Financial Control and Accountability

Financial Control and Accountability Toolkit by Janet Shapiro (email: toolkits@civicus.org) - 1 -
OVERVIEW

Brief description

This toolkit provides an introduction for the non-financial manager or leader on controlling
the finances of the organisation in such a way that the organisation can be held financially
accountable. It looks at the basics of a good bookkeeping system, at the importance of
having financial policies and how to develop them. It also spells out the role of key structures
in financial control and accountability, making a distinction between the Board and the CEO
of the organisation. There is a section dealing with the annual external audit, and several
examples to illustrate the financial control tools dealt with in the toolkit. The whole toolkit is
geared towards enabling a non-financial manager or leader to manage the finances in an
informed and competent way.

Who should use this toolkit and when?

This toolkit is an introduction to financial control and accountability for non-financial
organisational or project leadership. Many people in leadership positions in civil society
organisations and projects find themselves dealing with large sums of money when they
have little or no knowledge or experience about how to manage money. This toolkit is
intended to give such people a basic understanding of some of the issues and “how to’s.” It
will not turn them into bookkeepers or accountants. But it will provide them with a reference
tool to help them understand some of the concepts and approaches. This toolkit should be
used together with the toolkit on Budgeting and the toolkit on Developing a Financing
Strategy.

Why have a toolkit on financial control and accountability?

Many non-financial leaders and managers in civil society organisations are overwhelmed by
the jargon of financial management. Sometimes they avoid their responsibilities in this
regard because the jargon makes them feel stupid. This toolkit should help them to fulfil
their obligation to be financially accountable.

Who should use this toolkit?

This toolkit should be of use to the non-financial leadership of any project or organisation, at
the senior, middle and project levels.

When will this toolkit be useful?

This toolkit will be useful when:

A non-financial leader or manager wants to familiarise himself/herself with what is
necessary for financial control and accountability.
A non-financial leader or manager wants to refer to a specific aspect of financial
control and accountability.



Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email: toolkits@civicus.org) - 2 -






OVERVIEW
p. 1
BASIC PRINCIPLES
pp.3-30
BEST PRACTICE
pp.31-36
RESOURCES
p.37
Examples
Keeping the books
p.15
Roles in financial
control &
accountability
p.20
The Audit
p.26
Board pp.21-22
CEO p.23
Preparing for the
audit pp.27-28
Providing a framework
for the system p.6
Who makes them?
pp.12-13
Daily p.15
Monthly
p.16
Annual
p.17
Using the
system
pp.18-19
Setting up a
bookkeeping
system p.3
Financial
Policies p.11
Why do we need
bookkeeping? p.4
What is the basis of the
system? p.5
Computers or Manual?
p.7
Why have
them? p.11
What financial
policies do we
need p.14
Management
team p.24
Chart of
Accounts
Financial
Policy
Cash
Book
Record-keeping p.8
Something about terminology p.9
Staff p.25
Auditor’s Report
p.29
Understanding
the audited
statements p.30
Cash Flow
Forecast
Cheque
Requisition form
GLOSSARY of
TERMS p.38

Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 3 of 37
BASIC PRINCIPLES

Setting up a bookkeeping system

WHY DO WE NEED A BOOKKEEPING SYSTEM?

Bookkeeping is an essential part of financial management and accountability. As someone
who is responsible for the finances of an organisation, you need to understand enough about
bookkeeping to ensure that your financial management is based on accounting information
that is correct and useful. It is your bookkeeping systems that make it possible for you to
monitor whether your financial strategy (see the toolkit on Developing a Financial Strategy)
is working, whether your organisation is financially viable (able to survive), and whether your
money is being well spent in achieving your objectives. A good bookkeeping system makes
it possible for an organisation to be financially accountable to all its important stakeholders.

Bookkeeping is the system for keeping the records, or books, of all the money that comes
into your organisation and all the money that goes out of it. You need a bookkeeping
system:

So that key stakeholders can understand exactly what the financial position of the
organisation is.
So that you can monitor income and expenditure against your budget.
For accountability and transparency.
So that you can plan financially.
For security – so that you do not lose money because of mismanagement, corruption
or theft.

If you have a good bookkeeping system, you will:

Be able to give regular reports to all those to whom you are accountable;
Be able to make informed decisions about budgets and spending;
Have documentary proof of receipts and payments of all money.

As a non-financial leader or manager, you do not need to set up the bookkeeping system
yourself, nor do you need to maintain it. This should be done by a competent bookkeeper or
accountant employed by your organisation. It could be done by someone who offers a
bookkeeping service to a number of organisations.

For more on who should do your bookkeeping, go to the next section.

Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 4 of 37
WHO SHOULD DO YOUR BOOKKEEPING?

There is no rule that will tell you whether you should employ your own bookkeeper or use an
outside service. There are advantages and disadvantages to both.

The advantages of having a bookkeeper employed by your organisation are:

His/her first loyalty will be to the project/organisation.
S/he will be available at all times.
The cost of employing him/her remains the same no matter how many times you
meet with him/her, or want him/her to explain something to you.
If your finances are complicated and your financial transactions many, you may need
a bookkeeper on hand to deal with queries and problems as they arise.

The advantages of using a bookkeeping service are:

It is more cost-effective, unless your finances are very large and complex. Services
do not go on leave, they do not get sick and they do not get paid bonuses.
The right service should provide people who are used to explaining financial issues
to non-financial people, to help you understand the bookkeeping.
An accounting service can help you with financial management, not just
bookkeeping. The staff of the service should be able to help you with budgeting, with
monitoring expenditure and with planning your cash flow.

Whether you choose a service or an in-house bookkeeper will probably have something to
do with how confident you are about your financial management skills. Some organisations
use both – a bookkeeper to deal with the daily record-keeping, and a service to provide
summarised information and advice. Whichever choice you make, you will want to be sure
of the best service possible.

When you employ a bookkeeper:

Check references.
Make sure s/he can use the system you have or want to use. (Very important if you are
computerised.)
Get someone with financial expertise to sit in on the interviews and ask the right kind of
questions.
Insist on a probationary period of at least three months.

Do not employ someone who will have to learn on-the-job unless you have a Finance
Department employing more than one bookkeeper.

When you contract with a service:

Check references and take referrals seriously – the best recommendation is a satisfied
client.
Make sure the service has experience in dealing with your kind of organisation.
Make sure the service is willing to provide ongoing support, not just to do the books.
Compare rates so that you get the best service at the best possible rate.

Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 5 of 37
WHAT IS THE BASIS OF THE SYSTEM?

To keep accurate books, you need to have the following:

A bank account with a cheque book.
A daily record system with receipts and petty cash vouchers.
A monthly record system with a petty cash book and a cash book (manual or
computer) for recording and analysing income and expenditure.
A format for annual financial statements.

The books you keep must show:

Income (revenue): This is all the money that comes into the organisation (from
fundraising, donations, bank interest, grants, subscriptions, sales and so on).
Expenditure: This is all the money that your organisation spends (for example, on
stationery, running costs, rent, bank charges, workshops, printing, transport).
Balance: This is the money that is left over at the end of each month.

Every financial transaction must go through the following steps:

1 The transaction (money is spent or received) takes place.
2 The transaction is recorded in writing as proof that it has taken place. This could be
in the form of a receipt issued by you for money received, or a receipt issued to you
by the supplier when you pay for something. If the payment is electronic, then you
will receive confirmation in a print-out. If you pay by cheque, or are paid by cheque,
you may not receive a receipt or issue one. Instead, the transaction will be recorded
in your bank statement.
3 The transaction is then recorded in an accounting book. For all money received and
spent, this record will be in the cash book (either manually or on computer).
4 A summary is made of all transactions and written in a monthly statement.
5 A summary of all transactions for the year is written in an annual statement.

A bookkeeping system must provide information that is:

Relevant (tells you what you need to know);
Understandable (tells it in a way that you can understand);
Reliable (gives you information that is always correct);
Complete (gives you all the information you need to know);
Up-to-date (tells you what your financial position is now, not six months ago);
Consistent (provides information that can be compared with information from
previous years);
Acceptable to the outside world (especially to auditors, donors and government
departments).

The key to a useful bookkeeping system is:

Keep it simple; keep it detailed; keep it logical; keep it up-to-date; keep supporting
documentation (evidence) for every transaction.

Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 6 of 37
PROVIDING A FRAMEWORK FOR THE SYSTEM

As a non-financial manager or leader in your organisation, you do not need to do the
bookkeeping. But you do need to provide a framework for the bookkeeping system. To do
this, you need to be involved in determining:

The headings under which the financial information is summarised.
The way in which expenditure and income are allocated.

The headings under which financial records are kept are known as the chart of accounts.
The headings for your chart of accounts should be much the same as those in your budget.
(See the toolkit on Budgeting, the section on Defining your Line Items) The headings are
coded and the person recording the financial information knows which code to use for
different income and expenditure. The headings should mean something to you. They
should relate to the work you are doing. They should also be headings that make it possible
for you to report accurately to your donors. (For an example of a Chart of Accounts, go to
Examples: Chart of Accounts.) Work with your bookkeeper or service to set up a Chart of
Accounts that makes sense for you.

It is also up to you, as the leadership or management of the organisation, to decide where
expenses should be allocated. You may want all your salaries together under “salaries” or
you may decide, for costing purposes, that the salaries of project staff should be allocated to
specific projects. These are budgeting decisions that will be reflected in your chart of
accounts.


Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 7 of 37
COMPUTERS OR MANUAL?

A computerised bookkeeping system can simplify the processes of entering and adding up,
and spreadsheet programmes can make it much easier to allow for many different scenarios
when planning budgets. A computerised system also makes it possible to produce varied
reports to suit the needs of your organisation. But computerising the accounts is not a magic
answer because:

It takes time to set up a computerised system and for a while you will probably need
to run a manual and computerised system together, to prevent disasters in the
transition.
The person inputting data still needs to understand bookkeeping.
The record-keeping process still has to be followed and supporting documentation
must be kept.
You need up-to-date software and someone in the organisation needs to have a
good understanding of the computer software.

Before you computerise (or even use electronic banking and payment facilities), you must
get approval from your auditor and from your Board or Management Committee. The
approval should be documented.

Despite the above, computerisation is probably the best route to go, unless your books are
very simple and your transactions very few. Be sure to get expert advice and to allow for
start-up problems.

Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 8 of 37
RECORD KEEPING

Any bookkeeping system needs a good filing system.

To complete a cash book (manual or computer), you need the following documents:

Bank statements, filed in date order.
Deposit slips, filed in date order.
Cheque requisitions, filed in number order together with:

o an invoice
o the paid cheque
o other relevant documents such as a travel voucher.

Cash receipts in pre-numbered carbonised books. Current and used receipt books
should be kept in a safe and convenient place.

(For an example of what a cash book looks like, see Examples, Cash Book. A cash book is
a record of money coming into or going out of an organisation in date order. This includes
cash and bank transactions.)

To complete a petty cash book, you need the following:

Petty cash vouchers, filed in number order, together with a till slip or purchase
receipt.

