Letter of Transmittal
October 10, 2012. To Prof. Dr. Md. Shah Alam The Head of The Department of Business Administration The University of Asia Pacific. Dhaka
From: Lutfa Khanom, ID : 102036036
Subject: Submission of Internship report on “Financial Management of NGO:
Association for Realizations of Basic Needs (ARBAN).”
Dear Sir, I am pleased and happy to submit this dissertation report on ‘ Financial Management of
NGO of Association for Realizations of Basic Needs (ARBAN) ’ which you asked me to prepare.
Endeavors have been made to make it comprehensive as far as possible. Any shortcoming or mistake in the report is my fault. Please call me any time at your convenience if there is any point, which needs further clarification. I would like to request you to accept my report and oblige thereby.
I am Md. Mahfuza Akter Mili the student of Mastered of Business Administration (MBA) Registration ID: 10206038, major in Finance from The University of Asia Pacific would like to solemnly declare here that an internship report on “Financial Management of NGO:
Case of Association for Realizations of Basic Needs (ARBAN)” has been authentically prepared
While preparing this internship report, I didn’t breach any copyright act intentionally. I am further declaring that, I did not submit this report anywhere for awarding any degree, or certificate.
-------------------------------Mahfuza Akter Mili
MBA (Major in Finance) The University of Asia Pacific
This is to certify that, the thesis on “Banking System Practice in NCC Bank Ltd.” is prepared by Mahfuza Akter Mili a student of under my supervisor and guidance. I have gone through the thesis and found his thirst for seeking depth of every aspect of the research topic is very much enthusiastic and satisfactory. It is to be noticed that the thesis fulfills the partial requirement of the degree of MBA. It has not been submitted to any other university or institute for any of the degree or certificate or for publication. The report is approved and accepted in quality form.
Prof. Jesmin Sultana
Associate Professor Department of Business Administration The University of Asia Pacific.
Completion of anything requires supports from various sources. I am very much fortunate to get the sincere guidance and supervision from a number of persons. I am deeply indebted to my internal guide teacher Jesmin Sultana, Associate professor of UAP, for her whole-hearted supervision to me. Her suggestions and comments to make the report a good one was really a great source of spirit for me. My heartfelt gratitude goes to Prof. Dr. Shah Alam, Head, Department of Business of School, UAP for reviewing the whole report so carefully and expertly and for giving me valuable advices and suggestions to complete the whole thing in a right manner. It is my pleasure to them and my grateful appreciation goes to ARBAN authority for rending me their expertise, knowledge and giving me opportunity of having a practical experience the this internship program. Lastly, I like to give many special thanks the entire person in ARBAN who help me and the Department Of Business Administration, suggestion and for inspiring me in some cases. Thanks for all from the core of my heart.
Doing internship is mandatory for the students of Department of Business Administration of The University of Asia Pacific. Final of MBA program requires internship which involves 3 months organizational attachment for practical experience and 1 month time for report writing. As per norm this report is the fulfillment of the mandatory requirement for the evaluation process of the internship program. This report titled “Financial Management of NGO: Case of Association for Realizations of Basic Needs (ARBAN) Bangladesh with Comparative Discussions of Practices in Profit Oriented Firms” is the outcome of 3-months internship in the Finance and Administration Unit at the Country Office of Association for Realizations of Basic Needs (ARBAN) Bangladesh. The topic is assigned by Syed Lutfa Khanom, Financial Management of Association for Realizations of Basic Needs (ARBAN) International and former Head of Finance and Administration of Association for Realizations of Basic Needs (ARBAN) Bangladesh. During the internship period I was assigned with the jobs related to the Fund Management of the partners, and Cash Management Section of Finance Department. I was under the direct supervision of Ms. Jesmin Banu, Head of Finance and Administration of Association for Realizations of Basic Needs (ARBAN) Bangladesh. I have prepared this internship report with the mentioned topic, which was supervised by my Professor, Jesmin Sultana of The University of Asia Pacific. Objective of the Report The objective of the report is to know the financial management of NGOs as non-profitable organization and also to present a comparative scenario of financial management of non-profit and profit oriented firms. Scope of the Report The scope is limited within the Country Office of Association for Realizations of Basic Needs (ARBAN) Bangladesh and especially within the Finance & Administration Unit of Association for Realizations of Basic Needs (ARBAN) Bangladesh. Here I mentioned a part of financial works of Association for Realizations of Basic Needs (ARBAN) Bangladesh giving emphasis on their finance structure, accounting, auditing, budgeting, taxation, and performance evaluation & controlling of projects in financial aspect.
Methodology The method is mainly discussion and sharing of information with staff members of ARBAN and review of their operational documents and manuals. ARBAN’s publications have used to prepare this report. I also incorporated with verbal suggestions of the staff members, which helped me a lot to enhance my knowledge. The secondary sources for data collection were published annual reports, annual financial reports of ARBAN, electronic publications of ARBAN and their country strategic paper. Limitations Proper guidance from more professionals of similar sector could enrich this report and also could make it more informative and comparable. But their time constraints could not allow me to do that, which seemed to me a limitation to prepare this report. Another limitation is that, comparable information is not available in this report as I was only permitted to complete my internship in a single organization, i.e. Association for Realizations of Basic Needs (ARBAN) Bangladesh. Structure of the Report The report is divided into two main parts: Part 1: Organizational overview contains snapshot of Association for Realizations of Basic Needs (ARBAN) Bangladesh, functions of Association for Realizations of Basic Needs (ARBAN) Bangladesh, overall financial performance of ARBAN (In 2005 and 2006), and ARBAN’s current state of operations and future direction.
Part 2: First portion of the project part is the introduction to the project.
Realizations of Basic Needs (ARBAN) Bangladesh’s Financial Management, Accounting System, Budgeting, Taxation, Auditing, and Performance Evaluation & Controlling of Projects are the core chapters of this part. Major findings, recommendations and lastly conclusion are given to end the project. .
Snapshot of Association for Realizations of Basic Needs (ARBAN) Bangladesh
Association for Realizations of Basic Needs (ARBAN) is an international development organization working over 35 countries, with its head quarter based in the United Kingdom and Secretariat at South Africa. Association for Realizations of Basic Needs (ARBAN) Bangladesh (ARBAN) is one of the five country programs in Asia and has been operating in Bangladesh since 1983. Four broad thematic areas are main program intervention areas of ARBAN e.g. Education, Governance, Livelihood and Stop Violence against Women & Girls. Association for Realizations of Basic Needs (ARBAN) Bangladesh (ARBAN) is registered with NGO Affairs Bureau of Bangladesh Government under the Foreign Donations (Voluntary Activities) Regulation Rules, 1978 vide registration no. FD/R No-210, Date 27/04/1986. Location of Association for Realizations of Basic Needs (ARBAN) The addresses of Association for Realizations of Basic Needs (ARBAN) International and Association for Realizations of Basic Needs (ARBAN) Bangladesh are as follows:
House # 16 (Ground floor), Road # 9/A, Dhanmondi R/A, Dhaka-1209, Bangladesh. Phone +880 2 8111321 Fax +880-2-8122250/880-2-9111017 Email firstname.lastname@example.org Website http://www.arban.org/
Historical background of ARBAN Association for Realizations of Basic Needs (ARBAN) International Association for Realizations of Basic Needs (ARBAN) was founded in 1972 by Mr. Cecil JacksonCole, a business man who believed that business people should actively support charities, with the name Action in distress (Aid) with the objective to provide education, health support, and emergency relief to the poor children as service oriented activities. In 1979 it changes its name to Association for Realizations of Basic Needs (ARBAN) and started to work in 20 countries.
Brief history When Association for Realizations of Basic Needs (ARBAN) was established in 1972, its primary aim was to assist some of the world’s poorest children, firstly with primary education, and then with practical skills, which would help them build a more secure future. It soon learnt that providing primary education and training was not enough. It was only the first step in building a Program that will reduce poverty and enable children to have a better future. By the end of the decade, its work had expanded to include long-term health, sanitation and agricultural projects that would improve living conditions for children and their families. In 1978 it started its first project undertaking integrated community development. In 1974 it supplied emergency relief for the first time when Hurricane Fifi struck Honduras - funding food, clothing, medicines and tools for thousands of homeless people in 250 isolated villages. In the same year in Bangladesh it also funded provision of 50,000 meals a day, glucose and medicines for the people of eight towns devastated by floods. From the mid seventies, the focus of its work started shifting. From solely providing education it moved on to helping children and their families to become self-supporting. By the start of the1980s, its focus had shifted again to ensure it was tackling the root causes of poverty, not just the symptoms. There are many complex and inter-related causes of poverty. High child mortality and malnutrition, high birth rates, low literacy rates, limited access to clean water and sanitation, health care and education, insufficient land to grow food and lack of credit to buy seeds and tools - these are just some of the factors that can contribute to poverty. It had learned that for its work to be of lasting benefit, it needed to work with whole communities to boost agricultural production, improve water supplies, gain access to basic healthcare and find new sources of income. Programs in education, agriculture, health, water, skills training and helping people to organize and access savings and credit were integrated so that each supported the other. It also helped communities organize themselves to challenge injustice and ensure they received their entitlements and as much assistance as they could from their own governments.
