What are the fundamentals of an NGO’s Financial Management?

What are the fundamentals of an NGO’s Financial Management?

Introduction to Financial Management

Financial management is crucial for the success of any organization, be it private, government or non-governmental organization. For any organization to be successful, they ought to watch their finances and make the right decisions at the right time, ultimately leading to a thriving business. Most businesses have a well-structured finance department responsible for looking after the accounts and finances of the company. On the other hand, NGOs most often do not consider financial management to be a priority and lack adequate financial knowledge. This is often characterized by poor financial planning and adequate financial systems in place. This practice makes NGOs very vulnerable to financial losses

What is financial management?

Financial management is the process of planning, organizing, controlling and monitoring financial resources with a view to achieving organizational goals and objectives. It is an ideal practice for controlling the financial activities of an organization such as procurement of funds, utilization of funds, accounting, payments, risks assessment and every other thing related to money. (Funds for NGOs, Grants, and Resources for Sustainability)

Financial Accounting and Reporting

NGOs must ensure that proper books of account and other accounting records are kept for all transactions, separately identified into Funding and Service Agreement (FSA) activities and support services (including central administration and supervisory support), and non-FSA activities. This describes the financial accounting and external auditing requirements expected from non-governmental organizations (NGOs). Compliance with these requirements is a pre-requisite for NGOs receiving Lump Sum Grants and is necessary to support sound financial management. (Lump Sum Grant Manual May 2012).

The Importance of NGOs financial management

Some of the reasons indicating the importance of financial management for NGOs are;

  1. Eliminating fraud and theft: Malpractices and illegal deeds such as overuse of resources, fraud, and theft have become prevalent among NGOs.
  2. Being accountable to the donors: Most NGOs rely completely on donor funding and having proper accounting systems in place ensures their accountability to the donor agencies and individuals who support your cause.
  3. Achieving Objectives: Every NGO is guided by certain policies and procedures, which are related to its objectives. Without organizing finance, it will be difficult for the organization to reach its aim and fulfill its purpose.

It’s the responsibility of NGOs management to plan their expenditures and their investments’ and manage funds in a way that leads to a sustainable enterprise.

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