You also need:

An assets register, giving a detailed description of each asset (e.g. computers,
photocopiers, fans, furniture). An asset is a large or expensive item owned by an
organisation.
A grants file, in alphabetical order, with a section for each grant, and, within that,
sections for budgets, contracts, letters etc.

Start new files each year, and label all files carefully with names and dates.

Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 9 of 37
SOMETHING ABOUT TERMINOLOGY

It is useful for you to understand the following terminology:

Accruals
Income or expenditure which is due in an accounting period, but not received or paid
by the end of the period.

Audit
An independent assessment of the finances of the organisation by a qualified
person(s).

Balance sheet
An accounting statement which lists what is owned (assets) and owed (liabilities) at a
particular point in time.

Bank reconciliation
A method of confirming that an organisation’s accounting records agree with that of
the bank as shown in the bank statement.

Cash flow forecast
A statement which forecasts the money coming into and going out of an organisation
over a period of time in the future. (See also examples, cash flow forecast.)

Depreciation (also known as value reduction)
A method of allocating the cost of a fixed asset over the period of time it is likely to be
used. For example, a car might be depreciated over five years instead of being
shown as a total expense in the year of purchase.

Financial statements (also known as Accounting statements)
These are produced at the end of an accounting period (e.g. a month or a year).
examples include an income and expenditure account and a balance sheet.

Qualified audit report
An auditor’s opinion showing a negative comment about the organisation being
audited.

Variance report
(See also the toolkit on Budgeting, the section on Monitoring the Budget) The
variance report gives the differences between budgeted and actual amounts and
explains them.

Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 10 of 37
Financial policies

A policy is not a legal document. It is an agreed upon set of principles and guidelines for a
key area of activity within an organisation. A policy expresses how your organisation goes
about its work and how it conducts itself. Procedures are the steps for carrying out a policy.
(Adapted from Olive ODT Ideas for a Change, Part 5, December 1999. We have used this
publication extensively in the section on Financial Policies)

Good policies express a fair and sensible way of dealing with issues. While they can be
changed, no organisation should change its policies too often. They are intended to guide
the work of your organisation for a reasonable length of time. Once a policy becomes
organisational practice, and has been approved by the Board or governance structure, it is
binding on everyone in the organisation.

A good financial policy:

Is fair
Meets legal requirements
Is comprehensive (covers all likely situations)
Is realistic and can be implemented
Is affordable.



Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 11 of 37
WHY HAVE THEM?

The idea is not to be as bureaucratic as possible, but rather to have those financial policies
that are needed to ensure that the project or organisation runs in a smooth and accountable
way. There are certain financial policies that are standard. All organisations have them and
your auditor should be able to help you develop a set. Other financial policies will come out
of, or change because of, particular experiences in an organisation, or changing conditions
in the environment in which your organisation is functioning. For example: An organisation
refused to reimburse out-of-pocket staff expenditure unless there was supporting
documentation. It had to change this policy to allow for staff who travelled on public
transport where the operator refused to supply a receipt. After another project ran out of
petty cash at a crucial time, it introduced a policy that there could be no personal borrowing
from petty cash.

What is the value of policy?

Policy enables an organisation to decentralise decision-making. So, for example,
once the policy is clear that no-one can borrow money from petty cash, the
administrator who runs the petty cash system can say “no” to anyone, even the
Director, when asked for such a loan.

Policy makes decision-making easier. It gives someone like the bookkeeper
guidelines to follow, such as: only booking economy class tickets for travel.

Policy helps an organisation to be consistent in the way it operates.

Policy helps to keep an organisation transparent and accountable.

Policy helps to set standards for how an organisation conducts itself.


Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 12 of 37
WHO MAKES THEM?

People are more likely to implement and abide by policies if they had a say in making them,
and they agree that they are “good” policies. The diagram below shows the cycle of policy
development and who should be involved at each stage:

For a step-by-step process for developing a financial policy (drawing it up), go to the next
page Ψ.


A need for a particular financial
policy exists and is identified (by
anyone who sees a problem).
(This is the starting point.) O
An appropriate group or person
(often the bookkeeper) is asked
to do research and consult with
others on a possible policy. O
This person/group then
draws up a draft policy. O
Comment and feedback is
requested and received from
anyone who has an interest in, or
may be affected by the policy. O
The policy is refined and
finalised (by the person or
group developing it), with
approval from your
auditors. O
The policy making
structure (e.g. the Board)
approves the policy. This
is minuted and the policy
becomes binding in the
organisation. O
The policy is implemented.
O
The policy is monitored
and reviewed (by financial
and senior staff). O
If necessary, the policy is
amended following the same
process. O

Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 13 of 37
A STEP-BY-STEP PROCESS FOR DEVELOPING A FINANCIAL POLICY

You do not need to follow this order exactly, but you do need to cover most steps for
each policy.

1. Decide who should be involved in drawing up the policy.

2. Make sure you have enough information to develop the policy.

3. Set a time frame for the development of the policy.

4. Clarify why the policy is needed. Write a short paragraph or sentence to explain the
need. (e.g. We need a per diem policy because staff are doing regular work out of
town, and they need to know in advance what money will be available for them. The
allocations also need to be consistent and fair.)

5. Clarify the existing situation. Write a short paragraph/sentence that does this. (e.g.
This has always been decided on an ad hoc basis before.)

6. Define any terms that need defining. (e.g. “Per diem” means daily allowance.)

7. Clarify the purpose of the policy. What do you want the situation to be as a result of
having the policy? Write this down. (e.g. This policy is intended to ensure
consistency, transparency, accountability and proper forward planning.)

8. Clarify organisational principles that underpin the policy (e.g. transparency,
consistency). Note these in writing.

9. Clarify who the policy will apply to. Write this down. (e.g. All staff travelling out of
town overnight on project business).

10. Put it all together and then circulate the draft policy for feedback.

Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 14 of 37
WHAT FINANCIAL POLICIES DO WE NEED?

An overall Financial Policy will contain policies that relate to a number of areas. So, for
example:

Donor or income policies (e.g. receipts, deposits)
Budgeting policies
Policies for financial management
Expenditure policies (e.g. amounts, payments, requisitions, non-budgeted
expenditure)
Travel policies (e.g. car hire, class of airfare or hotel, per diems)
Auditing policies
Assets policies (e.g. purchasing, utilisation, maintenance and disposal – vehicle
policies go here).
Petty cash policy
Salary policy
Staff loans
Opening and operating a bank account.

For examples of financial policies see Examples, Financial Policy.

Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 15 of 37
Keeping the books

We have already looked at the basic elements of a bookkeeping system in the section on
Setting up a Bookkeeping System. In this section, we are concerned with what you do with
your bookkeeping system in order to maintain it as a central tool in financial control and
accountability.

Here we provide you with checklists for the bookkeeping activities that need to be done on a:

Daily
Monthly, and
Annual

basis. We also look at the system as a source of information to provide management and
leadership with a tool for using the books.

It is not your job to do the activities outlined, but in order to maintain financial control and be
accountable for the finances of your organisation, you should know what is involved.

DAILY

The bookkeeping tasks that need to be done daily are:

Receipting incoming money.
Maintaining a petty cash system with petty cash vouchers.
Banking (depositing the money that has come in).
Writing cheques based on approved cheque requisition forms.

What do you need to know about these tasks?

You can usually buy a cheap receipt book at your local stationery shop. The receipt
books you use must be dated and each receipt must be numbered with a printed
number. Each receipt will have a duplicate which you keep when you give the
original receipt to the person or organisation making the payment. All receipt books,
used and new, should be kept locked in a fireproof cupboard or filing cabinet. Where
payment is made by direct transfer into your bank account, it is not necessary to
issue a receipt as the payee’s bank statement serves this purpose. However, in the
case of donations, it is good practice to acknowledge receipt, both as a record and as
a courtesy.

You can also buy petty cash vouchers at a stationery shop. These vouchers should
have supporting documentation (e.g. till slips) stapled to them, and be filed. Your
governing body should decide how much petty cash will be kept in the office. It
should only be used for small incidental needs that may come up, such as money for
milk. It is best to have a written policy stating that no-one may borrow money from
petty cash. Each month the money spent out of the petty cash box should be put
back in (by cashing a petty cash cheque). In this way, each month begins with the
same amount of petty cash. You may need to draw extra for a special event. It is
best for one person to control the petty cash box as s/he can then be held
accountable if any money goes missing. Petty cash should be kept in a locked
cashbox, stored away in a locked place. (see also examples, Financial Policy)

Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 16 of 37

It is a bookkeeping function to prepare cheques based on authorised cheque
requisition forms. The cheque must then be given to the authorised signatories for
signing, with the cheque requisition form attached. Signatories should not sign
cheques unless they know what they are for. (For an example of a cheque
requisition form. See Examples, Cheque Requisition Form

MONTHLY

The bookkeeping tasks that need to be done monthly are:

Petty cash

A petty cash schedule outlining all petty cash expenditure in categories.
The schedule is compiled using the information on the petty cash vouchers.
The money in the petty cash box is counted.
The amount in the petty cash box is “topped up” to the amount agreed by the governing
structure, using a petty cash cheque to get the money.
The vouchers and supporting documentation are filed.

Current account

A receipts and payments schedule is drawn up.
Monthly cheques are written out against requisitions and then sent for signing with the
supporting documentation. (See the section on Daily Activities.)
Documentation is filed.

Other records

The cash book is written up or entries are made on the computer. (See the section on
What is the Basis of the System?)

Bank reconciliation

The bank statement is reconciled with the cheque book. (See the section on Something
about Terminology) and the appropriate adjustments are made in the cash book.

Reporting

Management reports are produced. These include:
o Variance reports showing the difference between actual income and expenditure and
budgeted income and expenditure. (See also the toolkit on Budgeting, Monitoring the
Budget, and Something about Terminology in this toolkit).
o Preparation of a cash flow forecast. (See the section on Something about
Terminology. For an example of a cash flow forecast see Examples, Cash Flow
Forecast).

(For more on using management reports, see the section on Using the Books.)




Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 17 of 37
Bank reconciliations

When you do the bank reconciliation, you look at the bank statement and make sure
that the bank statement and the cash book show the same balances. Your cash
book may be ahead of your bank statement since some people may not have cashed
the cheques you made out to them. Your bank statement will also reflect bank
charges, which you need to put into your cash book. You write your bank
reconciliations like this:


Balance on bank statement: _____________________
Minus outstanding
Cheques: _____________________
Plus outstanding
Deposits: _____________________

Real balance: _____________________

The real balance should be the same as the one in your cheque book at the end of the
month.

To do your bank reconciliation you need your cheque book stubs which are part of your
bookkeeping records.

ANNUAL

The bookkeeping tasks that need to be done annually are:

Prepare a financial statement, giving a complete picture of the income, expenditure and
balance for that year.
Organise an independent audit (see the section on The Audit)
Prepare a balance sheet. (see the section on Something about Terminology)

Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 18 of 37
USING THE BOOKS

Organisations and projects keep books to:

Provide an accurate account of financial management practices to stakeholders;
Prevent misuse of money;
Provide a management tool for organisational and project leadership and
management.

