinctive
sector within civil society. They have been engaged in all sectors of
social life, such as relief, rehabilitation, health, education,
development programs, peace, human rights and environmental
issues, using finance raised from voluntary, private sources, and
donor agencies, and managing themselves autonomously at local,
national and international levels (Bagci, 2007).
NGOs play a significant role in the social and economic development
process in all regions of the World. They are particularly critical in
circumstances where the state funds are limited, political situations
are fluid, natural disasters resulting from both predictable and
unpredictable environmental circumstances occur, ethics strife is
rampant and the level of per capita income severely restricts the
ability to purchase needed goods and services – social, education and
economic – (Asamoah, 2003).
Nowadays, conferences, workshops and projects in many countries
emphasize the increasingly important role of the NGOs; many
considered the NGOs as a late-twentieth- century phenomenon. This
may be due to many reasons, the first is the changing role of the state
as it became obvious that governments cannot reach all society
levels, and cannot provide them with all services they need. The
development of information technology is another reason that
explains the increasing role of the NGOs.
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Palestinian NGOs
Palestinian NGOs, (PNGOs), have developed in the West Bank and
Gaza Strip, WBGS, (including East Jerusalem) for two main reasons.
First, PNGOs – as throughout many Arab societies – have played a
historic role in advancing the social, culture and economic of
hundreds of local communities as well as the national unit.
Second, in the absence of a state and a government with endogenous
institutions established to provide direct assistance to Palestinian
population, PNGOs in effect took on the additional task of filling in for
the nonexistent or absent state (Abdelkarim, 2002).
The results of a survey conducted by Palestine Economic Policy
Research Institute (MAS) indicated that the number of NGOs in the
WBGS reached 1,495. The number includes organizations that did
and did not complete the forms, as well as those who are legally
established but not yet functioning. The number of the NGOs with
completed data by early 2007 reached 1,388. The majority of these
organizations are located in the West Bank (68.5%), while the rest
are in the Gaza Strip (31.5%) (MAS, 2007).
2.4.2 General Features of PNGOs :
1- The Legal Environment for the PNGOs
In the case of Palestine, the formation of modern NGOs is linked to
the rebellion against the unjust regulations and the racist
occupational system. Most of these organizations were established
without the permission of the occupational authorities and worked
without official consent from ruling bodies (Abu Jabr, 2005).
A new liberal and progressive NGO law came into effect in January
2000. This law is the culmination of several years of PNGO coalitionbuilding and lobbying. This law provides and outlines clear
requirements relating to NGO internal governance. According to this
law, NGOs are generally able to operate free for undue interference
by PNA agencies, although they are subject to monitoring through
regular reporting to the Ministry of NGO Affairs; which was recently
dissolved and replaced by a central government agency.
Furthermore, PNGOs are allowed to generate revenue through legal
economical activities as far as they contribute positively to their
17
sustainability. PNGOs are also entitled to VAT (Value Added Tax) and
income tax exemptions (Abdelkarim, 2002).
Under the Palestinian Authority law, the right to establish an NGO is
guaranteed by the Palestinian law of Charitable Association and
Community Organizations (Law Number 1 for year 2000). The law
assured in article (1) that "Palestinian citizens have the right to
practice social, cultural, professional and scientific activity in all
freedom, including the right to establish and run associations and
community organizations." (PNGO, 2007).
According to the MAS survey in 2007, all of the PNGOs in the WBGS
submitted their registration applications to the Ministry of Interior
and to one of the related specialized Ministries. The percentage of
registered organizations with the Ministry of Interior has reached
about 81.3% compared to only 41.8% in year 2000.
2- The relationship between the PNA and the PNGOs :
The relationship between the government and the NGOs has gone
through three phases:
The first phase: was directly after the creation of the PNA where
uncertainty about the role that NGOs should play in the emerging
political context was the main characteristics of this phase. However
NGO community has started a process of assessment to their roles
and responsibility in light of the emergence of Palestinian entity and
the construction of governmental institutions.
While the government has had two approaches to the existing NGO
activity where from one side there was a need for the services
provided by NGOs to fill the gap that the government services could
not fill. Yet, on the other hand NGOs have been looked at as a
competitor to the service delivery system of the government.
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The second phase: it can be named as the phase of accepting the
other and starting to initiate a dialogue between the government and
NGOs. As a matter of principle NGOs started to formulate their own
political discourse on civil society, democracy and the rule of law. In
this phase NGO movement witnessed a big shift in funding priorities
from services delivery to the program approach mainly emphasizing
on gender, democracy and human rights.
