A
guide
Chapter 6:
Finance
Cover photo: A vendor at a market near the town of Benguela, Angola. Photo by
Melita Sawyer/CRS.
© 2011 Catholic Relief Services – United States Conference of Catholic Bishops
228 West Lexington Street
Baltimore, MD 21201 – USA
Download this and other CRS publications at www.crsprogramquality.org.
I
TABLE OF CONTENTS
Chapter 6: Finance ........................................................................................... 1
Finance Process Map ....................................................................................... 2
Purpose of This Guide ....................................................................................... 3
What Function Does Finance Serve? .............................................................. 3
Summary............................................................................................................ 3
Key Principles .................................................................................................... 6
Finance Business Process 6.1 – Basic Accounting Requirements .............. 8
Step 6.1.1 – Create Chart of Accounts ..............................................................10
Step 6.1.2 – Set Up General Ledger .................................................................. 12
Step 6.1.3 – Document Financial Transactions ................................................14
Finance Business Process 6.2 – Budgeting ................................................. 17
Step 6.2.1 – Budgeting ....................................................................................... 19
Finance Business Process 6.3 – Cash Management .................................. 24
Step 6.3.1 - Cash Reciepts .................................................................................25
Step 6.3.2 – Cash Disbursements.....................................................................26
Step 6.3.3 – Cash Flow Forecasting ..................................................................29
Step 6.3.4 – Bank Reconciliation ......................................................................30
Step 6.3.5 – Petty Cash ...................................................................................... 32
Step 6.3.6 – Operating in a Cash Environment ................................................34
Finance Business Process 6.4 – Receivables Management ...................... 38
Step 6.4.1 – Receivables Management ............................................................39
Finance Business Process 6.5 – Fixed Asset Accounting .......................... 42
Step 6.5.1 – Set Up and Maintain a Fixed Asset Register ...............................44
Step 6.5.2 – Calculate and Record Depreciation Expense ..............................45
Step 6.5.3 – Record Fixed Asset Disposals ......................................................47
Step 6.5.4 – Conduct Counts of Fixed Assets ................................................... 50
Finance Business Process 6.6 – Accounting for Prepaid
Expenses and Security Deposits ................................................................ 52
Step 6.6.1 – Record Prepaid Expenses and
Maintain a Detailed Supporting Record ............................................................53
Step 6.6.2 – Amortize Prepaid Expenses .......................................................... 55
Step 6.6.3 – Record Security Deposits and
Maintain a Detailed Supporting Record ............................................................56
Finance Business Process 6.7 – Accounts Payable Processing ................ 57
Step 6.7.1 – Accounts Payable Processing .......................................................58
Finance Business Process 6.8 – Accounting for Accrued Liabilities ......... 60
Step 6.8.1 – Record Accrued Liabilities ............................................................61
II
Step 6.8.2 – Adjust Accrued Liabilities..............................................................63
Step 6.8.3 – Prepare and Maintain Detailed
Analyses of Accrued Liabilities ........................................................................64
Finance Business Process 6.9 – Recording Revenues ............................... 65
Step 6.9.1 – Record Cash Contributions ...........................................................66
Step 6.9.2 – Record Grant Revenue ..................................................................67
Step 6.9.3 – Record In-Kind Contributions .......................................................69
Finance Business Process 6.10 – Payroll Processing ................................. 71
Step 6.10.1 – Update the Payroll Master File ...................................................73
Step 6.10.2 – Update the Tax Rates and
Other Deductions from Salaries and Wages .................................................. 74
Step 6.10.3 – Process Time and Attendance Data ..........................................75
Step 6.10.4 – Prepare and Record the Payroll .................................................77
Step 6.10.5 – Disburse the Payroll ....................................................................78
Finance Business Process 6.11 – Cost Allocation ...................................... 80
Step 6.11.1 – Dene and Develop Cost Allocation Methodology ....................81
Step 6.11.2 –Processing of Cost Allocation for Pooled Costs .......................... 83
Finance Business Process 6.12 – Grant Accounting .................................. 89
Step 6.12.1 – Grant Accounting.........................................................................90
Finance Business Process 6.13 – Financial Reporting .............................. 93
Step 6.13.1 – Internal Financial Reporting .......................................................94
Step 6.13.2 – External Financial Reporting ......................................................96
Compliance Checklist for Finance ................................................................ 98
Glossary ......................................................................................................... 127
References ....................................................................................................134
1
CHAPTER 6:
FINANCE
1
MIKE SPINGLER/CRS
A microcredit group
meets in Cambodia.
2
FINANCE PROCESS MAP
Basic
Accounting
Requirements
Process 6.1
Do you have a basic
accounting structure
in place?
see page 8
Budgeting
Process 6.2
Do you have a detailed
nancial estimate for
anticipated future activities?
see page 17
Cash
Management
Process 6.3
Have you implemented
procedures for effective
management of cash receipts
and disbursements?
see page 24
Receivables
Management
Process 6.4
Are policies in place to
enforce and manage
collection of receivables?
see page 38
Fixed Asset
Management
Process 6.5
Are guidelines in place to
govern recording and
accounting for xed assets?
see page 42
Account for
Prepaid Expenses
Process 6.6
Can you manage expenses paid
before the accounting period
which will benet from them?
see page 52
Accounts
Payable
Processing 6.7
Are your expenses and
acquisitions are recorded in
the proper period?
see page 57
Accounting
for Accrued
Liabilities
Process 6.8
Do you record a liability for
any debt incurred but not
settled that period?
see page 60
Recording
Revenue
Process 6.9
Are guidelines in place to
manage different sources
of revenue under varying
donor conditions?
see page 65
Payroll
Processing
Process 6.10
Do you have a payroll
function that is independent
of your HR function?
see page 71
Cost Allocation
Process 6.11
Do you have a process to
distribute shared costs
between multiple projects?
see page 80
Grant
Accounting
Process 6.12
Do you have guidelines to
ensure compliance with terms
and conditions of grants?
see page 89
Financial
Reporting
Process 6.13
Do you consolidate nancial
information to allow
for benchmarking and
stakeholder reporting?
see page 93
3
PURPOSE OF THIS GUIDE
Adoption of these policies and procedures will lay the foundation for a
controlled and formalized environment for the accurate recording and timely
reporting of nancial transactions. It will also help to establish effective
management of and accountability for funding received and expenditures
made against that funding. This section is designed to aid in enhancing an
organization’s nancial management systems and also provides guidelines for
development of nancial policies and procedures.
WHAT FUNCTION DOES
FINANCE SERVE?
Finance performs the following functions for an organization:
• Processes the organization’s nancial transactions and keeps the books
of account in which those transactions are recorded
• Provides nancial information needed by management to plan and
control the organization’s activities
• Develops and enforces nancial policies, procedures, and systems
designed to establish and maintain effective and efcient controls over
the organization’s resources
A well-run Finance department produces reliable and timely nancial reporting
that enables management to quickly assess whether the organization’s
objectives are being achieved. Financial systems that are properly maintained
aid in improving controls to safeguard assets with the reduced likelihood of
errors, loss, misuse, and fraud.
SUMMARY
This chapter is intended to provide a summation of most key accounting
processes and concepts that apply to not-for-prot organizations. It is not
intended to serve as a detailed treatise of accounting theory on the subjects
covered, nor is it intended to cover all accounting concepts.
The chapter has been prepared on the assumption that the readers of this guide
will use the accrual basis of accounting for recording their nancial transactions.
The chapter’s authors recognize that many not-for-prot organizations continue
to use a “strict cash basis” or a “modied cash basis” of accounting. From
institutional-strengthening and capacity-building perspectives, Catholic
Relief Services strongly recommends adoption of accrual basis accounting
concepts for organizations presently on the cash basis. Doing so will help
4
such organizations to successfully compete with others for donor funding and
increase their chances of long-term sustainability.
An organization that keeps its books on a cash basis records revenues when
cash is received and expenses when cash is disbursed. Under accrual
basis accounting, revenues are recorded in the periods they are earned
and expenses are booked in the periods they are incurred. Accrual basis
accounting is a more accurate method since it follows the matching concept.
Under accrual basis accounting, revenues are booked in the same accounting
period in which the expenses that generate the revenues are incurred.
Under strict cash basis accounting, assets, such as receivables and
prepayments, and liabilities are not recognized. For example, an organization
using this method would not record severance expense until it was paid,
possibly resulting in a signicant understatement of the expenses attributable
to a grant or project at a given point in time.
Organizations that maintain their accounting on a cash basis should ensure
that their donor agreements address how prepayments and expenses incurred
but not paid as of the award expiration dates should be treated. Normally,
grant donors will not allow recipients to charge their awards for the portions
of prepayments that pertain to post-award periods. Cash basis organizations
should seek to negotiate terms with donors that will allow them to be
reimbursed for expenses incurred but not paid as of the award expiration dates.
Thirteen topics are covered in this chapter as follows:
1. Basic Accounting Requirements – Addresses setting up the chart
of accounts and the general ledger and documenting nancial
transactions.
2. Budgeting – Contains information on budgeting principles such
as approvals, clarity, structuring the budget, estimating costs, and
amending the budget. Also deals with grant budgeting and the concept
of line item exibility.
3. Cash Management – Focuses on receipts, disbursements, forecasting,
bank reconciliations, and maintaining petty cash funds.
4. Receivables Management – Describes the various types of
receivables and reviews standard pertinent disciplines, including
the need for Finance to provide receivables “aging” reports to
management monthly.
5. Fixed Assets Accounting – Stresses the need to set up and maintain
a xed assets register. Explains the concept of depreciation expense.
Goes over the accounting entries needed to record xed assets
5
disposals. Underscores the requirement to conduct xed asset counts
and to reconcile them to the general ledger balances.
6. Accounting for Prepaid Expenses and Security Deposits –
Differentiates between prepayments and security deposits and the
accounting treatments to be used for each.
7. Accounts Payable Processing – Gives the various steps for handling
accounts payable transactions. (Accounts Payable processing is used by
those organizations that set up their pending payments as liabilities before
paying them. This process does not apply to those organizations that use a
single-step approach, whereby expenses are recorded when paid.)
8. Accounting for Accrued Liabilities – Provides guidance on setting
up and adjusting accruals for liabilities, including those that involve
estimates or those that are not expected to be settled in the short-term.
9. Revenue – Distinguishes among cash contributions, grants, and
in-kind contributions. Depicts the special accounting treatment
needed for grants, for which revenue is recorded when earned, not
when received.
10. Payroll Processing – Emphasizes the need to segregate the
Human Resources department’s responsibilities for overseeing
stafng changes from timekeeping and payroll functions, which
should be performed by the Finance department. Cites key relevant
responsibilities, such as maintaining a payroll master le, updating
payroll deductions, processing time and attendance data, preparing
and recording the payroll, and disbursing the payroll.
11. Cost Allocation – Explains the process whereby shared expenses can
be distributed to beneting cost centers. Introduces the concept of
capturing shared expenses in various pools and allocating expenses
from those pools based on various cost “drivers.” Offers examples of
pool types and allocation methods.
12. Grant Accounting – Furnishes an overview of the grant cycle.
Concentrates on the nancial responsibilities associated with
grant administration, most importantly those relating to grant
implementation, reporting, and closure.
13. Financial Reporting – Lists the various types of nancial reports
that should be provided to internal and external audiences and the
frequency at which those reports should be made available.
6
KEY PRINCIPLES
The following are ten key nancial principles:
1. Record all acquisitions of goods and services at their historical costs
(original purchase prices or, for in-kind donations, fair market values
on the dates received).
2. Financial reporting must be reasonably accurate, supported by the
appropriate evidentiary matter, and pertinent.
3. Revenue is recorded in the scal month in which the organization
distributes goods or performs a service.
4. Expenses incurred to generate revenues must be recorded in the
same scal month in which the revenues are recorded. Expense is
recorded in the scal month in which the organization has received
(taken title) to goods or received a service.
5. All signicant items should be disclosed in nancial statements if
they are likely to inuence the decisions of users of the nancial
statements. Financial statements and the accompanying notes must
include all signicant, relevant accounting information to enable
users of the nancial statements to make informed decisions.
6. The organization must follow the same accounting policies and
practices in the comparative periods reported in its nancial
statements. If an accounting change has taken place that
signicantly impacts the activities or nancial condition of the
organization, that change must be disclosed in the notes that
accompany the nancial statements.
7. When faced with uncertainties, accountants must make accounting
decisions that neither materially overstate nor understate the
nancial results or balances reported. If there is uncertainty, the
bias should be to accelerate recording a loss or expense and to
postpone recording an income or revenue. The organization should
exercise similar caution in reporting its assets and liabilities.
8. The organization should have in place a system of authorizations,
approvals, and verications. Authorization is the principal means
of ensuring that only valid transactions and events are initiated as
intended by management. Authorization and approval procedures
should be documented and clearly communicated to all staff.
Transactions should be veried before and after processing.
Access to resources and records should be restricted to authorized
individuals who are accountable for their custody and/or use.
7
9. Reconciliations should be performed on a monthly basis. General
ledger balance sheet account balances should be reconciled
to the appropriate supporting internal documents or external
information (such as bank statements) to allow for prompt
corrective action if warranted.
10. Management should compare information about current nancial
performance to budgets, forecasts, prior period reported results,
or other benchmarks to measure the extent to which goals and
objectives are being achieved and to address unexpected results or
unusual conditions that require follow-up.
Steven Chege, a
community nurse
with Kenya’s Kijabe
Hospital, consults with
a fellow care provider
during a home visit in
the nearby community.
Steven monitors 60
home care patients, an
invaluable function in
this rural area.
DAVID SNYDER/CRS
8
FINANCE BUSINESS PROCESS 6.1 –
BASIC ACCOUNTING REQUIREMENTS
PROCESS DESCRIPTION
To properly fulll its recordkeeping and reporting responsibilities, it is
important that the organization’s Finance staff maintain an accounting
record, known as a general ledger, for capturing all nancial transactions.
Financial transactions are recorded using general ledger accounts that
indicate the nature of the expense incurred, good or service received, or
revenue generated.
Before setting up a general ledger, management must decide how it wants its
accounting transactions to be structured. It is critical that the organization set
up its accounting structure to provide for reporting that meets all concerned
parties’ needs and that is in compliance with the professional accounting
standards that prevail in the organization’s home country. Cost centers
typically used by nonprot organizations are those that group nancial
activities by project, ofce, operating department, geographic region, and/or
donor funding source.
It is of equal importance that all transactions be supported with the proper
documentation. The organization’s Head of Finance should establish
standards that indicate which types of documentary internal and external
evidence are needed to support each type of nancial transaction. The Head
of Finance should also indicate the length of time that the organization’s
various nancial documents should be retained on le.
9
PROCESS FLOW
PROCESS 6.1 BASIC ACCOUNTING
REQUIREMENTS
Create Chart of
Accounts
6.1.1
Create General
Ledger
6.1.2
Document
Transactions
6.1.3
Start
Process
End
Process
10
STEP 6.1.1 – CREATE CHART OF ACCOUNTS
STEP NAME CREATE CHART OF ACCOUNTS
Step Number 6.1.1
Organizational Role Management team
Inputs Organization’s accounting needs
Organization’s reporting needs
Outputs Chart of accounts
Integration Points N/A
Summary Most nonprot organizations satisfy their reporting
needs through the use of cost centers and general
ledger account codes. Cost centers should be aligned
with management objectives and responsibilities.
Account codes identify the nature of the items affected by accounting transactions.
General ledger accounts are usually grouped into the following major categories:
• Assets
• Liabilities
• Net Assets (formerly known as Fund Balances)
• Revenues
• Expenses
Assets may be subdivided into two main groups depending on their degrees
of liquidity and their expected asset lives. The most liquid assets are generally
expected to be used up in the normal course of business in the short term and are
normally grouped into one range, often called “Current Assets.” Those assets with
less liquidity, longer anticipated useful lives, and long-term benet are placed into
a range usually called “Fixed Assets” or “Property, Plant, and Equipment.”
Each of the major account groups should appear in a specially designated
range. The following are a possible set of ranges:
• (Current or Short-Term) Assets – Account ranges from 1000 to 1999
• Fixed Assets – Account ranges from 2001 to 2999
• Liabilities – 3000 to 3999
• Net Assets (Fund Balances) – 4000 to 4999
• Revenues – 5000 to 5999
• Expenses – 6000 to 6999
11
Organizations should tailor the ranges to meet their specic needs. The
accounts should be set up in a logical sequence. The accounts should
be assigned in a way that will allow the organization to add accounts or
account ranges in the event of future growth or increased reporting needs.
The organization may wish to add minor account codes to provide more detailed
information to nancial report users. Minor account codes usually follow the
major account codes and typically are three to four characters in length. They
can be longer if deemed necessary by the organization, subject to accounting
software limitations. Minor account codes can be used for various reasons, such
as to denote bank accounts, project materials, or salary categories.
The following are some examples of minor account codes:
1. Bank accounts – assuming that General Ledger (G/L) Account (A/C)
1010 is used to denote checking accounts.
a. A/C 1010.101 – Main Ofce General Purpose Checking Account
b. A/C 1010.102 – Main Ofce Grant Checking Account – Donor A
c. A/C 1010.103 – Subofce General Purpose Checking Account
d. A/C 1010.104 – Subofce Grant Checking Account – Donor A
2. Salaries and Wages – assuming that G/L A/C 6010 is used for salaries.
a. A/C 6010.101 – Base Salaries
b. A/C 6010.102 – Overtime Salaries
c. A/C 6010.103 – Sick Time
d. A/C 6010.104 – Vacation Salaries
e. A/C 6010.105 – Holiday Salaries
3. Project Materials – assuming that G/L A/C 6100 is used for project materials
a. A/C 6100.101 – Construction Materials
b. A/C 6100.102 – Seeds
c. A/C 6100.103 – Agricultural Tools
d. A/C 6100.104 – Medicine
It is recommended that another eld or code be used to identify vendors,
employees, donors, and subrecipient partners. Minor account codes are
not recommended for identifying those parties.
An authorized nance ofcer should control the issuance of account numbers,
and additions should be kept to the minimum number needed. All active
account numbers should be made available to all employees in a listing
known as the chart of accounts. The chart of accounts should be updated and
reissued for each change. Accounts that are no longer to be used should be
deactivated and the organization’s employees should be notied accordingly.
To minimize misunderstanding as to the use of each account, organizations
should consider adding full explanations for each account to the chart. This
type of chart is known as an annotated chart of accounts.
12
STEP 6.1.2 – SET UP GENERAL LEDGER
STEP NAME SET UP GENERAL LEDGER
Step Number 6.1.2
Organizational Role Head of Finance
Inputs Chart of accounts
Accounting structure based upon the organization’s
accounting and reporting needs
Outputs Financial reports
Integration Points Management
Summary All nancial transactions of an organization must
be recorded in an accounting record known as the
general ledger.
Access to the general ledger should be rmly controlled and the general ledger
should be in balance at all times. Transactions are recorded in the general
ledger on a daily basis and should be summarized, at a minimum, monthly.
The summarized totals are called “general ledger balances.” These are
used as the bases for nancial reporting to management, donors, the board
of directors, prime recipients, government regulatory agencies, and other
interested parties. At the end of the organization’s business year (known as a
scal year), the general ledger is closed and the nal reporting to management
for the year is prepared.
The general ledger may be a manual (hand-prepared) ledger or a computerized
version that uses software specically designed for that purpose. The
computerized general ledger has proven to be the better choice for most
organizations for the following reasons:
• Access to the computerized general ledger can be restricted to
authorized individuals.
• General ledger software provides a complete audit trail. It can indicate
who entered and/or posted each transaction.
• Computerized general ledger systems can be backed up to minimize the
loss of data in the event of a theft or a catastrophic event.
• Computerized general ledger systems require all transactions to balance,
eliminating the out-of-balance conditions that frequently result when
manual ledgers are used.
• Computerized general ledger databases store a large amount of data for
13
extended periods of time, enabling the organization’s Finance department
to provide a wide variety of reports that can include historical data.
• Computerized general ledgers generate nancial reports more quickly
and accurately than manual ledgers.
• Computerized general ledgers can collect and process data from
multiple input sources. Only one employee can post to a manual ledger
at a given time.
A computerized spreadsheet application such as Excel does not have the
necessary built-in controls to prevent unauthorized changes or to provide a
complete audit trail and is therefore not recommended as a substitute for a
computerized general ledger system. If Excel is used, on each posting day the
spreadsheet containing that day’s transactions should be printed, signed by
the designated approver, and retained on le.
If an organization uses a manual ledger and has a high volume of activity
for certain types of transactions, those transactions may be recorded in a
subsidiary ledger and then summarized for posting into the general ledger. If
subsidiary ledgers are used as books of original entry, care must be exercised
to ensure that all balances from the subsidiary ledgers are properly carried
forward into the general ledger. Some examples of subsidiary ledgers are cash
receipts journals, cash disbursement journals, accounts receivable ledgers,
voucher registers (accounts payable), and xed assets ledgers.
General ledger transactions can be grouped into three basic types, namely
the following:
• Cash receipts, which are recorded on cash receipts vouchers
• Cash disbursements, which are recorded on cash disbursement vouchers
• All other transactions, which are recorded on general journal vouchers or
variations thereof, such as an accounts payable voucher
• “Other” transactions, which typically include those types of activities that
do not involve the receipt or outlay of cash. Accruals, write-offs or write-
downs, depreciation, amortization, adjustments, and reclassications are
among the more common types of general journal entries. These terms
are explained in the glossary section of this chapter.
14
STEP 6.1.3 – DOCUMENT FINANCIAL TRANSACTIONS
STEP NAME DOCUMENT FINANCIAL TRANSACTIONS
Step Number 6.1.3
Organizational Role Finance staff
Inputs Source documentation
Outputs Completed vouchers
Integration Points Procurement
Administration/Human Resources
Vendors
Partners
Management
Summary All nancial transactions must be fully documented
to the extent that is appropriate for the type of
transaction.
