5. Important questions to ask, before developing a Financial Policy for NGO

Since preparing, drafting and making a financial policy consumes lot of time, policy-deciders must consider the most significant and relevant factors, before getting into actual discussion about the policy. Of all these factors, budget processes and systems within an NGO have maximum effect on financial policies. Therefore, financial policy strategists ask potential questions to have clear understanding about the overall organization and more importantly, its financial aspects.

After jotting the answers to all questions, financial policy strategists can consider it as a primary data to proceed into further discussions about develop    financial policy.

Q1: Does the organization have a board-approved budget at the beginning of fiscal year?

Budgets are one of the most important things to consider, while drafting financial policy. It is the budget that determines organizational expenditures and helps in planning those expenditures throughout the year. When NGOs have board-approved budgets before or at the start of fiscal year, goals and objectives become clearer and stakeholders are guided to their actions.

Q2: Are the financial goals set before the beginning of budget development process?

Financial policy development is dependent on budget development and these policies must adhere to the overall budget plan. Therefore, it is best for NGOs to have financial goals in addition to their overall objectives, as a part of their annual planning process.

Q3: Does the budget development process include revenue budget and expenses by program/function?

NGO budgets must be ideally constructed by a program/function, thereby giving proper insights and clear understanding about the actual costs that needs to be incurred for conducting different activities. Policies contain specific sections that are dedicated to planning revenue budgets and spending. Therefore the budget development process affects these section plans.

Q4: Does the budget process include strategy development for funding overhead costs?

If budgets don’t define strategic development of overhead costs funding, then it is the financial policy that needs to address it. NGOs are often faced with challenges such as securing funds for its administrative costs, raising unrestricted funds and developing earned income streams. These challenges must ideally get a solution either through budget or through financial policy.

Q5: Does the organization have year-end predictions at regular intervals throughout the year?

A clear understanding about where the organization is likely to finish the year, gives an overall direction about financial policies. It also allows proper financial management and measuring the intended results, both of which can be guided through the policy. Often NGOs draft their policy, at par with the budget to address such predictions throughout the year.

Q6: Does the organization have a process for evaluating funding avenues before applying?

When organizations have funding opportunity evaluation process, policies must clearly define strategies for doing so and must support these processes. In case, such processes are not practiced, policies have a dual role: to define the objectives and goals behind funding avenues and strategizing it for better understanding.

Q7: At what intervals does the organization produce reports to the management committee?

Financial reports are submitted to the senior management, either on quarterly basis or on monthly basis. While drafting a financial policy, this interval must be considered as the policy contains information that will guide the management committee and help them in assessing if the overall performance and progress of the organization.

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Q8: Does the organization use dashboards to highlight key indicator performance?

Dashboards are nothing but visual representation of selected KPIs (Key Performance Indicators) through which decision-makers are briefed about the current standing of the organization, against its set goals and objectives. If the organization is not taking KPIs, then financial policies must address to such important needs and state it under their evaluation and monitoring procedure.

Q9: When does the organization forecast year-end financial result?

Financial policies must be prepared through potential assumption of where the organization is likely to end, from a financial perspective. Policy-makers can sit with finance heads and hear their views on this aspect. Accordingly, policies should be made to ensure that its outcome aligns with organizational goals, at the ultimate stage.

Q10: Does the finance staff have proper understanding about job descriptions?

One of the most significant points to be addressed in the finance policy is defining the roles and responsibilities of all financial positions. Policies must consider recent up gradations in work and match pace with current trends that are being practiced in other NGOs. Financial policy must clearly define designations along with the bunch of duties and responsibilities.

Q11: Does the finance staff receive proper training and guidance?

Financial policies must address the need for proper training and guidance of its financial staff. It must formulate strategies that will help in conducting training programs and sessions so that financial staff gets more educated and are informed about their scope of work.

Q12: Are the finance staff aware about the organizational goals and objectives?

Since financial policies mostly cater to financial aspects with the organization, often the big picture gets ignored. Therefore, such policies should ideally be prepared in a manner that will clearly communicate the organizational aims and objectives along with financial goals so that the financial staff can have clarity in understanding overall objectives and how these policies are related to these objectives.

Q13: Does the finance office maintain an annual calendar of important events and activities?

NGOs have a continuous list of ongoing events, activities and ventures, round the year. Financial policies must address the needs and requirements for carrying out planned activities, successfully. If events have already been planned, policies must provide guidelines to govern and execute the destined activities.

Q14: Does the organization have fiscal workflow processes?

Fiscal workflow processes are designed to minimize manual data entry, reliance on paper and duplicative work. Policies must define suitable technologies according to the fiscal workflow process of the organization with a view to increase efficiency and reliability of operations.

After finding the most relevant answers to the above questions, policy-makers then start thinking about all sections to be covered in the policy, specific sections that require more emphasis and new things to be incorporated, if any. Accordingly, they proceed towards planning and drafting the financial policy of the organization.

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