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Role of Finance & Accounts in an NGO

Objective of the course

    1. Educate non finance/program staff on financial matters to deliver work efficiently within the framework of
      (a)

      • internal controls and
        (b)

      • external statutory and regulatory compliances

    2. Wear the finance hat for taking operational decisions while discharging duty

    3. Facilitate smooth interface between finance and non-finance/program staff for achievement of organization goals.

Curriculum content

Session plan:

  1. Role of Accounting & Finance function in a not-for-profit organization.

  2. Grant Management.

  3. Concept of Fund based accounting, cost types, cost principles, Budgeting & Budgetary Controls in NGOs

  4. Overview of financial statements of an organizationNPO

  5. Procurement of goods & services, Contracts, Inventory and Assets

  6. Overview of Regulatory framework and Statutory Laws for NPOs-NPOs - brief details of Income Tax, FCRA, CSR, GST, Labor Codes which program staff should know-Pt Iknow

  7. OverviewKey ofPolicies: Regulatory framework and Statutory Laws for NPOs-brief details of Income Tax, FCRA, CSR, GST, Labor Codes which program staff should know-Pt II

  8. Finance & HR Policy-Policy need and contents

  9. Audit & Assurance

  10. Risks, internal controls, Efficiency, Effectiveness & Ethics.

Objectives of an NPO

  • Primary objective -objective: Maximise benefitssocial tobenefits/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

  • CommunicationsCommunications, Advocacy and Public Relations

  • Research

  • New Business (fund raising)

  • Training & Capacity Building

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

Types of Resources an NPO uses

  • Material - capital goods, program goods, supplies

  • Money - cash, bank

  • Labour - Human resources of organisation

Role of Non Finance Staff on 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

Finance Function

  • Finance function looks after the financial resources of an organization

  • Difference between Accounting & Finance though used interchangeably.

    • Accounting looks Back while Finance looks Forward

  • The finance function’s role is:

    • manage financial resources of the organization

    • provide information to various stakeholders to help economic decision-making

    • ensure statutory and regulatory compliance

    • Manage risks through appropriate internal controls

Financial Management

  • Financial Management is the business function that deals with investingplanning, theorganizing, availablemonitoring and controlling financial resources inof aan wayorganization.

    that

  • It focuses on spending financial resources to deliver greater businesssocial success and return-on-investment (ROI) is achieved.impact

  • Why financial management:

    • Accountability and Transparency to donors

    • Accountability toand communities we serve

    • Allocation of financial resources for organisation activities

    • Investment decision for resources

    • Statutory/regulatory compliance

      reporting

    • Financial Reporting to stakeholders

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

    • MinimiseInternal fraud,Controls theftframework

      and

    • Custody of financial resources to minimise resource misuse and embezzlement

    • Better decision bymaking peopleon relatingFinance to financesfulfil the Mission based o data and analysis

    • EnhanceEnhanced credibility and trust thereby giving a competitive edge

    • ManagingManging 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:

    • PlanningFinancial Resources for operations

    • Financial sustainability

    • For Controls (Framework)-Polici

      budgeting
      • -
    organisation,
    2. donor

  2. Forecasting-long term and short term

    • Budgets-organisation and programs/projects

    • ContractingFund - draw, review and sign off donor agreementsflows

    • Fund/grantOperating receipts,Cash

      disbursements

  3. Resource Allocation: manpower, material, money

    • Banking

    • PoliciesTreasury & Procedurescash (P&Ps) - Finance policy, Travel policy, Conflict of interest, Risk policymanagement

    • RecordingHR, 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 - reconciling-bank, vendor, employee, grant etc

    5. Role of Finance Function in NPO

    1. Forecasting - long term and short term
      • Budgets
      • Fund flows
      • Operating Cash
    2. Resource Allocation - labour, material, money
      • Banking
      • Treasury & cash management
      • Procurement of goods and services as per policy and prevalent laws
      • Inventory management - slow moving, waste, loss
      • Asset management - depreciation, obsolescence, loss 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 for social impact

    2. Monitoring Controls

      • Budgetary (realignment, reallocation)

      • Adherence to policies and procedures for Internal control procedures

      • Audits and assurances - assurances-statutory, internal,internal donor, Govt

      • Monthly MISMIS-Financial, Program

    3. Facilitator - support on finance to all other functions

    Role of finance function in NPO

    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.

    Identify how many

    Role of theNon Finance Staff in Financial Matters

    • Non finance functionsstaff arehandle performedresources bothwhich byhave value

    • Non finance andstaff nonauthorise various types of expenditure - travel, procurement, office exp, statutory dues

    • Non finance staff.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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