Every accounting transaction should be recorded on a separate accounting
voucher, also known as an entry. A fundamental accounting rule is that each
voucher must balance, that is, its debits must equal its credits so that the
general ledger remains in balance at all times. Debits increase assets and
expenses and reduce liabilities and revenue. Credits increase liabilities and
revenue and reduce assets and expenses.
Each accounting voucher must meet the following requirements:
• Sequentially numbered
• Appropriately documented
• Properly approved
• Carefully led to allow for easy retrieval
All vouchers should be signed by the employees who prepared, entered,
approved, and posted them. If the organization assigns the responsibility of
data entry verication to an additional employee, that employee should also
sign the voucher. Immediately after approval and before ling, each voucher
and its supporting documents must be canceled to prevent their reuse.
Cancellation usually entails marking, stamping, or perforating each document
as “paid” or “processed,” as applicable.
The appropriate supporting documentation for a cash receipts voucher
includes the following:
15
• Bank deposit slip or cash receipt form, as applicable
• Cash receipt form
• Photocopy of each check deposited (the payer’s check number should
also be shown in the description eld for that line item on the cash
receipts voucher.)
• Any other material, such as a remittance advice, submitted by the paying
party with its payment
The appropriate supporting documents for a cash disbursement voucher
normally include the following:
• Approved purchase requisition form
• Price quotations or pro-forma invoices
• Bid comparison reports with explanation for vendor selection or why a
sole source vendor was chosen
• Purchase order and/or vendor contract (for consultants, landlords, etc.)
• Goods received note (receiving report)
• When warranted, a memo justifying variance between quantities or
descriptions of items ordered versus those received
• Vendor’s original invoice
• Approved Payment/Advance Request form
The appropriate supporting documents for a general journal voucher vary
depending on the nature of the transaction. These can include the following:
• For accruals – Internal analyses and external documents such as
correspondence, legal notices, or copies of disputed billings
• For write-offs – Management authorization memoranda and copies of all
correspondence with the debtor documenting collection efforts
• For liquidations of amounts advanced by the organization – Travel
expense reports (from employees), nancial liquidation reports (from
subrecipients), invoices, plus purchasing and receiving documentation
(from vendors)
• For correcting entries or reclassications – The original accounting entry
and the correcting or reclassication entry should be cross-referenced.
If the amounts corrected or reclassied are the sum of multiple
transactions, a complete list of the transactions or balances impacted by
the change should be attached to the correcting or reclassication entry
as support. A full explanation should be attached to the entry explaining
the reason why the correction or reclassication was necessary.
16
If the source documents are condential in nature, such as those for a payroll
entry or a legal accrual, a reference should be made on the entry as to
where the supporting documents are located. A complete description of the
transaction should be attached to each general journal entry.
The organization should establish and enforce rm record retention policies.
All documents should be protected while in storage both onsite and (if
applicable) offsite. Donor requirements and local statutes should be taken
into consideration when determining the length of the record retention
period needed. (For project activities funded by U.S. government awards, it is
recommended that all nancial supporting documentation be retained for a
minimum of 10 years.)
17
FINANCE BUSINESS PROCESS 6.2 –
BUDGETING
PROCESS DESCRIPTION
A budget is a detailed nancial estimate of anticipated activities for a specied
period of time. The following are several types of budgets:
• Annual Operating budget – an estimate of an organization’s total revenues
and expenses for a scal year
• Cash budget – the cash an organization expects to receive and disburse
• Capital budget – the total costs to acquire xed assets (capital additions)
• Project Budget – the estimated cost of a specic project
• Grant Budget – the estimated cost to conduct project activities funded
by a grant
Planning – A budget is necessary for planning upcoming activities so that an
organization can reasonably estimate the cost of those activities. This allows the
organization to determine if it has the resources needed to perform activities and
if it is making the best use of the resources.
Fundraising – The budget can be used as a major tool for fundraising. The budget
sets out in detail what the organization plans to do with the funds raised, including
on what the funds will be spent and what results will be achieved.
Project Implementation – A realistic budget is needed to control an activity once
it has started. The most important tool for ongoing monitoring is comparing
the actual costs against the budgeted costs. Without a realistic budget, this is
impossible. Given that plans may change, it is necessary for department heads
to review the budget after an activity has started and to amend the budget, if
warranted. Approval may be needed from designated ofcials if changes to the
budget require additional funding.
Monitoring and Evaluation – The budget is used as a tool for evaluating
the success of the activity during its project life and when it is completed.
It helps to determine whether the planned objectives were met and within
the cost parameters.
18
PROCESS FLOW
PROCESS 6.2 BUDGETING
FINANCE
TEAM
Budgeting
6.2.1
19
STEP 6.2.1 – BUDGETING
STEP NAME BUDGETING
Step Number 10.2.1
Organizational Role Head of Finance
Project ofcer/project director – For each individual
project
Board of directors – For the organization’s total
annual budget
Inputs Organization’s annual funding needs
Organization’s available resources
Outputs Approved budget
Budget comparison reports
Integration Points Collaboration with donors, project ofcers
Summary Effective budgets can only be produced as a result
of good underlying plans. Financial planning lies at
the heart of effective nancial management. The
organization must have a clear idea about what it
intends to do and how it intends to do it.
The Budgeting Process
The process of preparing a meaningful and useful budget is best undertaken
as an organized and structured group exercise. The budget process involves
asking a number of questions including the following:
• What activities will be involved in achieving the planned objectives?
• What resources will be needed to perform these activities?
• What will these resources cost?
• What will be the sources of the funds?
• Are the anticipated results realistic?
• What approvals are required to accept budget variances?
• Do the various departments within the organization have budgets?
Once the budget has been agreed upon and the activity implemented, the
process is completed by comparing the plan (budget) with the eventual
outcome (actual).
20
Budgeting Principles
Approval – The board of directors will need to approve the organization’s budget
at the start of the scal year. Anticipated unfavorable budgetary variances over the
stipulated threshold require written prior approval from a designated ofcial (often
the Head of Finance) and, when applicable, from grant donors.
Budget Accountability - A budget manager should be designated for each of the
organization’s cost centers or projects. The budget manager has the following
responsibilities for the assigned cost center or project:
• Developing the budget
• Effective and timely programmatic and nancial monitoring
• Managing and anticipating the needs of the cost center or project
• Preparing and justifying requests for amendments when necessary
• Ensuring that the actual costs are in line with the budgeted costs
• Taking the necessary steps to prevent material cost overruns
• Achieving the stated objectives
• Providing regular programmatic reporting
• Complying with donor requirements where applicable
• Closing projects/grants timely, effectively, and completely
Clarity – Since many different people will need to use the budget for different
purposes, the budget should be sufciently clear and detailed to allow all potential
users to understand it. Clarity and accuracy are critical, so it is important to keep
notes on budgeting assumptions and how estimates have been determined.
Budget Structure – When setting a budget for the rst time or when reviewing a
budget, it is important to refer to the organization’s chart of accounts to determine
whether it feeds into the reporting requirements from a donor. This is because
the budget line items also appear in the accounting records and on management
reports. If the budget items and accounting records are not consistent, then it will
be very difcult to produce monitoring reports once the project implementation
stage is reached.
Estimating Costs – It is important to be able to justify calculations when
estimating costs. The Finance department should work closely with other
department heads to identify types of activities and related costs. Do not
be tempted to simply take the previous year’s budget and add a percentage
amount for ination. While the previous year’s budget could be very helpful
as a starting point, it could also be very misleading and contain historical
inaccuracies. Expenses to be distributed to various cost centers and projects via
21
a cost allocation process should be considered during the budgeting phase and
included in the total estimated cost for each cost center and project. (See the
cost allocation section of this chapter for guidance.)
Budget Amendments – If during the course of the year, a department head
determines that a change is needed due to an anticipated additional need
for resources from the organization’s unrestricted funds, the approval of the
organization’s Executive Director may be required. If additional funding is needed
for a grant-funded project, the organization will need to seek approval from the
donor for a modication of the grant agreement. If the grant donor agrees to the
change, a revised budget should be prepared and submitted to the grant donor.
Once approved, the amended budget becomes the new operating budget for that
agreement. If internal approval is given, the department head will be required to
prepare a budget amendment form, obtain the necessary approval(s), and forward
the approved form to the Finance department. The Finance department should
use the new approved budget for budget comparison reporting purposes.
The best approach is to make a list of all the inputs required and specify the
quantity and estimated unit cost of each item. From this detailed working sheet it
is a simple matter to produce a summarized budget for each line item and is very
easy to update if units or costs change.
SAMPLE BUDGET WORKSHEET
LINE ITEM
DESCRIPTION
UNIT
COST
UNIT OF
MEASURE QUANTITY
TOTAL
ANNUAL
BUDGET
REQUESTED NOTES
Salary 10,000 Month 2 240,000 Salaries
for project
accountants
Rent 500 Month 1 6,000 Rent for
leasing ofce
building
Overlooked Costs – Many failed projects are based on an underestimated
budget. The most common of the overlooked costs are the indirect or support
costs. The following are some of the most often overlooked costs:
• Staff-related costs (e.g., recruitment costs, training, benets, and
statutory payments)
• Project start-up costs (e.g., publicity)
22
• Allocated costs (e.g., rent, insurance, and utilities)
• Vehicle operating costs
• Equipment maintenance (e.g., for photocopiers and computers)
Budget Categories for Project Management
Budget line items are specic budget headings or account classications
that match project proposal budgets. Each line item should be identied by
a specic account code. Some grant donors will ask their grantees to use
specic budget templates with standard cost categories and line items when
requesting and reporting on the use of funds.
When a donor requires reporting by cost categories, which is a grouping of
several account line items, the organization must start the budget process by
each individual line item and roll up to a cost category.
Line Item Flexibility for Project Management
Within a grant agreement, the donor will specify the line item exibility that is
applicable to the award. If donor approval is needed prior to incurring certain
types of expenses, follow donor regulations for seeking approval. For example,
a donor can grant line item exibility of up to 10 percent of the amount
budgeted per line item.
The following is an example of acceptable exibility that does not need prior
approval from donor:
DESCRIPTION BUDGET
ACTUAL
SPENT
DIFFERENCE – ACTUAL
OVER/(UNDER) BUDGET
Salaries 300 330 10%
Domestic travel 100 90 (10%)
Ofce expenses 200 180 (10%)
Total 600 600 0%
Actual spending
did not exceed
the budget
Difference must
not be more
than 10 percent
of the budgeted
line item
23
The following is an example of unacceptable exibility:
DESCRIPTION BUDGET
ACTUAL
SPENT
DIFFERENCE –
ACTUAL OVER/(UNDER)
BUDGET
Salaries 300 450 50%
Domestic travel 100 90 (10%)
Ofce expenses 200 180 (10%)
Total 600 720 20%
The following is an additional example of unacceptable exibility:
DESCRIPTION BUDGET
ACTUAL
SPENT
DIFFERENCE-ACTUAL
OVER/(UNDER) BUDGET
Salaries 300 360 20%
Project materials 600 580 (3%)
Domestic travel 100 80 (20%)
Ofce expenses 200 180 (10%)
Total 1,200 1,200 0%
With regard to line item exibility, the organization should always refer to the
terms of the specic agreement with each grant donor since line item exibility
can change from donor to donor and for various agreements with a given
donor. In the examples shown above, the restriction was on a line item basis.
For certain U.S. government donors, there is a cumulative limitation of 10
percent of the total budget. For other donor awards the exibility restrictions
are on a program category or component basis, not by line item.
Actual spending
exceeded the budget
Difference
is more than
10 percent of
the budgeted
line item
Actual spending
exceeded the budget
Even though the total budget was not
exceeded, the Salaries expense was
exceeded by more than 10 percent
Difference
is more than
10 percent of
the budgeted
line item
24
FINANCE BUSINESS PROCESS 6.3 –
CASH MANAGEMENT
PROCESS DESCRIPTION
Cash management is an important function in any organization. In order
to maximize its cash position, an organization should implement cash
procedures for effective management of cash receipts and disbursements.
Forecasting and budgeting are important aspects of cash management. The
organization should try to plan in as much detail and as far ahead as possible
what receipts can be expected and what disbursements will be required. Cash
management functions revolve around receipts, disbursements, forecasting,
and reconciliation.
PROCESS FLOW
PROCESS 6.3 CASH MANAGEMENT
Start
Process
End
Process
Cash Flow
Forecasting
6.3.3
Cash
Receipts
6.3.1
Cash
Disbursements
6.3.2
Operating in a
Cash Environment
6.3.6
Petty Cash
Operations
6.3.5
Bank
Reconciliation
6.3.4
25
STEP 6.3.1 – CASH RECEIPTS
STEP NAME CASH RECEIPTS
Step Number 6.3.1
Organizational Role Head of Finance
Cashier
Management
Inputs Grant agreements
Contributions
Remittance advices
Outputs Cash receipt slips
Cash receipts voucher
Bank deposit slips
Integration Points Collaboration with donors
Collaboration with project ofcers and
department heads
Summary The organization’s cash receipts are from various
sources such as donations, grants, sales, fees
for services rendered, and collection of accounts
receivable. All cash receipts must be accounted for
in a timely manner.
All cash receipts should be dated upon receipt and pre-numbered to facilitate
checking of the numerical sequence for missing documents. The following
procedures should be followed:
• Cash should be banked upon receipt.
• Cash receipts should be properly classied as donations, grant funding,
cash from sales, accounts receivable collections, service delivery,
disposal of assets, or borrowing. Reconciliation must be done in the
respective accounts to determine whether all entries were made to show
all cash received by the organization.
• Bank reconciliations should be done monthly by someone independent
of cash custody or record keeping responsibility. Cash receipts journal
entries should be regularly compared to the remittance lists and
deposits.
26
STEP 6.3.2 – CASH DISBURSEMENTS
STEP NAME CASH DISBURSEMENTS
Step Number 6.3.2
Organizational Role Head of Finance
Accounts payable ofcer
Inputs Required cash disbursement documentation
Outputs Approved cash disbursement voucher
Vendor receipts issued
Integration Points Collaboration with project ofcers
Collaboration with suppliers
Summary Cash disbursements should be authorized and
supported with proper documentation.
1. Designated ofcials should authorize cash disbursement. Proper
documentation for cash disbursements includes, but is not limited to,
the following:
• Approved purchase requisition form
• Price quotations or pro-forma invoices
• Bid comparison reports with explanation for vendor selection or why a
sole source vendor was chosen
• Purchase order and/or vendor contract
• Goods-received note (receiving report)
• When warranted, a memo justifying variance between quantities or
descriptions of items ordered versus those received
• Vendor’s original invoice
• Approved Payment/Advance Request form
2. Cash disbursements information should be summarized on a cash
disbursement (CD) voucher. The voucher should contain the date of
transaction, account code, and reason for payment. The voucher should
balance, i.e., the debits should equal the credits. Segregation of duties
dictates that the cash disbursement voucher must be veried by a
person other than the one who prepared it and must be approved by a
senior ofcial. This approval is sufcient to make payment and post the
transaction to the general ledger.
27
3. The organization should ensure that all payments, with the exception
of petty cash disbursements, are made using pre-numbered checks
to provide independent identication by the bank. It is more difcult to
manipulate check payments because of the increased audit trail, whereas
cash cannot be traced. All check disbursements have to be approved by
authorized signatories.
4. Check signatories/wire approvers should be clearly designated. These
should be as few as possible to narrow down the responsibility. Checks
should require at least two signatures.
5. A copy of the signed check should be attached to the cash disbursement
voucher. The organization should always obtain acknowledgment of receipt
from the supplier in the form of a supplier-issued receipt form. If the supplier
cannot furnish such a form, the supplier should sign a copy of the check.
An organization employee who is independent of the cash and procurement
functions should prepare a goods-received note (receiving report).
6. Ensure that individuals who prepare checks have no access to cash
receipts. (If the organization cannot segregate these duties because of a
limited staff, that control weakness should be documented along with the
compensating controls put into place to offset it.) Access to blank checks
should be restricted to authorized persons. The numerical sequence
should be veried when new checks are received, and missing checks
should be listed.
7. Checks should be dated when issued. Pre-dating or post-dating checks
should be strictly prohibited. The date of the check should be shown on
the cash disbursement voucher and recorded in the cash disbursement
journal/general ledger.
8. Signing of blank checks should be prohibited. Checks should not be
written until a payment request voucher has been prepared and approved.
9. Before a check is signed, all relevant documents supporting the payment
should be attached to a cash disbursement voucher to show that the
expenditure is genuine. All supporting documents must be canceled with
a “PAID” stamp immediately after approval to prevent the documents from
being presented again for payments.
10. To avoid alteration, signed checks should be dispatched directly to the
designated payees without having to go back to the check preparer. If
stafng limitations dictate that checks need to be routed back to the
check preparer, compensating controls must be put into place. Such
controls include having an employee other than the check preparer/
distributor perform the bank reconciliation and the voucher postings.
Two young boys in
Laguna Patzijon,
Guatemala. There are
few opportunities for
young men in rural
areas, with low literacy
rates and few jobs
outside of farming.
DAVID SNYDER/CRS
28
11. To prevent duplicate payments or recordings, check numbers should be
used as transaction references when posting to the cash disbursement
journal or general ledger. Original copies of voided cash disbursements
and voided checks must be kept on le.
12. Checks should be made to order. Checks should be crossed with
“Account Payee Only” and “Not negotiable,” if that is the standard
practice in the country.
13. It is recommended that a check dispatch (disbursement) register, which
accounts for the sequence of checks issued, be maintained.
14. Voided checks will be marked prominently with the stamp “Canceled” and
kept securely for reference. It is recommended that each voided check be
attached to a blank cash disbursement voucher and entered into the cash
ledger system as “voided” for tracking purposes.
15. Bank transfers from other accounts should be posted in the cash
disbursements journal when the transfer has been initiated and to
the cash receipts journal when the transfer has been completed. It is
recommended that a cash-in-transit account be used to track and monitor
the transfer of cash between bank accounts.
a. When funds are transferred from account A to account B
i. Debit Cash in transit account
ii. Credit Bank A account
b. When funds are reected as received in account B
i. Debit Bank B account
ii. Credit Cash in transit
Note: Cash-in-transit is the general ledger account used to track cash
that is being transferred from one bank account to another. Since the cash
disbursement is recorded on a separate accounting voucher than the cash
receipt, the cash-in-transit account is needed to balance each of the two
entries. When the cash receipt is recorded, the balance in the cash-in-transit
account should zero out.
29
STEP 6.3.3 – CASH FLOW FORECASTING
STEP NAME CASH FLOW FORECASTING
Step Number 6.3.3
Organizational Role Head of Finance
Inputs Approved budget
Activity plans
Outputs Approved cash ow forecast
Integration Points Collaboration with donors
Collaboration with project ofcers
Summary The cash ow forecast allows the organization’s
managers to predict periods when cash balances
are likely to be insufcient to meet spending needs
and periods when there are surplus funds.
Effective cash ow management is vital to organizations. It is a key element in
planning and in efcient operational management. If cash inows and outows
are not successfully planned and monitored, organizations may encounter cash
shortfalls and may not be able to serve beneciaries or pay employees and vendors
in a timely manner. A cash ow forecast is often required by external parties to
enable them to plan the timing of issuance of funding to the organization.
The cash ow forecast is linked with budget planning and involves, at a
minimum, the following steps:
1. Determine the cash position at the beginning of a given period from
the organization’s accounting records.
2. Plan the timing of anticipated future cash receipts, approved sources
of grant funding, and other projected sources of income. The main
sources of cash inows for an organization include contributions,
donors’ advances or reimbursements, collection of accounts receivable
balances, and cash receipts from income-generating activities.
3. Estimate the timing of cash disbursements, taking into consideration
the organization’s planned activities. Organizations that maintain their
accounting on an accrual basis should keep in mind that payments to
vendors may be needed to decrease previously recorded liabilities.
4. Summarize the information above in a spreadsheet showing forecasted
cash balances by period.
5. Provide the forecast to the executive director or other applicable ofcial
for use in projecting cash surpluses or needs.
30
STEP 6.3.4 – BANK RECONCILIATION
STEP NAME BANK RECONCILIATION
Step Number 6.3.4
Organizational Role Head of Finance
Authorizing ofcial
Inputs Ofcial bank statement
Ledger transactions
Outputs Bank reconciliation statement
Integration Points Collaboration with bank
Summary Bank reconciliations are performed at least monthly
to reconcile differences between bank records and
the organization’s records.
The following are items that may cause differences between an organization’s
accounting ledger and a bank statement from the bank:
• Incoming transfers
• Bank charges and interest booked by the bank but not by the
organization
• Checks issued by the organization but not presented to the bank
• Deposits in transit, dened as deposits made and recorded by the
organization toward the end of the month but not booked by the bank
as of the ending bank statement date. This difference may be due to
processing delays or to posting errors.
Bank reconciliation best practices include the following:
1. Bank reconciliations should be prepared monthly to verify that the
accounting records are correct. The bank account mirrors cash book
activity. Therefore, the preparer should look for possible discrepancies
that could be caused by either error or misuse. Bank account
reconciliation responsibility should be vested in persons not involved in
handling receipts or disbursements. Otherwise, possible discrepancies
can be covered up. A designated responsible ofcial should review
reconciliations. Bank reconciliations should be retained on le in the
event of audit or other internal reviews.
2. Documents that support the reconciling items need to be attached to
the related bank reconciliation. Such documents might include a list of
outstanding checks, deposits in transit, and other relevant documents.
31
3. When appropriate, a general journal entry should be made to record
the reconciling of items that appear on the bank statement but are not
recorded in the organization’s general ledger.
4. Bank reconciliation preparation should always start with the opening
balance brought forward from the previous reconciliation and end at
an adjusted balance that reconciles with the ending balance per the
bank’s statement.
