Why Your NGO Is Facing Financial Problems

Avoiding financial problems

Every year your NGO’s financial report presents the same problem: funds have mysteriously disappeared. Your NGO faces the same financial problem again and again and will slide down the Global Journal rankings. You wonder why funds disappear without covering all overhead costs. This doesn’t make sense at all, as your finance department is made up of a team of honest people. You believe that theft and fraud are beneath all of them.

You begin to wonder if your suppliers might be responsible for some of your financial problems, but you can’t accuse them of any wrongdoing without producing tangible evidence. All your PO’s are still done on paper and signed off by you. As far as you remember, there had been no discrepancies whatsoever. You’ll need to access old files and go through each PO to verify your suspicions.  

As the year edges to an end, NGOs report on their financial well-being. You know by now that there’s no financial well-being to report on. The outcome of the annual report may result in your NGO closing. You will keep facing the same financial problems unless you take corrective measures immediately.

According to BDO (Binder Dijker Otter), NGOs are required to comply with an accounting policy for processing all types of financial transactions. Like most NGOs, you have an “Accounting Policy”. You have since learned, that the policy on its own doesn’t end “wasted spend” but only serves as a guide.

Here are the key questions to ask:

  • Are all your cash payment transactions properly recorded?
  • Do you know how much is still left unrecorded this year?
  • Do you monitor all your purchasing transactions?
  • Are all your expenses recorded and available on the cloud?

Audits can provide some guidance, but solving financial problems needs more than that.

No NGO CFO or manager wants to be embarrassed by awkward audit questions.    Unfortunately, asking questions is part of auditing. For instance, how soon can the manager send the NGO’s memorandum for an auditor to view NGO’s activities? Are all assets proper? The auditor should verify that funds received by an NGO are in line with the organization’s financial rules. Many other awkward questions may crop up.

Some NGOs have adopted a practice of holding audit committee meetings. The effectiveness of those meetings depends on the accounting software used by an NGO. In situations where transparency is lacking, the chances of delivering a clean audit report are slim. Handling donated funds require honesty, which is hard when there’s no transparency. How transparent is your NGO?

Here are two of the most common financial problems faced by NGOs and how to avoid them:

Cash transactions are not monitored

According to FFN, NGOs host charity events from time to time and attendees normally donate money at this events. The donated are collected and later recorded by one person. Funds donated at events are often unmonitored which is difficult to record.  

During events, petty cash covers some of the event’s urgent needs. Receipts are often lost and it becomes difficult to figure out how much has been spent and by whom.

After the event, one person is normally responsible for counting donated funds, this is the wrong way of doing it. At least two people should share this responsibility, one counts and the other verifies and records.

What happens when there are no control measures

To ensure that every transaction is in line with financial policies, it is advisable to allow only an NGO accountant to process payments. Another salient point is: ensuring payments are processed only on fixed dates.

Some NGOs delegate authority to the executive for authorizing the purchasing of expensive goods. The CEO will only delegate authority to Mid Managers when there are other pressing matters at hand. This may cause the NGO’s activities to be put on hold until such time as the executive can sign off on POs.

The best way of exercising control is by introducing a dedicated system that alerts executives of all purchasing transactions made. The software will ensure control measures are followed and transactions tracked in real-time.

In summary

Most NGO managers, still using paper-based systems like cash withdrawal forms or paper based PO systems, tend to face financial problems regularly. This is because:

  • Information gets lost.
  • When cash withdrawal forms are unavailable, withdrawals are left unrecorded.
  • Spend can’t be tracked in real time.

For years, NGOs have relied on PR and other marketing communications (with fairly recent addition of social media) to attract donors. To avoid financial problems, why not use the same digital approach for managing spend? How about a system that can notify managers every time a purchase request is submitted? This may even save some time and make accounting records readily available during one of those audit committee meetings.

The purpose of accounting is to make sure every financial transaction is properly recorded and  reporting is available in real time. Would you like to test-drive an efficient PO management app?

If you’d like more info about Procurementexpress.com, please contact us: [email protected]

More Resources