Financial Management

Student: - Muhammad Tayyab

Introduction
Finance is defined as the management of money or funds. Modern finance is a descendent of the
business activities that includes organization, marketing and the management of cash or money
through the variety of capital accounts and markets created for transacting assets, liabilities and
risks. Finance may also be defined as Financial management is that managerial activity which is concerned

with the planning and controlling of the firm's financial resources. Planning, directing, monitoring, organizing and
controlling of the monetary resources of an organization.
There are 3 important decisions involved
1. Financing or where do u get money from
2. Investing or where do we allocate funds
3. Dividend or how much to distribute and what to retain
FINANCIAL MANAGEMENT
MANAGEMENT AND RECORDING OF THE FLOW OF MONEY
The development sector is becoming increasing competitive there is constant change within and outside the sector.
Like in the corporate world, management of organizations in the development sector must therefore respond to the
needs/requirements of the donor community.
It is expected of organizations to demonstrate that they have implemented sound financial policies and disciplines.
By implication we mean the management of financial systems within an organization .
INPUTS OUTPUTS
(Income) (Planning/Budgeting) (Expenditure)
PRINCIPLES:
Control Monitoring Recording
1. Definition: FINANCE IS THE APPLICATION OF A SERIES OF ECONOMIC PRINCIPLES
TO MAXIMISE THE WEALTH OR OVERALL VALUE OF AN ORGANISATION.
2. Process indicates that activities need to be co-ordinate to achieve a desired result.
3. Process also refers to systems in this instance, financial systems with its inputs, processes and outputs.
4. All financial processes/systems should be clear and accessible
5. For control to be implemented it is necessary:
To realize that there is a difference between what is required and what is happening
To have the means to act on that information so that the input to the system is altered in the right way.
6. Accounting systems are systems with control outputs are monitored and used to change input so that the system
will achieve its goals.
7. Financial transactions need to be recorded somewhere either on paper, electronically or both.
8. Both income and expenditure should go through the process of controlling, monitoring and recording.
9. This is a continuous process and should be applied to every transaction.
10. Being in the development sector we do not wish to think of organizations making profits
(maximizing profits) but rather substitute profit with surplus.
BASIC ACCOUNTING SYSTEM REQUIREMENTS
Records all income of the organization
Records all expenditure of organization
Provides a detailed analysis of transactions
Provides history of transactions
Allows for production of accurate reports (information)
1. Different types of information systems exist in organizations:
Executive system (EIS) (support senior management)
Management information systems (MIS) (information to support all levels of management)
Expert systems (ES) (designed to solve narrow range of problems need expertise in particular area, e.g. credit
scoring systems)
Transaction processing systems

2. In organizations a wide range of systems are operative both formally (as above) and informally.
3. The aim of systems is to ensure that there is order in their activity and that the activities of the organization are not
chaotic.
4. Systems also help to ensure steady progress towards defined goals.
5. Organizations need to measure their performance we therefore need to understand the relationship between the
resources (money in this instance) and the demand for our work (services).
6. We are looking specifically at the transactions processing systems (TPS)
DECIDING ON A SYSTEM
Know the organizations needs?
Know donor requirements?
Know purchasing costs?
Know maintenance / support costs?
Finance personnel skills?
System requirements?
Upgrade current hardware & software?
FINANCIAL POLICY AND PROCEDURES (minimum standards)
1. Procurement
a. Authorization limits
b. Purchase Orders
c. Documentation requirements (quotes, etc)
2. Receipts
a. Maintain Receipt Books
b. Deposits reconciled regularly
3. Disbursements
a. Check expenses are properly authorized
b. Apply matching principle to documents
c. Ensure original documentation
d. Expenses are properly allocated and captured
e. Documents are cancelled once paid (using paid stamp)
4. Bank Accounts
a. Safekeeping of cheques
b. Reconciled monthly
c. Reconciliation items are followed up promptly
5. Petty cash
a. Cash counts performed regularly
b. Ensure adequate supporting documentation
c. Limited access to cash box
6. Property Management (see notes below)
7. Travel
a. Policy well defined and applied
b. Properly authorized
c. Mechanism for reporting expenses
8. Filing
a. System allows for easy access and retrieval of documents
b. Sequential
DAILY FINANCIAL RECORD KEEPING
Recording income
Recording expenses
Salaries
Petty cash
Project expenses
Other (journal)
Reconciliations
Bank
Creditor/debtor
Reports (income & expenditure)

PREVENTING FRAUD
Ensure that all financial transactions are recorded and documented
Have two signatories for every cheque including EFTs (electronic funds transfer) Deface cancelled cheques and
cancel paid invoices Know the financial workings of your
Segregate duties do not rely on one individual Cash received should be reconciled daily with deposits or receipts
book
Bank reconciliations should be prepared at least monthly and be approved
Unused cheques should be held in a secure place Restrict access to petty cash and reconcile periodically (monthly)
BUILDING FINANCIAL SUSTAINABILITY
Ability to manage and account for funds received key to donor funding
Drawing funds from more than one or two sources diversify
Learn how to recover costs and earn income
Develop partnerships with government, other NGOs and business
Develop framework that shows where the organization is going strategic planning
Managers to think strategically everyday know the changes in the development sector and country
Organizational proposals for funding must happen well in advance
Develop good financial management capacity as part of overall organizational strategy
Ensure that unnecessary and wasteful costs are removed
Build financial reserves to maximize interest income
FINANCIAL ACCOUNTABILITY
1.Who are the stakeholders: Donors; - Certain Government Departments; -Board of the
organization; - Banks; - Management; - Staff; etc.
2. Donors would want to see a sample report to assess the organizations ability to produce proper project reports.
3. Copies of the Annual Financial Statements are requested by donors to assess the history and financial stability of the
organization
4. Financial Management means having regular board meetings and senior management meetings to report on the
financial activities and financial status of the organization.
1.Ensuring that a good policy and procedure manual is drafted for the finance department. Spot checking that policy
and procedures are implemented and adhered to.
2. Minutes of board meetings are filed especially those relating to finances
3. Regular management meetings where various financial reports are discussed and decisions taken by management are
documented and recorded.
ASSET CONTROL
Are usually expensive and require board approval. Special procedures regarding use, right of use, disposal and
movement of assets need to be included in the policy and procedures manual of the organization.
Assets should be recorded in an asset register. This come in useful especially when organizations, such as NGOs &
CBOs are wound-up and the disposal of its assets are governed by law.
Types of assets:
Furniture
Office Equipment
Computer Equipment
Land & Buildings
Motor Vehicles
Information required for an assets register
Detailed description of items purchased
Supplier Name
Date of Purchase
Purchase price
Location of asset
Person responsible for asset
Types of asset register:
could be a file with different sheets
could be a book with a sheet for each asset
could be a spreadsheet kept on a computer

 could be a special software program