5. Reconciling items identied during the bank reconciliation process
should be cleared by the subsequent month. The Head of Finance
should follow up if a reconciling item appears two months in a row.
6. Management action is required for irreconcilable or unidentied
variances identied during the bank reconciliation process.
7. All disbursement checks that have been outstanding for more than a
stated period of time (such as three or six months) should be voided
and replaced.
32
STEP 6.3.5 – PETTY CASH
STEP NAME PETTY CASH
Step Number 6.3.5
Organizational Role Petty cash ofcer/custodian
Head of Finance
Inputs Petty cash vouchers
Outputs Petty cash ledger
Integration Points Requisitioners and approvers
Summary The purpose of setting up a petty cash fund
is to allow access to cash on demand for
small payments. It is the responsibility of the
organization’s management to set the maximum
petty cash balance, establish a limit of individual
disbursement from the petty cash, and designate
a petty cash custodian. Petty cash should be
maintained on an imprest basis. The recommended
level of the petty cash fund should range from two
weeks’ to one month’s cash needs.
1. Organizations should establish a petty cash policy and procedures.
The procedures should describe the petty cash location, maximum
petty cash fund balance, roles and responsibilities of staff involved
in the custodianship, petty cash voucher preparation, approval
levels, maximum disbursement amount, and the petty cash
replenishment process.
2. A custodian should be designated and trained to handle the petty cash.
3. The petty cash custodian should not perform any other cash function.
4. The petty cash fund must be kept in a locked safe and access to the
safe must be limited to the custodian.
5. All petty cash payments must be made only for authorized payments using
a petty cash request form and pre-numbered petty cash slip, and must be
supported by evidence for payment such as customer invoices and payee
signatures. The petty cash custodian should never authorize payment.
6. The petty cash custodian must record all payments in a petty cash
ledger, which may be a formal register (preferred) or worksheet. The
petty cash ledger captures information on the date and purpose of the
payment, the payee, the amount paid, and the running balance of the
petty cash fund.
33
7. The custodian must reconcile the petty cash fund on a daily basis. The
cash remaining in the petty cash box plus the sum of payments made
from the date of the fund’s last replenishment must agree to the petty
cash fund imprest balance. Any difference should be brought to the
attention of the Head of Finance for action.
8. Whenever there is a change of custodial responsibility, a cash count must
be performed and an ofcial handover of cash and documents must be
made. A third person must witness and sign the handover process.
9. There should be an unannounced cash count conducted by a person
other than the petty cash custodian at least once a month. It is
recommended that additional independent counts be performed at
regular intervals during the month.
Petty Cash Reimbursement/Replenishment
1. When the petty cash fund balance reaches a pre-dened minimum
balance, the custodian prepares a replenishment statement. The
replenishment statement is a list of payments categorized by general
ledger account.
2. A designated Finance ofcer should review the replenishment
statement for accuracy and validity of the supporting documentation.
3. When conrmed by Finance and approved by the organization’s
designated ofcial, a check should be issued for the amount of
the replenishment submitted. It is recommended to issue the
replenishment check in the name of the custodian.
4. At this point, the petty cash custodian receives reimbursement for the
replenishment submitted, which brings the cash in the fund back to
the imprest balance.
Recording Petty Cash
1. When the initial petty cash fund is set up, a cash disbursement journal
voucher will be prepared to debit the imprest account and credit the
bank account.
2. Whenever there is need to replenish the petty cash account, a cash
disbursement journal voucher will be prepared with the amount needed
to adjust the petty cash to the oat amount. The accountant will record a
debit to the expense account and a credit to the bank account.
34
STEP 6.3.6 – OPERATING IN A CASH ENVIRONMENT
STEP NAME OPERATING IN A CASH ENVIRONMENT
Step Number 6.3.6
Organizational Role Cash custodian
Head of Finance
Inputs Cash transfers and related documents
Remittance advices
Grant agreements
Purchasing documentation
Receiving documentation
Vendor invoices
Outputs Cash receipt slips
Cash disbursement slips
Cash receipt vouchers
Cash disbursement vouchers
Cash ledger
General ledger
Integration Points Requisitioners and approvers
Suppliers
Project ofcers
Summary Organizations may operate in a location or operating
environment in which no formal banking options are
available. In those situations, all transactions may be
conducted in cash (currency), with an increased need
for effective internal control throughout the cash cycle.
When an organization is operating in a cash environment, the following
measures are recommended to ensure that cash is properly safeguarded:
1. The organization should establish rm policies and procedures that
clearly indicate the roles and responsibilities of staff members involved
in cash custodianship, the documentation required for each step of the
cash cycle, and the approvals needed to disburse funds.
2. A custodian should be designated and trained to handle the cash.
3. To the extent possible, all cash-related functions should be clearly
segregated. There should established checks and balances for each
cash process. If stafng limitations prevent a full segregation of
duties, those weaknesses must be documented and compensating
controls must be put into place in order to minimize the
organization’s exposure.
4. When not in use, the cash must be kept in a locked safe; access to the
safe must be limited to the custodian.
35
5. If possible, the organization’s executive director and the Head of
Finance should establish a maximum level for cash-on-hand. Any cash
in excess of the prescribed on-hand level should be kept at a secure
banking location elsewhere; funds should be drawn from that bank
when needed.
6. Each cash receipt should be documented by the following:
a. Cash remittance advice or cash transfer advice (when applicable)
b. Pre-numbered, multi-part cash receipt slip, signed and dated by the
custodian and by the payer or cash courier. The original slip should
be returned to the payer or courier and a copy should be attached
to the cash receipts voucher. The custodian should retain another
copy in a separate le for sequential control purposes.
c. Cash receipts voucher signed by the voucher’s preparer and
approver, with copies of the cash receipt slip and remittance or
transfer advice (when applicable) also attached. (Note multiple
cash receipts can be included on a single cash receipts voucher
as long as they are shown separately on the voucher.)
7. Each cash payment must be made only for an authorized purpose
and should be supported by a combination of the following
documents, as applicable:
a. Approved purchase requisition
b. Price quotations or pro-forma invoices
c. Bid comparison reports with explanation for basis of vendor
selection
d. Approved purchase order and/or contract
e. Goods-received note
f. When warranted, explanatory memo justifying any signicant
variance between items and quantities ordered versus those
received
g. Vendor’s original invoice or employee’s travel expense report
h. Approved payment/advance request
i. Pre-numbered, multi-part cash disbursement slip (required for
all cash disbursements). The cash disbursement slip should be
signed and dated by the custodian disbursing the cash and the
payee. The original cash disbursement slip should be attached
to the cash disbursement voucher and a copy should be given
to the payee. The custodian should retain another copy for
sequential control purposes.
j. Cash disbursement voucher that includes all of the supporting
documentation cited above, signed by the voucher’s preparer
and approver. A separate voucher should be prepared for each
36
cash disbursement. No two disbursements should be combined
on a single voucher.
8. The custodian should be prohibited from authorizing payments.
9. The custodian must record all payments in a formal cash ledger. The
ledger should show the date of and brief explanation for the purpose
of the payment, the payee, amount paid, account(s) charged, and the
running balance of the fund.
10. All cash transactions should be posted immediately to the cash ledger.
11. In addition to the cash ledger, the organization must maintain a
general ledger that includes all of the cash transactions plus all journal
entries such as those to record liquidation of receivables balances,
depreciation, reclassication, or correcting entries. Someone other
than the cash custodian should maintain the general ledger. The
journal entries should be recorded on standard documents known as
General Journal Vouchers. The voucher’s preparer and approver and
the person who entered the transaction in the general ledger should
sign the vouchers.
12. The custodian should count the cash-on-hand daily. The cash
remaining in the petty cash box plus the sum of payments made from
the date of the fund’s last replenishment, less any cash received
during the period, must agree to the total authorized cash level. Any
difference should be brought to the attention of the Head of Finance or
site manager for action.
13. Whenever there is a change of custodial responsibility, the cash count
must be performed and an ofcial handover of cash and documents
must be made. A third person must witness and sign the handover
process.
14. A designated employee should conduct an independent cash count at
least once a week. The results of that count should be documented
and reported to the Head of Finance or site manager.
15. At least once a month, a designated employee who is independent of
the other cash functions should conduct an unannounced cash count.
That cash count should be documented and reported to the Head of
Finance or site manager.
16. All cash disbursement vouchers should be canceled to prevent their
reuse.
17. All vouchers should be systematically led in a lockable cabinet or
locked room; access to those les should be restricted to designated
employees.
18. Similarly, access to the cashbook and the general ledger should be
restricted. If the cashbook and/or general ledger are/is prepared
37
manually, it should be stored in a locked safe during non-working
hours. If the cashbook and/or general ledger are/is kept on a
computer, the les or computer should be password protected and
backed up, at a minimum, weekly. Daily back-ups are recommended, if
possible.
38
FINANCE BUSINESS PROCESS 6.4 –
RECEIVABLES MANAGEMENT
PROCESS DESCRIPTION
Amounts owed to the organization are assets and should be classied in the
asset category “receivables.” The liquidation of trade receivables generally
results in future cash inows. However, other types of receivables, such as
amounts advanced to employees for business-related travel or to subrecipient
organizations to perform project-related tasks, when liquidated, will usually
result in expense charges.
The organization needs to establish rm deadlines for receivables collection.
For receivables that arise from transactions with external parties, the
deadlines for cash remittances and/or liquidation reporting should be
clearly spelled out in the contracts or agreements between the parties. For
receivables due from the organization’s employees, the cash remittance
and/or liquidation report submission deadlines should be made clear in the
organization’s policies and procedures and consistently enforced.
Effective management of receivables requires that all accounts receivable
balances be analyzed at least on a monthly basis. The most common and
effective receivables analysis is the aging report, in which the various individual
open balances are listed along with the dates of the nancial transactions that
gave rise to those balances and the accounting voucher references. The reports
should be distributed monthly to the respective organization ofcials responsible
for collection and/or liquidation of the balances.
PROCESS FLOW
PROCESS 6.4 RECEIVABLES MANAGEMENT
FINANCE
TEAM
Receivables
Management
6.4.1
39
STEP 6.4.1 – RECEIVABLES MANAGEMENT
STEP NAME RECEIVABLES MANAGEMENT
Step Number 6.4.1
Organizational Role Head of Finance
Accountant
Inputs Approved advance requests
Outputs Aging reports
Integration Points Collaboration with management as well as
Purchasing and Programming departments
Summary Amounts owed to the organization should be
recorded as receivables, which are assets of the
organization. They should be closely monitored to
ensure timely collection or liquidation and should be
accurately stated and appropriately classied.
Types of Receivables
A separate general ledger account should be set up for each type of receivable
that the organization expects to administer. Types of receivables that are
common to many organizations include the following:
1. Trade Receivables – Balances arising from trade sales, where
applicable. Balances in this account are cleared through cash/
check/wire remittances.
2. Travel Advances – Amounts advanced to employees for business
travel purposes. Balances in this account are normally cleared by the
submission of approved travel expense reports and or cash receipts,
supported by the appropriate documentation. Such advances are to
be fully liquidated at the end of each trip. New advances should not be
issued before an old advance is fully liquidated.
3. Employee Receivables – Amounts owed by employees for payments
made on their behalf. These balances are cleared by collection of
cash/checks or by payroll deductions where allowed by law.
4. Project Advances – Advances to subrecipient organizations to conduct
approved project activities. Balances in this account are normally
cleared through the submission of liquidation reports. The amounts
reported should be veried by the organization through the inspection
of the subrecipient’s supporting documentation.
5. Salary Advances – Amounts advanced to employees with the
understanding that the amounts advanced will be repaid by the
40
employee within the period dictated by local labor law as deductions
against wages to be paid. The organization should have a policy that
will be applicable with local laws regarding the repayment of salary
advances.
6. Advances to Suppliers – Amounts paid to suppliers prior to the
receipt of goods or services. This account is cleared when the goods
purchased are delivered or the service is rendered by netting the
advance against the amount due.
Standard Receivables Management Disciplines
The following are standard disciplines that aid in managing receivable balances:
1. The organization’s policies should clearly indicate when each type of
receivable is due. The collection or liquidation deadlines should be
communicated in writing to the other parties. When appropriate, a
deadline should be incorporated into the terms of an agreement with
the party to whom funds will be advanced.
1. One or more organization ofcials should be assigned the responsibility
of monitoring open balances and for following up on delinquencies.
2. Advances should not be issued to parties that have delinquent balances.
3. Each balance should clearly indicate the party that owes the funds.
a. If the organization uses a computerized general ledger system,
each owing party should be assigned an identifying number
(vendor code) that is entered into the general ledger or a subledger
every time a receivable transaction with the owing party takes
place.
b. If the organization uses a manual general ledger, it is
recommended that the receivable transactions with the various
debtors be also recorded in a separate subsidiary ledger or other
record that is summarized and reconciled to the general ledger
monthly. A separate subsidiary ledger or other record should be
maintained for each receivable general ledger account.
5. Shortly after the books are closed each month, the organization’s
Finance department should provide management and the employee(s)
assigned the responsibility for receivables collection and follow-up
reports for the open receivable balances. The reports should be “aged”
to show when each open balance arose to facilitate the monitoring and
collection efforts.
6. The general ledger system or the subsidiary ledger should provide a
complete audit trail to support each open balance.
7. Reserves should be set up for those account balances that appear
to be uncollectible. A reserve is set up by recording a debit to a
bad debts expense and a credit to a receivables reserve account.
A village leader in the
Democratic Republic of
the Congo keeps order
while beneciaries
wait to receive their
cassava seed in the
North Kivu province.
CARL D. WALSH FOR CRS
41
It is recommended that approval from a senior ofcial such as the
executive director be required to set up reserves.
8. Account balances that are uncollectible should be written off. In a
policy, the organization should describe the process to be followed
for write-offs and the approval(s) needed. Receivable balances are
written off by recording a debit to a reserve account and a credit to the
applicable receivable account. It is recommended that approval from
a senior ofcial such as the executive director be required to write off
receivable balances.
42
FINANCE BUSINESS PROCESS 6.5 –
FIXED ASSET ACCOUNTING
PROCESS DESCRIPTION
Fixed assets are the organization’s tangible long-term property, plant, and
equipment that have estimated useful lives of more than one year.
The Finance department should record each xed asset addition in the general
ledger and in the Fixed Assets register (ledger) as per the following guidelines:
• If the asset was purchased from the organization’s unrestricted private
funds, the accounting entry would be made on a cash disbursement
voucher as a debit to the xed asset account and a credit to cash.
• If the asset was received as an-kind contribution from a private donor or
as an unencumbered in-kind award from a grant donor, the accounting
entry would be made on a general journal voucher as a debit to the xed
asset account and a credit to in-kind contributions revenue.
• If the asset was received from a grant donor that retains ownership of
the asset and requires its approval for disposition of the asset at the
conclusion of the grant award, the accounting entry would be made on
a general journal voucher as a debit to the appropriate grant line item
expense account and a credit to the grant liability account. (The liability
account will be reduced when the organization recognizes grant revenue
for the expense recorded against the grant.) *
* Note – Generally accepted accounting principles (GAAP) require that
long-term assets be recorded as xed assets and depreciated over their
estimated useful lives. For xed assets purchased with grant funds
or received from a grant donor that retains ownership of the asset,
additional accounting entries will be needed to comply with GAAP while
accommodating the grant donor’s reporting requirements. Organizations
should seek guidance from their external auditors on any additional
accounting entries needed.
43
PROCESS FLOW
PROCESS 6.5 FIXED ASSET MANAGEMENT
FINANCE TEAM
Set Up and
Maintain a Fixed
Asset Register
6.5.1
Calculate and
Record
Depreciation
Expense
6.5.2
Record Fixed
Asset
Disposal
6.5.3
Start
Process
End
Process
Conduct
Counts of
Fixed Assets
6.5.4
44
STEP 6.5.1 – SET UP AND MAINTAIN A FIXED
ASSET REGISTER
STEP NAME SET UP AND MAINTAIN A FIXED ASSETS REGISTER
Step Number 6.5.1
Organizational Role Accountant
Inputs Fixed asset additions
Fixed asset disposals
Outputs Depreciation expense
Fixed assets reporting
Integration Points General ledger transaction processing
Summary The register is used to capture detailed information
about the organization’s xed assets.
The xed asset register should contain the following information:
• Name and description of the asset
• Cost, including purchase price, unreimbursed taxes, duties, delivery
costs, and installation fee
• Accounting transaction reference number
• Cash disbursement voucher or check number (for purchased assets)
• General journal voucher number (for donated assets)
• Acquisition date (month and year)
• Location
• Employee to whom the asset has been assigned or who has custodial
responsibility for the asset
• Condition
• Asset number (Should be assigned by the Administration department)
• Manufacturer’s serial or model number
• Owner (Indicate who has title to the equipment)
• Estimated useful life
• Monthly depreciation expense
• Funding source, if asset acquisitions have been funded by multiple donors
45
STEP 6.5.2 – CALCULATE AND RECORD
DEPRECIATION EXPENSE
STEP NAME CALCULATE AND RECORD DEPRECIATION EXPENSE
Step Number 6.5.2
Organizational Role Accountant
Inputs Fixed asset additions
Fixed asset disposals
Outputs Depreciation expense general journal entries
Integration Points General ledger transaction processing
Summary Since xed assets benet the organization over a
number of years, their cost should be expensed over the
periods that benet from use of the asset. Depreciation
expense is the distribution of the cost of a xed asset
over its estimated useful life.
The organization needs to designate an estimated useful life for each type
of xed asset it acquires and should use that estimated life to depreciate all
assets in that category. The organization should refer to local professional
accounting standards or practices to make the determination of useful life.
Suggested asset lives are the following:
• Computer equipment – three to ve years
• Furniture and equipment other than computers – 10 years
• Vehicles – three to ve years
• Buildings – 40 years
• Leasehold improvements – If the related facility lease has an
automatic renewal option, then the recommended asset life is 40
years. Otherwise, the improvements should be depreciated over the
remainder of the lease term.
• No asset life should be assigned to land, nor should land ever be
depreciated.
Depreciation expense should be recorded monthly on a general journal
voucher as a debit to depreciation expense and a credit to accumulated
depreciation. Accumulated depreciation is the sum of the depreciation
expense recorded since an asset’s acquisition date. Depreciation entries
should cease for a given asset once it has reached the end of its estimated
useful life. The accumulated depreciation for a given asset should never
46
exceed its cost. The asset cost and the accumulated depreciation should
remain on the books until the disposal of the asset takes place.
There are various methods of recording depreciation expense. It is
recommended that the organization use the straight-line method of recording
depreciation expense unless local standards or local practice dictate
otherwise. The straight-line depreciation method spreads the asset’s cost
evenly over its estimated useful life, beginning with the month it was rst
placed into service. The organization may elect to use one or more expense
accounts to record depreciation expense in the general ledger, depending on
donor requirements.
The information contained in the xed assets register should be used to
develop the standard monthly depreciation expense entry. The following
should be noted:
• If the xed assets register is maintained using xed assets computer
software, the software will calculate the amount of depreciation expense
each month.
• If a manual ledger is used, the monthly depreciation expense over
the estimated life of each asset should be shown in the ledger. A
spreadsheet should be prepared to summarize the depreciation expense
for all assets by each asset type and funding source. The totals per the
spreadsheet should be used as the basis for the depreciation entry.
47
STEP 6.5.3 – RECORD FIXED ASSET DISPOSALS
STEP NAME RECORD FIXED ASSETS DISPOSALS
Step Number 6.5.3
Organizational Role Accountant
Administration department
Inputs Fixed asset disposal forms
Outputs General journal entries (for disposals)
Integration Points Custodial department (administration)
Cashier
Summary A key responsibility of any organization is to safeguard
its assets. Fixed assets are the most visible and often
the most signicant assets owned by an organization.
Documentation and reporting are necessary to ensure
that the physical controls are effective.
The organization should use a standard form to document its xed asset
disposals. A pre-numbered two-part form is recommended. The form should
contain two sections: a request section and a disposal section.
Request
The department responsible for the custody of the organization’s assets
(normally the Administration Department) should submit a form for each
requested disposal and route it to the appropriate ofcial for approval. The
following information should be contained in the Request section of the Fixed
Assets Disposal form:
• Description of the asset
• Current condition of the asset
• Asset cost
• Current net book value of the asset (cost less accumulated depreciation)
• Asset location
• Fixed Asset number (as assigned by the organization)
• Serial number (as afxed by the vendor, if applicable)
• Reason for the disposal
• Nature of the disposal (sale, transfer, discard, or abandonment)
• Date of the request
48
• Name and signature of the requester
• Name and signature of the designated approver
• Date approved
• Estimated amount of proceeds to be received, if to be sold
• An indication as to whether prior approval has been obtained from the
donor, if required
• An indication as to whether clearance for a sale has been obtained
from the local government if the organization is tax exempt and if such
approval is so required by local regulations
If a disposal request has been approved for an asset sale, the organization
should require the solicitation of sealed bids. Bids received should be opened
in the presence of several specied organization ofcials. Once a winning
bidder has been selected and notied, documentation to support the bidding
process and buyer selection should be kept on le. If the asset was purchased
via funding from a grant donor, the organization should seek donor approval, if
required, prior to the sale.
Disposal
Once disposal has taken place, the custodial department should complete
the second half of the disposal form, which should contain the following
additional information:
• Date disposal took place
• Amount of proceeds received (if sale)
• Amount of cost incurred to dispose of the asset (if any)
• Name and signature of the designated employee attesting to the disposal
The original disposal form should be sent to the organization’s Finance
department for support of the accounting entry/entries needed to record the
disposal. The custodial department should retain a copy of the completed form.
At the time of the disposal, the Finance department should do the following:
• If a sale took place, the cashier should receive the cash directly from
the purchaser and record the receipt of the proceeds on a cash receipts
journal voucher by debiting the cash account and crediting a gain/loss
on the sale of xed assets account, which is an “other income” account.
