Financial Management for NGOs
Alex Jacobs, Director, MANGO
All organisations need money. Alongside staff, money is the one
thing that takes up most management time.
This brief introduction outlines how to take proper care of your
funds. Good financial management involves the following four
- Keeping records
- Internal control
- Financial reporting
1. KEEPING RECORDS
The foundations of all accounting are basic records that
describe your earnings and spending. This means the contracts
and letters for money you receive and the receipts and the
invoices for things that you buy.
These basic records prove that each and every transaction has
taken place. They are the cornerstones of being accountable. You
must make sure that all these records are carefully filed and
You must also make sure that you write down the details of each
transaction. Write them down in a 'cashbook' - which is a list
of how much you spent, on what and when.
If you are keeping your basic records in good order and writing
down the details of each transaction in a cashbook then you
cannot go far wrong.
2. INTERNAL CONTROL
Make sure that your organisation has proper controls in place so
that money cannot be misused.
Controls always have to be adapted to different organisations.
However, some controls that are often used include:
This last control is particularly important. It proves that the
amounts recorded in the cashbook and the reports based on it are
- Keeping cash in a safe place (ideally in a bank account).
- Making sure that all expenditure is properly authorised.
- Following the budget.
- Monitoring how much money has been spent on what every month.
- Employing qualified finance staff.
- Having an audit every year.
- Carrying out a 'bank reconciliation' every month - which means checking that the amount of cash you have in the bank is the same as the amount that your cashbook tells you that you ought to have.
For good financial management, you need to prepare accurate
budgets, in order to know how much money you will need to carry
out your work.
A budget is only useful if it is worked out by carefully
forecasting how much you expect to spend on your activities.
The first step in preparing a good budget is to identify exactly
what you hope to do and how you will do it. List your activities,
then plan how much they will cost and how much income they will
4. FINANCIAL REPORTING
The fourth building block is writing and reviewing financial
reports. A financial report summarises your income and
expenditure over a certain period of time.
Financial reports are created by adding together similar
transactions. For instance, this might mean adding together all
the money you spent on fuel, new tyres and vehicle insurance and
calling them "Transport Costs".
Financial reports summarise the information held in the cashbook.
This is normally done using a system of codes, to allocate
transactions to different categories. These categories might
often be defined by donors.
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