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.