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Role of Finance & Accounts in an NGO

Objectives of an NPO

  • Primary objective: Maximise social benefits/services/impact for beneficiaries it serves

  • Secondary objective:

    • Economy - control costs

    • Efficiency - achieve objective in minimum costs (Process, doing things right)

    • Effectiveness - measure of achievement with reference to objectives (Result, doing the right thing)

Change - The New Norm for NPOs

  • Change

    • Donor expectation

    • Statutory and regulatory landscape

    • Govt orientation towards charity

    • Technological developments

  • Change offers: Risks and opportunities

  • Impacts organisation in terms of future growth, even existence.

Types of Resources an NPO uses

  • Material - capital goods, program goods, supplies, technology

  • Money - financial resources

  • Manpower - Human resources of organisation

Main Functions of an NPO

  • Program

  • Finance & Accounts

  • Admin

  • Communications, Advocacy and Public Relations

  • Research

  • New Business (fund raising)

  • Training & Capacity Building

  • Every staff in every of above function performs a finance role

Financial Management

  • Financial Management is the business function that deals with planning, organizing, monitoring and controlling financial resources of an organization.

  • It focuses on spending financial resources to deliver greater social impact

  • Why financial management:

    • Accountability and Transparency to donors and communities we serve

    • Allocation of financial resources for organisation activities

    • Investment decision for resources

    • Statutory/regulatory compliance

    • Financial Reporting to stakeholders

    • Futuristic planning-Financial security, Sustainability and long term growth

    • Internal Controls framework

    • Custody of financial resources to minimise resource misuse and embezzlement

    • Better decision making on Finance to fulfil the Mission based o data and analysis

    • Enhanced credibility and trust thereby giving a competitive edge

    • Manging risk through Internal Controls

    • Meeting organisation goals

Finance Function in an NPO

  • Finance function ensures organization's financial health and sustainability

  • The finance function’s role in an NGO is:

    • Manage financial resources of the organization

    • Make strategic finance decisions for sustainability

    • Operational support-uphold internal controls and support other functions including fundraising

    • Report to stakeholders to help decision-making

    • Statutory and regulatory compliance

    • Manage risks through suitable internal controls

Difference between Accounting & Finance though used interchangeably: Accounting looks Back while Finance looks Forward!

3 key roles of Finance function in an NPO

  1. Enable Value Creation
  2. Shape Value Creation
  3. Narrate Value Creation
  • These are in chronological order
  • Role is performed by CFO and team he/she leads in Finance function duly supervised by Chief Functionary and Governing Board
  • Value creation for an NPO means maximising social outputs/outcomes using the various resources

Role of Finance Function in NPO

Enables Value Creation through

  1. Planning:

    • Financial Resources for operations

    • Financial sustainability

    • For Controls (Framework)-Polici

  2. Forecasting-long term and short term

    • Budgets-organisation and programs/projects

    • Fund flows

    • Operating Cash

  3. Resource Allocation: manpower, material, money

    • Banking

    • Treasury & cash management

    • HR, Goods and services procurement as per policy and prevalent laws

    • Inventory management-slow moving, waste, loss

    • Asset management-depreciation, obsolescence, loss etc

  4. Recording:

    • a. Book keeping i.e. recording transactions

    • Accounting i.e. summarisation, analysis and interpretation of financial data

    • Closing and reconciling-bank, vendor, employee, grant etc

Role of Finance Function in NPO

SHAPES value creation through

  1. Performance Measurement and Management

    • Budget monitoring (budget variance analysis) - organisation, projects

    • Measuring Value for money (VFM) - ratios

    • Return (social return) on investment (SROI), Social impact audit

  2. Monitoring Controls

    • Budgetary (realignment, reallocation)

    • Adherence to policies and procedures for Internal control

    • Audits and assurances-statutory, internal donor, Govt

    • Monthly MIS-Financial, Program

  3. Facilitator - support on finance to all other functions

NARRATES the value creation through

  1. Financial reporting

    • Donors - periodic FR, annual audited UC, supporting fundraiser with financial data

    • Govt bodies - IT, FCRA, Registering agency, EPF, ESI, TDS, GST

    • Board/top management - financial health

  2. Focal point with external stakeholders on institutional matters

    • obtaining statutory approvals

    • financial assessment by donors, govt etc.

Role of Non Finance Staff in Financial Matters

  • Non finance staff handle resources which have value

  • Non finance staff authorise various types of expenditure - travel, procurement, office exp, statutory dues

  • Non finance staff own and operate project budgets

  • Project decisions of Non finance staff in field have financial implications - allowance/disallowance

  • Decisions in field of Non finance staff have compliance implications with laws of land

  • Non Finance staff actions affect reputation and even our very existence

Please note: Information is for reference only. Read our disclaimer here.

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