Financial Policy of NGO

It is very important to have Financial Policy of NGO. It helps as  a tool to tighten the Internal Control System of the NGO. This is the very first step towards the overall transparency of the organization.

However, I have seen many organization, which have just copied the Financial Policy of some other organization, without looking at their own nature of activities and style of working. There are many points one has to consider while preparing Financial Manual of NGO. Some of the important points discussed below –

1. Figures / Numbers

Financial Policy must have figures or numbers. Only qualitative statements or vague statements do not serve any purpose of the Financial Policy of NGO. All the financial limits, powers must be in figures. Consider below example –

NGO will maintain Maximum Cash Balance as per the requirements depending upon the Programs and Activities

NGO will maintain Maximum Cash Balance at Rs. 10,000.

2. Procedure

Financial Policy must have include all the procedure to perform the financial transactions. Procedure mentioned should be clear cut and in a very short description. It is good if point or step vise procedure is laid down.

Procedure for Withdrawal of Cash

i) Cashier will prepare a Cash Withdrawal Request Form.

ii) Get it Approved by authority.

iii) Prepare Cheque and get it singed.

iv) Withdraw Cash.

v) Enter in Books of Accounts

3. Powers / Authority

Who is the Authority to initiate / approve various financial transactions must include in the Financial Policy of NGO. It is necessary to mention the designation of person who is responsible for various financial transactions. See below example –

Authority

Cash Withdrawal – initiate by – Cashier

Cash Withdrawal – approved by – Finance Officer

4. Don’t include Non Financial Transactions

Care should be taken to include only financial items. Non Financial transactions should be avoided in Financial Policy of NGO and should include in any other policy documents.

Like, procedure to recruit new staff. Though this involves fixing of remuneration and such other financial items, it is advisable to laid down procedure of recruitment along with salary in HR policy instead of Financial Manual of NGO

5. Review Periodically

Many organization have excellent Financial Policy, but the problem is, it may very old and now many things have changed practically, depending upon circumstances and passage of time. Thus, it is advisable to every year review and analyze Financial Policy of NGO and make necessary change according to the requirements. See below example –

Conveyance Allowance given to staff is Rs. 3 per km, however in  Financial Policy, it shows Rs. 2 per km, because Financial Manual  was five years old and no one care to update the same as and when petrol price hike.

Conclusion

Only preparing Financial Policy of NGO is not enough, it has to be properly implemented. Only when it is implemented properly, its purpose will be served and it can be used as great tool of internal control.