The third phase: characterized by the emerging cooperation
between the legislative council and NGO movement in drafting and
endorsing a Palestinian
NGO law.
2.4.3 Summary :
Civil society is considered as a broader concept of the NGOs which is
defined as the political, social and economic interaction between the
state and the community. Most authors and researches agreed that
the civil society can’t be emerged without the existence of the State;
the Palestinian experience was different that the existence of the civil
society was before the existence of the State. PNGOs are defined as
those organizations that are independent from the PNA, working at
development sector in order to achieve socio-economic development
and are not aiming to gain personal profits or interests.
PNGOs are classified according to their level of orientation into four
levels (charitable, services, participatory and empowering) and
according to their level of operation into four levels (Community
Based Organizations, Citywide Organizations, National and
International Organizations).
The historical evolution for the PNGOs passed through seven stages,
each stage has its own characteristics and conditions. The vast
majority of the functioning PNGOs are charitable ones which reached
51.7%, while only 9.4% of them are working at the development
areas.
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Chapter 3 : Budget as a financial planning and
controlling tool
3.1 What is Financial Control?
At the heart of financial management is the concept of financial control.
This describes a situation where the financial resources of an
organization are being correctly and effectively used.
beneficiaries will be well served and donors will be happy with the
results.
With poor financial control in an organization:
 Assets will be put at risk of theft, fraud or abuse;
 Funds may not be spent in accordance with the NGO’s objectives
or donors’ wishes;
 The competence of managers may be called into question.
(Terry Lewis, 2002, p1)
3.2 Tools of Financial Management
There are many tools which can be used by managers to help achieve
good practice in financial management:
 Planning
Planning is basic to the management process and involves looking
ahead to prepare as well as possible for the future. In the course
of putting a plan together managers will consider several possible
alternatives and make a number of choices or decisions. Planning
must always precede the doing.
Tools: Strategic plan, business plan, activity plan, budgets, work
plans, cash flow forecast, feasibility study…etc.
 Organizing
The resources of the organization – staff and volunteers, vehicles,
property, money –have to be co-ordinated to ensure
implementation of the overall plan. It needs to be clear what
activities and responsibilities are to be undertaken, when and by
whom.
Tools: Constitution, organization charts, flow diagrams, job
descriptions, Chart of Accounts, Finance Manual, budgets…etc.
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 Controlling
A system of controls, checks and balances are essential to ensure
proper application of procedures and resources during
programme implementation.
Tools: Budgets, delegated authority, procurement procedure,
reconciliation, internal and external audit, fixed assets register,
vehicle policy, insurance...etc.
 Monitoring
This involves producing regular and timely information for
managers and stakeholders for monitoring purposes. Monitoring
involves comparing actual performance with plans to evaluate the
effectiveness of plans, identify weaknesses early on and take
corrective action if required.
Tools: Evaluation reports, budget monitoring reports, cash flow
reports, financial statements, project reports, donor reports, audit
reports, evaluation reports…etc. (Terry Lewis, 2002, p2)
3.3 The Principles of Financial Management
To achieve proper financial management, a number of principles
underline and act as a guiding force in the design of the systems and
procedures of an organization. Use these principles as a checklist to help
you identify strengths and weaknesses in your own systems.
 Accountability
Those who have invested not just money but also time, effort and trust
in the organization, are interested to see that the resources of the
organization are used effectively and for the purpose
for which they were intended.
Accountability is the moral or legal duty, placed on an individual, group
or organization, to explain how funds, equipment or authority given by
a third party has been used.
 Transparency
Systems must be established whereby all financial information is
recorded accurately and presented clearly, and can be easily disclosed
to those who have a right to request it. If this is not achieved, it can give
the impression that there is something to hide.
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 Consistency
The financial systems of an organization should be consistent over the
years so that comparisons can be made, trends analyzed and
transparency facilitated. This does not mean that the systems may not
be refined. But inconsistent approaches to financial management could
be viewed as an indication of manipulation by individuals.
 Integrity
The integrity – or honesty and reliability – of an organization, and the
individuals within it, has to be beyond question for proper financial
management. To achieve this there must be no doubts about how funds
are being utilized, the records must be a true reflection of reality and
proper procedures are set up and followed by all staff.