Part of keeping the books is to provide monthly and annual reports to management and
leadership on the finances of the organisation. This should be done in a way that is user-
friendly for non-financial managers and leaders. The information provided should enable the
management and leadership of the organisation to make decisions about the running of the
organisation.

Financial reports generated by your bookkeeping system should enable you to answer
questions such as:

Are there variances (differences) between the budget and actual income and
expenditure? If so, why? Do we need to take action?
Are donor grants being spent as intended? If not, why not?
Is most of our money being spent on programmes as opposed to core costs?
Are there any items for which we are not allocating enough money (e.g. replacement of
major equipment)?
What do we owe and own at the moment? (from the balance sheet).
Why are our assets worth so little/so much?
Are we spending too much on any item relative to the work being accomplished?
Is our financial position healthy? (Can we continue to operate and do the work we are
supposed to do?)
Do we have a good distribution of sources of income? (Are we too dependent on one
source?)
Are any cash flow problems likely to occur? If so, what can we do about them?

There are some financial ratios that can help you answer these questions. A ratio tells you
what percentage (%) of the total something is. You take your financial reports and use them
to calculate the ratios. These ratios will help you to decide whether there is an area of
concern or not. If a ratio does not look healthy then you need to look at the situation
carefully. There may be a good reason and the situation may not be a cause for concern,
but the ratios provide you with a “stop and check” warning. Most ratios are best looked at
over a few years. Some ratios include:

Self-reliance versus overly dependent on foreign grants

Take the amount of money you have received from outside the country during the past
three years;
Divide it by your total income for the three year period;
Multiply this by 100;
Your answer will be a percentage that tells you what your degree of financial
dependence on foreign donors is. You can then set goals to reduce it if you think it is too
great a dependence.


Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 19 of 37
Salaries ratio

Work out your salary budget as a percentage of your overall budget.
In most development work it is likely to be high (60% and above) because development
work is often labour-intensive. You need to be able to discuss this with your donors in an
informed manner if they query it.

Administrative ratio

Work out your core budget (that which is not covered by programmes) as a percentage
of your total budget.
Between 12% and 20% is probably acceptable as the ratio.
Anything more than that will raise questions with your donors for which you should have
good answers.

(For more on budgeting, see the toolkit on Budgeting)

Liquidity ratio

This identifies the relationship between current assets and current liabilities to show how
able your organisation is to pay its short-term debts.
The liquidity ratio is calculated by dividing the total of current assets (excluding stock) by
the current liabilities and then multiplying by 100 to get a percentage.
The reason for excluding stock is because the stock of civil society organisations is often
not that easy to turn into cash. If your stock is easy to turn into cash, then you need not
exclude your stock.
The formula looks like this: Current assets (excluding stock) x 100
Current liabilities

If your percentage is around 200% (in other words, your assets are twice as much as
your liabilities), then your ratio is healthy.

Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 20 of 37
Roles in financial control and accountability

Financial accountability in a civil society organisation means that:

Regular financial reports are given to all those who have a right to know what the
organisation is doing with its funds.
The organisation can account for funds by producing documentary proof of receipts
and payments.
The organisation can show that the money is being spent on its aims and for the
particular work it was intended to cover.
The organisation does not take on financial obligations it cannot meet.
The organisation has taken all necessary precautions to prevent misuse of funds,
and to keep funds and records relating to them safe.

In terms of the roles and responsibilities of different parties in financial control and
accountability, there are some basic principles it is important to follow:

Control over finances should be divided up so that one person does not have too
much control or power over the money.
It should be clear who is responsible for each task or area of activity. You must be
able to trace mismanagement or abuse to a particular person or people.
There should be no grey areas in terms of who is responsible for what, and no
overlaps that make it possible for one person to blame another and avoid
responsibility.
Decisions about finances should be made at the right level. So, for example, a
bookkeeper should not make decisions about non-budgeted expenses. Who makes
what decisions should be included as written financial policy, approved by your
highest governing body.
People should have the necessary skills to carry out their roles and responsibilities.
Everyone from at least the level of middle management up, and including members
of the governing structures, should understand financial statements and be able to
monitor them. Anyone working directly on a project or programme should
understand its financial statements. Train people if necessary. Financial statements
should be discussed at governing body and staff meetings.



Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 21 of 37
BOARD

The term “Board” is used here to encompass the governing structures of civil society
organisations. By “Board” we mean the governing body of the organisation. It is usually
made up of volunteers. Some organisations may call this body an “Executive Committee” or
the “Management Committee” or something else. We use Board to mean that group of
volunteers charged with overseeing the management of a civil society organisation.

One of the main responsibilities of a Board is to oversee the financial control and
accountability of an organisation. The money used by civil society organisations and
projects is public money, and belongs to communities not individuals. One of the
responsibilities of the Board is to ensure that this public money is used appropriately to
benefit all those it is intended to help. The Board exists to represent those groups of people
that the organisation is intended to benefit and to be accountable to those people or
agencies that provide the money to make this possible. In some organisations, the Board
delegates some of its functions to a Finance Committee. However, all members of the
Board still remain responsible, and accountable for, the finances of the organisation.
Proposals put forward by the Finance Committee must be approved by the full Board.

The financial roles and responsibilities of a Board include:

Ensuring that the organisation has adequate resources to carry out its functions.
This may not mean actually raising the money, but it does mean monitoring the
finances carefully.
Ensuring that the organisation uses its time and money well. The Board must see to
it that money is not wasted or used to benefit staff members instead of achieving the
organisation’s objectives.
Overseeing the acquisition and management of resources. The Board has to make
informed decisions about how the money of the organisation is spent. This is
particularly so when the organisation wants to buy resources that are costly. It is
also the responsibility of the Board to see that such resources are well looked after.
They are part of the assets of the organisation.

Board members have something which is called the Duty of Care. This means that each
Board member is expected to be attentive to the affairs of the organisation, and to behave in
the way a reasonable and careful person would behave. The Board can delegate some of
its areas of work to experts (e.g. an auditor) but it still has a duty to understand the finances
of the organisation and to raise concerns about them. The Duty of Care requires a member
of the Board to read and understand the financial statements, and to keep track of the
organisation’s financial situation. The Board must ensure that the organisation keeps
proper, up-to-date financial records. Board members must attend Board meetings, read all
documentation given to them, review available information, and monitor any special areas
that have been assigned to them. Board members may need training to help them fulfil their
Duty of Care.

Board members must:

Approve the budget, after due consideration;
Approve a budget policy that sets discretionary levels (telling the Chief Executive
Officer how much s/he can spend without special Board approval).

Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 22 of 37
Approve all financial policies and other policies that affect the finances of the
organisation.
Review monthly and annual financial reports, looking specifically at variances,
balance sheets, and cash flow statements.
Monitor progress in generating funds.
Review the audited statements.
Review the bank balance periodically and make decisions about longer term
investments.
Check that the assets, as listed in the assets register, are actually there.

(This section is adapted from Good Governance, by Benita Pavlicevic, Liberty Life
Foundation 2001.)

Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 23 of 37
CEO

The Chief Executive Officer (CEO) of an organisation may also be known as the Director,
the Executive Director, and the Co-ordinator. This is the person who has day-to-day
responsibility for:

Budgeting;
Income generation;
Expenditure;
Limited rights to make decisions about large expenditures (the Board decides on the
limits);
Ensuring that financial records are kept;
Ensuring that books are kept accurately;
Ensuring that financial reports are produced on time and distributed to the right
people;
Monitoring that activities are in line with expenditure;
Checking financial reports and drawing the attention of staff and Board to any
problems;
Introducing lower level policies to deal with problems e.g. policies about telephone
usage (these are usually approved by the Board or Finance Committee);
Appointing financial staff (although, at senior levels, this should be done together with
an appropriate Board member).

While the CEO may delegate some of the activities, the responsibility is still his/hers.



Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 24 of 37
MANAGEMENT TEAM

The management team of an organisation is usually made up of the senior staff members of
the organisation, those that have senior management positions. In a smaller organisation it
may be made up of the CEO and middle managers. The most senior financial person on the
staff usually sits on the Management Team, unless the organisation uses a financial service
and only employs relatively junior financial staff.

Everyone on the Management Team should understand financial reports. These reports
should be discussed once a month at the regular Management Team meetings. Members of
the Management Team should:

Budget for their departments or projects.
Monitor their budgets against expenditure.
Manage their budgets within the limits set.
Explain the monthly financial reports for their departments or projects to their staff.
Apply their minds to the overall organisational financial reports and give input to the
CEO on them.
Assist the CEO with income generation, with specific reference to their projects or
departments.

It may be necessary to provide some training to enable people to meet these expectations.

Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 25 of 37
STAFF

Different members of staff are usually responsible for different parts of the day-to-day
financial control in an organisation. This is in line with dividing control of power over the
money. Many of the tasks are, however, carried out by the bookkeeper.

The tasks of the bookkeeper include:

Issuing receipts for funds received.
Depositing money into relevant accounts.
Preparing cheque requisitions for payment.
Ensuring accounts are paid on time.
Ensuring the cash book, or computer spreadsheet, is completed within an agreed
time-frame at the end of each month.
Ensuring control of assets, sundry items and stationery.
Ensuring all financial documents are available for the auditors.

The sorts of tasks to separate (give to different people) for better financial control are the
receipting and depositing of cash, and the preparation and approval of cheques.

All members of staff involved in the finances must understand the importance of what they
are doing and of doing it accurately and on time. It often helps to build this kind of
responsibility if staff are also taken through the monthly statements. In this way, they will
understand them and see the contribution their work makes.

Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 26 of 37
The audit

An external audit is an independent report that covers:

How much money the organisation has received and spent in the financial year, and
what the money was used for.
Whether the money has been spent in accordance with the constitution of the
organisation, Board decisions and donor requirements.
Whether the accounts (the bookkeeping system) have been properly and honestly
kept.
The value of the organisation’s assets.
How the financial record-keeping system could be improved.

It is also possible to do an internal audit for your own purposes. This can be done by
someone inside the organisation.

The person who does the external audit (the auditor) must not be actively involved in the
organisation, and should not be a relative or close associate of anyone actively involved in it.
In some organisations it is a government or donor requirement that the auditor be formally
qualified and registered. In others, it is enough if the audit is done by someone who is
competent and not directly involved with the organisation.

The auditor is usually formally appointed at the organisation’s annual general meeting, even
when there is a nominated Board. Otherwise, this can be done at a Board meeting. The
auditor can only be changed by a formal resolution at an official Board meeting. Donors
usually want to know why you are changing your auditor. In many countries there are strict
legal guidelines stating who can act as an auditor, often linked to the size of the
organisation.

As well as auditing the annual accounts, the auditor is usually available during the year to
provide support and advice.

Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 27 of 37
PREPARING FOR THE AUDIT

You begin preparing for an audit at the beginning of the financial year. It is a good idea to
ask your auditor at this stage what information will be needed for the audit.