The cashier should issue a Cash Receipt form to the purchaser (original),
retain a copy of the form on le, and attach a copy of the form to the cash
receipts journal voucher. If the purchaser paid by check, a copy of the
purchaser’s check should also be attached to that voucher.
49
• In the same scal month, the Finance department should record the
disposal of the asset on a general journal voucher. The original xed
asset disposal form should be attached to the general journal voucher,
which should be cross-referenced to the cash receipts journal entry if a
sale took place. The disposal entry will vary depending upon whether or
not the asset is fully depreciated.
• If the asset is fully depreciated, the entry will be to debit the accumulated
depreciation account and to credit the xed asset account.
• If the asset is not fully depreciated, the entry would be to debit the
accumulated depreciation account for the amount of its balance, to debit
the net book value of assets disposed of or sold account for the asset’s net
book value, and to credit the xed asset account for the asset’s cost. (Net
book value is the difference between the asset’s cost and the accumulated
depreciation balance as of the date of the sale or other disposal.)
• The general journal voucher should be routed to the appropriate
employee per the organization’s authorization matrix for approval.
• After approval, the general journal voucher should be entered into the
general ledger.
• The xed assets register should be updated for the disposal using the
information contained on the general journal voucher and the attached
xed asset disposal form.
50
STEP 6.5.4 – CONDUCT COUNTS OF FIXED ASSETS
STEP NAME CONDUCT COUNTS OF FIXED ASSETS
Step Number 6.5.4
Organizational Role Accountant
Head of Administration
Inputs Fixed asset count forms
Outputs Count reconciliations
General journal entries (for missing xed assets)
Integration Points Custodial department (administration)
Summary Finance must reconcile xed asset counts with the
general ledger balances and prepare general journal
vouchers for unreconciled differences. The organization
should conduct physical counts of its xed assets on a
predened frequency during the course of the year. It
is highly recommended that the counts occur at least
quarterly. In no case should the counts be made less
frequently than yearly.
Employees who are independent of the xed asset custodial and record
keeping functions should supervise and conduct xed asset counts. The
head of administration should direct the counts. A standard preprinted form
should be used to record the counts. The count sheets should be signed
by the person(s) who performed the count(s) and approved by the head of
administration. The original count sheets should be sent to the Finance
department for reconciliation with the xed assets register and the general
ledger balances for the respective types of xed assets. The Administration
department should retain copies of the count sheets.
Count differences should be investigated and any asset shortages should be
explained. In the event that a count is proven to be in error, an adjustment
should be made to the pertinent count sheet after proper approval to make
the adjustment has been obtained. For any missing asset, the head of
administration should prepare and approve a xed asset disposal form.
That form should be attached to the general journal voucher used to record
the reduction in the applicable xed asset balance. The general journal
voucher should be routed to the appropriate employee per the organization’s
authorization matrix for approval. After approval, the general journal voucher
should be entered into the general ledger.
51
The xed assets register should be updated for the disposal, using the
information contained on the general journal voucher and the attached xed
asset disposal form.
Physical controls should be such that instances of missing xed assets should
be rare. The heads of administration and Finance should jointly address
repeated occurrences or signicant instances of missing assets with the
Executive Director.
52
FINANCE BUSINESS PROCESS 6.6 –
ACCOUNTING FOR PREPAID
EXPENSES AND SECURITY DEPOSITS
PROCESS DESCRIPTION
Expenses paid in advance of the accounting periods that will benet from those
expenditures need to be accounted for as prepaid expenses. The cost of these
assets is charged to expense (amortized) over the beneting months. The
organization’s Finance department should maintain a detailed analysis of open
prepaid items to facilitate their review and to help ensure that the balances are
properly amortized.
Security deposits, if material to the organization, should be recorded as assets.
Unlike prepaid expenses, security deposits that are set up as assets should not be
amortized since they are not consumed in the business and their value does not
diminish over time.
PROCESS FLOW
PROCESS 6.6 ACCOUNT FOR PREPAID EXPENSES
FINANCE TEAM
Record Prepaid
Expenses and
Maintain a
Detailed
Supporting
Record
6.6.1
Amortize Prepaid
Expenses
6.6.2
Record
Security Deposits
and Maintain a
Detailed
Supporting
Record
6.6.3
Start
Process
End
Process
53
STEP 6.6.1 – RECORD PREPAID EXPENSES AND
MAINTAIN A DETAILED SUPPORTING RECORD
STEP NAME
RECORD PREPAID EXPENSES AND MAINTAIN A
DETAILED SUPPORTING RECORD
Step Number 6.6.1
Organizational Role Accounts payable clerk
Accountant
Inputs Documented standard practices established by the Head
of Finance
Outputs Cash disbursement entries
Detailed analysis (register or worksheet)
Integration Points Head of Finance
Summary In the normal course of business, most organizations
make payments that benet future periods. Common
examples of prepayments are those made in advance
for ofce leases, insurance premiums, and computer
maintenance contracts. The portion of the payment that
benets future periods should be recorded as a prepaid
expense. To aid in tracking prepaid expense balances,
the Finance department should maintain a detailed
analysis of the open prepaid items.
Record Prepaid Expenses
The organization’s Head of Finance should make the determination based on
materiality and types of expenditures as to which disbursements should be set
up as prepayments. Prepayments below the minimum threshold established
by the Head of Finance should be expensed when paid. The decisions should
be documented by the Head of Finance and copies of the documented
decisions should be retained on le by the accountant.
The organization may set up a separate general ledger prepaid expense
account for each type of prepayment or it may decide to keep all prepayments
in a single account. If multiple types of prepayments are kept in a single
general ledger prepaid expense account, care should be exercised to ensure
that each prepayment is properly amortized.
Maintain a Detailed Supporting Record
The detailed record may be a formal ledger (register) or a worksheet. If an
organization has more than one type of prepaid expense or has multiple general
ledger accounts, a separate ledger or worksheet should be maintained for each.
DaviD SnyDer/CrS
In South Africa, a local
non-governmental
organization called
SINOSIZO provides
home based care and
orphan support in HIV-
affected communities
around Durban.
54
The types of information that should appear in each detailed record include
the following:
• Description of the prepayment
• Vendor
• Transaction reference number
• Transaction date
• Periods that will benet from the prepayment (the term over which the
prepayment is to be expensed, usually expressed as the number of
months)
• Total amount of the prepayment
• Amount that will be expensed (amortized) each month
• Monthly beginning balance
• Additions (cash disbursements)
• Reductions (e.g., general journal entries for monthly amortizations,
insurance premium refunds)
• Monthly ending balance
The monthly ending balance in each detailed record (if multiple prepaid
expense accounts are used) should agree with the corresponding general
ledger balance for each account. If only one prepaid expense account is used,
the total of the ending balances for all of the detailed records should agree
with the general ledger balance.
The detailed records should be reviewed monthly by the Head of Finance
to ensure that they are sufficiently detailed and agree with the general
ledger balance.
55
STEP 6.6.2 – AMORTIZE PREPAID EXPENSES
STEP NAME AMORTIZE PREPAID EXPENSES
Step Number 6.6.2
Organizational Role Accountant
Inputs Data from detailed prepaid expense records
Outputs General journal entries
Integration Points Head of Finance
Summary Prepaid assets should be charged to expense in the
period(s) in which the organization derives benet from
the original expenditures. The process by which the
prepaid expense balances are charged off to expense is
known as amortization.
A designated employee in the Finance department should be responsible for
preparing the monthly amortization entry. The designated employee should
refer to the detailed accounting record(s) for the amount to be amortized
for each account and/or type of prepayment every month. If a spreadsheet
is used for prepaid expense tracking, a copy of the spreadsheet should be
attached to each month’s amortization entry.
Generally, prepaid expenses are amortized evenly over the beneting periods.
For example, if an organization is required by contract to pay the next year’s
rent in advance, payment should be recorded on a cash disbursement voucher
as a debit to prepaid expenses and a credit to the cash-in-bank account. Each
month during the lease term, the Finance department should record a debit
to expense and a credit to the prepaid expense account on a general journal
voucher for one-twelfth of the prepaid rent. By the end of the lease term, the
rent prepayment should be fully amortized.
If several types of prepayments are maintained in a single general ledger
account, care should be exercised to ensure that the cumulative amortization
for each type of prepayment does not exceed the amount of the original asset.
If the benet derived from the prepayment does not extend beyond the life of a
specic associated project, the prepaid expense should be amortized within that
project’s term.
56
STEP 6.6.3 – RECORD SECURITY DEPOSITS AND
MAINTAIN A DETAILED SUPPORTING RECORD
STEP NAME
RECORD SECURITY DEPOSITS AND MAINTAIN A
DETAILED SUPPORTING RECORD
Step Number 6.6.3
Organizational Role Accounts payable clerk
Accountant
Inputs Documented standard practices established by the Head
of Finance
Outputs Cash disbursement entries
Detailed listing of all open security deposit balances
Integration Points Head of Finance
Summary Security deposits such as those required by utility
and phone companies are not prepaid expenses and
should be recorded in a separate asset account if these
expenses are signicant to the organization. If security
deposits are minor in amount, consideration may be
given to expensing them when paid.
Security deposits that are set up as assets should not be amortized. The
Finance department should maintain a listing of all amounts charged to the
security deposit account. The listing should contain the voucher reference,
vendor name, date paid, amount paid, and a brief description of each
payment. It is recommended that the Finance department also keep copies
of related supporting documentation for each charge to the security deposit
account until the deposit is recovered. Monthly, the Head of Finance should
review the detailed records to ensure that they are sufciently detailed and
agree with the general ledger balance.
If the Head of Finance decides that payments for small security deposits
should be expensed when paid, the criteria and threshold for making that
determination should be documented in writing.
If the benet derived from the security deposit does not extend beyond the
life of a specic associated project, the security deposit should be liquidated
before that project is closed.
57
FINANCE BUSINESS PROCESS 6.7 –
ACCOUNTS PAYABLE PROCESSING
PROCESS DESCRIPTION
Organizations that operate on an accrual basis for accounting purposes
normally set up their impending payments as liabilities before they pay them.
This process is known as accounts payable. Use of an accounts payable
system, whether manual or automated, helps to ensure that expenses and
asset acquisitions are recorded in the proper accounting periods, and that the
corresponding liabilities are correctly stated at month’s end. Accounts payable
systems also aid in tracking open vendor invoices until they are paid.
Accounts payable transactions are recorded on a standard accounting entry
document known as an accounts payable voucher.
PROCESS FLOW
PROCESS 6.7 ACCOUNTS
PAYABLE PROCESSING
FINANCE
TEAM
Accounts Payable
Processing
6.7.1
58
STEP 6.7.1 – ACCOUNTS PAYABLE PROCESSING
STEP NAME ACCOUNTS PAYABLE PROCESSING
Step Number 6.7.1
Organizational Role Accounts Payable clerk
Head of Finance
Inputs Approved purchase order
Supplier’s delivery note
Supplier’s invoice
Goods-received note
Payment request
Outputs Accounts payable voucher
Check disbursement
Integration Points Collaboration with procurement ofcer, Head of Finance
and other unit heads
Summary The Finance department is responsible for making
payments after ensuring that all payment requests
are duly approved, with adequate supporting
documentation attached.
This process does not apply to those organizations that pay their vendors on
a cash basis. For those organizations, all payments (other than payroll) are
recorded on cash disbursement vouchers and vendors are paid immediately
upon receipt of the goods or services.
Accounts Payable Process
Many organizations use an alternative process by which all types of
impending payments (other than payroll) are recorded on a standard
accounting entry document known as an accounts payable voucher and then
paid at a later date. For those organizations that follow an accounts payable
cycle, the process ow is as follows:
1. To begin the accounts payable process, the Accounts Payable clerk receives
the following documents, when applicable:
• From the procurement ofcer – purchase order, purchase requisition,
competitive bid documentation, basis for vendor selection
• From the supplier – invoice and delivery note
• From the receiving clerk – goods-received note
• From administration or Procurement – signed contract
• From the requesting department – payment request (for services or for
payments other the purchase of goods, such as for travel advances)
59
2. The Accounts Payable clerk then compares and veries the documents
received as described below:
• If the transaction is for a goods purchase, the Accounts Payable clerk
matches the descriptions, quantities, and unit prices per the supplier’s
invoice and delivery note to those indicated in the purchase order and
the goods-received note.
• If the transaction is for a contracted service, the Accounts Payable clerk
matches the vendor’s invoice against the terms of the contract and
against the payment request.
• If the transaction is for another type of payment, such as a travel
advance, the clerk checks the request form received for proper
approvals and account coding information and also checks open
balances to see if the requested payment is compliant with the
organization’s policies.
3. Upon satisfactory completion of the verication process, the Accounts
Payable clerk prepares an accounts payable voucher and attaches the
supporting documents. On the accounts payable voucher, the appropriate
account(s) is/are debited and Accounts Payable is credited. The clerk also
prepares a payment request form if one was not received previously and
submits the voucher and the request to the designated organization ofcial
for approval. The Accounts Payable clerk then attaches the approved
payment request form to the voucher and posts the voucher to the general
ledger or accounts payable (voucher) register, as applicable.
4. When it is time to make the payment, the Accounts Payable clerk
prepares a disbursement check and routes the check and the voucher to
the designated ofcial for signature and approval. The disbursement is
recorded in the cash disbursements journal as a debit to Accounts Payable
and a credit to cash. The check, check copy, or check stub (if applicable)
should contain a cross-reference to the related accounts payable voucher
transaction reference number(s).
5. Once the check is signed, the check is distributed to the supplier/payee.
If the payee or the payee’s authorized representative picks up the check,
that individual should be required to sign to acknowledge receipt of the
payment. The payee’s acknowledgment and a copy of the signed check
should be attached to the voucher. The voucher package is then canceled
and led.
60
FINANCE BUSINESS PROCESS 6.8 –
ACCOUNTING FOR ACCRUED
LIABILITIES
PROCESS DESCRIPTION
A liability is an amount owed by an organization. For an accrual basis
organization, the Finance department should record a liability for any debt
incurred but not settled (paid) during a given month. It is often necessary to
record an accrual if a liability has not been set up in the normal course of
business. An accrual aids in ensuring that the organization’s expenses, assets,
and liabilities are properly stated at month’s end.
PROCESS FLOW
PROCESS 6.8 ACCOUNTING
FOR ACCRUED LIABILITIES
FINANCE TEAM
Record Accrued
Liabilities
6.8.1
Adjust for Accrued
Liabilities
6.8.2
Prepare and
Maintain
Detailed
Analyses of
Accrued
Liabilities
6.8.3
Start
Process
End
Process
61
STEP 6.8.1 – RECORD ACCRUED LIABILITIES
STEP NAME RECORD ACCRUED LIABILITIES
Step Number 6.8.1
Organizational Role Accountant
Head of Finance
Inputs Management estimates
Organizational policy criteria
Local government regulatory requirements
Professional advisory services (attorneys, accounting
rms, actuaries)
Outputs General journal entries
Integration Points Head of Finance
Executive ofce
Outside professionals
Summary Organizations regularly incur expenses that will be paid in
the future. To ensure that these expenses are booked in
the proper period, organizations that maintain their records
on an accrual basis should set up accrued liabilities in the
months in which the expenses are incurred.
It is recommended that the organization set up a separate accrued liabilities
general ledger account for each type of signicant, recurring accrual.
Accrued liabilities are recorded on general journal vouchers as debits to the
appropriate expense accounts and credits to one or more accrued expense
(liability) accounts.
The following are types of expenses for which accruals are usually needed:
• Pension
• Employee severance
• Employee salaries and wages (including vacations) earned but not yet paid
• Normal operating expenses that were incurred but for which the
suppliers have not submitted invoices as of the end of a given month*
• Risk related to fraud or legal cases**
The Head of Finance should make the determination as to when an accrued
liability should be set up or liquidated. Documentation supporting the reason
for the accrual should be attached to the general journal voucher. If the
reason for the accrual is condential in nature, the documentation should be
retained on le by the Head of Finance and a notation to that effect should
be attached to the general journal voucher.
62
* If the organization has received goods and the supplier’s invoice, but has
not paid the supplier before the end of a given month, the liability should be
recorded as an account payable and not as an accrued expense.
** Expenses arising from fraud or legal issues should not be charged to
donor awards.
63
STEP 6.8.2 – ADJUST ACCRUED LIABILITIES
STEP NAME ADJUST ACCRUED LIABILITIES
Step Number 6.8.2
Organizational Role Accountant
Inputs Instructions from the Head of Finance
Notices from external parties
Outputs General journal entries
Integration Points Head of Finance
Summary Accrued liabilities should be reviewed monthly and
adjusted as necessary.
When a liability has been paid in full or in part, the portion of the liability that
has been settled (paid) should be reversed on a general journal voucher as
a debit to the accrued liability account and a credit to the account that was
charged on the accrual entry. The reversing entry and the payment voucher
should be cross-referenced and an explanation for the reversal should be
included on the reversal voucher.
If management decides that all or a portion of an accrual relating to a non-grant
activity is no longer needed, the portion of the accrual that is no longer needed
should be reversed and an explanation of the reason that portion of the accrual is
no longer deemed necessary should be attached to the general journal voucher.
If the organization has accrued an allowable expense against a grant award,
but has determined that all or a portion of the accrual is no longer needed,
the portion of the accrual that is no longer needed should be reversed. If the
award is still active, the expense credit should reduce the next cash drawdown
or reimbursement from the grant donor for that award. If the award has been
closed, a payment should be made to the grant donor for the amount of the
expense reversal. An explanation of the reason for the reduction in the liability
should be included on the general journal voucher. All accrued liabilities booked
for a grant or project must be settled before closing the grant or project.
If an accrued liability was based on an estimate that needs to be adjusted, the
explanation and the basis for the adjustment should be provided on the general
journal voucher.
The appropriate approver should sign all accounting entries for adjustments to or
reversals of existing accruals.
64
STEP 6.8.3 – PREPARE AND MAINTAIN DETAILED ANALYSES
OF ACCRUED LIABILITIES
STEP NAME
PREPARE AND MAINTAIN DETAILED ANALYSES OF
ACCRUED LIABILITIES
Step Number 6.8.3
Organizational Role Accountant
Inputs Previous month’s account analysis
Review of current month’s general ledger activity
Outputs Account analysis for current month
Integration Points Head of Finance
Summary To aid in tracking accrued expense balances, the
Finance department should prepare updated account
analyses of the accrued expense balances at the end of
every month.
A detailed account analysis should be prepared for each type of accrual. It is
recommended that the account analysis be updated monthly and cover the
entire scal year.
The types of information that should appear in the account analysis for each
type of accrual are the following:
• Description of the accrual
• Party to whom the liability is owed
• Basis for the accrual (how it is calculated)
• Accrual balance at the beginning of the month
• Addition(s) to each accrual (indicate amount, transaction number, and
transaction date) during the month
• Reductions in each accrual (indicate amount, transaction number, and
transaction date) during the month
• Accrual balance at the end of the month
The ending monthly balance reported on each account analysis should agree
with the ending balance in the corresponding general ledger account. The
Head of Finance should review the account analyses monthly to ensure that
they have been properly prepared and agree to the general ledger balance(s).
65
FINANCE BUSINESS PROCESS 6.9 –
RECORDING REVENUES
PROCESS DESCRIPTION
This section will focus on revenue generated from cash contributions, cash
grants, and in-kind donations. The accounting treatment for the funding
received will vary depending upon whether the donor has placed any special
conditions on the funding it has provided to the organization. There may be
restrictions or requirements regarding the use of the funds, the time in which
the funds are to be expended, reporting, or other areas. It is recommended
that an organization maintain separate accounts for the different types of
funding it expects to receive or for any revenue it expects to generate. This will
make the process of analysis and reporting easier to manage.
PROCESS FLOW
PROCESS 6.9 RECORDING REVENUE
FINANCE TEAM
Revenue –
Contribution
6.9.1
Revenue –
Grants
6.9.2
Revenue –
In-Kind
6.9.3
66
STEP 6.9.1 – RECORD CASH CONTRIBUTIONS
STEP NAME RECORD CASH CONTRIBUTIONS
Step Number 6.9.1
Organizational Role Head of Finance
Inputs Donor gift
Outputs Cash receipt slip or contribution acknowledgment (form
or letter)
Bank deposit slip
Cash receipt journal voucher
Integration Points Fundraising staff
Executive director
Summary Contributions are dened as unconditional transfers of
assets from a donor. Unconditional means the assets
immediately belong to the recipient, even if there may be
a restriction on the purpose for which they may be used or
the time when they become available for use in the future.
The following are among the typical characteristics of cash contributions:
• No agreement is involved, other than fullling the donor’s restricted
intent (if any)
• No contractual liability exists to return any of the funds
• No formal nancial reporting is required
• Funding is usually received from private parties, generally not from
public entities
A cash contribution is recorded on a cash receipt voucher. The accounting
entry that the Finance department should make to record a cash contribution
is as follows:
• Debit bank account
• Credit contributions revenue account
67
STEP 6.9.2 – RECORD GRANT REVENUE
STEP NAME RECORD GRANT REVENUE
Step Number 6.9.2
Organizational Role Head of Finance
Project ofcers
Inputs Grant agreement
Outputs Bank deposit slip
Incoming wire conrmation
Integration Points Collaboration with donors, project ofcers,
subgrantees
Summary Grants, also referred to as awards (including
subawards) or cooperative agreements, are
arrangements whereby the organization has a
contractual funding relationship in which a donor
provides nancial support in return for the delivery
of specied program services by the organization or
its subawardee.