(Terry Lewis, 2002, p3)
3.5 What is a Budget?
A budget describes an amount of money that an organization plans to
raise and spend for a set purpose over a given period of time.’
A budget has several different functions and is important at every stage
of a project:
 Planning
A budget is necessary for planning a new project, so that managers can
build up an accurate idea of the project’s cost. This allows them to work
out if they have the money to complete the project and if they are
making the best use of the funds they have available.
 Fundraising
The budget is a critical part of any negotiation with donors. The budget
sets out in detail what the NGO will do with a grant, including what the
money will be spent on, and what results will be achieved.
 Project implementation
An accurate budget is needed to control the project, once it has been
started. The most important tool for on-going monitoring is comparing
the actual costs against the budgeted costs. Without an accurate budget,
this is impossible. Because plans sometimes change, it may be necessary
to review the budget after a project has started.
(Terry Lewis, 2002, p28)
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3.6 Types of Budget
There are three main types of budget:
1. The Income and Expenditure Budget
1. The Capital Budget
2. The Cash flow Forecast
The Income and Expenditure Budget
The income and expenditure budget sets out the anticipated running
costs (also referred to as recurrent costs) of the organization and shows
where the funds will come from to cover the costs . The annual income
and expenditure budget is often broken down into shorter periods –
quarterly, half yearly or even monthly – to assist with monitoring
progress.
 The Capital Budget
A capital budget lists the expenditure you intend to make for the coming
years on capital projects and one-off items of equipment that will form
part of the organization’s Fixed Assets.
As these usually involve major expenditure and non-recurrent costs, it
is better to list and monitor them separately. Examples of capital
expenditure include:
o Vehicles
o Office furniture and equipment
o Computer equipment
o Building construction
o Major renovation works
The implications for the income and expenditure budget should be
noted – such as running costs for vehicles. A separate capital budget is
not required if only one or two capital items are to be purchased. In this
case it is sufficient to incorporate the capital items in a separate section
of the income and expenditure budget. This is most common in a project
budget.
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 The Cash flow Forecast
The cashflow forecast is derived from the income and expenditure and
capital budgets and monitors the receipts and payments of cash through
the organization. Whereas the income and expenditure budget shows
whether the organization is covering its costs; the cash flow forecast
shows whether it has sufficient cash in the bank to meet all of its
payments as they arise.
The cashflow forecast attempts to predict the flow of cash in and out of
the organisation throughout the year by breaking down the association
budget into smaller time periods, usually one month. This then helps to
identify likely cash shortages and allows avoiding action to be taken
such as: requesting donor grants early; delaying payment of certain
invoices; or
negotiating a temporary overdraft facility.
The cash flow forecast is most useful where the organization maintains
substantial cash reserves which need to be invested wisely to maximize
investment income; and conversely, where the group has little cash to
play with and needs to know when cash levels are critical.
(Terry Lewis, 2002, p28)
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3.7 Budget Structures :
To facilitate planning and to enable control to be effective, many
organizations try to ensure that the overall structures of their budgets
correspond closely to the organisation structure. It is possible to
organise budgets at different levels, e.g. by:
 Branch
 Department
 Program
 Project
The example below shows an organisation which has three
departments. Within each department there are separate projects or
activities, each with its own budget
The example below shows an organisation which has three
departments. Within each department there are separate projects or
activities, each with its own budget (e.g. A1 and A2 or T1, T2 and T3.)
(Terry Lewis, 2002, p30)
Master Budget
Fieldwork
Dep.
F1
25
Admin &
Finance Dep.
F2
A1
A2
Training
Dep.
T1
T2
3.8 What is a Budget – for NGOs?
“Budget” is a term that NGOs often come across when they need to plan
and implement a project activity. Besides, we also come across this term
again and again when we are in the process of developing a proposal.
Any donor funding for NGOs is limited and a proper and planned budget
is required to convince the donor to access this funding. Donor agencies
also have their limitations and they distribute their financial resources
evenly amongst NGOs based not only on their project plans but also
according to the budget they present.
Budget, in simple terms, means a document where you specify how
much money you are going to spend (in other words, expenditure),
especially if your organization has received grants. In some cases, as in
businesses, budgets can also include the money that the organization is
going to generate or “income.” The latter is important for all NGOs now
because managing any organization, including an NGO does not mean
just spending we also need to look at how costs can be covered and
money can be saved for other activities.
