NGO support toolkit (English)  >  Technical support  >  Organisational development 

Financial systems

Financial systems and procedures should enable organisations to ensure resources are available for planned activities and to monitor and report income and expenses. Good systems will allow managers to analyse information to forecast potential problems and make changes to improve the cost-effectiveness of activities. Well planned systems and controls can minimise the risk of funds being misused. Good financial systems also play an important role in securing further funding from donors by demonstrating that the organisation has looked after previous funding properly, and used it effectively.

The kind of technical assistance NGOs and CBOs need will vary considerably, depending on their capacity and financial history. Some CBOs may have no previous experience of receiving and managing on-going grants, they may have received cash to pay for single events or activities, but may need help setting up bank accounts and developing ways of tracking expenses. In such cases, NGO/CBO support providers (NSPs) may offer to do the accounting themselves and ask only that the CBO provide original receipts and supporting documentation. This should only be seen as an interim measure until even basic financial management systems can be developed. More experienced NGOs may need more limited or occasional support with particular issues such as adapting their book-keeping systems as they grow.

Issues to consider

• NSPs may have to advise how a partner can increase capacity to manage new projects and grants. While new funding may allow the organisation to hire professionally qualified staff, better results can sometimes be achieved by building the capacity of people who have been doing the job already.
• Financial procedures may need to be developed or adapted to support different or overlapping reporting systems and requirements – for example, when an organisation needs to report to two donors at different periods of time, using different reporting formats.
• Newly formed or emergent NGOs and CBOs may lack understanding or experience of the importance of financial systems and internal controls and procedures. They may become impatient with bureaucracy that appears to hinder real work, viewing financial controls negatively as indicating lack of trust or intended only to prevent theft.
• Compliance to financial procedures tends to be best when systems and procedures have been properly adapted and are seen to be useful and relevant to the actual work of the NGO and CBO.
• The most appropriate accounting system will depend on the size and level of the organisation. Manual paper systems may be easiest for new NGOs and CBOs, while spreadsheets can be a pragmatic transitional method. Dedicated accounting software tends to be most efficient for large NGOs and CBOs with multiple projects and budget lines, but may require special training and support.

Related themes

NSP financial management

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