Organizations typically are required to perform the following actions to apply
for and receive grants:
• Sign an agreement with the donor and agree to its specied terms
• Submit an itemized budget for approval by the donor
• Return unspent funds to the donor
• Submit formal nancial reporting to the donor
• Comply with applicable donor regulations or requirements in
administering the award
Grant revenue should be recorded in each month during which the
organization incurs reasonable, allowable, and allocable expenses against the
award. The steps that are typically followed are:
1. Grant funding received in advance should be recorded as a liability to
the donor when received.
a. Debit cash
b. Credit grants payable
2. When reasonable, allowable expense is incurred.
a. Debit expense
b. Credit cash
In Laos, disability
is still misunderstood
and discrimination
is common. CRS works
with villagers to promote
the acceptance and
ensure that all children
have an opportunity
for education.
CRS STAFF
68
3. At least monthly, when expenses are incurred against the award, grant
revenue should be recognized and the liability should be reduced.
a. Debit grants payable
b. Credit grant revenue
Each month, the Head of Finance should reconcile the total cash received
from the donor with the revenue recorded against the grant and the
outstanding liability to the grant’s donor.
69
STEP 6.9.3 – RECORD IN-KIND CONTRIBUTIONS
STEP NAME RECORD IN-KIND CONTRIBUTIONS
Step Number 6.9.3
Organizational Role Head of Finance
Inputs Donations
Documents to support the value assigned to the
donation
Outputs General journal voucher
Integration Points Collaboration with donors, project ofcers, fundraisers,
executive director
Summary In-kind revenue is dened as the donation of goods or
services by an organization that does not require any
form of payment in return.
Accounting for in-kind donations can be complex. The organization needs
to fully understand the complexity and the appropriate accounting entries
for recording in-kind donations in its general ledger. There is also a need to
understand local laws, the donor’s regulations, if applicable, and accepted
accounting practices for undistributed commodities when revenue was already
recorded by the donating agency.
1. In-kind donations received by an organization are typically valued and
recorded in the general ledger as revenue. The valuation of the goods and
services may be derived from the donor or the organization can conduct a
market analysis to place a value on the item or services received.
2. When the valuation is complete for an unrestricted in-kind gift, the
Finance department should record the following entry for the donation
in the general ledger:
a. Debit appropriate inventory/xed asset/expense account
b. Credit in-kind revenue
3. If an inventory account is debited when the goods are received, there
must be a documented system for relief of inventory when the goods are
removed from inventory for use by the organization or for distribution to
beneciaries. The accounting entry for relief of inventory items acquired
via a non-grant source is as follows:
a. Debit expense
b. Credit inventory
70
4. For grant-funded projects, when goods are received the following entry
should be recorded:
a. Debit appropriate inventory/xed asset/expense account
b. Credit grant payable
5. For grant-funded projects, when inventoried goods are used or
distributed, the entries needed are as follows:
a. Debit expense
b. Credit inventory
c. Debit grant payable
d. Credit grant revenue
71
FINANCE BUSINESS PROCESS 6.10 –
PAYROLL PROCESSING
PROCESS DESCRIPTION
Payroll consists of all employee salaries, wages, bonuses, cash benefits,
and deductions. The payroll function also includes the processing of
all timesheets/effort-reporting documents. An employer must retain
all records pertaining to payroll. Such records include salary and wage
histories and all salary and wage deductions for the periods of time
stipulated by statute and standard business practices.
The following are the main features of a payroll system:
• Master salary records are maintained for all employees showing
the current rates of pay, allowances, and statutory and voluntary
deductions.
• The Finance department prepares both the payroll and payslips or
pay notices, using information received from the Human Resources
department.
• Regular full-time employees should be paid by check or wire transfer.
• Temporary employees may be paid in cash upon approval by
management.
The payroll function must be independent of the Human Resources
function. Due to the sensitive and confidential nature of payroll, it must be
administered with due care and diligence.
72
PROCESS FLOW
PROCESS 6.1 BASIC ACCOUNTING REQUIREMENTS
FINANCE TEAM
Update
the Payroll
Master File
6.10.1
Update the
Tax Rates
and Other
Deductions
from Salaries
and Wages
6.10.2
Process
Time and
Attendance
Data
6.10.3
Start
Process
End Process
Prepare
and
Record the
Payroll
6.10.4
Disburse
the
Payroll
6.10.5
73
STEP 6.10.1 – UPDATE THE PAYROLL MASTER FILE
STEP NAME UPDATE THE PAYROLL MASTER FILE
Step Number 6.10.1
Organizational Role Payroll accountant/clerk
Inputs Personnel action form
Outputs Updated payroll master le
Integration Points Human Resources
Summary The rst activity in the payroll cycle involves updating
the payroll master le in liaison with the Human
Resources department to reect various types of
payroll changes. These include new hires, terminations,
changes in employment status or pay rates, changes in
discretionary or voluntary deductions, and changes in
bank account numbers.
The Finance department should note the following when updating payroll les:
• For each employee, a master salary record is maintained. This serves as
a permanent record of the data to be included in the monthly payroll and
is in addition to the personnel les maintained for all employees by the
Human Resources department.
• Finance receives changes to permanent employee records from the
Human Resources department using an approved master salary record
amendment form, often called a personnel action form. Personnel
action forms are issued for each change in employment status or in the
employee’s deductions.
• It is important that all payroll changes are entered in a timely manner
and are reected in the proper pay period.
• Every pay period, the payroll master le should be reconciled with the
Human Resources department’s personnel les for each employee.
• Finance should provide Human Resources a cut-off date for submission
of salary adjustment notices to allow sufcient time for processing in the
current payroll.
74
STEP 6.10.2 – UPDATE THE TAX RATES AND OTHER
DEDUCTIONS FROM SALARIES AND WAGES
STEP NAME
UPDATE THE TAX RATES AND OTHER DEDUCTIONS
FROM SALARIES AND WAGES
Step Number 6.10.2
Organizational Role Payroll Accountant/clerk
Inputs Tax notices
Personnel action forms
Human Resources (administration) memoranda
Outputs Payroll register
Updated payroll master le
Integration Points External – local revenue authority
Internal – Human Resources/administration department
Summary The second activity in the payroll cycle is updating
information about tax rates and other deductions. The
Finance department makes these changes when it
receives notication of changes in tax rates and other
payroll deductions.
Notices pertaining to salary and wage deductions come from external
and internal sources. External notices pertaining to changes in tax rates
usually come from local regulatory authorities. It is recommended that the
organization seek a professional opinion on the application of payroll taxes.
Notices pertaining to other deductions are generally received from the
organization’s Human Resources/administration department in the form of
either personnel action forms (if directed to one or more specic employees)
or ofcial memoranda (if applicable to all employees or certain classes of
employees). These inputs are used to update the payroll master le.
75
STEP 6.10.3 – PROCESS TIME AND ATTENDANCE DATA
STEP NAME PROCESS TIME AND ATTENDANCE DATA
Step Number 6.10.3
Organizational Role Payroll accountant/clerk
Inputs Employee timesheets
Outputs Labor distribution
Payroll register
Integration Points Department or unit heads
Summary The third step in the payroll cycle is to process each
employee’s time and attendance data.
It is recommended that timesheet processing be conducted by the
organization’s Finance department. If the function is carried out by the
organization’s Human Resources department per local practice or regulatory
requirements, the employee who performs the role should not engage in other
payroll related tasks.
The organization should have a timekeeping system for tracking employees’
salaries and wages charged to projects. Many grant donors require the
use of individual timesheets to document employee time charged to their
awards. This section has been developed under the premise that individual
timesheets are required by the organization.
The following information, at a minimum, should be reported on the timesheet:
• Employee name (rst and last names)
• Employee’s identication number
• Assigned activities during the pay period (numerical codes may be used
for this purpose)
• Hours worked each day
• Paid time off (for example, vacation or holidays)
• Signature of the employee
• Signature of the employee’s supervisor
• Dates during which the reported activity was performed
Each employee should submit a timesheet for each pay period, using the
organization’s standard form. The timesheet should be submitted to the
76
employee’s immediate supervisor for approval and then routed by the
supervisor to the employee who processes the timesheets. Timesheet
preparation and submission process may either be manual or automated.
The timesheet should meet the following standards:
1. It must show an after-the-fact determination of the actual activity of the
reporting employee.
2. All hours worked by the employee and all work-related activities in which
the employee was engaged must be reported on the timesheet.
3. If the organization’s practice is to submit timesheets manually, the
timesheet must be prepared in ink and signed and dated by the
reporting employee.
4. It must be prepared on a basis consistent with the employee’s pay
period, but not less than on a monthly basis. (See the example below.)
To allow time for timesheet and payroll processing, the timesheet reporting
period for salaried employees should be cut off before the payroll period ends,
since salaried employees are usually paid currently. Because the pay for hourly
employees depends upon the hours they work, hourly employees are generally
paid in arrears. Consequently, the timesheet cutoff dates for salaried and
hourly employees may differ.
EXAMPLE OF TIMESHEET CUT-OFF FOR SALARIED
EMPLOYEES
In this example, the following is assumed:
• The salaried employees are paid monthly on the thirtieth day of the
calendar month.
• The pay period is through the end of the calendar month.
• It takes ve working days to process the timesheets and to prepare
the payroll.
• Employees are regularly instructed to cut off their timesheets as of the
twenty-third day of the calendar month.
In this case, the labor distribution (gross salary expenses charged to each
cost center) for the timesheet period from October 24 to November 23 will be
the basis for the monthly payroll for salaried employees for the month ending
November 30. The gross salaries per the labor distribution for the reporting
month ending November 23 must agree with the gross monthly payroll for the
month ending November 30.
77
STEP 6.10.4 – PREPARE AND RECORD THE PAYROLL
STEP NAME PREPARE AND RECORD THE PAYROLL
Step Number 6.10.4
Organizational Role Payroll accountant/clerk
Inputs Employee timesheets
Outputs Payroll register
General journal entry
Integration Points N/A
Summary The fourth step in the payroll cycle is preparing payroll.
Each payroll must be documented in a report known as
the payroll register, which contains the names of the
employees paid during the period and their pay rates,
gross pay, payroll deductions, and net pay.
Payroll is summarized for all employees as follows:
1. Salaries and wages expenses, the employer’s portion of payroll taxes,
and other benets and allowances are totaled by cost center or other
charge code.
2. The employee’s net pay is summed by payment type (e.g., bank
payments, cash, or checks).
3. Payroll deductions are calculated for subsequent remittance to the
appropriate parties.
An accounting entry is then prepared for recording the salaries and wages.
The distribution of salaries and wages expense to the organization’s various
departments and projects as shown on the accounting entry must agree with
the distribution of time charges on the employees’ timesheets.
To ensure accuracy, the gross pay for the current pay period should be
reconciled with that for the previous period using a standard reconciliation form.
Upon completion, the payroll register, payroll summaries, payroll reconciliation
form, and the accounting entry for the salaries and wages are then submitted
to the appropriate level of management for approval.
The Finance department should record liabilities for amounts withheld and pay
the amounts due per statutory deadlines.
78
STEP 6.10.5 – DISBURSE THE PAYROLL
STEP NAME DISBURSE THE PAYROLL
Step Number 6.10.5
Organizational Role Payroll accountant/clerk
Inputs Approved documents
Outputs Cash disbursement entries, paychecks/payments to
employees and pertinent payees
Integration Points Approval authorities, Accounts Payable clerk/accountant,
cashier, employees
Summary The nal step in the payroll cycle is the disbursement of
the net pay to the employees and payment of the amounts
withheld to the appropriate parties.
The payroll disbursement process entails the performance of the following tasks:
1. Once the payroll register, payroll summary, payroll reconciliation
form, and the general journal entry for salaries and wages have been
approved, those documents are then passed along to the designated
employees for preparing payment to employees and the pertinent payees
for salary deductions where applicable.
2. Cash disbursement vouchers are prepared to support the payment of
salaries and the pay deductions.
a. For those employees who are to be paid in cash, a check is issued
to the cashier for encashment and payment.
b. For those employees who are to be paid by check, individual checks
are prepared in the names of the respective employees.
c. If the organization does not have a commingled bank account, then
it may be necessary to issue multiple checks to those employees
whose salaries have been charged to more than one donor award.
d. For those employers who are to be paid by bank transfer, a wire
transfer request is prepared, approved, and submitted to the
pertinent bank.
e. An individual payment request is made for each type of payroll
deduction that will require payment to an outside party.
• The checks and wire transfer requests, along with the respective cash
disbursement vouchers, are then forwarded to the designated check
signatory/voucher approver for signature.
• After the cash disbursement vouchers, checks, and the wire transfer
79
request (if applicable), have been signed, they are routed to the
designated employee(s) and the payroll is disbursed as follows:
a. For employees paid in cash, the designated Finance employee, who
receives a signed payslip form from each employee to acknowledge
receipt of the pay, distributes the net payments.
b. For employees paid by check, for control purposes it is
recommended that designated personnel other than the payroll
preparer and the employees’ immediate supervisors distribute
payroll checks. The employees should sign to acknowledge receipt
of their net pay.
c. For employees paid through bank transfers, an order is issued to
the bank with pay summaries and the employees’ personal bank
account numbers.
d. In the event of absence of any employees who are paid in cash
or by check, the undistributed amounts should be returned to the
Finance department for retention in a safe until distribution takes
place. For control purposes, the cash or checks should be returned
to a designated employee other than the payroll clerk. Release of
the cash or checks should be made directly to the employees upon
presentation of the prescribed identication documents, not to the
employees’ supervisors.
e. For payments made in settlement of salary deductions (PAYE),
checks are mailed/distributed or wire transfers are performed by
the designated employee(s).
f. All employees should receive pay stubs with each pay. The pay stub
should show the employee’s gross pay, itemized payroll deductions,
and net pay.
g. Given the condential nature of payroll information, after the
salaries and wages have been paid, the payroll register and all other
supporting payroll documentation should be stored in a secured le,
not with the related payroll voucher.
In Brazil, a woman
prepares an order of
shredded cassava for
a hungry customer in
the shop run by a local
women’s group.
RICK D’ELIA FOR CRS
80
FINANCE BUSINESS PROCESS
6.11 – COST ALLOCATION
PROCESS DESCRIPTION
Shared costs are those expenses that are incurred for a common purpose
but cannot be assigned directly to any particular project, donor, department,
product, or segment of the business. Cost allocation is the process of
distributing shared costs to the appropriate projects. Assigning expenses
to projects in a consistent fashion provides management with the total
cost of each project being implemented. For this information to be useful,
management needs to have costs charged to projects using a methodology
that is consistent and rational. The cost allocation methodology covered in this
section will focus on allocating cost in the context of project management.
The objective of cost allocation is to charge expenses to projects based on the
benet that each project receives from the expense incurred. Using a documented
systematic method to allocate shared costs ensures that each donor covers its
“fair share” of allocable expenses. Allocating shared costs also helps to improve
project management and resource stewardship through a fair and reasonable
distribution of allocable operational costs across all funding sources.
PROCESS FLOW
PROCESS 6.11 COST ALLOCATION
FINANCE TEAM
Create Chart of
Accounts
6.1.1
Document
Transactions
6.1.3
Start
Process
End
Process
81
STEP 6.11.1 – DEFINE AND DEVELOP COST ALLOCATION
METHODOLOGY
STEP NAME
DEFINE AND DEVELOP COST ALLOCATION
METHODOLOGY
Step Number 6.11.1
Organizational Role Finance
Management
Programming
Inputs Dene cost drivers
Outputs Documented cost allocation methodology
Integration Points Administration
Grant management
Summary An effective cost allocation system will enable the
organization to more accurately budget program
needs. It will aid in compliance with donors’ policies,
procedures, and regulations and assist in maintaining a
consistent, reasonable, and reliable accounting system.
There is no hard and fast rule for allocating shared costs to projects. Logic should
be applied and the criteria chosen should be justiable. The best cost drivers are
those that can closely link the cost incurred to the benet a project receives. For
example, in allocating support staff salaries to projects, the number of employees
working in each project might be used. For apportioning the cost of ofce rent, the
ofce space occupied by the project staff assigned to each project is a reasonable
allocation factor. Whatever method is chosen, it must be fair and justied, and
once established it should be applied consistently.
The following steps are essential in implementing a cost allocation methodology:
1. Dene Cost Drivers: The “fair share” is normally calculated by dening
the cost driver. A cost driver is any activity that causes a cost to be
incurred. This will vary based on the types of costs being incurred. Cost
drivers have a direct cause and effect impact upon a cost. The following
are examples of cost drivers:
• Direct labor and/or machine hours
• Beds occupied
• Number of organization employees working on a project
• Number of cost centers
82
• Amount of spending on a project
• Project staff costs
• Amount of space used by a department
• Number of beneciaries in each project
• Actual consumption, e.g., kilometers traveled or photocopies made
2. Determine which costs the organization considers to be common costs
that should be allocated using a cost allocation methodology. Some
examples of common costs that normally benet multiple projects are
utility bills, ofce supplies, ofce rent, and administrative staff salaries.
3. Set up an auditable system to determine shared costs and how to
account for them.
4. Develop a written policy that incorporates the allocation concepts.
5. Use the cost allocation methods described in the policy consistently
throughout the year.
6. Base the cost allocation formulas on current actual data. Cost allocation
formulas should be updated monthly to ensure that charges allocated to
each project accurately reect what happened for the month.
83
STEP 6.11.2 –PROCESSING OF COST ALLOCATION FOR
POOLED COSTS
STEP NAME PROCESSING COST ALLOCATION FOR POOLED COSTS
Step Number 6.11.2
Organizational Role Finance
Management
Programming
Inputs Create pools
Collect cost driver information
Allocate costs
Outputs Projects receive fair portion of shared costs
Integration Points Administration
Fleet management
Summary While allocation ratios can be applied at the transaction
level, it is highly recommended the organization use the
pooling method and allocate the shared cost at the end
of an accounting period. Under the pooling method, all
applicable expenses are charged to one or more cost
centers at the time they are initially processed.
1. Finance sets up predetermined allocation pools in nancial system.
2. Costs that benet all projects are consistently charged to the
appropriate pool throughout the month.
3. Finance collects cost driver information from the responsible staff/
departments at month’s end.
4. At the end of the month, the pooled cost is allocated to different
projects/departments using predetermined criteria.
5. The Head of Finance should ensure that all pooled expenses are
allocated, leaving each pool’s balance at zero at the end of each month.
Allocation of vehicle expenses
The most logical cost driver for vehicle expenses is the distance driven to
administer each project or non-support department in a given period. Using
this methodology, vehicle logs must be maintained to capture distances
driven for each project/non-support department. The distance driven
should be summarized at the end of a reporting period by project/non-
support department. The ratio of each project/non-support department’s
distance driven to the total distance driven will be the basis for allocating
vehicle expenses.
84
Distances driven for general support purposes and those that are not
associated with one or more specic projects should be excluded from the
total kilometers driven. If the organization allows employees to use its vehicles
for personal purposes, those kilometers should also be excluded from the
total kilometers driven and the employees should be billed for the use of the
vehicles at the prescribed rate. Billings for personal use of vehicles should be
recorded before the monthly vehicle expense allocation takes place.
Example: Organization X records all of its petrol, insurance, and vehicle
maintenance costs in a given month to its vehicle pool, which totals $4,203.
The following consolidated kilometer totals are pulled from the vehicle logs:
PROJECT KILOMETERS DRIVEN
Project 1 1,856
Project 2 678
Project 3 2,789
Project 4 953
Total 6,276
This means the cost per kilometer is $0.67 ($4,203 ÷ 6,276 kilometers).
Based on this calculation, each project would be charged the following fair
share and the pool would zero balance after the allocation was processed:
PROJECT ALLOCATION CALCULATION
Project 1 $1,243 1,856 x $.67
Project 2 454 678 x $.67
Project 3 1,868 2,789 x $.67
Project 4 638 953 x $.67
Total $4,203
Allocation of Support Costs
Several cost drivers could be used; this section provides examples of two
methods. It is the responsibility of the organization to choose the most
appropriate driver for its programming portfolio so that the allocation is a fair
and reasonable calculation and aligns with the support received.
85
Scenario 1: Using Beneciary Counts
Organization Y provides medical services; each project serves a targeted group
of beneciaries. Using beneciary numbers as the cost driver, the organization
calculates total number of beneciaries for each project during the month and
its percentage of the total beneciaries served by all projects. The month’s
total support cost (for Finance staff, information technology costs, etc.) of
$14,789 is multiplied by the beneciary calculation.
PROJECT
NO. OF
BENEFICIARIES
% OF TOTAL
BENEFICIARIES
Project 1 478 11%
Project 2 1,267 28%
Project 3 2,567 56%
Project 4 234 5%
Total 4,546 100%
Based on this calculation, each project is charged its fair share and the pool
zero balances after the allocation is processed, as follows:
PROJECT ALLOCATION CALCULATION
Project 1 $1,627 $14,789 x 11%
Project 2 4,141 $14,789 x 28%
Project 3 8,282 $14,789 x 56%
Project 4 739 $14,789 x 5%
Total $14,789
Scenario 2: Using Direct Expenses
Organization Z implements justice and peace programming and has decided that
each project’s monthly direct expenses are what drive its support costs. Using
direct expenses as the cost driver, the organization calculates the total direct
expenses, net of exclusions,
1
for each project at month’s end. The direct expenses
at month’s end for each project are divided by the total expenses for all projects to
calculate the fair portion of support costs to be applied to the project.
1 If this method is chosen, the organization should determine what types of expenses, if any, should regularly
be excluded from direct expenses when allocating support costs. The types of expenses that the organization
decides to exclude should be listed in the organization’s cost allocation policy.
86
Organization Z records all of the support costs that benet all projects in the
support cost pool during and at the end of the month for a total of $11,231.