Introduction to Association for Realizations of Basic Needs (ARBAN) Bangladesh Association for Realizations of Basic Needs (ARBAN) Bangladesh (ARBAN) started as a small operator in the coastal areas of Bangladesh in the district of Bhola in 1983 to manage disaster but over the years its work shifted more towards a rights-based approach. This was one of the key approach changes. ARBAN's current strategy is aligned with the poor and excluded people. It emphasizes the agency and the action of the poor and excluded people as the primary engine of development to eradicate poverty and injustice from society of Bangladesh. A rights-based approach to development implies, as mentioned in 1CSP III, recognition of the Rights of people not only to fulfill their basic needs, but also to treat them with equal dignity And realize their creative potential and state obligations to create an enabling environment for Assertion of their fundamental rights. In the promotion of the rights-based approach to end Poverty and injustice, the concepts of equality, citizenship and justice are critical. This evolution has been the imperative of the empirical experience that the organization Gained through its long and deep involvement in combating poverty and knowing its Structural causes. Questions of rights of women, excluded groups and the livelihoods of the Poor and the marginalized now occupy a front seat. At present ARBAN works in 35 districts and has more than 200 local and community-based Partner organizations. While ARBAN sets its own strategy, it is an international organization With national accountability. The unity with Association for Realisation of Basic Needs (ARBAN) International is in the common Vision, mission and values, this enables ARBAN to take a determined action in the fight to Eradicate poverty and establish equal rights. From its inception to the present times, ARBAN moved from the regional to the thematic Approach in its work. However the core values remain unchanged. There are 12 ongoing Projects with major donors and child sponsorship continues to be a major source of fund. The present Country Strategy Paper III of ARBAN focuses on “Equality, Citizenship and Justice” which sums up the core concerns of ARBAN’s work.
A new Country Strategy Paper was initiated in 2004, which required operational changes to cope with new challenges. As a result, there has been a change from regionalization to thematic programs based on ARBAN’s learning, experience and history of work for better coherence. The themes are now pursuing to achieve specific strategic objectives and this has provided greater space to engage the partners and other actors both at the local and national level. With stronger position at the policy making level, there is now increased synergy in ARBAN’s work as it benefits from linkages across themes.
Organizational Objectives The organizational objectives for ARBAN according to Country Strategy Paper III which is applicable for the time period 2005-2009 are presented below. Organizational objectives according to CSP III • • • • To promote effective organizational culture To promote Human Resource Development system that continuously addresses the needs and updates the capacities of staff To promote gender equity and equality To nurture shared learning and establish a system of knowledge management to promote institutional memory and greater synergy of work
• • •
Commitment towards monitoring and evaluation for better understanding for the changes in the lives of poor and marginalized To establish national accountability in light of internationalization To allocate resources at the optimum level for cost effectiveness and ensuring financial transparency To raise sufficient resources and effectively manage the resources to be efficient, effective and transparent
Goals & Strategic Objectives of ARBAN by Themes Goal 1: Poor and marginalized people’s rights over their livelihoods are more secure Strategic objectives for achieving goal 1 • To facilitate an enabling environment where poor and marginalized people are able to exercise their right to sustainable livelihood through access to employment opportunities, and also able to claim their fair share from the institutions, capital and market • • To reduce vulnerability and risk to the livelihood of the poor and marginalized from disasters To increase access and control over natural resources and public services by the poor and marginalized
Goal 2: Women’s rights are advanced for gender equality
Strategic objectives for achieving goal 2 • • • To promote women’s right to self determination and create an enabling environment for their effective participation in social, political, economic and environmental dimensions To create an enabling environment for practice of egalitarian gender relations and active citizenship by adolescent To promote a culture of zero tolerance of violence against women
Goal 3: Development of a society inclusive culture where diversity is celebrated, equal citizenship exercised, and non- discrimination is actively practiced Strategic objectives for achieving goal 3 • • • To assert equal citizenship by those of diverse origins based on ethnicity, To promote an inclusive and barrier free society where enabling environment and To promote active processes for inclusion of the socially excluded language and religion conditions prevail for the people of disabilities
Goal 4: People’s movements for social and economic justice are strengthened Strategic objectives for achieving goal 4 • To promote the right to “quality education” for the poor and marginalized children To promote public accountability of the government, private sector and international development agencies that secures economic justice for all • To promote the right to quality health care for the poor and marginalized
ARBAN’s Mission A confident and responsible nation, free from poverty and indignity, in which its citizens can lead an active life of freedom and livelihood security. ARBAN’s Vision To work with poor and marginalized women, men, girls and boys to eradicate poverty by overcoming the injustice and inequity that causes it. ARBAN’s Core Values
Throughout Association for Realizations of Basic Needs (ARBAN) the following values are maintained form the common basis to help in designing all organizational policy and practice. Each person in Association for Realizations of Basic Needs (ARBAN) has the right to expect to be treated and the obligation to treat others according to these principles implicit in organizational values. ARBAN will actively, explicitly and continuously invest in keeping its values alive. Mutual Respect: Association for Realizations of Basic Needs (ARBAN) recognizes the innate dignity and worth of all people and the value of diversity. Equity and justice: Association for Realizations of Basic Needs (ARBAN) will ensure that every person, irrespective of sex, age, race, colour, class and religion has an equal opportunity to express and utilize her or his potential. Honesty and transparency: with others. Solidarity: Association for Realizations of Basic Needs (ARBAN)’s only bias will be a commitment to the interest of the poor and powerless. Courage and conviction: Association for Realizations of Basic Needs (ARBAN) will have the courage of our convictions to be creative and radical, without fear of failure, in pursuit of making the greatest possible impact on the causes of poverty. Independence: Association for Realizations of Basic Needs (ARBAN) will be independent of any religious or party political affiliation. Humility: Association for Realizations of Basic Needs (ARBAN) recognizes that they are part of an alliance against poverty and so, in their presentation and behavior, they will demonstrate humility. Efficiency: Association for Realizations of Basic Needs (ARBAN) will manage their organization in the most cost effective and efficient manner possible in order to maximize the impact of the resources that are dedicated to their ultimate objective of eradicating poverty. Association for Realizations of Basic Needs (ARBAN) will be
accountable for the effectiveness of their actions and open in their judgments and communications
Excellence: Association for Realizations of Basic Needs (ARBAN) will try and attain the highest standards in their work with a view to establishing Association for Realizations of Basic Needs (ARBAN) as a world leader in terms of the quality of the their development work. Proximity: Association for Realizations of Basic Needs (ARBAN) will take decisions as close to their consequences as possible. International organizational structure of Association for Realizations of Basic Needs (ARBAN) With its head office in UK, Association for Realizations of Basic Needs (ARBAN) has three regional offices based in Asia, Africa and Latin America in the world to operationalize its work in the poorest countries in the world. The Head office primarily comprised of the following units:
Table: International organizational structure of Association for Realizations of Basic Needs (ARBAN)
Name of the department Marketing department
Purpose It assigned to manage and raise funds for the organization. It has diversified funding sources, starting from regular giving income from sponsors to huge grants from large donors, e.g. DFID, European Commission, Ford Foundation etc. The unit is assigned to lobby the international agencies in the arena of formulation of policies in education, food rights, tied aid, emergency response, HIV/AIDS, trade issues, etc. In addition to that it is also involved in the building partnership with global agencies. It maintains the global accounts linked with income from the alliance partners to expenditure to the country where it is operating. It also maintaining the IT infrastructure of the organization.
Policy support unit
Finance unit & IT unit
The regional offices with the same functions as above are maintaining the linkages between the country program and the head office.
Functions of Association for Realizations of Basic Needs (ARBAN) Bangladesh
Common work approaches followed in ARBAN form a strong basis for their unity. ARBAN is committed to creating a diverse workforce that positively acknowledges the differences existing between people- such as sex, gender, race, age, ethnic origin, caste, class, color, belief, nationality, HIV status, sexual orientation, disability, education, social background etc. These differences may lead to differences in attitudes, experiences, and ways of thinking, behaving, communicating and working. ARBAN reserves the right to add other categories to this list and will apply this principle in all aspects of organizational practice. ARBAN recognizes that a diverse workforce leads to better organizational performance, improved productivity. This chapter gives the detailed description of various functional units of ARBAN, its logo & slogan, and organogram. Identity & Resources Mobilization IRM Dept. through its three unique functions of Sponsorship, Partnership Development and Identity hope to create a cohesive and winning team environment to achieve a cost-effective funding base for ARBAN through horizontal team work as well as interlink ARBAN’s local and national issues and identity with other development stakeholders. It also hopes to create wider space for shared learning and best practices through regular flow of information both from its local partnerships as well as AAI Country Programs. Sponsorship 1. Rights Based Approach and its outcomes/impacts more tangible to the supporters in its telling of the reports 2. Creating opportunities for supporters to move on from being donors to becoming active supporters of the social movements. 3. Capacity building of the staff of partner organizations to ensure the real and organized program information from the field
4. Arranged communication training for Development Area (DA) staff
The Identity Unit
1. The identity of ARBAN is rolled out through information and case stories of their work
published in newsletters, brochures, information packs, identity materials ( such as posters, leaflets, greeting cards, year planners etc), photographs, media and news articles ( both national
and international), participation in national and international programs and exhibitions, the website and the intranet.