What do you need to have ready for an external audit?

The audit is usually done within a few months of the close of your financial year, and as soon
as possible. It only looks at the financial year that is being audited.

When you are expecting the external auditors to come in to examine your financial books,
you should have the following documents ready:

A copy of your organisation’s constitution (if this is the first time this auditor is doing the
books or if you have made any changes to the constitution since the last interaction with
the auditor).
Copies of contracts, agreements, or letters setting out the conditions of grants, legacies
or other income received for specific purposes.
Copies of budgets for ongoing work or special projects.
Copies of grant applications forms.
Copies of the minutes of finance and other relevant sub-committee meetings.
Copies of the minutes of Board meetings relating to finance.
Your income and expenditure analysis records.
Supporting documentation for income.
Receipt books if you issue receipts for money received.
Your petty cash analysis records.
Supporting documentation for your petty cash records.
Bank statements for the year.
Bank reconciliations for the year.
Cheque stubs (counterfoils) for all cheque books used during the year, and the one
currently in use if it was used for the year under audit.
Cheques returned to the organisation by the bank once they have been cleared.
All deposit book records.
A list of everyone the organisation owed money to at the end of the financial year.
A list of everyone who owed money to the organisation at the end of the financial year.
A list of creditors and debtors from the end of the previous financial year.
Records of statutory payments made, particularly on staff salaries.
Details of all assets.

The auditor may also ask to see:

A list of accruals – income the organisation has received for goods or services it has not
yet provided;
A list of pre-payments - expenditure the organisation has made for goods or services it
has not yet received;
Lists of accruals and pre-payments from the end of the previous financial year.


Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 28 of 37
Other documents the auditor may need or that will help the auditor include:

Vehicle log books.
Value Added Tax records.
Tax records.





Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 29 of 37
AUDITOR’S REPORT

When the audit is almost complete, the auditor will list issues that have not been fully
resolved during the audit. The auditor will ask management to clarify these issues. If issues
cannot be clarified, the auditor will mention them in the audit report. If this happens, it is a
very serious matter.

At the end of the audit, the auditor usually draws up a set of draft annual accounts based on
the information reviewed (see the section on Preparing for the Audit). S/he will include a
record of income and expenditure actually received and spent, possibly with adjustments for
creditors, debtors, accruals, pre-payments and depreciation of equipment or vehicles. There
may also be a draft balance sheet showing the financial position of the organisation on the
last day of the financial year.

The auditor will include a statement saying that the accounts have been drawn up in
accordance with certain standards, based on information provided by the organisation. The
statement usually says that, in the auditor’s opinion, the accounts are an accurate and
honest statement of the organisation’s financial dealings and situation for the financial year.

A good auditor will recommend ways to improve the organisation’s financial systems and
procedures. The auditor’s advice should always be taken seriously. This advice is usually
given in a management letter. This is a very useful document that should be reviewed,
along with the accounts, by the Board. It can even be shared with donors. The idea is to
improve the financial control and accountability practices of your organisation. The CEO
should report regularly to the Board on how the recommendations of the auditor are being
followed up.

The accounts should be checked by the CEO and then submitted to the Board for approval
and signing. When the accounts are signed by Board representatives, they are no longer
draft accounts and become final accounts.

The accounts should not be signed unless people understand them. (See the section on
Understanding the Audited Statements) If anything is unclear, ask the auditor for
clarification. You can ask the auditor to attend the meeting at which the Board discusses the
accounts.


Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 30 of 37
UNDERSTANDING THE AUDITED STATEMENTS

When you go over the audited accounts, these are some of the questions you need to be
able to answer (if you don’t know the answers, ask for an explanation or raise the issue):

How do the figures for income and expenditure compare with the actual expenditure for
the previous year (which will be shown)?
How do they compare with the budget for the year?
Why have there been big increases and/or decreases on certain items?
Have all items of expenditure been included? Are they all justified?
Has the audit fee been included?
How does this balance sheet compare with the previous one? Is the organisation/project
in a better or worse position financially than it was last year?
How does the total amount of current assets compare with the total of current liabilities?
(see Liquidity Ratio under Using the Books).
Is any deficit in the year being audited covered by a surplus from previous years?
Previous years’ surpluses are part of the accumulated fund or equivalent item. If there is
a deficit, how will a similar situation be avoided in this year?
Are there any large sums of money owing to the organisation? If yes, what can be done
about getting the money in?
Where are the financial reserves of the organisation invested, and are they earning a
reasonable income? Is investment in line with the policies of the organisation and are
donors happy with the investment policy?
Did the audit show any irregularities or problems?
Do we need to change our financial record-keeping system in any way and, if so, how?
What does the audit tell us about our financial strategy last year? (see also the toolkit on
Developing a Financing Strategy)

DO NOT BE EMBARRASSED TO ASK QUESTIONS AND DO NOT ASSUME THAT
EVERYONE ELSE PROBABLY UNDERSTANDS THE ACCOUNTS.

Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 31 of 37
EXAMPLES

Chart of accounts

For a civil society organisation offering organisational development training and
consultation

Items of income and expenditure are allocated to a numerical category. Numerical
space is left to insert additional accounts.

100 Donations received
120 Interest received
130 Sales training
150 Sales consultation
200 Accounting fees
210 Bank charges
215 Cleaning
225 Fines
232 Furniture/Fittings/Assets
240 Insurance
245 Legal fees
250 Maintenance contracts
255 Moving expenses
260 Motor vehicle fund
265 Motor vehicle repairs
270 Postage general
275 Printing and stationery
280 Refreshments/entertainment
285 Rent and municipal charges
290 Repairs and maintenance
300 Recruitment
302 Security
307 Secretarial fees
310 Telephones
350 Resource development
370 Travel
400 Project Teacher Upgrade
405 Project TRAIN
450 Salaries
455 Staff costs
470 Staff training
470 Networking

Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 32 of 37
Cash Book

RECEIPTS PAYMENTS
Date Details Receipt
No
Cash Bank Date Details Payment
No
Cheque
no.
Cash Bank
1/1 Opening balance





















Financial Control and Accountability


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 33 of 37
Cheque requisition form

Made out to:______________________________________________________________

Requested by: _____________________________________

Date: __________________

Amount:



Type of expense: _________________________________________________________
(Category name)

Reason for payment:





Invoice/statement Number: ________________
(If applicable)


















Authorised by:

1 _____________________________________________________

2 __________________________________________________


$
BALANCE


Previous balance:

Less this amount:
Plus deposits:

New balance:

Please attach source
documents
Cheque number:


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 34 of 37
Jan Feb March April May June July August Sept Oct Nov Dec Total
Income

Interest
1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 12 000
Subsidies
10 000 10 000 10 000 10 000 10 000 10 000 10 000 10 000 10 000 10 000 10 000 10 000 120 000
Grant
900 666 900 666 1 801 332
Sub-total
911 666 11 000 11 000 11 000 11 000 11 000 911 666 11 000 11 000 11 000 11 000 11 000 1 933 332


Expenditure

Operational
75 000 65 000 90 000 110 000 100 003 149 000 115 030 105 000 132 000 123 300 104 000 130 000 1 298 333
Organisationa
l
12 083 12 083 12 083 12 083 12 083 12 083 12 083 12 083 12 083 12 083 12 083 12 083 145 000
Staffing
33 333 33 333 33 333 33 333 33 333 33 333 33 333 33 333 33 333 33 333 33 333 33 333 400 000
Capital

Sub-total
120 416 110 416 135 416 155 416 145 419 194 416 160 446 150 416 177 416 168 716 149 416 175 416 1 843 333


Totals

Net inflow/
outflow
791 250 (99 416) (124 416) (144 416) (134 419) 751 220 (139 416) (166 416) (157 716) (138 416) (164 416)
Opening bank
balance
0 791 250 691 834 567 418 423 002 288 583 105 167 856 387 716 971 550 555 392 839 254 423
Closing bank
balance
791 250 691 834 567 418 423 002 288 583 105 167 856 387 716 971 550 555 392 839 254 423 90 000

Taken from an example in Ideas for a Change Part 8, December 2001, Olive

The brackets indicate minus or a deficit.

Note that, even in months when more money was spent than came in, this project did not have a cash flow problem because of the large
amount that had come in January. However, if there had been a problem, the cash flow forecast would have shown where it was, and enabled
the project to take advance action to avoid trouble.
Cash Flow Forecast


Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 35 of 37

EXAMPLES

Financial policy

Policy Procedure
Petty cash policy:

From time to time small items have to be paid for in
cash. This cash comes from the petty cash box. Petty
cash must be carefully monitored and controlled.

Petty cash should be limited to approximately $40 per
month. Claims in excess of $5 must be paid out by
cheque.

Every petty cash payment must be recorded on a petty
cash voucher with the relevant documents attached.

No loans may be made from petty cash under any
circumstances to anyone.

Only the Administrator has direct access to the petty
cash box.



We use the imprest (topping up) system for petty cash.
This means that the amount of petty cash that the
office starts off with at the beginning of each month is
always the same. At the end of each month, only the
amount of cash spent during the month is replaced.
So each month the petty cash box starts off with the
original amount.

At the end of each month, the Administrator must count
the petty cash and then put in a cheque requisition to
make up the amount spent.

Per diem policy:

From time to time members of staff are called upon to
stay away from home on project business. The project
does not want anyone to be out-of-pocket as a result of
this. It also needs to make provision for such amounts
in advance. While breakfast and accommodation costs
are covered directly by the project, there are additional
expenses for which staff members have to pay in such
circumstances. To standardise the amount provided
for this so that there is consistency in the provision of
per diems (daily allowances), a table has been drawn
up to deal with national and international travel. This
will be applied to all staff members who are out-of-town
overnight. This table will be updated regularly by the
Finance Department in line with per diems offered in
other projects doing similar work. The Department will
make this information available to affected staff at any
time.

In setting the per diem amounts, the project has taken
note of the non-taxable limit set by the Revenue
Department.

Note: This policy does not apply when staff attend a
course, workshop, seminar or conference where all
expenses are covered by the organisation in advance.




Staff may claim their per diems either before or after
travelling. Please allow three days for payment to be
made.

Forms are available from the Finance Department.
Applications must be made on these forms.



Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 36 of 37

RESOURCES

CIVICUS would like to acknowledge the following as invaluable resources in the preparation
of this toolkit:


Cammack, John Financial Management for Development, INTRAC, Oxford 1999

De la Harpe, Jean Accountability Volumes 1 and 2, Network Management and
Development Services, Johannesburg 1995

Shapiro, Janet Financial Management for Self-Reliance, Olive, Durban 1996

www.etu.org.za/toolbox/finances/webaccount.html



Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 37 of 37

GLOSSARY OF TERMS

Assets Assets are those things which the organisation owns and the
money it has in the bank.

Liabilities Liabilities are those things which the organisation owes to
others and can be called upon to pay or pay for.