The following direct costs were charged to each project during the month:
PROJECT
DIRECT COSTS FOR
THE MONTH
% OF TOTAL DIRECT
COST
Project 1 $22,789 46%
Project 2 18,750 38%
Project 3 7,678 16%
Total $49,217 100%
Each project takes its fair share of that month’s support costs by multiplying
the total support costs by the project’s percentage of total direct costs. Based
on this calculation, each project is charged its fair share and the pool zero
balances after the allocation is processed, as follows:
PROJECT ALLOCATION CALCULATION
Project 1 $5,166 $11,231 x 46%
Project 2 4,268 $11,231 x 38%
Project 3 1,797 $11,231 x 16%
Total $11,231
Allocating Occupancy Expenses
The most logical cost driver for allocating occupancy expenses (e.g., ofce
rent, electricity, water, etc.) is the ofce space occupied by the staff assigned
to each project. Using this methodology, the organization must measure
the total ofce space and calculate the square meters of common areas,
2
ofce space occupied by support staff, and ofce space assigned to projects.
Common area space and that used by support staff should be deducted from
the total ofce space measurement (referred to a revised base).
Each project’s benet is calculated by dividing the space used by the project by
the revised base. The resulting percentage should then be applied to the total
monthly occupancy expenses, including rent, electricity, water, maintenance,
and security.
2 Unassigned space such as walkways, bathrooms, reception area, and general storage space
87
One benet derived from using the oor space method is that it enables
the organization to calculate the cost per square meter of the organization,
which will help in the budgeting process. One drawback of using the oor
space method is that some space may be used for more than just one
project, which complicates the calculations. Depending on the method
chosen, allocation of shared costs will require frequent updating as new
project funds are initiated, projects are closed, and new employees are
hired. The updates to the allocation computations should be carried out, at
a minimum, quarterly.
Example: Organization X records all of its facilities expenses (rent, utilities,
ofce security, etc.) in a given month to its facilities pool, which totals
$14,603. The ofce measurements are:
OFFICE MEASUREMENTS
AREA DESCRIPTION
OFFICE SPACE SIZE –
SQUARE METERS
Common Space 18
Support Staff Space 9
Project 1 6
Project 2 12
Project 3 22
Total 67
The organization then calculates the revised base by excluding the common
space and that used by support staff (those staff not charged directly to a
project):
AREA
DESCRIPTION
OFFICE SPACE SIZE –
SQUARE METERS % OF TOTAL REVISED BASE
Project 1 6 15%
Project 2 12 30%
Project 3 22 55%
Total 40 100%
Each project is assigned its fair share of that month’s facilities costs by
multiplying the total support costs by the percentage facilities revised base
88
allocation. Based on this calculation, each project is charged the following fair
share, with the pool zero balanced after the allocation is processed:
AREA DESCRIPTION ALLOCATION CALCULATION
Project 1 $2,190 $14,603 x 15%
Project 2 $4,381 $14,603 x 30%
Project 3 $8,032 $14,603 x 55%
Total $14,603
Budgeting for Cost Allocation
Allocated costs should be included in the organization’s annual budgets.
Estimates of the total annual costs should be developed for each of the pools
for the upcoming year. The actual pooled costs for the preceding 12-month
period may be used as the starting point for the estimate, adjusted for
projected inationary increases. Other factors that could affect the cost pools
or the allocation of the pooled costs should also be taken into consideration.
These factors may include changes in the organization’s size, structure,
project mix, or funding. Estimates for allocated costs should also be included
in all grant budgets when proposals are submitted to donors.
89
FINANCE BUSINESS PROCESS
6.12 – GRANT ACCOUNTING
PROCESS DESCRIPTION
Grant accounting entails reviewing and complying with the terms and
conditions stipulated in a grant agreement and recording of the revenue
and expenses in an organization’s general ledger. Grants, also referred to as
awards (including subawards) or cooperative agreements, are arrangements
whereby the organization has a contractual funding relationship in which a
donor provides nancial support in return for the delivery of specied program
service by the organization or its subawardee. This section covers major
nance-related functions for grants; it does not cover the broader spectrum of
grants management that includes programmatic oversight.
PROCESS FLOW
PROCESS 6.12
GRANT ACCOUNTING
FINANCE
TEAM
Grant Accounting
6.12
90
STEP 6.12.1 – GRANT ACCOUNTING
STEP NAME GRANT ACCOUNTING
Step Number 6.12.1
Organizational Role Project ofcer
Head of Finance
Inputs Grant proposal
Grant agreement
Itemized budget and budget narrative
Outputs Financial reporting
Integration Points Collaboration with project ofcer and Head of Finance
Summary Grant accounting is dened as a system of
nancial recording, monitoring, and reporting on
the use of resources awarded to an organization
from a donor agency.
1. The Proposal
An organization will be required to submit an itemized budget and a budget
narrative/justication to support the activities described in the grant application.
2. Approval/Agreement
A donor will issue a notication letter to its awardee if it approves the funding
application. The notication letter serves as approval to withdraw/request
funding from the donor. In some cases, the donor will issue an agreement,
requiring the grantee to sign it as evidence of acceptance of the terms and
conditions of the award.
An organization’s Finance department must familiarize itself with the nancial
terms and conditions of the agreement, including the treatment of interest,
program income, reporting requirements, report formats, and the expected
frequency for submitting nancial reports.
Copies of the initial agreement and all subsequent modications to the
agreement should be kept in the Finance department.
Where donor funds are subgranted, the terms and conditions listed in the
agreement, including reporting requirements, must be cascaded to the lowest
level recipient.
91
3. Implementation
Grant funds drawn down in advance by the donor must be recorded as a
liability in the general ledger.
Grant revenue should be recorded in each month in which the organization
incurs reasonable, allowable, and allocable expenses against the award.
The revenue recorded will reduce the grant liability created during the cash
drawdown process.
Grant funded expenses should be recorded to the organization’s general
ledger. Each transaction must be reviewed to ensure that it meets the criteria
set forth in the donor’s regulations. All expenses must be reasonable, and
allowable, and adequately documented.
If the organization subgrants to other partners, subrecipient awards will
be issued to partners. Once executed, copies of the subrecipient award
documents, including any modications, must be led in the organization’s
Finance department. The organization should make the appropriate entry
in the general ledger to track and monitor advances issued and expenses
liquidated as follows:
• When an advance is issued to a subrecipient the following entry will be
recorded on a cash disbursement voucher:
• Debit subrecipient advance account (receivable)
• Credit cash account
• When a subrecipient submits a liquidation report for the expenses it has
charged against the project and the documentation has been reviewed
and veried by the Finance department, the Finance department will
record the following entry on a general journal voucher:
• Debit expense account
• Credit subrecipient advance account
4. Reporting
According to the terms of the agreement with the donor, reporting
requirements will be specied in the grant agreement. The organization may
be required to report monthly, quarterly, semi-annually or annually and must
ensure that it captures its spending and that of its subawardees.
5. Grant Financial Closure
The grant agreement and regulations governing the donor award will stipulate
the closure requirements. At a minimum an organization will be required to
perform the following tasks during a grant nancial closeout process:
92
a. Review and ensure that all expenses charged to the award are allowable
expenses incurred within the grant-funding period. Any costs determined
to be unallowable should be reclassied before closing a grant.
b. The Head of Finance should determine if there are valid expenses
incurred but not yet paid as of the grant’s expiration date. If so, an
expense accrual should be recorded in the general ledger on a general
journal voucher with appropriate supporting documentation. The
accountant will record a debit to the appropriate expense account and
a credit to the accrued liability account. When the payment is made, a
reversal to the accrued liability account will be recorded as a debit to
accrued liability and a credit to the cash account.
c. Reconcile the general ledger with the xed assets register and request
for disposition of any xed assets procured using grant funds.
d. Ensure that total spending charged to the grant funds in the general
ledger does not exceed the total donor-obligated amount.
e. Clear all outstanding balance sheet items from the grant’s cost center
in the general ledger.
f. Return any unused funds to the donor.
g. Submit a nal nancial report to the donor.
6. Grant Specic Audits
Certain grant donors may require external audits of all activities and asset
balances associated with their awards. This requirement is intended to provide
assurance that their funds were properly safeguarded and all charges against
their awards were in accordance with the terms and conditions of their grant
agreements and in compliance with the applicable regulations.
As a result of a grant-specic audit some expenses charged to the grant might
be questioned or disallowed. Disallowed costs should be reclassied from
grant expenses and the amount disallowed should be refunded to the grant
donor. Questioned costs should be resolved to the satisfaction of the auditor.
Any questioned costs that cannot be resolved to the auditor’s satisfaction
should be reclassied from the grant and returned to the donor.
The CRS peace building
team conducts a
training on conict
resolution for traditional
leaders in the war torn
community of Tumbulo,
near Cubal, Angola.
DAVID SNYDER/CRS
93
FINANCE BUSINESS PROCESS
6.13 – FINANCIAL REPORTING
PROCESS DESCRIPTION
The purpose of a management reporting system is to consolidate nancial
information so that the organization’s nancial condition and activities can be
monitored on a regular basis by management and other interested parties.
This is achieved by the preparation of work plans and budgets that specify
desired targets, results, and costs prior to the start of each scal year. During
the year, nancial reports enable management to assess the organization’s
progress against its planned objectives.
PROCESS FLOW
PROCESS 6.13
FINANCIAL REPORTING
FINANCE
TEAM
Internal Financial
Reporting
6.13.1
External Financial
Reporting
6.13.2
94
STEP 6.13.1 – INTERNAL FINANCIAL REPORTING
STEP NAME INTERNAL FINANCIAL REPORTING
Step Number 6.13.1
Organizational Role Finance department
Management
Inputs Financial results
Outputs Financial statements
Trial balances
Budget comparison reports
Cash ow statements
Integration Points Board of directors
Management
Programming staff
Summary The Finance department must provide management
with consolidated nancial information so that the
organization’s nancial condition and activities can be
monitored on a regular basis.
Financial reports should be prepared under the direction of the organization’s
chief nancial ofcer. Prior to their distribution, all reports should be reviewed
by the chief nancial ofcer or equivalent. It is strongly recommended that
the organization create a nance committee to review nancial reports and
to incorporate the reported results into the organization’s decision-making
processes. Descriptions of the trial balance, statement of activities, statement
of position, and the cash ow statement appear in the glossary in this
chapter’s Appendix.
The following reports should be prepared monthly or quarterly as indicated
and distributed to all members of the organization’s executive management
team and to the appropriate managers:
1. Trial Balance (monthly)
2. Statement of Activities – Income statement (monthly)
a. Format 1 – Compares actual revenues and expenses for the month
and year-to-date against the budgeted revenues and expenses for
the comparable periods. This is essential.
b. Format 2 – Compares actual revenues and expenses for the month
and year-to-date against the prior year’s actual expenses for the
comparable periods. This is optional but recommended.
95
3. Budget Comparison Reports (monthly)
a. Compares the actual expenses for each cost center (department
and project) for the month and year-to-date by expense line item
against the budgeted amounts for the same periods.
b. A separate report should be prepared for each cost center.
4. Statement of Position – Balance sheet (monthly)
5. Memorandum explaining major variances between actual results and
budgeted performance for the month and year-to-date (monthly)
6. Cash Flow Statement (at least quarterly and reviewed by executive
management team members only)
7. Inception-to-date budget comparison reports for all grant-funded
projects (at least quarterly)
a. Provided to all related project managers, their immediate
supervisors, and the head of programming operations.
b. These reports should compare the cumulative actual expenses for
each grant funded project against the comparable totals per the
organization’s amended internal budgets and the life-of-project
totals approved by the donor in the related grant budget.
8. Any customized reports deemed relevant by the organization’s chief
nancial ofcer, or equivalent, and the executive director.
9. Balance sheet accounts should be reconciled monthly. The analyses
should be reviewed by the Head of Finance and retained on le.
Each analysis should show the specic components of the account
and the total for each analysis should agree with the ending general
ledger balance for that account. Misclassications and other posting
errors that surface during the reconciliation process should be
corrected immediately.
96
STEP 6.13.2 – EXTERNAL FINANCIAL REPORTING
STEP NAME EXTERNAL FINANCIAL REPORTING
Step Number 6.13.2
Organizational Role Finance department
Management
Inputs Financial results
Outputs Financial statements
Trial balance
Budget comparison reports
Cash ow statement
Integration Points Banks, donors, government, prime recipients, and vendors
Summary The organization’s Finance department must provide
external parties with consolidated nancial information
so that activities can be monitored on a regular basis.
External Reporting includes nancial reports required by donors, the local
government, banks, vendors, and prime recipients of grants. Reports required by
external parties frequently include the organization’s most recent audited nancial
statements, consisting of the following reports and the accompanying notes:
• Statement of activities (income statement)
• Statement of position (balance sheet)
• Cash ow statement
Standard practice for year-end reporting is to include the audited nancial
statements for the previous scal year. Any signicant changes in accounting
methods between the two years should be included in the footnotes to the
nancial statements.
Other reports required by donors are usually grant- or project-specic.
Reports to grant donors should be submitted in accordance with the
reporting deadlines and formats specied in the grant agreements and/or
the donors’ regulations. Grant reporting requirements may also include
the following:
• Statement of cash receipts and payments reecting all receipts,
payments, and cash balances pertaining to the donor’s award
• A copy of the organization’s accounting policies
• Management’s assertion that the funds provided by the grant donor have
97
been expended in accordance with the intended purposes as specied in
the relevant agreement
All nancial reports submitted to external parties must be prepared by the
Finance department and must agree with the nancial results recorded in the
general ledger for the reported period. Reports to the local government should
be prepared and submitted in accordance with local statutory requirements.
98
COMPLIANCE CHECKLIST
FOR FINANCE
Finance is a discipline charged with responsibilities to determine value and
aid decision-making about allocation and use of resources. In the commercial
world the nance function has the responsibilities of acquiring, allocating,
investing, and managing nancial resources. The Finance function goes
beyond recordkeeping; it brings together other functions, as the activities
carried in the other functions have nancial implications. The emphasis in
the nongovernmental sector, beyond accurate recording, is on stewardship.
The notion of stewardship manifests itself in concepts such as corporate
governance and accountability.
Financial and physical resources are the tangible assets of the organization.
Partners have a responsibility to exercise good stewardship of the resources—
accomplishing programmatic objectives in a cost efcient manner, ensuring
that there are effective internal control systems, and maximizing the benets
derived from use of those assets.
Financial management entails planning, organizing, controlling, and
monitoring the nancial resources of an organization to achieve its objectives.
It should not be left to Finance staff alone.
Accounting and Auditing
Accountancy involves the writing-up of books of accounts and preparation of
nancial statements based on principles laid down by the Financial Accounting
Standards Board (FASB) and the International Accounting Standards Board
(IASB). Bookkeeping and accounting creates accounting records. Auditing
refers to the independent checking of accounts and statements. It veries
records created by others. Audits are required to provide evidence that nancial
reports do not contain errors, do not hide frauds, are not misleading, do not
fail to disclose relevant information, and do not fail to conform to regulations.
The auditors will express an opinion on the nancial statements, and they also
produce detailed management reports on internal controls.
The principal characteristics of nancial reports are the following:
• Understandability
• Reliability
• Relevancy
• Comparability
99
Users of Financial Reports
For each organization, there are various stakeholders who rely upon the
organization’s nancial statements and other nancial reports. Such
stakeholders include the following parties:
• Employees
• Customers
• Suppliers/vendors
• Local and international governmental agencies
• Donors, whether providers of unrestricted or restricted funds or grants
Financial accounting in the not-for-prot sector differs somewhat from
accounting in the for-prot sector, but there are fundamental accounting
concepts that remain the same.
Accounting Concepts
Financial records should be maintained in accordance with the following
fundamental accounting concepts:
• Going Concern – Management expects the organization to continue to run
in the same way and to remain in operation for the foreseeable future.
• Consistency – Accounting policies, once adopted, should be applied
consistently from one accounting period to the next.
• Prudence – Revenues should not be booked until they have been
realized, but expenses should be recorded and liabilities recognized as
soon as possible.
• Accrual Basis – Under this accounting method, revenue is recognized
when earned and expenses are recorded when incurred. All income
and expenses relating to the accounting period are taken into account,
irrespective of the actual date of receipt or payment. (Those small
not-for-prot organizations that operate on a cash basis should refer to
Step 6.3.6 – Operating in a Cash Environment for detailed guidance.)
Objectives of Financial Reviews
Financial reviews are carried out to ensure that resources are used for
authorized purposes in compliance with the laws, regulations, and provisions
of the contracts or grant agreements and those performance goals are
achieved. Compliance reviewers should obtain an understanding of the
organization’s policies and procedures and consider whether or not they
are appropriate for the project activities as well as assess consistency with
generally accepted accounting practices.
100
In most organizations, the Finance department is the custodian of internal
control assessment and risk assessment. Such responsibilities go beyond
the mandate of nance. In the absence of an internal audit department or a
compliance unit, Finance is tasked with review of other function’s manuals.
The organization manuals including nance and accounting manuals will vary,
ranging from summaries to detailed and extensive manuals. The organization
should have a comprehensive operations manual or separate manuals for
each functional area.
Compliance reviews should be mandated by senior management. Approval of
terms of reference and the review program should be received ahead of review.
Finance Compliance Review Steps
To have a better understanding of the organization’s setup the following
preliminary actions are essential:
• Review partner registration documents
• Review award agreements and amendments
• Inquiries of management and others within the organization
• Review external audit reports
• Review internal audit reports
• Review special project audits
• Review the Finance/Accounting manual
• Review contracts
• Review the general correspondence le
• Review project les
• Obtain the organizational chart. If one does not exist, document
description of organizational set-up
• Obtain a copy of the organization’s authorization chart
• Obtain chart of accounts
• Determine whether or not accounts are computerized
• Determine who prepares the accounts. Are there sub ofces and
decentralization? Are there project accountants?
• Receive sample copies of reporting formats, both nancial and narrative
• Review income and expenditure reports, comparing levels of income and
expenditure with prior period reports
• Verify reporting formats are in compliance with approved formats
101
• Obtain explanations for signicant expenditure variances from budget
line by line and by cost category
Compliance Checklists
Under this section the audit approach includes stating the control objectives
where applicable and asking relevant questions to test risk assessment and
compliance with policies and procedures. The checklists will ensure that there
is an effective internal control system over the nancial system to enable
the organization to manage signicant risks and monitor the reliability and
integrity of nancial and operating information. The checklists help identify
gaps in the internal controls.
There should be a Finance manual that covers the following:
• Purpose and scope of manual
• Intended audience – who should use and how
• Procedures and authority for updates
• Financial calendar and internal reporting
• Fiscal year for the organization
• Fiscal periods
• Reporting periods and deadlines
• Reporting periods to headquarters – monthly, quarterly, and annual
nancial reports
• Cash and banking
• Budgeting
• Cash ow management
• Asset management
• Payroll
• Reporting
Control Objectives
• To ensure that the Finance department is managed in an orderly and
efcient manner and supports partner operations
• To ensure adherence to management policies
• To safeguard assets
• To secure the accuracy and reliability of records
102
Segregation of Duties
Segregation of duties is a key component of an effective internal control system.
No one person should be responsible for recording and processing a complete
transaction. Every nancial transaction involves the following ve steps:
• Request – request to purchase/spend
• Approval – authorized personnel approve request
• Authorization – approval to purchase, issuance of purchase order
• Execution – purchasing, receiving, and payment
• Recording – accounting
Questions for Segregation of Duties
• Is the there an organigram for the department?
• Are the senior members of the team qualied accountants?
• Do Finance staff members have job descriptions?
• Are job descriptions updated?
• Are staff roles clear?
• Are staff roles meaningful?
• Are the job descriptions current and relevant?
• Do Finance staff members have copies of the authorization matrix?
• Do different employees prepare, approve, and post the accounting
journal entries?
Basic Accounting Requirements
The organization should keep a complete set of accounting records. At a
minimum, the accounting records should include the following:
• A general ledger that is all-inclusive. There should not be separate ledgers
for separate donors. All activity for the organization should be included in
one general ledger, unless the partner has multiple legal entities, in which
case a separate general ledger should be used for each legal entity.
• A cash receipts journal
• A cash disbursements journal
• If cash (currency) is received, a cashbook for recording cash received
and expended (the cashbook should show a balance at the end of each
business day that agrees to the actual cash-on-hand.)
• Detailed account analyses of the organization’s assets and liabilities
that agree to the respective general ledger balances at the end of each
accounting period.
103
Account codes identify the nature of the items affected by transactions. General
ledger accounts are usually grouped into the following major categories:
• Assets
• Liabilities
• Net Assets (formerly known as Fund Balances)
• Revenues
• Expenses
Questions for Basic Accounting
• Is there a chart of accounts/ledger listing?
• How are the different ledger accounts identied?
• Are the ledger accounts fully described?
• Does the chart of accounts match the accounting package accounting
structure?
• Is the chart of accounts capable of tracking income and expenses by
source of funding/donor?
• Who has the authority to update the chart of accounts (to add and delete
leader accounts)?
• If there is an accounting package, is there a manual?
• Is there a cashbook?
• Who writes the cashbook?
• Are cashbook entries reviewed before posting to the accounting system?
• Is there a monthly review of the trial balanced and balance sheet?
• Is there a review of the statement of activities (Income Statement)?
• Is there a review of the budget comparison reports for all cost centers
(department and project)?
• How are the expenditure vouchers led?
• Is there a ling system for the vouchers?
• Can all vouchers be accounted for?
• Is there adequate security over vouches and other accounting records?
• Is there a security items register for checkbooks, purchase orders, invoices?
• Is there a system to ensure that payment vouchers are completed properly
(requested, approved, authorized, and checked) before payment?
• Are receipts completed in full (dated, signed by payee and recipient, with
amount shown in words and gures, and a reason for payment given)?
Healthcare workers
at Kenya’s Kendu
Adventist Hospital, in
the city of Morcau.
SR. ANN DUGGAN/CRS
104
• Are the receipts recorded properly with necessary information from the
receipt voucher matching that in the entry in the ledger?
• Does the organization maintain a general ledger?
• Does the organization use a numbering system to account for all of its
cash receipts, cash disbursements, general journal entries, purchase
orders, goods receiving notes, waybills, etc.?