2. An identity produces social messages in the print media and regularly follows up with the media
on programmatic involvements as well as continues dialogues on a regular basis. 3. Develops partnerships with educational institutions to promote future leadership in the development sector and to familiarize the young leaders of tomorrow about work in development. 4. Shares local/national issues in the international forums through electronic media, website and external publications and regular communications update “The Asia Update”
5. Produce television and radio spots on priority sectored issues 6. Produces items for enhancing ARBAN’s Identity through video documentation
7. Developing media strategy for better professional linkages and capacity building of grass roots level journalists 8. Gives active support to local and international campaigns Partnership Development
1. Partnership Development Unit started with the inception of Identity & Resource Mobilization
Department (IRM) of ARBAN (Oct.2001). Since then Partnership Development initiated a process of developing a structured fundraising system with strategies, policies, donor relationship, systems of archiving, contract management and overall capacity of official and non official fundraising, etc 2. Partnership development deals with official funding and relationships with bilateral and multilateral donors, trusts, foundations & corporations. 3. Partnership Development unit also closely works with the DA and project partners to build their fundraising capacity 4. Partnership Development unit critically engages itself with donors to influence 5. Partnership Development unit works both with internal and external entities
Figure: Organogram of IRM Department
Assoc. Coordinator Officer
Assoc. Officer Assoc. Officer 1.3.2 Finance and Administration
ARBAN finance and administration unit work together. The main responsibilities of finance department are: 1. Financial management (Planning, Fund management, Monitoring & Controlling) 2. Financial accountability 3. Internal controls 4. Recording financial events 5. Audits 6. Budgeting and planning 7. Treasury management 8. Reporting financial information 9. Financial efficiency measurement
10. Capacity building of Finance Staff members of ARBAN and at partners’ end
Work done by a ten (10) member team of dedicated and expert staff members under the leadership and management responsibilities of Head of Finance and Administration. Team contains different level of staff members, i.e. Manager, Deputy Manager, Officer, and Associate Officer.
Setting Strategic Direction done by Board of Trustees and International Directors. The core responsibilities of Administration department are:
Assisting in organizing International & national meetings, seminars, workshops, training Processing visa & ticketing, maintaining petty cash ,coordinating and monitoring work of
courses and projects related events including administrative and logistics support support staff, keeping an inventory record of all properties, supervising office equipments and maintenance
3. Procuring and purchasing equipments, reviewing vouchers and requesting for payments
related administrative functions, ensuring office safety, security and cleanliness, making arrangements for travel and accommodation 4. Ensuring and keep functioning the communication systems of the office (internal & external) 5. Vehicle management and provide vehicle support to field visit and different events Figure: Organogram of Finance & Administration Unit
Head of Finance and Administration
Human Resources & IT 1. Staff recruitment as per need Placement of staff Confirmation of regular staff, extension of probation period Preparing Employment Policy, Consultant & Outsourcing Policy, Volunteer Policy,
International Secondment Policy
5. 6. 7. 8. 9.
Preparing job description of each personnel Performance appraisal of the staffs Arrangement of staff capacity building, staff retrenchment, staff leave, staff leaving a Management of smooth and uninterrupted ISP service Plan, organize and procure IT items as per need Figure: Organogram of HR & IT Unit
job, staff medical benefits.
Head of HR & IT
Assoc. Officer Country Director’s Unit Country Director’s (CD) unit consists of CD’s unit, internal audit, monitoring & evaluation, reflects development and shared learning. The responsibility of CD is 1. 2. To rebuild and re-invigorate the organization and bring about To deal with the negative publicity and other troublesome issues To spend time on mission level issues and to do field visits to stability within the organization
works for 4.
understand the perspectives of the poor and marginalized people that ARBAN To finalize various policies and publish the CSP. To build up the relationship with the partners as well as ARBAN’s
Figure: Organogram of Country Director's Unit
Country Director Assistance to CD
Monitoring & Evaluation
Livelihood Security & Risk Reduction The goal of this sector is to ensure a more secure livelihood for the poor and marginalized people. Promotion and strengthening of livelihoods, protection from disasters, access to and control over natural resources are the three themes in this sector. Women’s Rights & Gender Equality Gender sensitivity and promotion of women’s right and equal access for women in all the programs and projects are the primary focus of ARBAN. It works to advance women’s rights for gender equality, create an enabling culture to practice gender equality among youth and adolescents and prevent violence against women. Rights & Social Justice ARBAN works for a socially inclusive culture where diversity is celebrated, equal citizenship exercised and non-discrimination is actively practiced. This sector includes three themes diversity and citizenship, disability & enabling environment and social inclusion. Social Development & Economic. Justice ARBAN tends to strengthen people’s movements for social development and economic justice through ensuring quality education, economic justice and quality health care for all. Their objective is to promote public accountability of government, private sector and international development agencies that secures economic justice for all.
Figure: Organogram of Livelihood Security & Risk Reduction, Women’s Rights & Gender Equality, Rights & Social Justice and Social Development & Economic. Justice Units
Sector Head LS & RR
Sector Head WR & GE
Sector Head R & SJ
Sector Head SD & EJ
Theme Leader Program Officer Assoc. Program Officer
The logo and slogan of Association for Realizations of Basic Needs (ARBAN) Bangladesh The logo of Association for Realizations of Basic Needs (ARBAN) Bangladesh is:
The slogan of Association for Realizations of Basic Needs (ARBAN) Bangladesh is:
Organ gram of Association for Realizations of Basic Needs (ARBAN) Bangladesh An organogram of Association for Realizations of Basic Needs (ARBAN) Bangladesh is attached in the following page.
Figure: Organogram of ActionAid Bangladesh
HeadFinance and Adminis tration
HeadHR & IT
HeadLiveliho od Security & Risk Reducti on
HeadWomen’ s Rights & Gender Equality
HeadRights & Social Justice
HeadSocial Develop ment & E. Justice
Identity & Commu nication s
Finance Partners & capacity building
HR Manage ment
Monitori ng & Evaluati on Liveliho od Promoti on Women’ s Right
Diversit y& Citizens hip Educatio n
Sponsor ship Manage ment Finance Projects
Organiz ational Develop ment Internal Audit
Emerge ncy and Risk Reducti on
Adolesc ent & Youth Disabilit y
Econom ic Justice
Fundrais ing and Contract Mgt Adminis tration
Informat ion Technol ogy
Reflect Develop ment Unit Natural Resourc es & Public Services Violenc e against Women Social Inclusio n Health
Shared Learnin g
Overall Financial Performance of ARBAN (In 2010 and 2011)
The overall financial performance of ARBAN is measured by the total income it received, percentage of costs according to international themes, and trends of income & expenditure. The analysis of these data for the year 2005 and 2006 is presented in the following section. Income mix The total income for 2005 and 2006 was £ 3.59 and £ 3.94 million respectively. From this ARBAN has spent £ 2.88 and £ 2.96 million as project cost for the year 2010 and 2011. The percentage of income mix was:
Table: Income mix in 2010and 2011 Figure: Income mix 2010
Year Regular giving Other regular giving Partnership (official) Partnership (others) Others Transfer in Total
2010 61% 0.97% 35% 2.36% 0.31% 1.13% 100%
2011 48.51% 16.23% 9.81% 12.07% 0.33% 13.05% 100%
In em 2 0 com ix 0 5
2.36% 35% 0.31% 1.13%
61% 0.97% Regular giving Partnership (official) Others Other regular giving Partnership (others) Transfer in
The income from Regular Giving is high for both the year 2005 and 2006. The income from Partnership (official) is high in 2005 but in 2006 the second highest position held by other regular giving. The least income came from other source for both the year as shown in the graphs.
Figure: Income mix 2011
In em 2 0 com ix 0 6
13.05% 0.33% 12.07% 9.81% 16.23% Regular giving Partnership (official) Others Other regular giving Partnership (others) Transfer in 48.51%
In 2005 the income from Regular giving and Partnership (official) are higher from 2006 as shown in the above graphs. The income form Other Regular Giving, Partnership (others) and Transfer in are higher in 2006 than 2005. Percentage of costs according to International Themes The analysis according to the various international themes is the following.
Table: Percentage of costs according to International Themes in 2010 and 2011 Figure 9: % of costs according to International Themes 2010
Year Food and hunger Women’s rights Human security Right to education Governance HIV/AIDS Others Total
2005 25% 12% 22% 28% 7% 5% 2% 100%
2006 31% 20% 18% 15% 7% 5% 4% 100%
% of costs according to international themes 2005 5% 7% 2% 25%
28% 22% Food and hunger Right to education Others Women’s rights Governance
Human security HIV /A IDS
In the year 2005 ARBAN had spent most in Right to Education Theme, but in the following year it turned its policy and spent most in Food and Hunger Theme. The second highest contribution of ARBAN was Food and Hunger and Women’s Rights for 2005 and 2006 respectively.