CIVICUS: World Alliance for Citizen Participation is an international alliance
established in 1993 to nurture the foundation, growth and protection of citizen action
throughout the world, especially in areas where participatory democracy and citizens’
freedom of association are threatened. CIVICUS envisions a worldwide community of
informed, inspired, committed citizens in confronting the challenges facing
humanity.

These CIVICUS Toolkits have been produced to assist civil society organisations
build their capacity and achieve their goals. The topics range from budgeting,
strategic planning and dealing with the media, to developing a financial strategy and
writing an effective funding proposal. All are available on-line, in MS-Word and PDF
format at www.civicus.org and on CD-ROM.


For further information about CIVICUS:
CIVICUS: World Alliance for Citizen Participation
24 Pim Street, corner Quinn Street
Newtown, Johannesburg 2001
South Africa
P.O. Box 933
Southdale, 2135
South Africa
Tel: +27 11 833 5959
Fax: +27 11 833 7997

1112 16th NW, Suite 540
Washington D.C. 20036
USA
Tel: +202 331-8518
Fax: +202 331-8774
E-mail: toolkits@civicus.org

Web: http://www.civicus.org

We wish to acknowledge GTZ for its support in translating these toolkits into French and
Spanish.



Financial Control and Accountability
OVERVIEW
p. 1

BASIC PRINCIPLES
pp.3-30

BEST PRACTICE
pp.31-36

RESOURCES
p.37

GLOSSARY of TERMS p.38

Examples

Chart of Accounts

Cash Book

Financial Policy

Cash Flow Forecast

Cheque Requisition form

Setting up a bookkeeping system p.3

Financial Policies p.11
Why have them? p.11

Keeping the books
p.15 Daily p.15 Monthly p.16 Annual p.17

Roles in financial control & accountability
p.20 Board pp.21-22

The Audit p.26
Preparing for the audit pp.27-28 Auditor’s Report p.29 Understanding the audited statements p.30

Why do we need bookkeeping? p.4 What is the basis of the system? p.5 Providing a framework for the system p.6 Computers or Manual? p.7 Record-keeping p.8

Who makes them? pp.12-13 What financial policies do we need p.14

CEO p.23

Management team p.24 Using the system pp.18-19 Staff p.25

Something about terminology p.9
Financial Control and Accountability Toolkit by Janet Shapiro (email: toolkits@civicus.org) -2-

Financial Control and Accountability
BASIC PRINCIPLES
Setting up a bookkeeping system
WHY DO WE NEED A BOOKKEEPING SYSTEM? Bookkeeping is an essential part of financial management and accountability. As someone who is responsible for the finances of an organisation, you need to understand enough about bookkeeping to ensure that your financial management is based on accounting information that is correct and useful. It is your bookkeeping systems that make it possible for you to monitor whether your financial strategy (see the toolkit on Developing a Financial Strategy) is working, whether your organisation is financially viable (able to survive), and whether your money is being well spent in achieving your objectives. A good bookkeeping system makes it possible for an organisation to be financially accountable to all its important stakeholders. Bookkeeping is the system for keeping the records, or books, of all the money that comes into your organisation and all the money that goes out of it. You need a bookkeeping system: So that key stakeholders can understand exactly what the financial position of the organisation is. So that you can monitor income and expenditure against your budget. For accountability and transparency. So that you can plan financially. For security – so that you do not lose money because of mismanagement, corruption or theft. If you have a good bookkeeping system, you will: Be able to give regular reports to all those to whom you are accountable; Be able to make informed decisions about budgets and spending; Have documentary proof of receipts and payments of all money. As a non-financial leader or manager, you do not need to set up the bookkeeping system yourself, nor do you need to maintain it. This should be done by a competent bookkeeper or accountant employed by your organisation. It could be done by someone who offers a bookkeeping service to a number of organisations. For more on who should do your bookkeeping, go to the next section.

Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za)

Page 3 of 37

Whichever choice you make. When you employ a bookkeeper: Check references. and a service to provide summarised information and advice. There are advantages and disadvantages to both. When you contract with a service: Check references and take referrals seriously – the best recommendation is a satisfied client. (Very important if you are computerised. unless your finances are very large and complex. Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet. Make sure the service is willing to provide ongoing support. not just bookkeeping. to help you understand the bookkeeping.Financial Control and Accountability WHO SHOULD DO YOUR BOOKKEEPING? There is no rule that will tell you whether you should employ your own bookkeeper or use an outside service. The advantages of using a bookkeeping service are: It is more cost-effective.) Get someone with financial expertise to sit in on the interviews and ask the right kind of questions. not just to do the books. The cost of employing him/her remains the same no matter how many times you meet with him/her. Some organisations use both – a bookkeeper to deal with the daily record-keeping. Insist on a probationary period of at least three months. The staff of the service should be able to help you with budgeting. you will want to be sure of the best service possible. you may need a bookkeeper on hand to deal with queries and problems as they arise. Whether you choose a service or an in-house bookkeeper will probably have something to do with how confident you are about your financial management skills. S/he will be available at all times. Services do not go on leave. Compare rates so that you get the best service at the best possible rate. they do not get sick and they do not get paid bonuses.za) Page 4 of 37 . The right service should provide people who are used to explaining financial issues to non-financial people.co. An accounting service can help you with financial management. Do not employ someone who will have to learn on-the-job unless you have a Finance Department employing more than one bookkeeper. If your finances are complicated and your financial transactions many. Make sure the service has experience in dealing with your kind of organisation. or want him/her to explain something to you. The advantages of having a bookkeeper employed by your organisation are: His/her first loyalty will be to the project/organisation. Make sure s/he can use the system you have or want to use. with monitoring expenditure and with planning your cash flow.

za) Page 5 of 37 . bank charges. Understandable (tells it in a way that you can understand). Expenditure: This is all the money that your organisation spends (for example. sales and so on).Financial Control and Accountability WHAT IS THE BASIS OF THE SYSTEM? To keep accurate books. The books you keep must show: Income (revenue): This is all the money that comes into the organisation (from fundraising. running costs. or are paid by cheque. you may not receive a receipt or issue one. Balance: This is the money that is left over at the end of each month. keep supporting documentation (evidence) for every transaction. 3 4 5 A bookkeeping system must provide information that is: Relevant (tells you what you need to know). then you will receive confirmation in a print-out. printing. or a receipt issued to you by the supplier when you pay for something. For all money received and spent. A summary of all transactions for the year is written in an annual statement. the transaction will be recorded in your bank statement. If you pay by cheque. Reliable (gives you information that is always correct). keep it up-to-date. grants. If the payment is electronic.co. workshops. you need to have the following: A bank account with a cheque book. A monthly record system with a petty cash book and a cash book (manual or computer) for recording and analysing income and expenditure. on stationery. A daily record system with receipts and petty cash vouchers. bank interest. keep it detailed. The key to a useful bookkeeping system is: Keep it simple. subscriptions. Consistent (provides information that can be compared with information from previous years). rent. donors and government departments). A summary is made of all transactions and written in a monthly statement. Instead. Complete (gives you all the information you need to know). This could be in the form of a receipt issued by you for money received. transport). not six months ago). Acceptable to the outside world (especially to auditors. Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet. keep it logical. The transaction is then recorded in an accounting book. Every financial transaction must go through the following steps: 1 2 The transaction (money is spent or received) takes place. this record will be in the cash book (either manually or on computer). A format for annual financial statements. The transaction is recorded in writing as proof that it has taken place. Up-to-date (tells you what your financial position is now. donations.

co. that the salaries of project staff should be allocated to specific projects. you do not need to do the bookkeeping. The headings should mean something to you.Financial Control and Accountability PROVIDING A FRAMEWORK FOR THE SYSTEM As a non-financial manager or leader in your organisation. the section on Defining your Line Items) The headings are coded and the person recording the financial information knows which code to use for different income and expenditure. for costing purposes. Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet. (For an example of a Chart of Accounts. They should also be headings that make it possible for you to report accurately to your donors. as the leadership or management of the organisation. But you do need to provide a framework for the bookkeeping system. They should relate to the work you are doing.) Work with your bookkeeper or service to set up a Chart of Accounts that makes sense for you. To do this. The headings for your chart of accounts should be much the same as those in your budget.za) Page 6 of 37 . go to Examples: Chart of Accounts. These are budgeting decisions that will be reflected in your chart of accounts. The way in which expenditure and income are allocated. (See the toolkit on Budgeting. It is also up to you. You may want all your salaries together under “salaries” or you may decide. you need to be involved in determining: The headings under which the financial information is summarised. to decide where expenses should be allocated. The headings under which financial records are kept are known as the chart of accounts.

unless your books are very simple and your transactions very few.za) Page 7 of 37 . The approval should be documented. to prevent disasters in the transition. A computerised system also makes it possible to produce varied reports to suit the needs of your organisation. Before you computerise (or even use electronic banking and payment facilities). you must get approval from your auditor and from your Board or Management Committee.co. computerisation is probably the best route to go. Despite the above. Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet. and spreadsheet programmes can make it much easier to allow for many different scenarios when planning budgets. The person inputting data still needs to understand bookkeeping.Financial Control and Accountability COMPUTERS OR MANUAL? A computerised bookkeeping system can simplify the processes of entering and adding up. Be sure to get expert advice and to allow for start-up problems. But computerising the accounts is not a magic answer because: It takes time to set up a computerised system and for a while you will probably need to run a manual and computerised system together. You need up-to-date software and someone in the organisation needs to have a good understanding of the computer software. The record-keeping process still has to be followed and supporting documentation must be kept.

Cash receipts in pre-numbered carbonised books. together with a till slip or purchase receipt. with a section for each grant.g. giving a detailed description of each asset (e. An asset is a large or expensive item owned by an organisation. Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet. computers. filed in date order.) To complete a petty cash book. You also need: An assets register.za) Page 8 of 37 . sections for budgets. letters etc. Cheque requisitions. A cash book is a record of money coming into or going out of an organisation in date order. Current and used receipt books should be kept in a safe and convenient place. Deposit slips. you need the following: Petty cash vouchers. you need the following documents: Bank statements. filed in number order together with: o o o an invoice the paid cheque other relevant documents such as a travel voucher. photocopiers. To complete a cash book (manual or computer). filed in date order. and. and label all files carefully with names and dates. within that. filed in number order. (For an example of what a cash book looks like. Cash Book. see Examples. fans. This includes cash and bank transactions. A grants file. Start new files each year. in alphabetical order. contracts.co. furniture).Financial Control and Accountability RECORD KEEPING Any bookkeeping system needs a good filing system.

a car might be depreciated over five years instead of being shown as a total expense in the year of purchase.co. Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet. Audit An independent assessment of the finances of the organisation by a qualified person(s). For example. Bank reconciliation A method of confirming that an organisation’s accounting records agree with that of the bank as shown in the bank statement. (See also examples. Qualified audit report An auditor’s opinion showing a negative comment about the organisation being audited. but not received or paid by the end of the period. cash flow forecast.g. a month or a year). the section on Monitoring the Budget) The variance report gives the differences between budgeted and actual amounts and explains them.za) Page 9 of 37 .Financial Control and Accountability SOMETHING ABOUT TERMINOLOGY It is useful for you to understand the following terminology: Accruals Income or expenditure which is due in an accounting period.) Depreciation (also known as value reduction) A method of allocating the cost of a fixed asset over the period of time it is likely to be used. Balance sheet An accounting statement which lists what is owned (assets) and owed (liabilities) at a particular point in time. examples include an income and expenditure account and a balance sheet. Financial statements (also known as Accounting statements) These are produced at the end of an accounting period (e. Variance report (See also the toolkit on Budgeting. Cash flow forecast A statement which forecasts the money coming into and going out of an organisation over a period of time in the future.

co. While they can be changed. it is binding on everyone in the organisation. Procedures are the steps for carrying out a policy. A good financial policy: Is fair Meets legal requirements Is comprehensive (covers all likely situations) Is realistic and can be implemented Is affordable. A policy expresses how your organisation goes about its work and how it conducts itself. It is an agreed upon set of principles and guidelines for a key area of activity within an organisation. Part 5. December 1999. We have used this publication extensively in the section on Financial Policies) Good policies express a fair and sensible way of dealing with issues.za) Page 10 of 37 .Financial Control and Accountability Financial policies A policy is not a legal document. Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet. no organisation should change its policies too often. Once a policy becomes organisational practice. (Adapted from Olive ODT Ideas for a Change. They are intended to guide the work of your organisation for a reasonable length of time. and has been approved by the Board or governance structure.