Bank Accounts and Disbursements
Wherever possible, organizations should establish and use bank accounts for
the receipt and disbursement of funds. Bank accounts provide far more control
over the ow of cash than the use of cash-on-hand funds. Nevertheless, it is
important that the organization establish and enforce rm controls over setting
up bank accounts, access to cash-in-bank funds, and disbursements.
Control Objectives
• To prevent unauthorized payments being made from the bank accounts
• To ensure all checks and cash received are banked intact
• To ensure that checks and cash received are banked without delay at
prescribed intervals
• To ensure that all checks and cash received are accounted for
Questions Regarding Bank Accounts and Disbursements
• Is there a policy on opening bank accounts?
• Who approves opening and closing of bank accounts?
• Does the check register/cashbook/ledger show any unusual items (for
example, unusually large payments, transfers between bank accounts, or
payments to unusual suppliers)?
• Is there an approved list of bank signatories on le?
• Is there a policy on the number of signatures for each check, such as one
signature for payments below $5,000 and two or more signatures for
amounts above $5,000?
• Are there clearly outlined procedures on supporting documentation for
payments?
• Are major payments, especially procurement, supported by the following?
• Payment voucher (fully completed)
• Supplier invoice (original)
• Copy of contracts
• Bid summary/bidding sheet
105
• Local purchase order, duly authorized and approved
• Pro-forma invoices or quotations
• Goods-received note
• Supplier advice note
• Purchase requisitions
• Other attachments
• Are all checks pre-printed as crossed payee only?
• If not, is the explanation for this reasonable?
• Are the blank spaces on checks crossed out to prevent alteration?
• Is the payee always written in full?
• Are blank checks ever signed by either of the signatories?
• Are checkbooks held in a secure location, e.g., in a safe?
• Are they recorded in a security items register and signed when issued?
• Are all canceled checks retained and led/kept?
• Are check numbers veried to ensure that all checks have been
registered in the check register and that canceled checks have been
appropriately marked and held for verication?
• Are all expenditures documented on a sequentially numbered check
voucher?
• Are they pre-printed?
• Are paid vouchers and the related supporting documents such
as supplier invoice, purchase order, goods-received note, and all
attachments stamped as “RECEIVED” and/or “PAID”?
• Does the check voucher contain the following standard information?
• Check/voucher number
• Nature/date/amount of the expense
• Payee’s name
• Bank transfer details
• Approving and authorizing signatures
• Check number
• Accounting codes
• Name and signature of the authorized representative who received
the payment
106
• Do all checks and check vouchers presented to the authorizing signatory
have the required supporting documentation?
• Are check vouchers approved for payment by the Finance ofcer/
manager prior to preparation of the checks for payment?
• Is there adequate segregation of duties between the person who prepared
the check payment and the person who authorized/signed the check?
• Is a check performed of the vouchers to ensure that all have been
registered in the cashbook?
Questions for Payments/Transfers to Partners
• Who is authorized to request transfers to projects?
• Who approves the transfers?
• How are the transfers sent? Are checks or cash hand carried by staff or
are they sent by bank transfer?
• If hand carried, what checks are in place to ensure that the funds
arrive safely?
• Do transfers comply with insurance conditions?
Petty Cash
The purpose of setting up a petty cash fund is to allow access to cash on
demand for small payments. It is the responsibility of the organization’s
management to set the maximum petty cash balance, establish a limit of
individual disbursement from the petty cash, and designate a petty cash
custodian. Petty cash should be maintained on an imprest basis. The
recommended level of the petty cash fund should range from two weeks’ to
one month’s cash needs.
Questions for Petty Cash
• Is there a petty cash policy? Does the policies and procedures manual
outline the imprest amount?
• Is there a designated custodian? Is the custodian trained to handle the
petty cash?
• Is the petty cash fund kept in a locked safe with access limited to
the custodian?
• Are petty cash records written up daily?
• Does a supervisor regularly review the records?
• Do the policies and procedures specify a maximum payment amount
from petty cash?
107
• Are amounts above the limit paid by check?
• Are all payments accounted for? Are payments entered in the petty cash
record in numerical sequence of petty cash vouchers?
• Does each voucher have following included?
• Nature, date, amount of the expense
• Claimant’s name
• Authorized signature
• Claimant’s signature on receipt of cash
• Sequential number, if applicable
• Approval of voucher additions
• Is each voucher supported by receipt, invoice, or other documentation?
• Are there IOUs held in petty cash? All such transactions should go
through the proper channels.
• Are there procedures for petty cash handovers (e.g., when the keys are
passed from the accountant to the cashier)?
• Is a petty cash count carried out during handovers?
• Do both ofcers sign and date the cash count sheet to conrm the
count?
• Are receipts issued for cash received?
• Is the receipt/cash receipt voucher signed by the cashier as
“RECEIVED”?
• Is the payee/staff signing on the receipt/cash receipt voucher?
• Is the receipt/cash receipt voucher approved?
• Is proper coding for cost center, account, activity, etc., entered on the
voucher?
• Is there insurance coverage for cash held in ofce and cash in transit?
• Does the amount held in the safe conform to the cash limits in the cash
insurance policy?
• Does the method of cash storage conform to insurance requirements?
• Does the policies and procedures manual outline security procedures for
petty cash?
• Are these being followed? For example, is cash stored in a locked box,
safe or steel drawers?
• What is the location of the safe or steel drawers?
108
• Are there restrictions on access to keys and areas where cash is held?
• Is there evidence of regular cash counts by a supervisor?
• Does the cashier count the cash daily and document such checks?
• Are all the receipts in the ofcial receipts book recorded in the
cashbook/ledger?
• Are all receipts banked promptly?
• Are all cash collections banked intact?
• Are there unusual items in the cashbook, such as unusually large receipts,
transfers between bank accounts, or receipts from unusual sources?
• Is there a pre-dened minimum balance on hand for replenishing
petty cash?
• Does the custodian prepare a replenishment statement? (The
replenishment statement is a list of payments categorized by general
ledger account.)
• Is there a designated Finance ofcer who reviews the replenishment
statement for accuracy and validity of the supporting documentation?
• Is a check issued for the amount of the replenishment submitted? (It
is recommended to issue the replenishment check in the name of the
custodian.)
• Are the accounting entries to establish petty cash, replenish petty cash,
or to close the petty cash account understood and followed?
Bank Reconciliations
Bank reconciliations should be prepared monthly for each bank account by
a qualied employee who is independent of the cash processing functions.
The reconciliations should be in a standard format and should be reviewed by
an appropriate ofcial. The reconciliation should be signed and dated by the
preparer and the reviewer, who should ensure that:
• The bank and book balances agree to the bank statement and general
ledger, respectively, as of the given ending date
• The book balance is fully reconciled to that per the bank
• All reconciling items are well-documented and promptly cleared
Control Objectives
• To ensure that bank reconciliations are performed at least monthly to
reconcile bank records and the organization’s records
109
• To ensure that differences (reconciling items) between the
organization’s bank ledger account and the bank statement are
identied and reconciled
Questions for Bank Reconciliations
• How many bank accounts does the organization hold?
• Are all bank accounts active?
• Is there a separate bank account for each project if required by the donor?
• Are bank reconciliations prepared monthly to verify that accounting
records are correct?
• Are bank account reconciliation responsibilities vested in persons not
involved in handling receipts or disbursements?
• Does a designated responsible ofcial review reconciliations?
• Are bank reconciliations retained on le for review in the event of audit or
other review?
• Are documents that support the reconciling items attached to the related
bank reconciliation? Such documents include a list of outstanding
checks, deposits in transit, and other relevant documents.
• Are proper reconciliation steps followed? (Bank reconciliation preparation
should always start with the opening balance brought forward from the
previous reconciliation and end at an adjusted balance that reconciles
with the ending balance per the bank’s statement.)
• Are reconciling items identied during the bank reconciliation process
cleared by the subsequent month?
• Are outstanding checks written off after a set period, e.g., six months?
(This period should not exceed the time after which local statute makes
such checks invalid.)
• Does the Head of Finance investigate any reconciling items appearing
two months in a row?
Budgeting
A budget is a detailed nancial estimate of anticipated activities for a specied
period of time. The following are several types of budgets:
• Annual operating budget – an estimate of an organization’s total
revenues and expenses for a scal year
• Cash budget – the cash an organization expects to receive and disburse
• Capital budget – the total costs to acquire xed assets (capital additions)
• Project budget – the estimated cost of a specic project
110
• Grant budget – the estimated cost to conduct project activities funded by
a grant
The process of preparing a meaningful and useful budget is best undertaken
as an organized and structured group exercise. The budget process involves
asking a number of questions including the following:
• What activities will be involved in achieving the planned objectives?
• What resources will be needed to perform these activities?
• What will these resources cost?
• What will be the sources of the funds?
• Are the anticipated results realistic?
• What approvals are required to accept budget variances?
• Do the various departments within the organization have budgets?
Once the budget has been agreed upon and the activity implemented, the
process is completed by comparing the plan (budget) with the eventual
outcome (actual). Types of budgets in use include the following:
• Operating
• Capital
• Grant budgets
• Budgeting cycle
• Budgeting instructions and management
• Budget formats
The organization should run budget comparison reports monthly to determine
whether expenses are in line with the respective budgets. The organization
should maintain amended budgets for its reviews. Since the original approved
budget is often soon outdated, it is advisable to keep an amended budget
during the year for more meaningful comparisons.
Cash Management
Control Objectives:
• To ensure that there is effective cash management
• To ensure that the organization has cash to meet its nancial obligations
Cash management is an important function in any organization. In order
to maximize its cash position, the organization should implement cash
procedures for effective management of cash receipts and disbursements.
Forecasting and budgeting are important aspects of cash management. The
111
organization should try to plan, in as much detail and as far ahead as possible,
what receipts can be expected and what disbursements will be required. Cash
management functions revolve around receipts, disbursements, forecasting,
and reconciliation.
Effective cash ow management is vital to organizations. It is a key element in
planning and in efcient operational management. If cash inows and outows
are not successfully planned and monitored, organizations may encounter
cash shortfalls and may not be able to serve beneciaries or pay employees
and vendors in a timely manner. A cash ow forecast is often required by
external parties to enable them to plan the timing of issuance of funding to the
organization.
Questions for Cash Management
• Does the organization determine the cash position at the beginning of a
given period from the organization’s accounting records?
• Does the organization plan the timing of anticipated future cash receipts,
approved sources of grant funding, and other projected sources of income?
• What are the main sources of cash inows for the organization? (These
may include contributions, donors’ advances or reimbursements,
collection of accounts receivable balances, and cash receipts from
income-generating activities.)
• Are estimates of cash disbursements carried out, taking into consideration
the organization’s planned activities? Organizations that maintain their
accounting on an accrual basis should keep in mind that payments to
vendors may be needed to decrease previously recorded liabilities.
• Is the cash ow plan summarized in a spreadsheet showing forecasted
cash balances by period?
• Are the forecasts provided to the executive director or other applicable
ofcial for use in projecting cash surpluses or needs?
Receivables Management
Amounts owed to the organization should be recorded as receivables.
These are assets of the organization. They should be closely monitored to
ensure timely collection or liquidation and should be accurately stated and
appropriately classied.
Control Objectives
• To ensure that all receivable invoices are entered in the books
• To ensure that all efforts are made to claim outstanding receivables
112
• To ensure that no unauthorized write offs or credits are made
• To ensure that travel advances, short term advances, staff loans, and
services such as use of telephone are invoiced
Questions for Receivables Management
• Are receivable ledgers accounts scrutinized for the following?
• Balances in the organization’s employee receivable account that
are due from individuals who are not in the current employ of the
organization
• Non-moving balances
• Unusual items or balances
• Are all signicant debit balances on the trial balance reviewed for validity
and value?
• Are invoices sent to debtors for each transaction?
• Are monthly statements sent to debtors?
• Are aging reports prepared every month?
• Are the aging reports reviewed by an appropriate ofcer?
• Are there efforts to investigate the recoverability of signicant balances
over three months old?
• Are any write-offs properly authorized?
• Are the write-offs or provisions correctly recorded and the journals
properly supported and authorized?
Staff Debtors and Loans
The types of staff debtors are as follows:
• Staff advances
• Staff travel advances
• Other staff loans
Questions for Staff Debtors and Loans
• Are the staff debtors in line with organizational policies?
• Does the accounting system record receivables by each member
separately or in subsidiary ledgers?
• Are policies and procedures, such as not exceeding ceiling limits or staff
not approving their own advances, properly followed?
• Is information passed on to the payroll department to ensure that
recovery of the outstanding debts is made as proposed and agreed?
113
• Are repayments made within the allotted time period?
• Is a statement of account detailing the outstanding balances prepared
and circulated to each staff debtor?
• Are there procedures to handle any disputed balances and/or entries?
Questions for Staff Advances (Work Advances)
• Does each staff member have a separate ledger account in the
accounting system for his/her work advance?
• Are policies and procedures, such as denying new advances until an old
advance is settled, properly followed?
• Are the advances settled/liquidated according to the organization’s policy
on retirement of advances?
• Are advances settled/liquidated before new advances are issued? Are
any deviations from this authorized, with a reason given in writing?
• Are reserves set up for those account balances that appear to be
uncollectible? (A reserve is set up by recording a debit to a bad debts
expense account and a credit to a receivables reserve account.)
• Is a senior ofcial such as the executive director responsible for
approving the establishment of the reserves?
• Are account balances that are uncollectible written off in accordance
with the policy?
Fixed Asset Accounting
Fixed assets are the most visible and often the most signicant assets owned
by an organization. Documentation and reporting are necessary to ensure that
the physical controls are effective.
The organization should use a standard form to document its xed asset
acquisitions and disposals. A pre-numbered two-part form is recommended. The
form should contain two sections, a request section and a disposal section.
The xed asset register/record should contain the following information:
• Name and description of the asset
• Cost including purchase price, taxes, duties, delivery costs and
installation costs
• Accounting transaction reference number
• A cash disbursement voucher or check number (for purchased assets)
• A general journal voucher number (for donated assets)
• Acquisition date (month and year)
114
• Location
• Condition
• Asset number (should be assigned by the administration department)
• Manufacturer’s serial or model number
• Owner (indicate who has title to the equipment)
• Estimated useful life
• Monthly depreciation expense
• Funding source, if asset acquisitions have been funded by multiple donors
Control Objectives
• To ensure that all tangible xed assets exist, are owned by the
organization, and are in use
• To ensure that xed assets are correctly recorded in the books,
adequately secured, and properly maintained
• To ensure that acquisitions and disposals are properly authorized
• To ensure where applicable that the assets are properly depreciated and
depreciation is properly accounted for
Questions for Fixed Asset Accounting
• When assets are purchased, are proper accounting entries made? (The
accounting entry should include a debit to the xed asset account and a
credit to cash/bank.)
• If the asset was received as an in-kind contribution from a private donor
or as an unencumbered in-kind award from a grant donor, was the
accounting entry properly recorded as a debit to the xed asset account
and a credit to contributions revenue?
• If the asset was received from a grant donor that requires its approval
for disposition of the asset at the conclusion of the grant award, was the
accounting entry properly recorded as a debit to the xed asset account
and a credit to the grant liability account? (The liability account will be
reduced as the organization recognizes revenue for the depreciation
expense recorded against the grant.)
• Does the organization conduct physical counts of its xed assets on
a predened frequency during the course of the year? (It is highly
recommended that the counts occur at least quarterly.)
• Are xed asset counts supervised and conducted by employees
who are independent of the xed assets custodial and record
keeping functions?
115
• Does Finance reconcile the xed asset counts to the general ledger
balances and prepare general journal vouchers for unreconciled
differences?
Depreciation
Since Fixed Assets benet the organization over a number of years, their
cost should be expensed over the periods that benet from use of the asset.
Depreciation expense is the distribution of the cost of a xed asset over its
estimated useful life.
Generally accepted accounting principles (GAAP) require that long-term assets
be recorded as xed assets and depreciated over their estimated useful
lives. For xed assets purchased with grant funds or received from a grant
donor that retains ownership of the asset, additional accounting entries will be
needed to comply with GAAP while accommodating the grant donor’s reporting
requirements. Organizations should seek guidance from their external auditors
for the additional accounting entries needed.
The organization should designate an estimated useful life for each type of
xed asset it acquires and should use that estimated life to depreciate all
assets in that category. The organization should refer to the local professional
accounting standards or practices to make the determination. Suggested
asset lives are the following:
• Computer equipment – three to ve years
• Furniture and equipment other than computers – 10 years
• Vehicles – three to ve years
• Buildings – 40 years
• Leasehold improvements – If the related facility lease has an automatic
renewal option, then the recommended asset life is 40 years. Otherwise, the
improvements should be depreciated over the remainder of the lease term.
Questions for Depreciation
• Does the organization have a depreciation policy?
• Are assets properly classied and deprecation rates determined?
• Are depreciation rates changed from time to time?
• Are the depreciation rates followed from one accounting period to another?
• Are depreciable assets depreciated consistently every month?
Accounting for Prepaid Expenses and Security Deposits
In the normal course of business, most organizations make payments that benet
future periods. Common examples of prepayments are those made in advance
116
for ofce leases, insurance premiums, and computer maintenance contracts.
The portion of the payment that benets future periods should be recorded as
a prepaid expense. To aid in tracking prepaid expense balances, the Finance
department should maintain a detailed analysis of the open prepaid items.
The organization’s Head of Finance should make the determination based on
materiality and types of expenditures as to which disbursements should be set
up as prepayments. Prepayments below the minimum threshold established
by the Head of Finance should be expensed when paid. The Head of Finance
should document the decisions and the accountant should retain copies of the
documented decisions on le.
The organization may set up a separate general ledger prepaid expense
account for each type of prepayment or it may decide to keep all prepayments
in a single account. If multiple types of prepayments are kept in a single
general ledger prepaid expense account, care should be exercised to ensure
that each prepayment is properly amortized.
Security deposits such as those required by utilities and phone companies are
not prepaid expenses and should be recorded in a separate asset account,
if signicant to the organization. If security deposits are minor in amount,
consideration may be given to expensing them when paid.
Questions for Accounting for Prepaid Expenses and Security Deposits
• Does the organization keep details of the prepayments including the
following information?
• Description of the prepayment
• Vendor
• Transaction reference number
• Transaction date
• Periods that will benet from the prepayment (the term over which the
prepayment is to be expensed, usually expressed in months)
• Total amount of the prepayment
• Amount that will be expensed (amortized) each month
• Monthly beginning balance
• Additions (cash disbursements)
• Reductions (general journal entries for monthly amortizations,
insurance premium refunds)
• Monthly ending balance
117
• Are the detailed records reviewed monthly by the Head of Finance to
ensure that they are sufciently detailed and agree with the general
ledger balance?
• Are prepaid assets charged to expense in the period(s) in which the
organization derives benet from the original expenditures? (The process
by which the prepaid expense balances are charged off to expense is
known as amortization.)
• Is there a designated employee in the Finance department responsible
for preparing the monthly amortization entry?
• Does the designated employee refer to the detailed accounting record(s)
for the amount to be amortized for each account and/or type of
prepayment every month?
• Is a copy of the detailed spreadsheet/record attached to each month’s
amortization entry?
• Are the prepaid expenses amortized evenly over the beneting periods?
(For example, if an organization is required by contract to pay the
next year’s rent in advance, payment should be recorded on a cash
disbursement voucher as a debit to prepaid expenses and a credit to the
cash-in-bank account. Each month during the lease term, the Finance
department should record a debit to expense and a credit to the prepaid
expense account on a general journal voucher for one-twelfth of the
prepaid rent. By the end of the lease term, the rent prepayment should
be fully amortized.)
• Are the detailed records of security deposits reviewed monthly by the
Head of Finance to ensure that they are sufciently detailed and agree to
the general ledger balance?
Accounts Payable
Accounts Payable is the process, performed by the organization’s Finance
Department, by which amounts owed by the organization are set up as liabilities
for subsequent payment. Documentation standards and approval disciplines
must be in place and rmly enforced to ensure that all necessary approvals are
obtained before commitments are incurred and payments are made.
Control Objectives
• To ensure that goods/services are only ordered in the quantities
or quality needed and at the best terms available. There should be
appropriate requisition, approvals and authorizations
• To ensure that goods and services received are inspected and only
acceptable items are accepted
118
• To ensure that invoices are checked against authorized orders and goods
received notes
• To ensure that all goods and services are properly recorded in the books
Questions for Accounts Payable
• Are all creditors reviewed every month?
• Is an invoice register maintained to log and track invoices?
• Are invoices approved before they are entered in the ledger?
• Are supplier statements reconciled to the supplier ledger balance regularly?
• Is the subsidiary ledger for the creditors control account, if applicable,
reconciled every month with the suppliers?
• How is it ensured that credit terms are used in full?
• How is the creditors list reviewed to ensure payments are not overdue?
Accounting for Accrued Liabilities
The types of information that should appear in the account analysis for each
type of accrual are the following:
• Description of the accrual
• Party to whom the liability is owed
• Basis for the accrual (how it is calculated)
• Accrual balance at the beginning of the month
• Addition(s) to each accrual (indicate amount, transaction number, and
transaction date) during the month
• Reductions in each accrual (indicate amount, transaction number, and
transaction date) during the month
• Accrual balance at the end of the month
Control Objectives
• To ensure that the policy on accrued liabilities is adhered to
• To ensure that all accruals are recorded correctly
Questions for Accounting for Accrued Liabilities
• Are all accruals reviewed every month?
• Are accruals supported by individual account analyses?
• Are accrual entries approved before they are entered into the ledger?
• Is each accrual balance supported by the appropriate documentation?
• Is each accrual reviewed monthly to determine if the accrual is needed
119
and the amount accrued represents the most recent assessment of the
amount due?
• Is there an effective system to ensure that liabilities are cleared in a
timely fashion?
