To ensure transparency, accountability, and effective financial management, Non-Governmental Organizations (NGOs) must follow specific accounting practices, parameters and maintain a robust financial system. By incorporating the information and requirements, NGOs can establish a robust and effective accounting and financial management system. If they follow these guidelines then they can be enable to maintain transparency, ensure compliance, and ultimately support their mission to make a lasting positive impact on society.
The overview of NGO accounting, covering essential requirements, practices, and guideline for maintaining a transparent, manageable, and efficient accounting system:
- NGO Financial Management Policy
- Budget Management
- Financial Planning and Forecasting
- Internal Control Measures
- Procurement, Stock, and Inventory Management
- Managing Payroll and Expense Management
- Requirements and Practices of NGO Accounting
- Selecting an Accounting Method
- Managing Cash Accounts and Transactions
- Bank Account Management
- Financial Statements and Reporting
- Developing Financial Reports for Stakeholders
- Local Conveyance Management
- Forms and Templates
- Hiring or Outsourcing Nonprofit Accounting
- Maintaining Fixed Assets Register
- Procedures for Purchases
NGO Financial Management Policy
The NGO Financial Management Policy serves as a base for managing an organization’s finances, providing guidelines and procedures to ensure transparency, accountability, and compliance with relevant regulations. It covers various aspects of financial management, including budgeting, planning, internal controls, and procurement.
- Budget management
- Financial Planning and Forecasting
- Internal control measures
- Procurement, Stock, and Inventory Management
- Managing Payroll and expense management
Budget Management
Budget management involves developing, monitoring, and updating an organization’s budget, which outlines expected income and expenses. Effective budget management is required for NGOs to plan and monitor their financial activities, ensuring the alignment of financial resources with organizational goals and objectives.
- Develop an annual budget
- Review and update the budget regularly
- Involve key stakeholders in the budgeting process
Financial Planning and Forecasting
Financial planning and forecasting are essential tools that enable NGOs to make informed decisions about their operations and resource allocation. By developing multi-year financial plans and regularly updating financial forecasts, NGOs can anticipate future financial needs and adjust their strategies accordingly.
- Develop a multi-year financial plan
- Regularly review and update financial forecasts
- Use financial planning and forecasting tools
Internal Control Measures
Internal control measures are systems and processes designed to mitigate financial risks, ensure accurate financial reporting, and maintain compliance with established policies and procedures. Robust internal controls are vital for NGOs to prevent fraud, mismanagement, and errors in financial transactions.
- Assign clear roles and responsibilities for financial tasks
- Implement checks and balances to prevent fraud and errors
- Train staff on financial policies and procedures
- Implement approval processes for financial transactions
Procurement, Stock, and Inventory Management
Procurement, stock, and inventory management are processes that ensure the efficient and responsible use of resources, minimizing waste, and preventing misappropriation. NGOs must establish clear policies, guidelines, and procedures for procurement, stock management, and inventory control, in accordance with local laws and donor requirements.
- Develop procurement policies and guidelines
- Establish clear procurement procedures
- Conduct regular stock and inventory audits
Managing Payroll and Expense Management
Managing payroll and expense management involves establishing clear procedures for employee salaries, benefits, and advances, ensuring compliance with labor laws, tax regulations, and organizational policies. Proper payroll and expense management are critical for maintaining accurate financial records and promoting transparency in the organization.
- Develop a payroll system
- Ensure timely payment of salaries and benefits
- Document and track salary advances and repayments
Requirements and Practices of NGO Accounting
NGO accounting refers to the principles, requirements, and practices necessary for maintaining a transparent, manageable, and effective accounting system. This includes complying with tax regulations, keeping accurate records, implementing internal control measures, and adhering to a robust financial management policy
- Follow tax compliances and relevant regulations
- Keep accurate records of financial transactions
- Prepare, maintain, and follow a financial management policy
- Implement internal control measures
Selecting an Accounting Method
Choosing an accounting method involves deciding between cash basis and accrual basis accounting, both of which have distinct approaches to recording financial transactions. NGOs should consider factors such as size, funding sources, and legal requirements when selecting the most suitable method for their organization.