Figure: % of costs according to International Themes 2011
% of costs according to international themes 2005
5% 7% 2% 25%
28% 22% Food and hunger Right to education Others Women’s rights Governance
Human security HIV/AIDS
The development works of ARBAN for its international themes are higher in 2006 than 2005 in the themes like: Food and Hunger, Women’s Rights and Others. In Human Security and Right to Education the costs are more in 2005 where in Governance and HIV/AIDS themes it remained almost same for the both year. Trends of income and expenditure in ARBAN
The following graph shows ARBAN’s last four years income
expenditure pattern from year 2004 to 2006 are given below. Here we can see the expenditures increased with incomes and in the year 2005 and 2006 the expenditures were almost equal to incomes.
Table: Income and expenditure trend (2004-2006)
In GBP ‘000 Year Income Expenditure 2004 4,394 3,492 2005 3,396 3,296 2006 3,784 3,765
Figure 11: Trends of income and expenditure in ARBAN
Trends of income & expenditure
5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2004 Income 2005 Year Expenditure 2006
SWOT Analysis of ARBAN The SWOT analysis comprises of the organization’s internal strength and weakness and external opportunities and threats. SWOT analysis helps the company an insight of what they can do very important to identify the current position of the strategic analysis of the organization. The strengths of ARBAN are:
Good organizational culture of ARBAN.
Its young, energetic, sincere and skilled workers.
To attract donor Association for Realizations of Basic Needs (ARBAN) has priority
over other companies because it spreads in 40 countries.
Association for Realizations of Basic Needs (ARBAN) is centralized. So each Country Director has responsibility to the head of Association for Realizations of Basic Needs (ARBAN) for reporting.
Association for Realizations of Basic Needs (ARBAN) acts as pressure group for
In GBP '000
Good organizational culture of ARBAN.
Participatory program development on need basis, which promotes harmony and goodwill with in the organization, in the communities where it works and amongst the donors. The weaknesses of ARBAN are: Violation of policy as per senior management instruction sometimes happened. None is directly liable to anyone for his/her duties. The leader is all in one. So negligence in service may occur.
Sometimes, Association for Realizations of Basic Needs (ARBAN) is criticized for
not maintaining good relationship with NGO affairs bureau. Weakness in management system including unbalanced distribution of responsibilities, inadequate and inappropriate assessment and evaluation of projects, lack of unity in management. The opportunities of ARBAN are: More scope of collaboration with various government programs. Greater collaborative programs with other NGOs. Diversification of donor source. Expanding activities in new areas and new fields of activities. The policies are reviewed time to time, so there is lot of opportunity to adapt the policies with the changing demand of the world. The threats of ARBAN are:
Association for Realizations of Basic Needs (ARBAN) may lose donor fund if they
don’t maintain good liaison relationship with donor organization.
Multiplicity of NGOs in Bangladesh.
Government policy change and bureaucratic nature of decision making lead to unequal exchange.
ARBAN’s Current State of Operations and its Expected Future Direction
Currently ARBAN is operating in Bangladesh with a hope to eradicate poverty. AA has six international themes. They are Food and hunger, Women’s rights, Human security, Right to education, Governance and HIV/AIDS. Of that, in Bangladesh it gives most emphasize on food and hunger theme. The rationale of this, they are trying to enhance the livelihood of the marginalized people of Bangladesh. Association for Realizations of Basic Needs (ARBAN) International, which has been working in Bangladesh since 1983, is uniquely placed to address the development challenges that the people of Bangladesh will face in the coming years. Over the past 20 years, ARBAN has established a track record for working effectively with communities for their advancement and empowerment. Since 1998, ARBAN has expanded its partnership to include organizations from vulnerable locations throughout the country. It has developed expertise in working with disabled, development of adolescent programs.
The special characteristics of ARBAN to promote and strengthen national leadership within an international organization, and its funding structure provide ARBAN with a unique opportunity to pursue the challenges faced by Bangladesh in the coming years through development of innovative grassroots programs and provide policy insights and directions. This will provide ARBAN the strategic advantage. Though, ARBAN faces some problems in strategic and operational level. Strategic and operational issues facing ARBAN Strategic issues Although ARBAN emerged as public benefit organizations in advancing the interests of a broader community where a large number of men and women are marginalized, vulnerable to structural social injustice and victim of violation of human rights, their management practice does not show any line of accountability to the community. The lack of defined accountability to the community blurs the downward accountability of ARBAN & other NGOs and therefore creates accountability gap. NGOs should have accountability relationship between their peer organizations from the perspective of upholding the standard, value tradition and reputation from the sector. However, the reality is that the norms around the sharing of good accountability practice are often absent and as a result NGOs frequently lack a common standard or accepted behavior to hold each other to account.
Operational issues For an effective organization leadership, accountability and transparency are needed. So, ARBAN has to build up leadership and develop inner strategies. ARBAN has to elect people in the board view of changing the nation in a positive direction. The strategic and operational issues that ARBAN is facing can be minimized by the following strategies and tactics:
The strategies and tactics used to cope with them • • • • • • • • •
• Building responsive governance within the organization. Developing policy guidelines and manuals as open document. Coordination and creation of space for shared learning in terms of accountability. Regular revisit of the policies, values and norms in line with existing policies. Minimum standard setting for organizational accountability. Promoting self assessment with organizational domain. Developing relationship with government officials. Dissemination of information at all levels. Practice of participatory decision making process. In case of preparation and implementation of policy the method should be
sharing, involvement, and dissemination.
Peer accountability should be trust building, development of mindset about
shared learning. Downward accountability should be mind setting of subordinates, trust building Real partnership has to build up with donor through local fund mobilization.
and reducing dependency.
Introduction to the Project Association for Realizations of Basic Needs (ARBAN) Bangladesh is a leading International Non Government Organization in Bangladesh. In preparing this report financial management practice of ARBAN has taken among non government sector. The study is based on the three months internship program at the ARBAN. The study is about the overview of the financial management practice of ARBAN.
Objective of the Study Through this study, I tried to attain the following objectives: Prime objective of my study was to find out financial management of NGO To reach in a comparative analysis of financial management of profitable and nonprofitable organization.
Significance of the Study This project titled “Financial Management of NGO: Case of Association for Realizations of Basic Needs (ARBAN) Bangladesh with Comparative Discussions of Practices in Profit Oriented Firms” was designed to present the financial management of NGOs in an easy and understandable way. I have selected this topic to present the financial management of non profitable organization. As non profitable organization has no profit motive, so how they organize their income and expenditure in their financial statements according to their organizational objective was my attempt to prepare this report. The report is totally descriptive in nature. Scope of the Study The scope of the project part is limited to the financial manuals of Association for Realizations of Basic Needs (ARBAN) and their financial reports only. Reviews of their operational manuals are also used to prepare the report. Besides, text books were used as supplementary when needed. A detailed list of them has mentioned in the bibliography. Methodology Preparing a report about the financial management of an organization is a difficult and complicated task and no single method is appropriate for preparing the report. Effective research involves six basic steps, shown in the following figure:
Figure: Methodology of the research
Define the Problem
Develop Research Plan
Findings & Recommendations
The project title is “Financial Systems of NGO: Case of Association for Realizations of Basic Needs (ARBAN) Bangladesh (ARBAN) with Comparative Discussions of Practices in Profit Oriented Firms”. This is a descriptive research. The major purpose of this descriptive research is to describe the financial management of non profit oriented organizations. Types of Data The report is mainly based on 2 types of data1. Primary data 2. Secondary data Collection of Data Primary source of data
Personal observation of the financial activities. Interview with the officials of the Association for Realizations of Basic Needs
(ARBAN) Bangladesh. Secondary Source of data
Annual financial reports of Association for Realizations of Basic Needs (ARBAN)
Bangladesh. Published documents and reports. Relevant Websites Limitations of the Study Some of the limitations faced while preparing this report are mentioned here:
♦ Time was the most important limitation in preparation of the internship report. The
program allotted only 3 (three) months for entire study, which disable many opportunities for a comprehensive study. ♦ Relevant papers and documents were not available sufficiently. ♦ In many causes updated information were not available.
♦ The time schedule of ARBAN senior staffs did not allow me to discuss with them. But
their opinion could make this report so informative. It seems a great limitation to me. ♦ The lack of experience of the researcher in this field may have become another limiting factor.