Financial Control and Accountability WHY HAVE THEM? The idea is not to be as bureaucratic as possible. There are certain financial policies that are standard. Policy helps to keep an organisation transparent and accountable. such as: only booking economy class tickets for travel. or change because of. particular experiences in an organisation. even the Director. After another project ran out of petty cash at a crucial time. It gives someone like the bookkeeper guidelines to follow.co. or changing conditions in the environment in which your organisation is functioning. Policy helps an organisation to be consistent in the way it operates.za) Page 11 of 37 . when asked for such a loan. the administrator who runs the petty cash system can say “no” to anyone. but rather to have those financial policies that are needed to ensure that the project or organisation runs in a smooth and accountable way. What is the value of policy? Policy enables an organisation to decentralise decision-making. For example: An organisation refused to reimburse out-of-pocket staff expenditure unless there was supporting documentation. for example. It had to change this policy to allow for staff who travelled on public transport where the operator refused to supply a receipt. So. Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet. it introduced a policy that there could be no personal borrowing from petty cash. Policy helps to set standards for how an organisation conducts itself. Other financial policies will come out of. All organisations have them and your auditor should be able to help you develop a set. Policy makes decision-making easier. once the policy is clear that no-one can borrow money from petty cash.

A need for a particular financial policy exists and is identified (by anyone who sees a problem). with approval from your auditors. go to the next page Ψ.co.g. and they agree that they are “good” policies. This is minuted and the policy becomes binding in the organisation. Comment and feedback is requested and received from anyone who has an interest in. the Board) approves the policy.) The policy making structure (e. or may be affected by the policy. the policy is amended following the same process.za) Page 12 of 37 . The policy is refined and finalised (by the person or group developing it). The diagram below shows the cycle of policy development and who should be involved at each stage: For a step-by-step process for developing a financial policy (drawing it up). The policy is implemented. (This is the starting point. The policy is monitored and reviewed (by financial and senior staff). This person/group then draws up a draft policy. Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet. If necessary. An appropriate group or person (often the bookkeeper) is asked to do research and consult with others on a possible policy.Financial Control and Accountability WHO MAKES THEM? People are more likely to implement and abide by policies if they had a say in making them.

(e. Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet. Write this down.g. Define any terms that need defining. consistency). Clarify the existing situation. 9. 1.g.g. transparency. Clarify who the policy will apply to. Write a short paragraph or sentence to explain the need. All staff travelling out of town overnight on project business). Write a short paragraph/sentence that does this. (e. Clarify organisational principles that underpin the policy (e. Set a time frame for the development of the policy. (e. Note these in writing.za) Page 13 of 37 . accountability and proper forward planning. 4. 2. The allocations also need to be consistent and fair. (e.Financial Control and Accountability A STEP-BY-STEP PROCESS FOR DEVELOPING A FINANCIAL POLICY You do not need to follow this order exactly.) 8. Decide who should be involved in drawing up the policy.co. but you do need to cover most steps for each policy. Make sure you have enough information to develop the policy.g. 3. Put it all together and then circulate the draft policy for feedback. This has always been decided on an ad hoc basis before.) 6.) 7. We need a per diem policy because staff are doing regular work out of town. 10.g. Clarify the purpose of the policy. What do you want the situation to be as a result of having the policy? Write this down. (e. and they need to know in advance what money will be available for them.g. This policy is intended to ensure consistency.) 5. transparency. Clarify why the policy is needed. “Per diem” means daily allowance.

Financial Control and Accountability WHAT FINANCIAL POLICIES DO WE NEED? An overall Financial Policy will contain policies that relate to a number of areas. requisitions. non-budgeted expenditure) Travel policies (e. car hire.g. class of airfare or hotel. Petty cash policy Salary policy Staff loans Opening and operating a bank account. payments. Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.g. for example: Donor or income policies (e.g. Financial Policy. utilisation.co.za) Page 14 of 37 . per diems) Auditing policies Assets policies (e. maintenance and disposal – vehicle policies go here). For examples of financial policies see Examples. So. deposits) Budgeting policies Policies for financial management Expenditure policies (e. purchasing. receipts. amounts.g.

za) Page 15 of 37 . we are concerned with what you do with your bookkeeping system in order to maintain it as a central tool in financial control and accountability. Maintaining a petty cash system with petty cash vouchers.co. you should know what is involved. in the case of donations. and be filed. Each receipt will have a duplicate which you keep when you give the original receipt to the person or organisation making the payment. Writing cheques based on approved cheque requisition forms.Financial Control and Accountability Keeping the books We have already looked at the basic elements of a bookkeeping system in the section on Setting up a Bookkeeping System. it is good practice to acknowledge receipt. stored away in a locked place. It is not your job to do the activities outlined. Your governing body should decide how much petty cash will be kept in the office. Here we provide you with checklists for the bookkeeping activities that need to be done on a: Daily Monthly. These vouchers should have supporting documentation (e. We also look at the system as a source of information to provide management and leadership with a tool for using the books. You may need to draw extra for a special event. DAILY The bookkeeping tasks that need to be done daily are: Receipting incoming money. Financial Policy) Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet. used and new.g. What do you need to know about these tasks? You can usually buy a cheap receipt book at your local stationery shop. Where payment is made by direct transfer into your bank account. it is not necessary to issue a receipt as the payee’s bank statement serves this purpose. Banking (depositing the money that has come in). Each month the money spent out of the petty cash box should be put back in (by cashing a petty cash cheque). should be kept locked in a fireproof cupboard or filing cabinet. till slips) stapled to them. The receipt books you use must be dated and each receipt must be numbered with a printed number. both as a record and as a courtesy. (see also examples. such as money for milk. In this section. Petty cash should be kept in a locked cashbox. However. It is best to have a written policy stating that no-one may borrow money from petty cash. It is best for one person to control the petty cash box as s/he can then be held accountable if any money goes missing. each month begins with the same amount of petty cash. and Annual basis. You can also buy petty cash vouchers at a stationery shop. but in order to maintain financial control and be accountable for the finances of your organisation. All receipt books. It should only be used for small incidental needs that may come up. In this way.

Cheque Requisition Form MONTHLY The bookkeeping tasks that need to be done monthly are: Petty cash A petty cash schedule outlining all petty cash expenditure in categories. The amount in the petty cash box is “topped up” to the amount agreed by the governing structure. o Preparation of a cash flow forecast. using a petty cash cheque to get the money. Other records The cash book is written up or entries are made on the computer. For an example of a cash flow forecast see Examples. (See the section on Something about Terminology. Monthly cheques are written out against requisitions and then sent for signing with the supporting documentation. The vouchers and supporting documentation are filed. Signatories should not sign cheques unless they know what they are for.) Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet. see the section on Using the Books. Reporting Management reports are produced.Financial Control and Accountability It is a bookkeeping function to prepare cheques based on authorised cheque requisition forms. The cheque must then be given to the authorised signatories for signing. Monitoring the Budget. The schedule is compiled using the information on the petty cash vouchers. These include: o Variance reports showing the difference between actual income and expenditure and budgeted income and expenditure. The money in the petty cash box is counted. (See the section on What is the Basis of the System?) Bank reconciliation The bank statement is reconciled with the cheque book. and Something about Terminology in this toolkit). (See the section on Something about Terminology) and the appropriate adjustments are made in the cash book. (See also the toolkit on Budgeting.co. (For an example of a cheque requisition form. Cash Flow Forecast). with the cheque requisition form attached. (For more on using management reports.) Documentation is filed. Current account A receipts and payments schedule is drawn up.za) Page 16 of 37 . (See the section on Daily Activities. See Examples.

co. Organise an independent audit (see the section on The Audit) Prepare a balance sheet. giving a complete picture of the income. expenditure and balance for that year. which you need to put into your cash book. Your cash book may be ahead of your bank statement since some people may not have cashed the cheques you made out to them.Financial Control and Accountability Bank reconciliations When you do the bank reconciliation. To do your bank reconciliation you need your cheque book stubs which are part of your bookkeeping records. You write your bank reconciliations like this: Balance on bank statement: Minus outstanding Cheques: Plus outstanding Deposits: Real balance: _____________________ _____________________ _____________________ _____________________ The real balance should be the same as the one in your cheque book at the end of the month. you look at the bank statement and make sure that the bank statement and the cash book show the same balances. ANNUAL The bookkeeping tasks that need to be done annually are: Prepare a financial statement.za) Page 17 of 37 . Your bank statement will also reflect bank charges. (see the section on Something about Terminology) Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.

g. Most ratios are best looked at over a few years. These ratios will help you to decide whether there is an area of concern or not. Multiply this by 100. Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.Financial Control and Accountability USING THE BOOKS Organisations and projects keep books to: Provide an accurate account of financial management practices to stakeholders. Provide a management tool for organisational and project leadership and management. Your answer will be a percentage that tells you what your degree of financial dependence on foreign donors is. Some ratios include: Self-reliance versus overly dependent on foreign grants Take the amount of money you have received from outside the country during the past three years. The information provided should enable the management and leadership of the organisation to make decisions about the running of the organisation. but the ratios provide you with a “stop and check” warning.co. what can we do about them? There are some financial ratios that can help you answer these questions. why? Do we need to take action? Are donor grants being spent as intended? If not. Part of keeping the books is to provide monthly and annual reports to management and leadership on the finances of the organisation. Prevent misuse of money. A ratio tells you what percentage (%) of the total something is. You take your financial reports and use them to calculate the ratios. why not? Is most of our money being spent on programmes as opposed to core costs? Are there any items for which we are not allocating enough money (e. If a ratio does not look healthy then you need to look at the situation carefully. Financial reports generated by your bookkeeping system should enable you to answer questions such as: Are there variances (differences) between the budget and actual income and expenditure? If so. There may be a good reason and the situation may not be a cause for concern. This should be done in a way that is userfriendly for non-financial managers and leaders. replacement of major equipment)? What do we owe and own at the moment? (from the balance sheet). You can then set goals to reduce it if you think it is too great a dependence. Divide it by your total income for the three year period. Why are our assets worth so little/so much? Are we spending too much on any item relative to the work being accomplished? Is our financial position healthy? (Can we continue to operate and do the work we are supposed to do?) Do we have a good distribution of sources of income? (Are we too dependent on one source?) Are any cash flow problems likely to occur? If so.za) Page 18 of 37 .