Organization
expense & income
Project
activities
26
What should
the budget
consider ?
long-term
sustainability of the
organization
Donor
agency
expectation
Many NGOs tend to plan out a budget only when they need to develop a
project proposal for a donor agency. Besides, they only think of the
short term project needs – not about the long-term sustainability of the
organization.
3.9 Why budgets are so complicated for NGOs?
The project budgets are consolidated into departmental budgets which
are then, in turn, consolidated into one master budget. This structure
allows budgets to be devolved and monitored at the project manager
level, whilst maintaining an overview at department and association
level.
Developing budget is always a complicated task for NGOs especially
when they need to develop a proposal and satisfy every entry given by
the donor agency in the budget format. Sometimes it is easier to write a
proposal than developing a budget to request funding.
Budgets will continue to become more complicated. However, if you
keep your financial system clear, the task of developing it also becomes
simple.
Budgets have become complicated because the increased need for
transparency and accountability. Let us not forget that donor agencies
are also required to submit their expenditure for proper audits and they
have to maintain proper books.
Another important factor to be observed here is that as budget formats
become more and more difficult, the expenditure on administration has
also been tightened. Donor agencies are less interested in supporting
overhead costs of an organization. Besides, the less you propose for
your office infrastructural needs the better chances you have for getting
the requested grants from the donor agency.
(Helles,2005)
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3.10 The Budgeting Process
The process of preparing a meaningful and useful budget is best
undertaken as an organized and structured group exercise. The budget
process involves asking a number of 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 result realistic?
Once the budget has been agreed and the activity implemented, the
process is completed by comparing the plan (budget) with the eventual
outcome (‘actual’), to see if there is anything we
have learnt or could do differently next time.
The budgeting process is one we go through almost on a daily basis
without even realizing, as the example below demonstrates.
3.11 Steps in preparing a Budget:
The following steps are involved in the preparation of a budget:
- Budget centers are needed to be established.
- A clearly defined organizational chart is required to be prepared
which will state, for each member of the management team, the
functional responsibilities.
- A budget committee is required to be formed.
- The limiting factor or key factor is needed to be determined.
- The budget period is to be selected.
- Objectives which are to be reached by the end of the period of the
budget are to be set.
- Forecast for the period is needed to be prepared.
- The policies of the enterprise e.g. range of product, distribution
channels, per week normal hours of work, appropriation of
research & development, stocks, investments etc. are needed to be
determined.
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3.12 The Budget Compared to Actual Performance Report:
A Budget versus Actual Report takes budgeted income and expenditure
for the period being looked at and compares it with the actual income
and expenditure. The difference between the two figures is known as
the ‘variance’ and this will be assessed as to how significant or
otherwise it is.
The figures for the report come from the main books of account. Each
month the records are reconciled and summarized to give a summary of
all transactions. Since the accounts have been set up to be consistent
with the budget headings, no additional analysis will be required.
An example : Rudi goes to the Cinema’ scenario. Here is Rudi’s Budget
Compared to Actual Report:
Rudi’s Budget Compared to Actual Report
Item
Travel
Food
Entrance fee
Total
Original
estimate $
1.50
`3.50
3.00
8.00
Actually spent
$
0.75
3.00
4.00
7.75
Difference
$
0.75
0.50
(1.00)
0.25
Variance Analysis
involves looking at the significant variations from the budget and
seeking to explain why it exists and what can be done to remedy the
situation. Variances are most likely to be caused by:
 a change in price,
 a change in volume or
 a change in timing.
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3.13 Identify budget problems, look for solutions:
Budget monitoring reports help to identify problem areas and provide
an early warning that targets are not being achieved. They also help
detect fraud or miss -use of funds.
There are four key indicators to look for first:
 What does the bottom line tell you? Overall, is the budget overspending or underspending and is it significant at this period?
 What are the significant variances in the individual line items?
Are the reasons for the differences explained? For example, the
Subsistence Expenses budget is substantially and
uncharacteristically over-spent, or fee income is unusually low for
the time of year..
 Do the budget report figures tell the same story as the narrative
project report?
There may be a number of solutions or actions to take:
Problem
Budget items are in danger of
being over-spent
- so there may be insufficient funds to
complete the project
Budget items are showing an
under-spend
- suggests that planned activities are
not being fulfilled
Income is higher than expected
Linked line items show different
results
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Solution/Action
- Seek permission to use savings
from under-spends elsewhere in
budget
- Reduce or postpone some activities
- Undertake fund-raising to increase
income
- Expand income-generating
activities
Make efforts to stimulate the project
so that targets and obligations to the
donor agency are met.