- Cash basis method
- Accrual basis method
- Factors to consider when selecting a method
Managing Cash Accounts and Transactions
Managing cash accounts and transactions involves establishing procedures to handle cash inflows and outflows, ensuring accurate record-keeping, and facilitating cash account reconciliation. NGOs must maintain cash books, use payment vouchers, and issue donation receipts to promote transparency and accountability in their financial operations.
- Regular cash account reconciliation
- Maintain a cash book
- Use payment vouchers and donation receipts
Bank Account Management
Bank account management encompasses the best practices for operating and maintaining bank accounts, including ensuring proper authorization for transactions and reconciling bank statements with internal records. NGOs should open and operate bank accounts in the organization’s name and follow established guidelines to prevent unauthorized access and misuse of funds.
- Open and operate bank accounts in the organization’s name
- Ensure proper authorization for bank transactions
- Reconcile bank statements with internal records
Financial Statements and Reporting
Financial statements and reporting are essential for NGOs to demonstrate their financial health, accountability, and transparency to donors, partners, and other stakeholders. NGOs must prepare periodic financial statements, such as balance sheets, cash flow statements, and income statements, and share them with relevant stakeholders.
- Balance sheet
- Cash flow statement
- Income statement
- Budget variance reports
- Compliance with accounting standards, donor requirements, and local regulations
- Share financial reports with relevant stakeholders
Developing Financial Reports for Stakeholders
NGOs should prepare tailored financial reports for different stakeholders, such as donors, board members, and management, providing relevant, accurate, and timely information. These reports demonstrate the organization’s financial performance and accountability, fostering trust and credibility among stakeholders.
- Tailor financial reports to stakeholder needs
- Demonstrate financial performance and accountability
Local Conveyance Management
Local conveyance management involves tracking and managing expenses related to local travel and transportation for NGO staff. NGOs should establish a system for recording trip details, maintaining a local conveyance sheet, and verifying the accuracy of submitted expense reports to ensure transparency and accountability.
- Record details of each trip
- Maintain a local conveyance sheet
- Require employees to submit expense reports with supporting documentation
- Verify the accuracy and validity of expenses
- Obtain approval from authorized personnel for reimbursement
Forms and Templates
Forms and templates help streamline the accounting and financial management processes for NGOs, ensuring consistency and accuracy in their financial records. They can include budget preparation templates, cash book and ledger maintenance forms, payment vouchers, and donation receipts, among others, to simplify and standardize financial operations.
- Budget preparation template
- Cash book and ledger maintenance template
- Payment vouchers and donation receipts template
- Fixed assets register and stock book register templates
- Financial report templates
Hiring or Outsourcing Nonprofit Accounting
NGOs must decide whether to hire in-house accounting staff or outsource their accounting functions and financial management to professional service providers. Factors such as the organization’s size, budget, and complexity of financial transactions should be considered. Outsourcing can offer benefits like access to specialized expertise and resources, enhanced efficiency, and allowing staff to focus on core programmatic activities.
- Factors to consider when deciding between in-house or outsourcing
- Evaluate costs and benefits of outsourcing
- Maintain oversight of outsourced functions
- Benefits of outsourcing
Maintaining Fixed Assets Register
Maintaining a fixed assets register involves tracking and managing an organization’s assets, such as buildings, vehicles, and equipment. NGOs should record each fixed asset’s details, assign unique identification numbers, and regularly update the register to ensure accurate valuation and reporting of their assets.
- Record fixed asset details
- Assign unique identification numbers to assets
- Update the register regularly
Procedures for Purchases
Implementing standardized purchase procedures helps NGOs maintain transparency, accountability, and cost efficiency in their procurement processes. These procedures include obtaining and evaluating written quotations or bids from multiple suppliers, verifying budget availability before initiating purchases, and maintaining proper documentation for all transactions.
- Obtain and evaluate written quotations or bids from multiple suppliers
- Obtain approvals and verify budget availability before initiating purchases
- Maintain proper documentation for all transactions
NGOs have to follow and implement accounting and financial parameters, to establish a robust and effective accounting and financial management system that ensures transparency, accountability, and compliances. Following these guidelines can allow NGOs to maintain credibility and trust among stakeholders, ultimately supporting their mission to create a lasting positive impact on society. As NGOs grow and evolve, they should continuously review and improve their accounting practices to adapt to changing needs and requirements.