Financial Management of Association for Realizations of Basic Needs (ARBAN) Bangladesh
The core requirements of the financial management aspects of ARBAN include structure of finance unit, accounting procedures, recording of accounting information, budgeting, taxation, auditing, and performance measurement & controlling of projects by finance section. Structure of Finance Unit of ARBAN The structure of finance department of ARBAN is as follows:
Figure: Structure of Finance Department of ARBAN
Set Strategic Direction
Board of Trustees/International Directors
Head-Finance and Administration Reporting and Statutory Compliance
Leadership and management Planning, controlling and reporting financial activities Payment and Cash Management
Table: Number of Employees in Finance and Administration Unit
Head of Finance and Administration (HOF) 1 Payment and Cash Management 3 Reporting and Statutory Compliance 4 2 Capacity Building
Administrati ve Officer 1 Officer 1 Admin Support Staff 10
Composition of the finance team
The HOF of the Country Program has the responsibility to manage the overall financial management of the country program. The HOF reports to the Country Director of the CP, who is appointed by the International office of Association for Realizations of Basic Needs (ARBAN) International. In absence of the HOF the CD is responsible of overall financial management and financial integrity of the organization. Performance, standards and capacity building: The team is responsible in capacity building of the partners as well as ARBAN in house staff. The team engaged in appraisal and review of projects/partners performance, review of performance In addition to that they prepare different financial reports for AAI, Regional Office and ARBAN Management (as per requirement), provide support during planning & budgeting, developing policies & procedure and reserve management to HOF. Reporting & statutory compliance: This team is responsible for the overall reporting to internal as well external entities that is a part of the overall financial information system of the organization. This includes providing expenditure/income/committed expenditure information to the budget holders of ARBAN, project reporting to the donors, project reporting to the NGO bureau, and reporting to the international offices. Finance uses financial software SUN for recording of all financial information, transaction, budget etc. They use software named VISION (Version 5) for reporting purpose. In doing so, Team members are involved with partner expenditure checking as well as providing feedback to them, monitoring the utilization, reconciling partner expenditure with SUN, finalizing contracts of partners/third parties and providing support in preparation of project proposal. Team prepares final accounts of projects of ARBAN and help external auditors to conduct external audit and meet audit queries. Team also involved with providing support to internal audit and different donor audit. Disbursement and cash management: This team is responsible to ensure timely payment to all third parties, including proper coding of the expenditure and verification of the documents provided to them for payment preparation. Team members are responsible to record transactions and reconciliation of the control account codes. The team leader of this team will be responsible for treasury management of the Country Program. In profit oriented organization, generally the finance team is divided in three sections, such as Finance, Personal Accounts and Costing. Finance section handles all activities related to debtors. It is responsible for the payment of bills. Personal account section deals with salary payment, group insurance, foreign affairs and issues related with corporate heads. Costing section deals with the production cost and profit related issues. So profit oriented organization’s finance team is broad than non profit oriented organizations finance team.
Accounting System of Association for Realizations of Basic Needs (ARBAN) Bangladesh
Non profit organizations such as NGOs need accounting to record and account for fund received and disbursed. Though they do not have a profit motive, yet they should operate efficiently and use resources effectively. This chapter will give idea about the accounting principles of ARBAN, their accounting cycle, financial reports & statements, accounting equation of ARBAN, accounting policy and procedure, recording of accounting information, and software used in ARBAN by finance unit.. Accounting Principles
Dual aspect principle: Double entry should be recorded in all ledgers. Monetary principle: ARBAN uses Bangladeshi Taka (BDT) as its based currency in all local financial reports. However, the transactions incurring in other currencies such as US Dollar (USD), Great Britain Pound (GBP) should be recorded in the original currencies and translated into BDT based on the accounting exchange rates for reporting purposes. Consistent principle: This principle regulates that all the accounting methods, books and reports should remain unchanged until their financial manual is revised or communicated through memo and notice. Materiality principle: A transaction will be considered as material when its value equals to or is over GBP 1,000 or USD 1,600 or BDT 114,000. Fully disclose principle: All transactions must be recorded in the books and be disclosed in all financial reports.
The Accounting Cycle in ARBAN The accounting cycle practiced in NGOs is almost same with accounting cycle of profitable organization. They also contain bookkeeping and accounting steps. Bookkeeping steps 1. Record transaction in a journal. Transaction means cash receipt and payment. 2. Transfer amounts from various journals to general ledger. 3. Calculate whether sum of all debit balances equals sum of all credit balances. Accounting steps 4. Posting the cash ledger to the accounting software SUN. 6. Analysis of data for reporting and preparing financial statements. Financial Reports ARBAN Produce (Formal & Informal) To measure the overall financial performance of a country program each country program has to send their Annual Financial Report to AAI. This report contains the following financial statements: Statement of income and expenditure - This include income from regular giving donation, income from partnership, net transfers in, transfers out, expenditure by project, support, fundraising & government. This statement shows the amount of money coming into ARBAN, how this money was paid out and any leftover money for a given period of time (i.e.: three months, one year, etc).This statement is equivalent of a Profit and Loss Statement for profit oriented organizations. In some NGOs this statement is called Statement of Receipts and Disbursements. A sample of income and expenditure statement is included in appendix part (Table 1) Balance sheet- The balance sheet provides a picture of the assets, liabilities and capital reserves of ARBAN at a given point in time. A sample of balance sheet is included in the appendix part These two statements in combination with more frequently generated performance reports can form the basis of financial reporting for ARBAN. Besides, the statements needed to support this two base statement are as follows: Summary of movements in reserves- This table gives the summary of fund flow from different country programs and check the reserve held at the end of the year. Expenditure, income and reserves by DA- Opening reserve, expenditure and closing reserve by each Development Area is shown here.
Financial performance measures (FPM table) - It shows the progress of the development work in a year. It is the key table to show accountability to the trustees and donors. The reports ARBAN has to submit to AAI, regional office, CD, donors are mentioned below:
Table: Financial reports of ARBAN
Report type Yearly financial report Annual report & Half yearly report
To be submitted AAI To Regional Office
Consolidated Quarterly management To CD and Regional Office report Monthly management report To the CD and every budget holder of the CP Project financial report for the donor To the donor
Accounting Equation in ARBAN The principal of accounting that is Asset = Liability + Owner’s Equity is also maintained in ARBAN. ARBAN uses accrual basis of accounting. Total assets = Debt to staffs, other country programs, income due from local contracts + cash at bank and ST bank deposit. Total liabilities = Due to staffs, other country programs, deferred income on local contracts Total assets-Total liabilities = Total equity. Accounting Policy and Procedure Association for Realizations of Basic Needs (ARBAN) has Financial Management Framework where accounting policy and procedures are established. This involves the policies and procedures ARBAN should use to record and monitor financial transactions. Its purpose is to help Association for Realizations of Basic Needs (ARBAN):
. Record all financial transactions . Monitor and control expenditures . Satisfy statutory reporting requirements . Ensure timely and accurate financial and management reporting to donors and grantmakers The core aspects of their accounting policy are about: income, expenditure, reserve, currency and exchange rate movement, fixed asset, depreciation method, liabilities, accrued income and expenditure, and advance and pre payments.
Income ARBAN receives its income as donation and contribution from individual donor or institutional donor from Bangladesh or outside of Bangladesh in support of its activities taken under the Country Strategic Paper (CSP). Only when the income has practical certainty of being approved then it is realized in the accounts. Main child sponsors are from UK, Ireland, Spain, Italy and Greece. For management purpose income is restricted according to the following group:
(Development Area) DA /Project level
National level and Un-restricted at country level Income restricted at DA level is to be spent with sole purpose of the development of that particular DA with the expenditure of supporting that DA. National level income is restricted to be spent at national level to support the DA level work and to address the broader poverty issue. Un-restricted income is spent with the approval of the CD without having any restriction as said above. Income from individual donor is classified according to the following structure received from the Alliance partners.
Table: Income allocation
Alliance partner UK/Italy/Ireland Greece Spain
DA level 70% 60% 80%
National level 10% 10%
Unrestricted 10% 40%
Fundraising 10% 10%
Note: Income allocation is used after deduction of Alliance partner levy.
Income received from institutions is restricted according the objectives/activities that have been agreed between the donor and ARBAN. Only the administrative levy is part of the unrestricted income if the said project has covered its all operational level expenditure. Expenditure Expenditure incurred must follow the internal control procedure set within the policy and in particularly follow: Expenditure should be included in the financial statements in accordance with the accruals concept i.e. recognizing expenditure in the period in which they incur. Must be consistent with the intention of the mission/objective of the organization. Must be processed in accordance with the guidelines, policies and procedures.
Expenditure should be appropriately authorized as guided by the existing Authority Protocol and changes there in time to time.
All expenditures must be supported with appropriate supporting (i.e. cash memo,
Chillan /invoice, bills, claims, Work order etc.)
Expenditure only which are incurred for the organization will be included in the books of
accounts. Reserve Reserves represent the capital of the organization, fixed and working, including short-term resources. The statutory reserve level will remain over the Country Program according to the
AFMF guideline which will be not less than 2 months and not more than 4 months of
planned expenditure of the following year. Every year the reserve level will be analyzed and reviewed before annual budgeting and it would be adjusted in the plans & budget for the next year. Currency and exchange rate movement Dealing with international institutions, and having an international presence ARBAN is exposed to varieties of exchange rate and as a result is open to exchange rate gain or loss. The policy of the CP is to minimize exchange rate loss through maintaining a Great Britain Pound sterling (GBP). Foreign currency account and utilizing the exchange rate information received from The Hong Kong and Shanghai Banking Corporation (HSBC) and from the website www.oanda.com to translate foreign currency to local currency. Fixed Asset Fixed asset are purchased and controlled to support the functions in order to efficiently manage the organization. Fixed asset are of two types:
Table: Types of fixed asset
Fixed asset type Capital items Non-Capital items
Nominal value Economic life Above or equal to £ 5,000 or 3 years equivalent amount in BDT Below £ 5,000 or equivalent amount More than one year in BDT
Depreciation method in ARBAN Depreciation is charged to the income and expenditure account in order to write up the cost of
a fixed asset over its expected life. This means that the cost of asset will be divided by the number of years of asset life to get the annual depreciation charge. Capital items are subject to properly authorize, purchase, recorded, and accounted for, valuation and disposal. It is also subject to depreciation according to the following principle and depreciation of assets to be charged in straight-line method.