Either:
- increase activity in certain areas or
- set the surplus aside for ‘a rainy
day’ (if donor allows)
Investigate why this is happening –
it could be an early warning of
fraud or abuse of budgets.
Some important points for NGOs to remember when making decisions
based on financial reports:
 Laying off staff should be a last resort. This should only become
necessary if funds are being withdrawn unexpectedly.
 Where funds are given for a specific purpose, you may not use
that money to support a different activity that is showing a deficit.
 If it is necessary to cut back a project, you must discuss the
reasons and revised plan with whoever is funding the activity.
3.14 Good Practice in Budgeting :
Since many different people will need to use the budget for different
purposes, they should be able to understand it (and adapt it, when
necessary) without any additional explanation beyond what is written
down. Clarity and accuracy is key.
 Timetable
There are several stages involved in constructing a budget before it can
be submitted for approval to the governing body, so it is a good idea to
prepare a budgeting timetable and commence the process early. This
could be up to six months before the start of the financial year,
depending on the size of the organization and what approach has been
adopted.
 Budget Headings
When setting a budget for the first time or when reviewing a budget, it
is important to pay attention to the Chart of Accounts. This is because
the budget line items also appear in the books of account and on
management reports. If the budget items and accounting records are not
consistent then it will be very difficult to produce monitoring reports
once the project implementation stage is reached.
One way of achieving consistency is to design a Budget Preparation
Sheet for your organization, which will act as a memory-jogger and
prompt staff to include all relevant costs.
31
 Estimating Costs
It is important to be able to justify calculations when estimating costs.
Even if you use the incremental method of budgeting, do not be tempted
to simply take last year’s budget and add a percentage amount on top
for inflation. While last year’s budget could be very helpful as a starting
point, it could also be very misleading and contain historical
inaccuracies.
.
 Contingencies
It is better to calculate and include a contingency amount for relevant
items in the budget – e.g. salaries, insurance, fuel. Every item in your
budget must be justifiable.
 Forgotten costs
There is a tendency in the NGO world to under-estimate the true costs of
running a project for fear of not getting the project
funded. The most common of the forgotten costs are the indirect or nonproject costs.
Here are some of the most often overlooked costs:
o Staff related costs (advertising, training, benefits and statutory
payments)
o Launch costs (publicity)
o Overhead costs (rent, insurance, utilities)
o Vehicle running costs
o Equipment maintenance
o Governance costs (board meetings, AGM)
o Audit fees
32
Factors of budget success :
- Accurate controlling in implementing budget process .
- Speed in determining and analyzing deviations resulted by
comparing budget with actual results .
- Accuracy of information and data needed for budget.
- Identifying an appropriate time for the budget which almost equal
financial period .
- Data and information needed must be sufficient for all
organization's activities .
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Chapter 4 : case study "Alwedad organization"
Overview
In this chapter we have a case study about one of NGOs which is ElWedad Society Community Rehabilitation to analyze the importance of
budget and the role of budget as a planning and controlling tool at the
NGOs .
El- Wedad Society f is a nonprofit nongovernmental organization. It was
established in March 2000 to provide psychosocial and educational
rehabilitation services and development for the local community all
over Gaza Strip. The major targeted categories are children , women,
youth, and elderly people who receive quality and non-discriminate
services of training , counseling , guidance , and awareness in various
psychosocial and educational fields. El-Wedad is a registered NGO from
the Ministry of interior , Palestinian Authority Lic.NO.7134.
Vision
"We look forward to pioneering the advancement of the local
community and access to social balance"
Mission
We work on the rehabilitation and development of community and
different target beneficiaries, without discrimination. Through
providing social, educational and psychological services, relying on the
harmony between the different administrative levels.
34
Objectives:
 Enhancing the psychosocial health of target groups(children,
women, youth, and elderly).
 Rehabilitation youth to act a leading and vital in building up the
community.
 Developing and improving personal and professional skills of
youth and graduates to meet the demands of labor market.
 Contributing to the enhancement of children's abilities and
developing their life and behavioral skills.
 Supporting and enabling women to enhance their community
participation.
 Enhancing the principle of citizenship and, avoiding the
intellectual and political fanaticism, and respecting of the other
view.
 Contributing on enhancing the principle democracy, national
peace, and human rights for target groups.