see the toolkit on Budgeting) Liquidity ratio This identifies the relationship between current assets and current liabilities to show how able your organisation is to pay its short-term debts. Between 12% and 20% is probably acceptable as the ratio. You need to be able to discuss this with your donors in an informed manner if they query it. your assets are twice as much as your liabilities). The liquidity ratio is calculated by dividing the total of current assets (excluding stock) by the current liabilities and then multiplying by 100 to get a percentage. (For more on budgeting. Anything more than that will raise questions with your donors for which you should have good answers. The reason for excluding stock is because the stock of civil society organisations is often not that easy to turn into cash. In most development work it is likely to be high (60% and above) because development work is often labour-intensive.co. then your ratio is healthy.za) Page 19 of 37 . then you need not exclude your stock. Administrative ratio Work out your core budget (that which is not covered by programmes) as a percentage of your total budget.Financial Control and Accountability Salaries ratio Work out your salary budget as a percentage of your overall budget. The formula looks like this: Current assets (excluding stock) x 100 Current liabilities If your percentage is around 200% (in other words. If your stock is easy to turn into cash. Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.

za) Page 20 of 37 . Decisions about finances should be made at the right level. for example.Financial Control and Accountability Roles in financial control and accountability Financial accountability in a civil society organisation means that: Regular financial reports are given to all those who have a right to know what the organisation is doing with its funds. People should have the necessary skills to carry out their roles and responsibilities. The organisation has taken all necessary precautions to prevent misuse of funds. Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet. In terms of the roles and responsibilities of different parties in financial control and accountability. The organisation can show that the money is being spent on its aims and for the particular work it was intended to cover. should understand financial statements and be able to monitor them. You must be able to trace mismanagement or abuse to a particular person or people. The organisation does not take on financial obligations it cannot meet. and no overlaps that make it possible for one person to blame another and avoid responsibility. The organisation can account for funds by producing documentary proof of receipts and payments. There should be no grey areas in terms of who is responsible for what. Who makes what decisions should be included as written financial policy. approved by your highest governing body. Anyone working directly on a project or programme should understand its financial statements. Financial statements should be discussed at governing body and staff meetings. So. Train people if necessary. It should be clear who is responsible for each task or area of activity.co. a bookkeeper should not make decisions about non-budgeted expenses. Everyone from at least the level of middle management up. and including members of the governing structures. and to keep funds and records relating to them safe. there are some basic principles it is important to follow: Control over finances should be divided up so that one person does not have too much control or power over the money.

review available information. up-to-date financial records. They are part of the assets of the organisation. the finances of the organisation. The Duty of Care requires a member of the Board to read and understand the financial statements.za) Page 21 of 37 . This is particularly so when the organisation wants to buy resources that are costly. Board members must: Approve the budget. read all documentation given to them.Financial Control and Accountability BOARD The term “Board” is used here to encompass the governing structures of civil society organisations. Board members have something which is called the Duty of Care. and to behave in the way a reasonable and careful person would behave.g. and belongs to communities not individuals. and to keep track of the organisation’s financial situation. and accountable for. This means that each Board member is expected to be attentive to the affairs of the organisation. Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet. We use Board to mean that group of volunteers charged with overseeing the management of a civil society organisation. Overseeing the acquisition and management of resources. By “Board” we mean the governing body of the organisation. the Board delegates some of its functions to a Finance Committee. One of the responsibilities of the Board is to ensure that this public money is used appropriately to benefit all those it is intended to help. The Board can delegate some of its areas of work to experts (e. after due consideration. but it does mean monitoring the finances carefully. It is usually made up of volunteers. Some organisations may call this body an “Executive Committee” or the “Management Committee” or something else. The money used by civil society organisations and projects is public money. The financial roles and responsibilities of a Board include: Ensuring that the organisation has adequate resources to carry out its functions. an auditor) but it still has a duty to understand the finances of the organisation and to raise concerns about them. all members of the Board still remain responsible. This may not mean actually raising the money. Proposals put forward by the Finance Committee must be approved by the full Board. and monitor any special areas that have been assigned to them. In some organisations. Board members must attend Board meetings. The Board exists to represent those groups of people that the organisation is intended to benefit and to be accountable to those people or agencies that provide the money to make this possible. One of the main responsibilities of a Board is to oversee the financial control and accountability of an organisation. The Board must ensure that the organisation keeps proper.co. Approve a budget policy that sets discretionary levels (telling the Chief Executive Officer how much s/he can spend without special Board approval). However. Ensuring that the organisation uses its time and money well. Board members may need training to help them fulfil their Duty of Care. The Board must see to it that money is not wasted or used to benefit staff members instead of achieving the organisation’s objectives. It is also the responsibility of the Board to see that such resources are well looked after. The Board has to make informed decisions about how the money of the organisation is spent.

Review the bank balance periodically and make decisions about longer term investments. are actually there. balance sheets.za) Page 22 of 37 . by Benita Pavlicevic. and cash flow statements. looking specifically at variances. as listed in the assets register. Review monthly and annual financial reports. (This section is adapted from Good Governance.Financial Control and Accountability Approve all financial policies and other policies that affect the finances of the organisation. Review the audited statements. Monitor progress in generating funds.) Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co. Liberty Life Foundation 2001. Check that the assets.

co. at senior levels. Ensuring that financial records are kept. Income generation. Ensuring that financial reports are produced on time and distributed to the right people. Introducing lower level policies to deal with problems e. this should be done together with an appropriate Board member).za) Page 23 of 37 . the responsibility is still his/hers. Appointing financial staff (although. This is the person who has day-to-day responsibility for: Budgeting. and the Co-ordinator. policies about telephone usage (these are usually approved by the Board or Finance Committee).Financial Control and Accountability CEO The Chief Executive Officer (CEO) of an organisation may also be known as the Director. While the CEO may delegate some of the activities. Limited rights to make decisions about large expenditures (the Board decides on the limits). the Executive Director. Checking financial reports and drawing the attention of staff and Board to any problems.g. Expenditure. Monitoring that activities are in line with expenditure. Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet. Ensuring that books are kept accurately.

Apply their minds to the overall organisational financial reports and give input to the CEO on them. with specific reference to their projects or departments. These reports should be discussed once a month at the regular Management Team meetings. those that have senior management positions. Manage their budgets within the limits set. It may be necessary to provide some training to enable people to meet these expectations. Assist the CEO with income generation. Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet. Explain the monthly financial reports for their departments or projects to their staff. unless the organisation uses a financial service and only employs relatively junior financial staff. Members of the Management Team should: Budget for their departments or projects. Monitor their budgets against expenditure.za) Page 24 of 37 .Financial Control and Accountability MANAGEMENT TEAM The management team of an organisation is usually made up of the senior staff members of the organisation. In a smaller organisation it may be made up of the CEO and middle managers.co. The most senior financial person on the staff usually sits on the Management Team. Everyone on the Management Team should understand financial reports.

za) Page 25 of 37 . Many of the tasks are. sundry items and stationery. Depositing money into relevant accounts. or computer spreadsheet. however. and the preparation and approval of cheques. they will understand them and see the contribution their work makes.Financial Control and Accountability STAFF Different members of staff are usually responsible for different parts of the day-to-day financial control in an organisation. Preparing cheque requisitions for payment. Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet. Ensuring control of assets. The tasks of the bookkeeper include: Issuing receipts for funds received. This is in line with dividing control of power over the money. Ensuring the cash book. Ensuring all financial documents are available for the auditors. In this way. The sorts of tasks to separate (give to different people) for better financial control are the receipting and depositing of cash.co. carried out by the bookkeeper. Ensuring accounts are paid on time. It often helps to build this kind of responsibility if staff are also taken through the monthly statements. All members of staff involved in the finances must understand the importance of what they are doing and of doing it accurately and on time. is completed within an agreed time-frame at the end of each month.

The auditor is usually formally appointed at the organisation’s annual general meeting. even when there is a nominated Board. often linked to the size of the organisation.za) Page 26 of 37 . Board decisions and donor requirements. Whether the money has been spent in accordance with the constitution of the organisation.Financial Control and Accountability The audit An external audit is an independent report that covers: How much money the organisation has received and spent in the financial year. In others. The value of the organisation’s assets. Donors usually want to know why you are changing your auditor. This can be done by someone inside the organisation. the auditor is usually available during the year to provide support and advice. it is enough if the audit is done by someone who is competent and not directly involved with the organisation. Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet. As well as auditing the annual accounts. It is also possible to do an internal audit for your own purposes. In many countries there are strict legal guidelines stating who can act as an auditor.co. The person who does the external audit (the auditor) must not be actively involved in the organisation. Otherwise. and what the money was used for. and should not be a relative or close associate of anyone actively involved in it. this can be done at a Board meeting. The auditor can only be changed by a formal resolution at an official Board meeting. In some organisations it is a government or donor requirement that the auditor be formally qualified and registered. Whether the accounts (the bookkeeping system) have been properly and honestly kept. How the financial record-keeping system could be improved.

Cheque stubs (counterfoils) for all cheque books used during the year. and the one currently in use if it was used for the year under audit. Details of all assets. legacies or other income received for specific purposes. Copies of the minutes of Board meetings relating to finance. Supporting documentation for your petty cash records. Your income and expenditure analysis records. Your petty cash analysis records.Financial Control and Accountability PREPARING FOR THE AUDIT You begin preparing for an audit at the beginning of the financial year. Bank reconciliations for the year. Lists of accruals and pre-payments from the end of the previous financial year. It is a good idea to ask your auditor at this stage what information will be needed for the audit. A list of everyone who owed money to the organisation at the end of the financial year. All deposit book records. Copies of budgets for ongoing work or special projects. A list of pre-payments . A list of creditors and debtors from the end of the previous financial year. Supporting documentation for income. Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.za) Page 27 of 37 . What do you need to have ready for an external audit? The audit is usually done within a few months of the close of your financial year. When you are expecting the external auditors to come in to examine your financial books. Receipt books if you issue receipts for money received. agreements. you should have the following documents ready: A copy of your organisation’s constitution (if this is the first time this auditor is doing the books or if you have made any changes to the constitution since the last interaction with the auditor). particularly on staff salaries. Copies of the minutes of finance and other relevant sub-committee meetings. or letters setting out the conditions of grants. Bank statements for the year. Copies of grant applications forms.expenditure the organisation has made for goods or services it has not yet received. and as soon as possible. Copies of contracts. Cheques returned to the organisation by the bank once they have been cleared. Records of statutory payments made. It only looks at the financial year that is being audited. The auditor may also ask to see: A list of accruals – income the organisation has received for goods or services it has not yet provided. A list of everyone the organisation owed money to at the end of the financial year.

za) Page 28 of 37 . Value Added Tax records.Financial Control and Accountability Other documents the auditor may need or that will help the auditor include: Vehicle log books.co. Tax records. Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.