Table 9: Depreciation period of capital items
ASSET FREEHOLD PROPERTY
DESCRIPTION Buildings owned by
OUTSIDE EUROPE Association for 10 years
Realizations of Basic Needs (ARBAN) International, ARBAN has no such property in Bangladesh Computer Equipment generators and any other equipment
Other Equipment e.g. photocopiers, 3 years used in the CP All Motorized transport e.g. cars, trucks
Note to mention in case of depreciation: Freehold land will not be part of depreciation. Full year depreciation charged in the year of purchase of an asset and nil in the year of disposal.
Liabilities As ARBAN is following the accrual basis of accounting, it is important that financial obligation to the third parties who have provided resources or to whom ARBAN is liable to pay (e.g. Association for Realizations of Basic Needs (ARBAN) Bangladesh employee provident fund, Association for Realizations of Basic Needs (ARBAN) Bangladesh Employee Gratuity Fund) is accounted in the local balance sheet in the accounting period in which the resources have been received and against whom expenditure has been charged. It should be paid in the following accounting period and be removed from the balance sheet simultaneously. Transaction recorded as liabilities must be supported by sufficient documentation that establishes the basis for their inclusion in the accounts.
However, any goods and services purchased by the CP will be on payment on delivery basis. The CP must not have any agreement with any suppliers that require an interest payable in case of failure of terms and conditions for payment without written approval from the HOF and CD.
Accrued income and expenditure Accrued income represents income due from local/international contractors with sufficient documents supporting the realization of the income with certainty for the project activities already completed in an accounting year. This income is categorized to be received in the local bank account of the CP. Income due from international donor for which the money is to be received in Association for Realizations of Basic Needs (ARBAN) International office is not accounted for in the local account. During the year-end process, this needs to be informed to those offices in order to be incorporated in there accounts. Income due must properly recorded in the debtor account.
In order to accrue expenditure, the goods or services to be received against the expenditure must be received in the accounting period with the purpose of matching the expenditure with the budget and for which payment has not been made. While considering the accrued expenditure the followings are to be considered by HOF: What are the legal arrangement of the contract and how any disputes arising are to be settled Whether any entitlement to the funding requires a specific performance to be achieved (a contract or performance related grant) Whether funds can be used for any of the purposes of the organization, or whether they can only be used for a specific purpose Accruals expenditure should not be booked in the accounts merely to show expenditure utilization against the budget for that specific period, unless the goods or services have been received in that specific period. Where the incoming resources are received in advance then Association for Realizations of Basic Needs (ARBAN) may not have entitlement to these resources until the goods or services have been provided. In this situation, incoming resources received in advance should be deferred until Association for Realizations of Basic Needs (ARBAN) becomes entitled to the resources.
Advance and pre-payment
All payments in advance of the current period should be recorded as assets until receipt of the goods or services involved or until contract terms are met. This excludes Grants to Partners which should be expensed in the Income and Expenditure Account. However a separate ledger to be maintained to track expenditure against the advance made to the partners.
Finance staff ensures that invoices are verified to identify areas where prepayments may occur. Prepayments are considered a standard business practice for the following types of transactions; Memberships and Subscriptions, Rent, Insurance Premiums, Payment to Government Units and Required Deposits. Other prepayments may be acceptable only if it is cost beneficial. The location, reputation and other characteristics of the vendor should be taken into consideration when making prepayments as it could have a bearing on the ability to recover the payment if the vendor defaults in the delivery of the supply or service. Recording of Accounting Information in ARBAN In the cash payment section, when any advance is taken by an individual it is recorded as debit. At the time of returning the remaining amount it is recorded as credit. All the expenditure is recorded as debit in the journal. The transaction part of a sample Cash Payment and Receipt journal in included the appendix part (Table 3 and 4). ARBAN maintains two types of vouchers. One is for payment and another one is for receipt. At the time of receipt the all the expenditure is debited along with received amount. The original amount that had taken as advance is recorded as credit as follows: Only payment up to 10,000 taka is paid in cash. Payment above 10,000 taka is paid by check. For preparing check ARBAN use a software HEXAGON which is supplied by HSBC. After preparing voucher the transactions again recorded in Excel which later converted into 3SUN software for further analysis. Software Used in Finance Unit of ARBAN SUN: SUN (Version 4) is accounting software used by most of Country Programs of Association for Realizations of Basic Needs (ARBAN). Software is fully equipped with lot of data recording and analyzing tools. Through SUN they can capture:• • • • • • Staff wise transactions (training , advance etc), Partner NGO wise transactions (advance, expenditure), Theme/ Sector wise expenditure Donor/ funding country wise expenditure Expense incurred on behalf of other county program & vice versa Budget
Vision: Vision is reporting software. Through this ARBAN can further analysis the financial
data recorded/ processed through SUN. It also gives them the space to prepare report in time donor’s requirement. They also produce the internal management reports (budget and actual expenditure) through vision. In profit oriented organization and also in non profit oriented organization, accounting policies are established based on the organization need. The objectives of accounting i.e. analyzing and interpreting financial information, preparing financial statements, conducting audits, designing accounting system, preparing forecasting and budgets, and providing tax services are same. But it varies in its operational nature with the need of the organization whether it is profit oriented or not. For example, most organizations use a standard accounting software for accounting purpose. But it is not same in all organizations; accountants choose the software according to their organization’s need. All NGOs require a financial management system, however, many small NGOs may only have an accounting or bookkeeping system. Accounting or bookkeeping are a subset of financial management. In NGOs, financial management systems can be broken down simply into administrative systems and accounting systems. Administrative systems assist all NGO managers in decision-making, planning, communicating, controlling and evaluating. Accounting system is concerned with identifying financial information, expressing the information in numeric terms and communicating this information to interested parties. An accounting system provides the framework for working with financial information.
Budgeting of Association for Realizations of Basic Needs (ARBAN) Bangladesh
Budgets have a crucial role to play in strong financial management. For budgets to be useful, they must be accurate and complete. That means that they have to be based on a realistic assessment of the activities that NGOs expect to carry out and of how they expect to pay for them. An important internal control of financial management is the operating and activity budget. This budget includes all monies approved in donor proposals and all activities planned for a given period of time (preferably the fiscal year of an organization). The line items in the budget should coincide with chart of account line items so that expenses can easily be tagged to budget. In ARBAN, budget done in accordance with its income. They follow zero based budgeting. Using a zero-based budgeting and properly dealing with the difference from month to month allows ARBAN to gain total control over every money they spend. If they spend less than planned during the year, they can easily redirect that money where they really want it instead of letting it misused through unfocused spending. The parties involved in preparation of budget are sector head, finance department, and partner organization for partner budget. Important aspect of budgeting of ARBAN are their three year rolling budgeting process, budget responsibility and implementation, and yearly budgeting process.
Three years rolling budgeting process AA introduced 3 year rolling plan in 2000 which enables each AA offices to have medium view on its program, organizational and funding aspects. Responsibility
The regional finance coordinator (RFC) provides guidelines and table formats annually. In ARBAN, Asia finance coordinator provides these formats.
The HOF is responsible to coordinate the process from providing guidelines to consolidating ARBAN budget tables and submit to the region.
Budget holder is responsible to formulate the plan and budget for the area of her/his responsibility.
Funding & fundraising head in collaboration with the HOF is responsible to prepare the funding plan for the whole organization.
The senior management team is responsible to review and approve the plan/budget as well as plan execution.
The CD in consultation with the HOF and other concerned line managers authorizes supplement plan/budget and or makes any adjustment when and where necessary.
The team leader of reporting and statutory compliance team is responsible to review the coding and import the budget into accounting software (SUN). Implementation
Time for planning: September every year for 3 year plan; November every year for annual budget.
Time for approval within the country: October every year. Process: the HOF in consultation with the CD and management team will issue
guidelines for the process every year. • A major review & planning process involving larger stakeholders will be undertaken once every 3 years. In the years between a minor review and readjustment of the plan will be done. Yearly budgeting process For the budgeting purpose each sector has given a budget range. Then the finance section revises the budget and finally prepares it. After completion of the 1+2 budgeting process the reporting and compliance team will provide formatted budgeted expenditure with codes (for tracking expenditure) to every units in the CP in order to provide their plan of expenditure across twelve months. The final individual budget is approved by the CD of the CP and a signed copy is circulated from the finance. After completion of the monthly budget, the budget is uploaded before commencement of the budget year. Profit-oriented organizations sell goods or service, so they have revenues and operating cost that must have to be budgeted. They prepare projected income statements and balance sheets. Non profit oriented organizations prepare cashflow forecast that tells them when receipts and payments will happen, because they cannot start spending money on the project before they have actually received the cash. They also prepare partner budget for various projects. So the classifications of budgets for NGOs are: Unit budget, Cashflow forecast, Salary budget, Project budget. Unit wise budget is their master budget because it includes costs, income, salary, and DA/ non DA budget.
