Financial Policy
Many small non-governmental organizations (NGOs) have crafted financial policies, yet upon reviewing both national and local organization policies, it’s apparent that many lack the necessary depth to instill confidence in potential donors regarding the safe allocation of grants. Bearing in mind that donors and stakeholders require clear guidelines on resource utilization, which in turn mitigates organizational risk, the significance of robust financial policies and procedures cannot be overstated.
Developing policies within an organization is a collaborative endeavor that requires careful consideration of various stakeholders’ interests and concerns, particularly elected officials and public management. The aim of this collaborative approach is to create policies that not only garner sufficient support for adoption but also possess the strength to overcome challenges during implementation.
Here are some guide for the development of financial policies:
Establish Vision and Values: Define the organization’s vision of success, emphasizing its financial condition post-implementation of strategies and attainment of full potential.
Define the Problem: Clearly outline the problem the policy intends to address. Policies that tackle significant issues are more likely to engage the board and staff. Consider policies as tools for managing risk and navigating uncertainties effectively.
Draft the Policy: Ensure the policy encompasses fundamental technical elements. Ask pertinent questions such as “What do best practices recommend including in similar policies?” and “How do other entities address comparable situations?”
Consider Reactions: Reflect on potential stakeholder reactions to the policy. Assess its implications for flexibility versus control and evaluate how associated risks are managed or neglected.
Initiate Executive Team Review: Review the initial draft with the executive team to identify concerns early in the process.
Present Policy to Elected Officials Informally: Discuss the policy with elected officials in a relaxed setting to address concerns or questions proactively.
Initiate Public Comment Period: Consider offering a public comment period to gauge public reaction, although this step is optional.
Formally consider and adopt the Policy: Present the policy to the organization’s board for formal review and approval.
Implement the Policy: Inform staff about the new policy and ensure its accessibility through a centralized repository, such as a dedicated policy website, for swift dissemination of updates.
Monitor and Maintain Policies: Regularly review and update policies to ensure their relevance and effectiveness. Conduct formal reviews of all policies or a subset annually to uphold their currency.
Financial policies serve as sets of principles and guidelines governing key areas of organizational activity. They eliminate ambiguity surrounding resource allocation. For instance, a vehicle policy outlines who can operate organizational vehicles, their disposal procedures, and regulations concerning staff’s private usage. Typically, policies are drafted by senior management, ratified by the Board or management team, and binding on all members of the organization. Compliance failure may result in disciplinary measures. A well-crafted policy is fair, realistic, comprehensive, legally compliant, and financially viable.
Procedures delineate the steps for implementing policy guidelines, often mandating the completion of standardized forms to gather data and authorize actions. For instance, vehicle procedures might necessitate vehicle requisition and journey log completion. Procedures foster operational smoothness, promote consistency, accountability, and transparency, facilitate decentralization, and aid managers in decision-making.
For national or local organizations formulating financial policies, adopting a structured approach is paramount to ensure fairness, realism, and stakeholder acceptance. Here’s a recommended approach:
Stakeholder Involvement: Engage relevant personnel in policy development to enhance buy-in and adherence.
Information Gathering: Collect pertinent data to inform policy development, leveraging insights from other NGOs if necessary.
Policy Drafting: Articulate the policy purpose, applicability, guidelines, and references for clarity and coherence.
Feedback Solicitation: Circulate the draft policy for input to assess fairness, realism, and support.
Post-Implementation Review: Assess policy effectiveness periodically to ensure alignment with organizational objectives and adaptability to changing contexts.
A Finance Manual consolidates financial policies and procedures into a single document, serving as a comprehensive reference for day-to-day operations and query resolution. It must be dynamic, utilized by all staff, and subject to regular review and update.
Key components of a Finance Manual may encompass:
Chart of accounts and cost center codes
Delegated authority rules
Budget planning and management procedures
Procurement guidelines
Bank and cash handling protocols;
Financial reporting routines and deadlines
Fixed asset management and control measures
Staff benefits, allowances, and annual audit arrangements
Fraud mitigation strategies and staff/board code of conduct
Organizational chart and job descriptions
Standard forms for simplified financial administration tasks.
Standard forms streamline financial administration routines and ensure procedural adherence. They include supplies requisition, payment vouchers, petty cash vouchers, purchase orders, advance requests, travel expense claims, asset registers, vehicle log sheets, bank reconciliation forms, and journal vouchers.
By adhering to these structured processes and guidelines, organizations can enhance financial transparency, accountability, and operational efficiency, fostering donor confidence and organizational sustainability.
Allocation of cost share
I have seen a lot of small NGO during my reviewing and organization assessment having difficulty in accurately allocating cost share among multiple project or activities which has led to lack of transparent and consistent method for distributing the share cost what to as an organization is to
Implement a transparent and consistent method for allocating shared costs to relevant projects. Consider factors like project budgets, staff costs, and space usage to determine fair apportionment.
2. Petty Cash Management:
A lot of small local and national organization practice petty cash and they have a poor management system most of them, petty cash is effectively crucial for maintaining financial integrity and sustainability of any organization some of the organization Petty cash handling may lack proper documentation and control, leading to inaccuracies and potential misuse.
As an organization establish clear procedures for petty cash management, including fixed float systems and regular reconciliations. Ensure receipts for all transactions and restrict access to authorized personnel only
3. Cash Control and Security:
Implement strict controls, such as separate handling of incoming and outgoing cash, dual authorization for transactions, and prompt deposit of surplus cash into the bank. Consider investing in safes or secure storage options for cash and important documents.
4. Documentation and Reporting:
Emphasize the importance of thorough documentation for all financial transactions, including receipts for money received and paid out. Regularly reconcile petty cash records with bank statements to ensure accuracy.
5. Training and Capacity Building:
Have it at the back of your mind that limited knowledge and capacity in financial management practices may hinder effective implementation of controls and procedures. Small NGO are failing to develop the capacity of their staff to utilize modern technology in their daily financial operations.
Organizations should invest in training and capacity building initiatives for staff and volunteers involved in financial management. Provide guidance on best practices, accounting principles, and compliance requirements.
By implementing robust financial management practices, small NGOs can enhance transparency, accountability, and overall organizational effectiveness. Remember, effective financial management is essential for achieving your mission and maximizing impact in the communities you serve.