 Activating the role of the Palestinian family in enhancing the
humanity values, empowering the concepts of family dialogue and
happy families, and enhancing concepts of partnership in
marriage.
 Investing experiences and capacities of elderly through enhancing
their community participation.
 Identifying the community needs and problems through studies,
researches, and polls.
 Enhancing volunteer's participation in the institutional and
community work.
35
Elwedad Programs :
First: Woman and child support and rehabilitation program:
This program aims to support and empower Palestinian women on both
family and community levels, and provide the psychological, social, and
legal support. Also, it aims to advocate women's fair issues for self
identifying and enhancing the psychosocial welfare. This program also
contributes on building women's educational capacities to deal well
with children either at normal times or crisis.
The program aims to enhance the psychosocial health of children, to
build up their life skills, to support children's issues and rights. The
program follows various methods as: training, awareness meetings,
emotional education sessions and psychological support, individual and
group counseling, arranging conferences and study days, and advocacy
campaigns for enhancing rights and needs of women and children.
Second: Rwad youth development forum:
This program aims to enhance the social, educational, and leadership
capacities of youth and increase their participation in different aspects.
The program focuses on providing youth with social concepts that
enable them to play roles in the community without fanaticism, by
applying logical thinking. Also, it works on empowering youth and
supporting their societal initiatives, and creating job opportunities.
Youth program targets both male and female youth aged from 18 to 30
years old through discussions, workshops, training courses, also
forming work teams from volunteers, and hosting clubs and youth
forums to enhance youth different capacities.
36
The program provides youth with opportunities for cultural exchange,
dialogue, community participation. Youth's needs assessment, and
setting up strategies of planning and implementation.
Third: program of social and economic support of family:
This program aims to rehabilitate and enable the Palestinian family
enhancing marriage relations and reaching a balanced family full of love
and understanding by executing awareness meetings and training
courses for intended couples, besides, the individual follow up for cases
and providing psychological, social, and legal support.
The program works on the support, rehabilitation, and reintegration of
elderly people in the Palestinian community and enable them to
practice their roles in the community through individual follow up, and
providing psychosocial support, and rising the awareness of the
community about the needs and rights of the elderly, and funding small
business projects. The program also studies negative social phenomena
for intervention and elimination purposes.
Fourth: program of training and scientific research:
El-Wedad society works on activating this program to contribute in
identifying educational, social, community, and psychological
phenomena and problems, and conducting scientific researches and
community surveys to study and analyze them for intervention and
giving solutions, and publishing the statistics and studies which
contribute in developing the quality of provided services for
beneficiaries, institutions, and researchers.
The program trains university students, fresh graduates, and staff of
related institutions to improve the quality of services and build up
capacities in professional, training, and managerial fields. The program
follows different kinds of surveys, workshops, and related publications.
37
Budget as a planning tool in Elwadad organization :
We took some questions for this organization to ask about the extent of
using budget as a planning tool at the NGOs , it’s requirements and
preparing budgets, the following questions :
 Is there a committee for preparing the budget ?
 Does the organization prepare budget each year ?
 Is the budget prepared according to required activities in the
organization ?
 Does the organization share all departments in preparing budget ?
 Does the organization prepare comprehensive budget for all
projects as one unit ?
 Does the organization gives a clear instructions that help in
preparing budget ?
Through the meeting of an accounting department we have got
information needed to answer these questions, they stated that the
organization does has a special team for preparing the budget for each
period, and they told us that this organization is preparing the budget
according to programs and activities needed or rather according to
finance not monthly or annually because they are restricted to the
financers and their grants and funds, each month the Budget Team
prepare a financial plan, project’s proposals for expected projects then
they send it for their donors or financers , then if they got agreement,
they would have taken funds for their projects, whereas about sharing
employees and departments in preparing the budget this organization
deal with the budget by identified Budget Team or Committee , not all
department share in preparing budget , because it is up to the top
management.
Otherwise this organization prepare their budget for all project
separately not as one unit , according to their projects, activities and
programs they are doing budget separately.
38
Finally they told us that the organization gives clear instructions for all
employees and departments about all activities and programs in the
organization specially for Budget Team because it’s too sensitive.
The benefits of using budget that the organization seeks
These points clarify the objectives and goals that organizations need
from using the budgets and to state the extent of understanding
budget’s goals :
1- Improving project’s resources by looking for fund raising and
financing .
2- Increase Control and performance .