Taxation of Association for Realizations of Basic Needs (ARBAN) Bangladesh
Taxation is the system of raising money to finance government. All governments require payments of money i.e. taxes from people. But non profit organizations do not have to pay any tax for their income from grants. But the employees, who are working in there, have to pay taxes for the incomes they received. Most of the organizations follow tax deduction at source. The suppliers VAT are also deducted at the time of payment by accounts unit of NGOs. For the taxation purpose in terms of salary of employees of ARBAN it follows tax deduction at income source. The withholding of Tax and suppliers’ VAT are described in the following section:
Withholding Tax The team leader of payment and cash disbursement shall ensure that withholding tax is deducted as envisaged in the Bangladesh statutory laws. The tax deducted shall be deposited to government treasury every quarter. S/he shall prepare statutory/tax returns and get it approved from HOF to be submitted to authorities. The tax heads are like salary tax, VAT on suppliers’ goods. There is no any tax imposed on NGO income as it is grant. It is totally tax exempted. But recently Bangladesh government is thinking to impose tax on the income from micro credit and other small income generated activities of NGOs. But ARBAN has no any micro credit scheme. Suppliers’ VAT Suppliers’ VAT is also deducted at source by payment and cash disbursement section of ARBAN at the time of payment. Tax is the largest income source for government. For this taxation has a crucial role in profit oriented organization? They try to give minimum tax and sometimes evade tax so that they can enjoy most profit. They have to give tax for both the personal and corporate income. Governments impose many types of taxes for which only profit oriented organizations are entitled. When high tax rates affect the behavior of profit oriented firms to pay their corporate tax by evasion, non profit oriented organizations do not have any such impact.
Auditing of Association for Realizations of Basic Needs (ARBAN) Bangladesh
Auditing is the process inspection and verification of the accuracy of financial records and statements. Private businesses and all levels of government conduct internal audits of accounting records and procedures. Internal audits are conducted by a firm’s own personnel to uncover bookkeeping errors and also to check the honesty of employees. An external audit is used to give the public a true statement of a company’s financial position. It is made at least once a year by public accountants who are not regular employees of the organization. The auditors make sure that the organization has followed proper accounting procedures in its financial records and statements. They compare the current financial statements with those of the previous year to determine whether the statements are calculated consistently. If they are not, they present a distorted picture of the organization’s financial position. The auditors also inspect real estate, buildings, and other assets to see if their value is overstated. Debts and other liabilities are checked to see if they have been understated.
When the auditors are satisfied that the organization’s accounts are in order, they issue a statement certifying that they believe the organization’s balance sheet, income statement, and records fairly reflect the organization’s financial condition. The audit statement is then made public in the organization’s annual report.
Like profit and non profit oriented organization, in ARBAN both external and internal audit is followed. This chapter discusses the internal and external audit of ARBAN, audit terms of reference, major areas covered by each audit, and the process of recruitment of an external auditor.
Internal audit ARBAN internal audit function is completely independent of the finance function and is administratively reportable to the CD & functionally reportable to the SMT of the CP. There core role include: Strengthening the financial integrity of the organization. Ensure compliance with international/local policies and procedures. Coordinates the outsourced audit to the third parties of CP. Coordinates the risk management of the organization. Update the SMT and local of the audit issues and follow up the recommendation with focal person of the CP. Internal Audits are required for:
Country programs and affiliates (every 2 years)
International themes (every 2 years) Regions (every 2 years) International secretariat (every 2 years)
International functions, like for international themes of AA. Whether planned
expenditure is utilized for the adequate purpose. External audit Head of Finance and Administration initiates the process through a circulation of Terms of Reference (TOR) of audit. Checking or verification is done by Senior Management Team and approved by the Country Director. The purpose of external audit is to independently examine records, procedures and activities, and provide a legally valid report outlining the auditor’s opinion on the state of affairs. External audits are required for:
Association for Realizations of Basic Needs (ARBAN) International consolidated
statutory accounts (every year)
Affiliates, associates and country programs (as per local law)
NGO Affairs Bureau Government bodies, Tax authority etc.
Standard terms of reference for an external audit will include:
In an audit the standard terms of reference are Scope of Work, General Control and Compliance Requirements, Special Audit Areas, Reporting of Audit and Fees.
Review of financial and management controls (in countries this will include both in
country office and in at least 1 DA/partner organizations)
Identification of major risk areas and a review of risk management Review of progress against strategy/strategic plan.
Major areas to be covered in each audit:
Asset control and payments
Financial reporting, including management accounts, reporting to institutional donors/sponsors etc, cost classification, performance measures (including partners), donor relationship management, revolving funds and savings and credit schemes (if applicable)
Other support functions, including local internal audit function (if applicable), work
with partners and partner relations, information technology, compliance with local laws (tax etc).
4ALPS core requirements, including how ALPS core requirements, processes and
standards have been implemented and includes appraisals, strategies/ strategic plans, external reviews, annual review and reflection processes, annual review and learning reports
How countries/regions and themes have applied the principles of accountability to
stakeholders especially to poor and excluded groups and their organizations. This will include budget transparency processes, implementation of open information policy etc. Audit report depends on the TOR of the organization. If external auditor is appointed to audit the financial statements of the organization then they report about that. No major difference between the audit of profitable and non-profitable organization. Only scope of work may be different. Because in profit oriented organization auditors have to audit the inventory of the organization.
In both profit and non profit oriented organizations, internal auditing is an ongoing procedure. There is no any difference in the appointment procedure of an external auditor in profit and non profit oriented organizations, only the regulating body of that particular industry can affect in the recruitment of an auditor. In case of NGOs external auditors should be from the approved list of NGO Affairs bureau and internationally reputed firm. The process of recruitment of an external auditor:
PROCESS 1.Pre-audit preparations
AUDIT ACTIVITIES Check audit TOR (objectives, scope & criteria) Plan audit Appoint audit team Contact audit Prepare work documents Initial document review
Supporting DOCUMENTS TOR, HR policy, Project Objectives, Project Logical Framework
2.Onsite auditing activities
Collect evidence: Documents, interviews, observations Audit team meetings Audit findings: Non-compliance/ issue of concern Conclusions Recommendations Closing meeting
Checklist, Register of interviews, Register of documents, Register of observations
Final Audit Report and Management Report
Performance Evaluation & Controlling of Projects in ARBAN Performance evaluation is very important for the organizational goal achievement. This is true for both profit and non profit oriented organizations. Because it shows the gap between the present and future position of an organization. Performance evaluation is not directly involved with the financial management but it has a close link to financial activities. Donors are financing for the development projects and actually whether their objective is fulfilled or not can be measured by performance evaluation. Performance Evaluation of Projects in ARBAN For the evaluation of performances of any proposed project by the partner ARBAN organizes some field visits to evaluate the performance. After the field visit the visitor have to submit a report to the immediate supervisor. The partner organization has to submit their financial report to ARBAN. All the expenditures have to shown with appropriate supporting documents which ensure the expenditure are properly utilized. The financial statements of partner organization are also monitored to evaluate their performance. ARBAN also evaluate the performance of the project based on the Terms of Reference (TOR) of agreement.
Figure: Steps of Performance Evaluation of Projects
Feasibility study for monitoring by donor
Agreement between donor and NGO
Letter of Intent by donor
Fund approval letter by NGO affairs bureau
Quarterly financial and progress report to donor and NGO affairs bureau
Visit by donor and NGO affairs bureau and audit In the above figure, only the steps under the blocked area are maintained to evaluate performance of projects in ARBAN. Responsibility for the Controlling of Projects The controlling of various projects is done by sector heads. There are various themes under each sector. The theme leader is liable to the sector head for the controlling of his/her theme. For controlling of projects the terms and conditions of agreement is maintained. Regular field visit is done to see the activities of partners. The theme leader is liable to the sector head about control of the project. For the controlling of projects the authority matrix is as follows:
Figure: Responsibility Matrix for the controlling of Projects
Associate Program Officer Associate Program Officer Proposed Performance Measurement Record Sheet for Balanced Scorecard ARBAN can improve its performance evaluation and control by using a standard evaluation technique. The following is a proposed Balanced Scorecard for measuring ARBAN’s projects performance evaluation. This balanced scorecard will measure the performance of any project from four perspectives. They are: Financial perspective, Partner perspective, internal process perspective, and Innovation & learning perspective. The objective of this Balanced Scorecard is to maximize the service provided to marginalized people within the constraints of the available finances. ARBAN will perform better by using this Balanced Scorecard in three aspects such as: it will be able to provide better service with limited funds, provide higher output and make the project very adapting in nature with any change.
