Unit 8 Financial Management Information Flashcards
Reasons why high quality financial information is important
- legal requirements, and reporting (to donors) needs
- to be able to make informed decisions
- to make optimal use of available resources
What are the key pieces of financial information for an NGO manager (that are frequently used):
- Annual / Programme budgets
- cash flow statements
- monthly management accounts
- annual financial statements (incl. inc/exp accounts + balance sheet)
What to take into account when negotiating budgets with donors?
- rules of the donor on OVH
- rules of the donor on how to be accounted for and reporting formats
- software demands/limitations?
- exchange rate fluctuations
- rules on overspending/underspending budget lines
- necessary internal training?
List the basic elements in an NGO accounting system
- cash book
- nominal ledger (and potentially a purchase ledger + wage ledger)
- chart of accounts - classification/coding system for receipts and expenditures, which will contain:
- assets
- liabilities
- accumulated fund/capital/reserves
- expenses
- income
the difference between capital and revenue?
timeline capital is long term - often more than a year this is applicable for both expenditures as income.
Capital of small value (500USD) might be concidered as revenue
essentional controls in the accounting system
- cash
- bank accounts
- debtor control
- authorisation of payments
Definition of a budget and its 3 main areas
a financial plan relating to a period of time
- planning
- controlling
- reviewing
reasons why budgets are prepared
- plan and coordinate
- calculate estimated income and expenditures
- communicate plans to all employees
- motvate staff to achieve objectives
- assist in the evaluation of performance
3 types of accounting
- cash accounting - no account for time lags or outstanding bills
- accrual accounting - recognises financial obligations when they occur (instead of when they are actually paid)
- halfway house approach - cash accounting during the year, adjusted for accrual and prepayments at the end of the year
what is seasonalising or profiling
including a particular item in the month(s) when it occurs instead of speading it throughout the year
Financial statement formats
- receipts and payment accounts - for smaller NGO’s, cash only
- Income and expenditure account (on accrual basis)
- balance sheet
Will need to be collected:
- stocks
- accruals & prepayments
- depreciation
- bad debts / provision for doubtful debts
the components of a balance sheet
- fixed assets
- current assets
- current liabilities
- long-term liabilities
- accumulated fund (capital or reserves)
analysing financial risk
Liquidity analysis
- current ratio»_space;> current assets/current liabilities
- acid test ratio»_space;> (current assets - stock)/current liabilities
Covering overhead costs
How to ensure that accounts are well managed and minimise potential fraude?
- effective internal controls
- validate the existence and value of assets and liabilities (communication & physical checks)
- keep the accounts up-to-date and get audit reports
Why a budget review?
- learn from pas experience
- implement any policy changes
- look at different ways of performing the same task
- examine different ways of budgeting
- consider any late budget amendments to ensure that the NGO does not significantly underspand or overspends on key items.
