The Accounting Process of a NGO

The Accounting Process of a NGO

Accounting System of the Organization

The accounting process is a series of activities that starts with a transaction and ends with the closing of the books. Because this process is repeated that’s why it is called Accounting Cycle. By describing the accounting process of NGOs, we should begin by looking at the accounting system of the organization and what it typically consists of. A practical accounting system or accounting process should consist of;

  1. The funding Agreement: This agreement between the donor and the organization should outline all aspects regarding the project and it should include, activities to help achieve the deliverables, funding of the project, reporting on activities, financial report, periods of reporting, management of funding and procurement of goods and stipulations in the budget regarding how the funding is to be applied.
  2. The Budget: Budget includes all the planned activities listed. It is a financial framework listing all activities and deliverables as stipulated in the agreement. It indicates the costs which may be incurred for each specific activity. Provision for administrative costs may include, bookkeeping fees, rental, audit fees, telephone costs, stationery, and other office costs. If during the implementation of the agreement, it is found that certain reasonable costs could exceed the relevant budget line, an agreement has to be reached with the donor to re-adjust the costs accordingly and to re-balance the budget.
  3. Bank Accounts: The choice of a bank will depend on the facilities available at the grantee’s location. If the agreement stipulates that interest earned on the funds of the project is refundable to the donor, a dedicated bank account must be opened to accommodate that agreement. Management ought to decide who is responsible for the approval of payments, the signing of cheques, electronic transfers and handling of petty cash.  Organizations’ must provide safeguards for all grant property, whether cash or assets and ensure that it’s used solely for authorized.
  4. Petty Cash: A petty cash structure must be put in place. One person only (supervised by, for example, the financial controller) should have control over the cash funds, have sole access to the cash and assume responsibility for the reconciliation of the petty cash voucher. The handler of the petty cash is responsible for reconciliation and liable for any shortages of cash.
  5. Procurement: Procurement policy should be based on the principle of assuring the most cost-efficient and rational uses of resources for goods and services that will best serve the organization both at present and in long-term. This system of procurement should not result in a lowering of minimum standards or norms as required by the specific purchase in assessing the quotations received.

(Shapiro, Janet. Financial Control and Accountability Toolkit. CIVICUS, Johannesburg.)

 

The financial situation of an organization should be reviewed at least on a monthly basis, with a focus on the budget, receipts of income and expenditure. Internal accounting control procedures should be adhered to. This will help to ascertain that, assets and records of the organization are not stolen, misused. It also helps to know that the organizations’ policies are followed, government regulations are complied with and that financial information is reliable so that Managers and the Board can depend on.

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