Table: Performance Measurement Record Sheet for Balanced Scorecard
Table: Financial Perspective Measure Purpose Relates to Target Formula Frequency Who measures? Source of data Who acts on the data What do they do? Notes and comments Work progress To measure the percentage of work progress within the allocated fund for this period. The need to fulfill the project objective To provide maximum service with minimum fund Number of people participating in the project Total fund spent X 100 To be measured monthly, to be reviewed quarterly Project Officer Monthly financial and field report of the project Program officer, Associate program officer Visit field for monitoring, direct partners to use the resources efficiently, ensure financial transparency
Table: Partner Perspective Measure Purpose Relates to Target Formula Frequency Who measures? Source of data Who acts on the data What do they do? Notes and comments Partner performance To measure the performance of the partner NGO The need to track the contribution of partner in the project objective Increase the partner’s efficiency Partner’s output in the project Total output of the project X 100 To be measured monthly, to be reviewed quarterly Project Officer Monthly financial report of the partner, Qualitative report of the project Program officer, Associate program officer Visit field for monitoring, direct partners to use the resources efficiently, ensure financial transparency
Table: Internal Process Perspective Measure Purpose Relates to Target Formula Frequency Who measures? Source of data Service quality To measure rate of improvement in service The need to reduce waste, minimize rework Achieve a first time transfer of goods Number of goods processed to DA Number of goods purchased X100 To be measured monthly, to be reviewed quarterly Finance officer-Project Material requisition form, Monthly cash ledger
Who acts on the data What do they do? Notes and comments
Finance officer, Administrative officer Ensure quality goods are purchased, give adequate logistics and administrative support
Table: Innovation & Learning Perspective Measure Purpose Relates to Target Formula Frequency Who measures? Source of data Who acts on the data What do they do? Notes and comments
Note: From this four perspective, performance can be measured for other criterion, based on the need of the project. This BALANCED SCORECARD has prepared as a sample by which ARBAN can measure performance of its projects.
Employee development To measure the improvement of the employee The need to increase the employee effectiveness Achieve the project objective 100% on time and if possible perform extra ordinary performance Number of employee participating in the training, and cutting better in appraisal Once in a year Trainer Appraisal submitted by the employee Sector head, HR head Conduct the appraisal of the employee, take necessary action for improvement
In profit oriented organization, generally performance is measured by ratio analysis. In case of NGOs they measure their performance by the actual utilization of project cost of total cost. Their attempt is to minimize the support and fundraising cost as well as maximizing project cost with quality output. Major Findings A profit oriented organization exists primarily to generate a profit, that is, to take in more money than it spends. The owners can decide to keep all the profit themselves, or they can spend some or all of it on the business itself. A non profit oriented organization is organized under rules that forbid the distribution of profits to owners. "Profit" in this context is a relatively technical accounting term, related to but not identical with the notion of a surplus of revenues over expenditures. So, there exist lots of differences in the activities of these two types of organizations. In this chapter, how non profit differ from profit oriented organization and how their financial management differ is described.
How does a nonprofit organization differ from a profit oriented organization? Here are some of the differences between a nonprofit and a profit oriented organization:
When a profit oriented firm starts a business, it is for the financial benefit of its owners and/or shareholders. Profit is the goal and the business pays taxes on that profit.
A nonprofit entity has a mission that benefits the "greater good" of the community, society, or the world. It does not pay taxes, but it also cannot use its funds for anything other than the mission for which it was formed.
Nonprofit organizations can and do make a profit, but it must be used solely for the operation of the organization or, in the case of a foundation, granted to other nonprofit organizations.
When a profit oriented organization goes out of business, its assets can be liquidated and the proceeds distributed to the owners or the shareholders.
When a nonprofit goes out of business, its remaining assets must be given to another nonprofit.
Comparing with profitable organization ARBAN differs in the following areas as a nonprofitable organization.
Differences between the financial management of non profit oriented and profit oriented organization Criteria Portfolio of Investment Profit Oriented Non-profit Oriented development Organization Organization Different lines of product or Different
service, with the growth of projects, with the growth of the organization new product the organization idea of new lines add. project initiates, and possibility of getting funds Source of Income from donors increases. Comes from sales or service. All the income is grants from Individuals are always trying international attractive, and donor and to increase income by strong, sometimes from long term costly and short term investment.
promotional campaign. Types of costs Costs are defined cost,
Their promotional campaigns are not vast. as Costs are defined as project costs, costs, support costs, costs, and and fundraising
operating manufacturing Auditing
service cost etc. Governance costs. Most of the organizations Both internal and external follow both internal and audit is followed. But here external audit. But here audit audit is related of with work area is vast; like audit transparency raw materials etc. Tax is assessed income financial
of procurement, purchased statements, project work etc. Taxation as per Income tax of employees is earns rule. From the income from is totally tax
Government rule. From its assessed as per Government government revenue. As they have to pay grants
tax on their revenue, they exempted. Deduct statutory also can enjoy some tax Tax and VAT from suppliers rebates, like; excise duty, Performance financial activities of and vendors and deposit to import duty etc. Government treasury the Performance is measured by Performance is measured by to various financial service. Ratio analysis is the themes. Their key method for key method to measure their measuring financial performance. performance is analysis of income and percentage of Accountability costs by themes. Accountable to the customer, Accountable to the donor, stakeholders and partner and Government.
organization in terms of total income from sales or expenditure
Government. Responsibilities of financial Forecasting and planning for Forecasting and planning for manager sales, financial coordination dealing Sections department under and with income, and income and with expenditure, and control, financial expenditure investment and coordination decisions, dealing control, activities. financial
activities. finance Many sections are needed to Comparatively the area of carry out the activities of work is narrow because
finance and a large number perform the jobs. Budgeting
activities related to revenue there. Each project has
of employees are involved to accounting are not involved separate finance manager. Sales budget is needed along Budget is needed mainly for with budget of expenditure. income and expenditure.
As the motive of the business is different in profit and none profit oriented organizations, many distinctions can be found and this list will get longer if we further proceed. The core aspect is same, but it differs in practice. Organizations design their financial management practice according to the needs of the organization.
Recommendations and Conclusion
This chapter will tell the recommendations based on findings of the researcher and also the conclusion of the report.
1. In case of disbursing expenditure ARBAN follows specific codes. These are helpful
to track the expenditure with its budgeted range. The whole ARBAN employees have to be much concerned about mentioning the codes at the time of submitting the bill. Finance unit may provide to all sector the table of code of various expenditures. So the employees can write the code at the time of submitting the bill.
2. The suppliers of ARBAN sometimes complained about the payable amount fixed by
the finance department. They are not concerned about the tax, vat amount which are deducted at source. For clear understanding of this finance section may deliver the printed copy of calculation of tax to the suppliers.
3. The staff members of ARBAN who are working in thematic unit have no clear
understanding of ARBAN’s Financial and Accounting policies and practices.
ARBAN has to organize more regular training to enhance their capacity.
important to have some understanding of finance to them because financial activities deal with all sections. ARBAN has to organize more regular training to enhance their capacity.
4. For evaluation of projects there is no any standard format in ARBAN. They may
follow a standard format for performance measurement prepared by an expert in that field.
5. Cost benefit analysis of programs for internal benchmarking needed to be established
in ARBAN. It would be helpful to establish baseline performance and monitor favorable and unfavorable results.
6. ARBAN may use financial models for managing programs. Financial models can
streamline the administration and monitoring of programs, standardize the procedures, and customize how performance should be evaluated.
7. ARBAN has rich resources of publications, but those are not organized. A library
may form where both interested parties and staff members can access to those.
Conclusion The NGO sector in Bangladesh is one of the most active in the world. Successive governments have developed effective partnership with them to improve services – such as microcredit/microfinance, non formal education, quality education campaign, health, nutrition, disaster management, social mobilization etc. More than 25000 national and local NGOs and 150 international NGOs are contributing to different sector, especially, livelihood, education, housing, etc. Association for Realizations of Basic Needs (ARBAN) Bangladesh is an open, flexible & innovative organization for the healthy growth of its program & activities. ARBAN has widely experimented & used a wide variety of participatory tools like report card methodology, participatory budget analysis, public hearing / citizen jury, popular theatre, opinion poll, participatory video, reflect etc. Additionally, child space, cooperative marketing, pot song, adolescence program, TV program & anti trafficking video film made ARBAN a distinct one.
According to the recent Country Strategy Paper (CSP III) Association for Realizations of Basic Needs (ARBAN) Bangladesh is going to measure the performance of its objectives. It is promising the ARBAN plans to develop and introduce systems to register changes in the lives
of the poor and marginalized people. If they are able to measure the performance successfully, then it will lead Association for Realizations of Basic Needs (ARBAN) Bangladesh to an ongoing process of success.
The conclusion drawn from the findings becomes very precise and obvious. The collected information about the financial management of Association for Realizations of Basic Needs (ARBAN) Bangladesh indicates few parameters on which deliberation of judgment can be done. NGO sector is recently criticized fin the question of accountability to the governments and civil society. From the financial point of view, it is very difficult to be hundred percent efficient in the execution of the projects. But auditors have a significant role for judging the accountability of the development works operated by NGOs. Whether profit or non profit oriented, both the organizations have to be accountable to their stakeholders and governments. NGOs can take the glory of transparency by straightforward sharing of financial information to the interested parties.