At the end of the audit. This advice is usually given in a management letter. If issues cannot be clarified. The statement usually says that. It can even be shared with donors. in the auditor’s opinion. This is a very useful document that should be reviewed.co. the auditor will list issues that have not been fully resolved during the audit. (See the section on Understanding the Audited Statements) If anything is unclear. If this happens. they are no longer draft accounts and become final accounts. There may also be a draft balance sheet showing the financial position of the organisation on the last day of the financial year. You can ask the auditor to attend the meeting at which the Board discusses the accounts. the auditor usually draws up a set of draft annual accounts based on the information reviewed (see the section on Preparing for the Audit). The CEO should report regularly to the Board on how the recommendations of the auditor are being followed up. pre-payments and depreciation of equipment or vehicles. The idea is to improve the financial control and accountability practices of your organisation. it is a very serious matter. The accounts should not be signed unless people understand them.za) Page 29 of 37 . ask the auditor for clarification. When the accounts are signed by Board representatives. along with the accounts. accruals. by the Board. The auditor will include a statement saying that the accounts have been drawn up in accordance with certain standards. the auditor will mention them in the audit report. The auditor will ask management to clarify these issues. The auditor’s advice should always be taken seriously. based on information provided by the organisation.Financial Control and Accountability AUDITOR’S REPORT When the audit is almost complete. Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet. debtors. S/he will include a record of income and expenditure actually received and spent. A good auditor will recommend ways to improve the organisation’s financial systems and procedures. The accounts should be checked by the CEO and then submitted to the Board for approval and signing. the accounts are an accurate and honest statement of the organisation’s financial dealings and situation for the financial year. possibly with adjustments for creditors.

how? What does the audit tell us about our financial strategy last year? (see also the toolkit on Developing a Financing Strategy) DO NOT BE EMBARRASSED TO ASK QUESTIONS AND DO NOT ASSUME THAT EVERYONE ELSE PROBABLY UNDERSTANDS THE ACCOUNTS.co.za) Page 30 of 37 . if so. and are they earning a reasonable income? Is investment in line with the policies of the organisation and are donors happy with the investment policy? Did the audit show any irregularities or problems? Do we need to change our financial record-keeping system in any way and. ask for an explanation or raise the issue): How do the figures for income and expenditure compare with the actual expenditure for the previous year (which will be shown)? How do they compare with the budget for the year? Why have there been big increases and/or decreases on certain items? Have all items of expenditure been included? Are they all justified? Has the audit fee been included? How does this balance sheet compare with the previous one? Is the organisation/project in a better or worse position financially than it was last year? How does the total amount of current assets compare with the total of current liabilities? (see Liquidity Ratio under Using the Books). how will a similar situation be avoided in this year? Are there any large sums of money owing to the organisation? If yes. what can be done about getting the money in? Where are the financial reserves of the organisation invested.Financial Control and Accountability UNDERSTANDING THE AUDITED STATEMENTS When you go over the audited accounts. Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet. Is any deficit in the year being audited covered by a surplus from previous years? Previous years’ surpluses are part of the accumulated fund or equivalent item. these are some of the questions you need to be able to answer (if you don’t know the answers. If there is a deficit.

Financial Control and Accountability EXAMPLES Chart of accounts For a civil society organisation offering organisational development training and consultation Items of income and expenditure are allocated to a numerical category.za) Page 31 of 37 . Numerical space is left to insert additional accounts.co. 100 120 130 150 200 210 215 225 232 240 245 250 255 260 265 270 275 280 285 290 300 302 307 310 350 370 400 405 450 455 470 470 Donations received Interest received Sales training Sales consultation Accounting fees Bank charges Cleaning Fines Furniture/Fittings/Assets Insurance Legal fees Maintenance contracts Moving expenses Motor vehicle fund Motor vehicle repairs Postage general Printing and stationery Refreshments/entertainment Rent and municipal charges Repairs and maintenance Recruitment Security Secretarial fees Telephones Resource development Travel Project Teacher Upgrade Project TRAIN Salaries Staff costs Staff training Networking Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.

za) Page 32 of 37 . Cash Bank Opening balance Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.Financial Control and Accountability Cash Book RECEIPTS Date 1/1 PAYMENTS Date Details Details Receipt No Cash Bank Payment No Cheque no.co.

za) Page 33 of 37 .Financial Control and Accountability Cheque requisition form Made out to:______________________________________________________________ Requested by: _____________________________________ Date: __________________ Amount: $ Type of expense: _________________________________________________________ (Category name) Reason for payment: Invoice/statement Number: ________________ (If applicable) Cheque number: BALANCE Previous balance: Less this amount: Plus deposits: New balance: Please attach source documents Authorised by: 1 _____________________________________________________ 2 __________________________________________________ Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.co.

if there had been a problem. Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet. However. Olive The brackets indicate minus or a deficit. the cash flow forecast would have shown where it was.za) Page 34 of 37 . this project did not have a cash flow problem because of the large amount that had come in January. and enabled the project to take advance action to avoid trouble. Note that.Cash Flow Forecast Jan Income Interest Subsidies Grant Sub-total Expenditure Operational Organisationa l Staffing Capital Sub-total Totals Net inflow/ outflow Opening bank balance Closing bank balance 1 000 10 000 900 666 911 666 Feb 1 000 10 000 11 000 March 1 000 10 000 11 000 April 1 000 10 000 11 000 May 1 000 10 000 11 000 June 1 000 10 000 11 000 July 1 000 10 000 900 666 911 666 August 1 000 10 000 11 000 Sept 1 000 10 000 11 000 Oct 1 000 10 000 11 000 Nov 1 000 10 000 11 000 Dec 1 000 10 000 11 000 Total 12 000 120 000 1 801 332 1 933 332 75 000 12 083 33 333 120 416 65 000 12 083 33 333 110 416 90 000 12 083 33 333 135 416 110 000 12 083 33 333 155 416 100 003 12 083 33 333 145 419 149 000 12 083 33 333 194 416 115 030 12 083 33 333 160 446 105 000 12 083 33 333 150 416 132 000 12 083 33 333 177 416 123 300 12 083 33 333 168 716 104 000 12 083 33 333 149 416 130 000 12 083 33 333 175 416 1 298 333 145 000 400 000 1 843 333 791 250 0 791 250 (99 416) 791 250 691 834 (124 416) 691 834 567 418 (144 416) 567 418 423 002 (134 419) 423 002 288 583 751 220 288 583 105 167 (139 416) 105 167 856 387 (166 416) 856 387 716 971 (157 716) 716 971 550 555 (138 416) 550 555 392 839 (164 416) 392 839 254 423 254 423 90 000 Taken from an example in Ideas for a Change Part 8.co. even in months when more money was spent than came in. December 2001.

Please allow three days for payment to be made. Staff may claim their per diems either before or after travelling. The project does not want anyone to be out-of-pocket as a result of this. At the end of each month. only the amount of cash spent during the month is replaced. This table will be updated regularly by the Finance Department in line with per diems offered in other projects doing similar work. a table has been drawn up to deal with national and international travel. In setting the per diem amounts. the project has taken note of the non-taxable limit set by the Revenue Department.za) Page 35 of 37 . The Department will make this information available to affected staff at any time. workshop. there are additional expenses for which staff members have to pay in such circumstances. At the end of each month. While breakfast and accommodation costs are covered directly by the project. Petty cash should be limited to approximately $40 per month. This means that the amount of petty cash that the office starts off with at the beginning of each month is always the same.EXAMPLES Financial policy Policy Petty cash policy: From time to time small items have to be paid for in cash. This will be applied to all staff members who are out-of-town overnight. Per diem policy: From time to time members of staff are called upon to stay away from home on project business. It also needs to make provision for such amounts in advance. No loans may be made from petty cash under any circumstances to anyone.co. Every petty cash payment must be recorded on a petty cash voucher with the relevant documents attached. This cash comes from the petty cash box. To standardise the amount provided for this so that there is consistency in the provision of per diems (daily allowances). Claims in excess of $5 must be paid out by cheque. So each month the petty cash box starts off with the original amount. seminar or conference where all expenses are covered by the organisation in advance. Applications must be made on these forms. Procedure Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet. We use the imprest (topping up) system for petty cash. Petty cash must be carefully monitored and controlled. Forms are available from the Finance Department. Only the Administrator has direct access to the petty cash box. the Administrator must count the petty cash and then put in a cheque requisition to make up the amount spent. Note: This policy does not apply when staff attend a course.

Oxford 1999 Accountability Volumes 1 and 2. Durban 1996 www. Johannesburg 1995 Management and Shapiro. Network Development Services. Olive. Janet Financial Management for Self-Reliance.za/toolbox/finances/webaccount. John De la Harpe.RESOURCES CIVICUS would like to acknowledge the following as invaluable resources in the preparation of this toolkit: Cammack.za) Page 36 of 37 . Jean Financial Management for Development. INTRAC.etu.co.org.html Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet.

org We wish to acknowledge GTZ for its support in translating these toolkits into French and Spanish. growth and protection of citizen action throughout the world. Box 933 Southdale. 2135 South Africa Tel: +27 11 833 5959 Fax: +27 11 833 7997 1112 16th NW.co. in MS-Word and PDF format at www. The topics range from budgeting. to developing a financial strategy and writing an effective funding proposal.GLOSSARY OF TERMS Assets Assets are those things which the organisation owns and the money it has in the bank.org Web: http://www. committed citizens in confronting the challenges facing humanity.za) Page 37 of 37 . 20036 USA Tel: +202 331-8518 Fax: +202 331-8774 E-mail: toolkits@civicus.C. Liabilities are those things which the organisation owes to others and can be called upon to pay or pay for. CIVICUS envisions a worldwide community of informed. Financial Control and Accountability Toolkit by Janet Shapiro (email:nellshap@hixnet. Liabilities CIVICUS: World Alliance for Citizen Participation is an international alliance established in 1993 to nurture the foundation. especially in areas where participatory democracy and citizens’ freedom of association are threatened.civicus.O. Johannesburg 2001 South Africa P. For further information about CIVICUS: CIVICUS: World Alliance for Citizen Participation 24 Pim Street.org and on CD-ROM.civicus. All are available on-line. Suite 540 Washington D. These CIVICUS Toolkits have been produced to assist civil society organisations build their capacity and achieve their goals. strategic planning and dealing with the media. inspired. corner Quinn Street Newtown.

Sign up to vote on this title
UsefulNot useful