6. Structure of Financial Management Policy

All financial decisions, activities and plans are done in accordance to a set of procedures that form the basis of the financial policy. Once the financial objectives are confirmed, the next move is to frame policies to guide its further proceedings. Financial management policy of an NGO is a manual that covers all the accounting policies, procedures and systems of the organization. Primarily, there are two purposes for framing a financial policy

  • To look into proper governing of the financial transactions taking place in the concern so that the staff can abide by the set procedures and
  • To fulfill requirements of local statutory bodies and establish strong management practices, as adopted by the NGO.

6.1 Principle of Financial Policy: While developing a financial policy it is a good practice to incorporate the following seven principles suggested by experts. These principles lay the foundation of an effective financial policy which would ultimately result into a healthy organization.

  1. Consistency: The financial policy should be consistent, which simply means that it should not allow manipulation of processes and systems. All the staff members should consistently adhere to the financial policy and there should not offer much flexibility. A consistent policy will ensure better accountability, transparency, better information dissemination and timely reporting.
  2. Accountability: The financial systems should be such that it makes the organization more accountable to its stakeholders. As an NGO all you should account for all the resources and its expenses. For this the policy should clearly indicate the procedures for reporting and publication of financial data.
  3. Transparency: An organization should disclose all its operation and provide necessary information to stakeholders. This means that the NGO should provide accurate and timely information to donors, beneficiaries and all relevant stakeholders.
  4. Viability: For an NGO to be viable in the long run, the policy should set in place a mechanism that would maintain a balance between its expenditure and income. For any organization to be viable it is important that team leaders are able to generate sufficient funds to continue the functioning of the NGO.
  5. Integrity: All team members should follow all rules set by the financial policy. As a founding member you should set precedence in following and adhering to all rules.
  6. Oversight: The policy should also provide oversight into the future and should accordingly suggest measures to cope with future challenges. This would include risk assessment; strategic planning etc.
  7. Accounting standards: The policy should be such that it incorporates valid national standards and protocols. The accounting systems should meet national and international standards of financial accounting and recordkeeping this would facilitate easy transactions between diverse funding strategies.

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6.2 Scope of Policy & Procedures: Financial management policy throws light on the procedures, systems and accounting policies that are prevalent in the organization. The policy contains information about input, output, processing, control and distribution of financial data. The accounting policies and procedures are set out to:

  • Make certain that the books of accounts of the NGO are carefully prepared to confirm its accounting principles and practices.
  • Enable NGO’s authority and management heads to procure timely and accurate financial reports on every month. This also fosters stable financial management.
  • Ensure that funds and other resources are being used in an accountable and correct manner. Also, make sure that financial approach is in line with accounting principles and best practices in reporting organization’s requirements.

This document is not just necessary for you to manage your finances and accounts, but this would also help you in complying with legal protocols. The policy will cover the flow of financial data within the organization that would ensure that the health of your NGO in terms of finances remains good. Having a sound financial policy in place will certainly enable you in keeping track of the NGOs expenditure, basis which you can plan your fundraising strategy.

6.3 Purpose of Policy & Procedures: Financial policies and objectives have the following significant objectives:

  • To provide assistance in maintenance of controls.
  • To serve as a training and monitoring resource.
  • To be a reference document to be used by the management, employees, auditors and stakeholders.
  • To increase accuracy and completeness of data that is posted from source documents (invoices, journals, cashbooks, payment receipts) to the computerized system.
  • To offer accurate and credible reports so that management can exercise effective control over organizational operations.
  • To detail-out the administrative and operational procedures for input, output, processing and distribution of information so as to ensure complete security and privacy of files and documents.

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