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management entails planning, organizing, controlling and monitoring
the financial resources of an organization to achieve objectives.
important financial aspects that are key for the formation and
operation of an NGO are as follows:
financial policies and systems of an NGO must be consistent over
time. This promotes efficient operations and transparency, especially
in financial reporting. This does not mean that systems may not be
refined to cope with a changing organization. Inconsistent approaches
to financial management could be a sign that the financial situation
is being manipulated.
The organization must explain how it has used its resources and what it
has achieved as a result to all stakeholders, including
beneficiaries. All stakeholders have the right to know how their
funds and authority have been used. NGOs have an operational, moral
and legal duty to explain their decisions and actions, and submit
their financial reports to scrutiny
organization must be open about its work, making information about
its activities and plans available to relevant stakeholders. This
includes preparing accurate, complete and
financial reports and making them accessible to stakeholders,
including beneficiaries. If an organization is not transparent, then
it may give the impression of having something to hide.
be financially viable, an organizations expenditure must be kept
in balance with incoming funds, both at the operational and the
strategic levels. Viability is a measure of the NGO's financial
continuity and security. The trustees and managers should prepare a
financing strategy to show how the NGO will meet all of its financial
obligations and deliver its strategic plan.
a personal level, individuals in the NGO must operate with honesty
and propriety. For example, managers and Board members will lead by
example in following policy and procedures and declare any personal
interests that might conflict with their official duties.
integrity of financial records and reports is dependent on accuracy
and completeness of financial records.
organization must take good care of the financial resources it is
entrusted with and make sure that they are used for the purpose
intended --this is known as financial stewardship. The governing body
(eg the Board of Trustees) has overall responsibility for this. In
practice, managers achieve good financial stewardship through careful
strategic planning, assessing financial risks and setting up
appropriate systems and controls.
system for keeping financial records and documentation must observe
accounting standards and principles. Any accountant from anywhere
should be able to understand the organization's system for keeping
OF FINANCIAL MANAGEMENT
is no model finance system which suits all NGOs. But there are some
which must be in place to achieve good practice in financial
organization must keep an accurate record of financial transactions
that take place to show how funds have been used. Accounting records
also provide valuable information about how the organisation is being
managed and whether it is achieving its objectives.
to the organization's strategic and operational plans, the budget is
the cornerstone of any financial management system and plays an
important role in monitoring the use of funds.
the organization has set a budget and has kept and reconciled its
accounting records in a clear and timely manner, it is then a very
simple matter to produce financial reports which allow the managers
to assess the progress of the organization.
system of controls, checks and balances collectively referred to as
internal controls put in place to safeguard an organization's assets
and manage internal risk. Their purpose is to deter opportunistic
theft or fraud and to detect errors and omissions in the accounting
records. An effective internal control system also protects staff
involved in financial tasks.
are many too;ls which a manager of an organization can use to achieve
good practices im financial management. These includes the following:
the term nonprofit mean that the organization cannot have more
revenue than expenses?
nonprofit organization is one that does not declare a profit and
instead utilizes all revenue available after normal operating
expenses in service to the public interest. These organizations can
be unincorporated or incorporated. An unincorporated nonprofit cannot
be given federal tax-exempt status or the designation of being an
organization as defined by the Internal Revenue Service. When a
nonprofit organization is incorporated, it shares many traits with
for-profit corporations except that there are no shareholders.
a Profit From "Related" Activities
corporations, by definition, exist not to make money but to fulfill
one of the purposes recognized by federal law: charitable,
educational, scientific, or literary. Under state and federal tax
laws, however, as long as a nonprofit corporation is organized and
operated for a recognized nonprofit purpose and has secured the
proper tax exemption , it can take in more money than it spends to
conduct its activities.
Making a Profit From "Unrelated" Business Activities
nonprofits make money in ways that aren't related to their nonprofit
purposes. While nonprofits can usually earn unrelated business income
without jeopardizing their nonprofit status, they have to pay
corporate income taxes on it, under both state and federal corporate
Please let me know if you need any clarification. I'm always happy to answer your questions.
Oct 5th, 2015
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