3- Identify resources of funds and fields of spend funds “specific
projects, social activities ... etc “
4- To help organization in expecting future costs, resources and
benefits
5- To identify weaknesses throughout the implementing phase and
results by comparing the budget and an actual results.
6- To help in decreasing financial risks.
Problems in financial planning process :
1- This title aims to define the extent of facing NGOs problems in
setting financial plans process , actually they stated that the most
significant problem that affects in preparing financial plans is
external issues such as critical political situation in Gaza strip
has significant effects such as opening and closing Egypt’s
borders, in fact it causes price changing so they must re-estimate
and adjusting budget terms .
2- Lack of financing , no constant funds that save liquidity and
motivate planning phase .
These problems affect on organization’s work and introducing
services in the right way continuously , the activity of organization is
depending on financial resources , however it works to serve the
community it’s non -profit organization but planning and financial
resources are important to enable the organization to work and
serve society .
39
Factors that affect using the budget :
There are many factors we got through our research which affect
significantly on using the budget as a planning and controlling at the
NGOs :
1- Increase activities and programs in the organization
2- The nature and policies of financers which is the most important
factor that affects an using budget because organization is
restricted by donors.
3- Financial and managerial experience of the employees in the NGO
4- Increasing the needs of funds for the organization
5- Identifying tasks , responsibilities and separation of duties
40
Chapter 5 : Results , recommendation and references
Research results :
Throughout our research and case study that we have about one
of NGOs and our review about many NGOs in Gaza strip we have
got the following results :
1- There is a weakness in using the budget as a planning tool in
NGOs in Gaza .
2- There is no relationship between number of employees and
using the budget as a planning tool in the organization .
3- There is no relationship between the age of organization and
using the budget because using the budget is related to the
culture of top management regardless of organization's age.
4- Most of NGOs in Gaza strip have a clear mission and vision and
they are keeping efforts to do the best to achieve their goals
and objectives, they're seeking for development and giving the
best social and developmental services so it's consisting with a
clear mission and vision .
5- There is no clear relationship between organization's goals
and using the budget as a financial planning tool , as we saw in
the case study they don’t use the budget annually because they
are restricted to donors and financers rules .
6- There is a relationship between organizational structure and
using the budget as financial planning tool, organizational
structure allows to implement the budget as a performance
standard to plan for future and to discover deviations,
problems , setting solutions and accomplish the budget as
planned .
7- Most of NGOs in Gaza strip doing their programs and activities
almost according to existing of financing for those activities ,
few organizations in Gaza strip have a constant income, which
make NGOs not caring or ignore comprehensive budget for all
units in the organization .
8- NGOs in Gaza strip rely on several sources of funds because
they consider relying on one financer or donor will affect on
the continuity of the organization
41
Recommendations :
1- Non-governmental organizations in Gaza strip should review their
vision for future that enable them to Keep abreast of
developments locally and internationally by reviewing financial
planning rules and policies .
2- NGOs should adopt budget as a future financial planning and
follow up deviations then compare with actual results each period
.
3- They should train their employees on preparing the budget also
they should make workshops and courses about it .
4- Develop organization structure and identify clear job description
to distribute tasks and permissions work .
5- employees in lower management should be involved in preparing
budget process to improve their performance and skills .
42
References
Arabic references:
1- Dr. Helles Salem (2005) " The Role of Budget as a Planning and
Control Tool in the Palestinian Civil Society Organizations "
2- Al Omari Atta , (2005) " The Effectiveness of the Budget as a
Planning and Control Tool in UNRWA in Gaza strip " Unpublished
Master Thesis, The Islamic University of Gaza.
3- Al-Jadaili Mohammad , (2005) " The Role of Budget as A Financial
Planning Tool In the NGOs In Gaza Strip " Unpublished Master
Thesis, The Islamic University of Gaza.
Foreign References:
1- A Guide to Budget Work for NGOs, (2009) project of the center on
budget and policy Washington.
2- Terry Lewis, (2002) " Management Accounting for Nongovernmental Organizations"
3- Wayne G. Bremser, (2004) the role of budgeting in management
planning and control
Websites :
1- The budget :
http://www.imf.org/external/pubs/ft/expend/guide3.htm
2- Annual budget:
http://ctb.ku.edu/en/tablecontents/sub_section_main_1303.aspx
3- Non-governmental organizations :
http://www.humanitarianibh.net/conferences/abla.htm
4- Budget for NGOs :
http://www.fundsforngos.org/category/budget-for-ngos/
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