Revenue/Funding
The accounting treatment for the funding received will vary depending upon
whether or not the donor has placed any special conditions on the funding
it has provided to the organization. There may be a restriction on the use of
the funds or the time in which the funds are to be expended, or the donor
may impose reporting or other requirements. It is recommended that an
organization maintain separate accounts for the different types of funding it
expects to receive or for any revenue it expects to generate. This will make the
process of analysis and reporting easier to manage.
Organizations typically are required to perform the following actions to apply
for and receive grants:
• Sign an agreement and agree to its specied terms
• Submit an itemized budget for approval by the donor
• Return unspent funds to the donor
• Submit formal nancial reporting to the donor
• Comply with applicable donor regulations or requirements in
administering the award
Grant revenue should be recorded in each month in which the organization
incurs reasonable, allowable, and allocable expenses against the award. The
steps that are typically followed are as follows:
• Grant funding received in advance should be recorded as a liability to the
donor when received
• Debit cash
• Credit grants payable
• When reasonable, allowable expense is incurred
• Debit expense
• Credit cash
• At least monthly, when expenses are incurred against the award, grant
revenue should be recognized and the liability should be reduced
• Debit grants payable
• Credit grant revenue
120
Control Objectives
• To ensure that revenue is properly stated and recorded in the proper
accounting period
• To ensure that revenue is correctly classied (Unrestricted, Restricted,
Grant, Contract)
Questions for Revenue/Funding
• Are grant revenues and any corresponding grant receivables (if the
organization operates on a reimbursement basis) or grant liabilities (if
the organization receives its grant funding in advance) reviewed each
month to ensure that they are correctly stated?
• Is a review performed each month to determine whether or not revenue
booked during the month has been correctly classied?
Payroll Processing (Wages and Salaries)
Payroll consists of all processing of employee salaries, wages, bonuses, cash
benets, and deductions. The payroll function also includes the processing
of all timesheets/effort reporting documents. An employer must retain all
records pertaining to payroll. Such records include salary and wage histories
and all salary and wage deductions for the periods of time stipulated by
statute and standard business practices.
The payroll function must be independent of the human resources
function. Due to the sensitive and condential nature of payroll, it must be
administered with due care and diligence.
Control Objectives
• To ensure that wages and salaries are paid only to actual employees at
authorized rates of pay
• To ensure payrolls are calculated correctly
• To ensure that payroll deductions are correctly accounted for and paid
over to the appropriate third parties
• To ensure that the payrolls are charged to correct donor project numbers
and budget lines in a timely manner (before expiry of projects)
Questions for Payroll Processing (Wages and Salaries)
• Are there procedures to ensure new and terminated staff are
respectively included and removed from the payroll in a timely fashion?
• Are there procedures to ensure that changes to the employee payroll
details are properly recorded?
• It there payroll software?
121
• Do employees keep timesheets?
• Are there procedures for timesheet approvals?
• Are timesheets used for payroll preparation?
• Are there written policies and procedures for overtime?
• Does a responsible ofcer approve the payroll before the wages/salaries
are paid?
• Are wages/salaries paid by check or bank transfer?
• Are the people involved in making the payments different from those who
prepare payroll?
• Is a payroll journal prepared to enter wages/salary charges to the projects?
• Is the payroll journal approved by the Head of Finance?
• Are salary deductions remitted to third parties on time?
• Are there ledger accounts for the payroll deductions, and are they cleared
every month?
• Are outstanding balances on payroll deductions accounts, such as
National Social Security Fund (NSSF) and Pay As You Earn (PAYE), and
health insurance investigated?
Cost Allocation
Shared costs are expenses incurred for a common purpose but which cannot
be assigned directly to any particular project, donor, department, product, or
segment of the business. Cost allocation is the process of distributing shared
costs to the appropriate projects. Assigning expenses to projects in a consistent
fashion provides management with the total cost of each project being
implemented. For this information to be useful, management needs to have
costs charged to projects using a methodology that is consistent and rational.
The objective of cost allocation is to charge expenses to projects based on
the benet that each project receives from the expense incurred. Using a
documented systematic method to allocate shared costs ensures that each
donor covers its “fair share” of allocable expenses.
The following steps are essential in implementing a cost allocation
methodology:
1. Dene cost drivers.
2. Determine which costs the organization considers to be common costs
that should be allocated using a cost allocation methodology.
3. Set up an auditable system to determine shared costs and how to
account for them.
122
4. Develop a written policy that incorporates the allocation concepts.
5. Use the allocation methods described in the policy consistently
throughout the year.
6. Base the cost allocation formulas on current actual data.
Allocation of Vehicle Expenses
The most logical cost driver for vehicle expenses is the distance driven to
administer each project or non-support department in a given period. Using
this methodology, vehicle logs must be maintained to capture distances driven
for each project/non-support department.
Allocation of Support Costs
Several cost drivers could be used such as direct expenses. It is the
responsibility of the organization to choose the most appropriate driver for its
programming portfolio and to use it consistently. The allocation method should
demonstrate a fair and reasonable calculation.
Allocating Occupancy Expenses
The most logical cost driver for allocating occupancy expenses (e.g., ofce
rent, electricity, water, etc.) is the ofce space occupied by the staff assigned
to each project. Using this methodology, the organization must measure the
total ofce space and calculate the square meters of common costs.
Questions for Cost Allocation
• Are the costs that the organization considers to be common costs dened?
Some examples of common costs that often benet multiple projects are
utility bills, ofce supplies, ofce rent, and administrative staff salaries.
• Has the organization set up an auditable system to determine shared
costs and how to account for them?
• Is there a written policy that incorporates the allocation concepts?
• Is the adopted cost allocation method applied consistently throughout
the year?
• Are cost allocation formulas based on current actual data rather than
budgets?
• Are cost allocation formulas updated monthly to ensure that charges
allocated to each project accurately reect what happened during the
month?
• Is a cost pooling method used to allocate the shared cost at the end
of an accounting period? Under the pooling method, all applicable
expenses are charged to one or more cost centers at the time they are
Wooden bicycles can
frequently be seen
around the Democratic
Republic of the
Congo and other East
and central African
countries. Most have no
brakes and riding them
can be exhilarating.
CARL D. WALSH FOR CRS
123
initially processed. (Some partners may be so small that their preference
is not to pool costs but to direct charge them when each transaction is
recorded.)
• What other method is in use?
• If the organization uses cost pools to capture its allocable expenses, are
those pools allocated out in full at the end of each month so that each
pool’s expense total nets to zero?
Grant Accounting
Grant accounting entails reviewing and complying with the terms and
conditions stipulated in a grant agreement and recording the revenue and
expenses in an organization’s general ledger. Grants, also referred to as
awards (including subawards) or cooperative agreements are arrangements
whereby the organization has a contractual funding relationship in which a
donor provides nancial support in return for the delivery of specied program
service by the organization or its subgrantees.
Many grant-funded projects include the following phases:
• Pre-award requirements
• Post-award requirements
• Financial and program requirements
• Property standards
• Procurement standards
• Reports and records
• Termination and enforcements
Questions for Grant Accounting
• Is the there a grant tracking system?
• Are there project les with information on the project, including the
following?
• Donor agreement
• Communication with the donor
• Points of focus in the donor agreement
• Budget management
• Is there a system of tracking expenses and income by project?
• Are there controls to ensure that funds are used for their intended
purposes?
• Does the organization have and regularly use a grant closure checklist?
124
Financial Reports
Organizations have internal and external reporting requirements. The Head of
Finance should ensure that the organization’s management team is provided
with nancial reports regularly during the course of the year. Internal nancial
reports should contain sufcient relevant information that is presented in
formats that will enable the management team to make informed business
decisions. External reporting may be required by donor agreements, donor
regulation, professional accounting standards or government statute. All
nancial reports should be accurate, timely and veriable.
Control Objectives
• To determine whether the types of internal nancial reports provided to
management are appropriate, comprehensive and value-added
• To ascertain whether all external reporting requirements are met per
donor agreements and government regulations
• To verify that the internal and external nancial reports prepared by the
organization are accurate, veriable, timely, and submitted within the
established deadlines
Questions for Financial Reports
• What management reports are required to be produced every month,
quarter, and semiannually?
• Are the reports meeting the following requirements?
• Reporting formats
• Distributed as required
• Reporting deadlines
• All donor requirements
• Are the month-end nancial closing and reporting deadlines being
consistently met? If not, obtain explanations.
• Are reports distributed and received as expected?
• Does the Head of Finance meet with the CEO each month to discuss the
nancial reports?
• Does the Head of Finance present the monthly nance reports to senior
management each month? What action is taken when budget lines have
been overspent?
• Is the reporting cycle dened?
• Are budgets appropriately detailed by line item and are all reporting
currencies for grant funded projects clearly indicated?
125
• Who reviews and responds to donor feedback on liquidation reports
submitted to the donor?
• Who reviews and provides feedback on liquidation reports received from
subrecipients?
Financial Transaction Documentation
All nancial transactions should be recorded on standard accounting forms
known as journal entries or vouchers and should be supported by the
appropriate documentation. The vouchers should be sequentially numbered,
properly approved, and systematically led to allow for easy retrieval.
Control Objectives
• To ensure that all nancial transactions are properly documented,
approved, and supported
• To verify that all journal entries and their supporting documents, once
led, are stored securely and can be retrieved quickly
Questions for Financial Transaction Documentation
• Are all journal entries signed by the respective employees who prepared,
veried, entered, approved and posted them?
• Are the journal narratives adequate?
• Are the back-up documents adequate and appropriate?
• Are journal vouchers numbered, with the same number maintained in the
accounting system?
• Are all cash disbursement journal entries and general journal entries and
their supporting documents canceled to prevent their reuse?
• Have all entries selected for testing and their supporting documents
been easily located?
• Are entries and their supporting documents safely secured at all times?
• Are entries and their supporting documents retained on le for the
appropriate amount of time?
• When it is not practicable to attach the supporting documents to entries
for condentiality reasons or due to their size, are the storage locations
for the supporting documents indicated on the journal entries?
• Are cross-references made on correcting entries, adjustments, or
reclassications to the original entries and vice versa?
• Are individuals required to sign documents attesting to their receipt and
issuance of cash?
126
Expenditure Review
The general criteria affecting allowability of costs under awards are the
following:
• Costs must be reasonable and necessary for the performance and
administration of awards.
• Costs charged to U.S. government grants must be allocable to the awards
under the provisions of the White House Ofce of Management and
Budget (OMB) cost principle circulars. A cost is allocable to a particular
cost objective if the goods or services involved are charged or assigned
to such cost objective in accordance with relative benets received.
• Costs must be given consistent treatment through application of
those generally accepted accounting principles appropriate to the
circumstances. A cost may not be assigned to an award as a direct cost
if any other cost incurred for the same purpose in like circumstances was
allocated to the award as an indirect cost.
• Costs must conform to any limitations or exclusions set forth in the
circulars; national, state, or local laws; sponsored agreements; or other
governing regulations as to types or amounts of cost items.
• Costs must be net of all applicable credits that result from transactions
that reduce or offset direct or indirect costs. Examples of such
transactions include purchase discounts, rebates or allowances,
recoveries, indemnities on losses, insurance refunds or rebates, and
adjustments for overpayments or erroneous charges.
Questions for Expenditure Review
• Are donor rules for the applicable awards on le?
• Have all pertinent staff been adequately trained on understanding and
complying with those rules?
• Are costs allowable as per donor requirements?
• Have all projected expenditures been considered in the organization’s
approved budget or approved amendments thereto?
• Do costs conform to the organizational policies and procedures?
• Are the dates of expenditure within the grant period?
• Is there full documentation of such expenditures?
127
GLOSSARY
Account Balance
The cumulative amount in a general ledger account, equal to the net of its
cumulative debits and credits. Account balances for revenues and expenses
are closed out at year-end and are not carried over to the next scal year.
Account balances for assets, liabilities, and net assets (fund balances) are
cumulative from their inception.
Account Code or Number
Account codes identify the nature of the items affected by nancial
transactions. General ledger accounts are usually grouped into the following
major categories: assets, liabilities, net assets (formerly known as fund
balances), revenues, and expenses.
Accounting Entry
A double-sided entry in which the debits must equal the credits. See also
Voucher.
Accounting Policies
The principles, bases, conventions, rules, and practices applied by an entity
in recording nancial transactions and in preparing and presenting nancial
statements.
Accrual Basis
The accounting discipline whereby revenues are recorded in the accounting
periods in which they are earned and liabilities or expenses are recorded in
the periods in which they are incurred (or in which they provide benet).
Accrued Liability
A liability recorded for expenses incurred, but not paid as of the end of a given
period. Frequently involves an estimate of the liability owed.
Accumulated Depreciation
The cumulative amount of depreciation recorded by an organization against a
given asset. This account is netted against the corresponding asset account
for nancial statement presentation purposes. Accumulated depreciation
should remain on the organization’s books until the corresponding asset’s
disposal or write-off takes place.
Advance
Funds issued to another party with a requirement that the party that received
the funds must account for them in the future. An advance is cleared by
providing a good, rendering a service, submitting an approved report, and/or
returning cash, depending on the nature of the transaction.
128
Amortization
The gradual reduction of a prepaid expense by apportioning its cost over the
accounting periods (months) that benet from the original expenditure.
Annotated Chart of Accounts
A list of general ledger accounts showing the account numbers, names, and
descriptions (intended purpose) of each account.
Authorization
The process of approval over nancial transactions, normally the decision to
commit or expend the organization’s resources.
Authorization Matrix
An organization’s list of approval authorities. Usually shown in the form
of a grid that lists the various positions in the organization and the levels
of their respective authority. Can also indicate the types of commitments,
expenditures, or documents that the designated employees are authorized to
approve. Also known as the Authorization Chart.
Balance Sheet
See Statement of Financial Position.
Bank Reconciliation
The process through which the organization’s cash balance per its general
ledger is reconciled to the ending balance per the bank statement as of the
same date and all differences between the two are accounted for. An employee
who is independent of the cash custodial and recordkeeping functions should
perform this task. It serves as a check on the completeness and accuracy of the
organization’s recorded cash balance and cash transactions.
Bank Statement
A report issued by a bank that shows the beginning and ending balances and
all activity in an account holder’s bank account for the statement period. Bank
statements are sent to account holders on a regular basis, usually monthly.
Capital Addition
Acquisition of a xed asset.
Cash
Within the context of this guide, this refers to cash currency, cash-in-bank, or a
combination of the two.
Cash Flow
The difference between cash received and cash spent in a given period.
129
Cash Flow Statement
This report shows the cumulative totals for the sources and uses of funds for
the period reported. Also known as the Statement of Cash Flows.
Cash Flow Forecast
An estimate of anticipated cash receipts and payments in future periods,
which may be months, scal quarters, or scal years, depending on the
nature of the forecast undertaken. This task requires that the organization
assess how much will be received and disbursed in each of the designated
periods. Input should be solicited from all key members of the management
team during this effort to ensure that all funding sources and organizational
expenditures are factored into the projections.
Chart of Accounts
The list of general ledger accounts used for recording nancial transactions.
The list is shown in account number sequence and shows account numbers
and account names.
Check (or Bank) Signatories
Those employees who are authorized to sign checks on behalf of the organization.
Cost
The purchase price of a good or service. It includes all expenditures made
to place an acquired good into service. Also used to mean the value of
donated goods.
Cost Center
A structural element of an organization used to capture costs for monitoring
and reporting purposes. Also known as a business unit, it may be used to
designate a specic project, grant, location, or department.
Cost Allocation
The process of distributing shared expenses to the applicable beneting cost
centers.
Credit
The right side of an accounting entry. Credits increase revenues and liabilities
and reduce expenses and assets.
Creditor
Any party to whom the organization owes money.
Debit
The left side of an accounting entry. Debits increase assets and expenses and
reduce revenues and liabilities.
130
Debtor
Any party who owes money to the organization.
Depreciation
The distribution of the cost of a tangible long-term asset over its estimated
useful life. Long-term assets are those that are expected to provide benet to
the organization for more than one year. Depreciation is recorded monthly.
Double-Entry Bookkeeping Method (or Double-Sided Entry)
The fundamental accounting discipline that requires each accounting entry to
balance, i.e., the debits must equal the credits.
Expenditure
Broadly means a disbursement of cash. It should not be confused with the
term Expense.
Expenses
Expenses are an organization’s operating costs. These are recorded in
the periods (accounting months) in which they are incurred. An expense is
considered to be incurred in the month during which the services rendered or
goods purchased were received, not when the purchase order was placed or
other commitment was made. An accrual should be made for each expense
that has been incurred, but not paid as of the end of the reporting period.
Preferably this should be done monthly. At the very least it should be done at
the end of the organization’s scal year. Expenses are considered to be period
costs because they have no future value to the organization.
Fair Share
The concept of charging expenses to projects based on the benet that each
project receives or derives from the activity for which the expense is incurred.
Financial Statements
Financial reports prepared by an organization for reporting to management,
the board of directors, and outside parties. On an interim basis, such
as monthly or quarterly, these reports may be audited internally. The
organization’s year-end nancial reports should be subjected to external audit,
however. Common types of nancial statements are the statement of nancial
position, the statement of activities, and the statement of cash ows.
Fiscal Year
The twelve-month period used by the organization to conduct its activities and
report its nancial results. The scal year does not necessarily correspond to a
calendar year.
131
Fixed Assets
The organization’s tangible, long-term property, plant, and equipment that
have estimated useful lives of more than one year.
Fund Balance
See Net Assets.
Imprest Basis
An accounting concept used to describe a cash fund that is replenished for
exactly the amount expended. Once established, the general ledger balance
for an imprest fund does not change except by management decision.
Income Statement
See Statement of Activities.
Journal
A chronological or sequential record of a certain type of nancial transaction.
Some commonly used journals are the cash receipts journal, the cash
disbursements journal, the general journal, and the sales journal.
Journal Entry
See Voucher.
Ledger
Normally means an accounting “book” in which nancial transactions are
recorded and cumulative balances are computed. A ledger may be a general
ledger in which all nancial transactions of the organization are recorded (if
computerized) or summarized (if manual) or a subsidiary ledger. Entries into
the general ledger must always balance, i.e., the debits must equal the credits.
A subsidiary ledger is usually limited to a specic type of transaction or one
or more specic types of general ledger accounts. It is not used for double-
sided (balancing) entries. Some common types of subsidiary ledgers are petty
cash ledgers, cashbooks, accounts receivable ledgers, accounts payable
ledgers, and xed assets registers. A warehouse ledger is normally used to
record the balances and movement of inventoried assets. It may be used as
a quantitative record to compute the number of units of inventoried goods on
hand and also as a record of their values.
Liability
An amount owed by the organization to other parties. Types of liabilities include,
but are not limited to, those to grant donors (for funds received in excess of
grant expenses), employees, suppliers, government entities, and lenders.
132
Net Assets
The general ledger accounts that represent the difference between an
organization’s assets and its liabilities. Also the cumulative difference between
an organization’s revenues and its expenses since its inception. (Formerly
known as Fund Balance.)
Petty Cash
A small supply of cash used to meet daily operating needs for which
disbursement checks are not appropriate or their use is not efcient or cost-
effective. Usually maintained on an imprest basis.
Post
To record a nancial transaction in a ledger.
Prepaid Expenses
The asset account charged for those payments of operating expenses that will
benet future periods. See also Amortization.
Procurement
The process through which goods or services are purchased.
Projection
Quantitative estimate of future nancial or operating performance or results.
Recordkeeping (Bookkeeping)
The act of recording various nancial transactions in a ledger.
Revenues
The sum of the amounts received by an organization from outside sources.
The term includes sales, contributions, grants from various donors,
subscriptions, membership dues, fees for services rendered, rentals, and
interest received from bank deposits and investments. Contributions are
recorded in the periods they are received. All other types of income are
recognized as income in the periods in which they are earned.
Statement of Activities (Income Statement)
This nancial report shows the cumulative revenues and expenses for the
organization for a given period. The revenues and expenses are itemized
by major categories. Expenses are typically broken down into program and
support costs. Cumulative totals for a comparable period in the previous scal
year are usually included in this statement for comparative purposes.
133
Statement of Financial Position (Balance Sheet)
Shows the nancial position of the organization at a given point in time. Ending
balances for the major groupings of the organization’s assets, liabilities, and
net assets (fund balances) are displayed in this report. Ending balances for
a comparable period in the previous scal year are often included in this
statement for comparative purposes.
Support Costs
Costs that support all of the organization’s programs and projects and that are
not specically identiable with one or more programs or projects.
Supporting Documentation
Documents that support a nancial transaction. The types of documents
needed vary depending upon the nature of the transaction. The organization’s
policies and procedures should spell out the documents that are required as
support for each type of transaction.
Travel Expense Report (Travel Expense Voucher)
The organization’s standard form used by its employees to report the
expenses incurred during authorized business trips or activities. The form is
used to account for either amounts previously advanced to the employee or
the amount to be reimbursed to the employee.
Unrestricted Funds
Funds received from donors who have imposed no time or use constraints.
Verication
Within the context of this guide, an independent check of the completeness
and accuracy of one or more documents, records, reports, balances, physical
counts, or other actions by a designated employee.
Voucher
Within the context of this guide, an accounting entry made to record a nancial
transaction. The term has also been used to mean the prescribed accounting
form used to record a transaction and all of the supporting documents
attached thereto. The term is used interchangeably with Accounting Entry or
Journal Entry.
134
REFERENCES
Catholic Relief Services. (2004). AIDSRelief point of service compliance
manual (pp. 12–13). Baltimore, MD: CRS.
Catholic Relief Services. (2011). Holistic Organizational Capacity Assessment
Instrument (HOCAI). Baltimore, MD: CRS.
136
www.crsprogramquality.org
Catholic Relief Services (CRS)
228 W. Lexington Street
Baltimore, MD 21201, USA
Tel: (410) 625-2220
