Financial Policies and Procedures and systems

Why is it needed?

• To ensure transparency and high standard of accountability
• To have proper utilization of funds
• To ensure credibility of the organization

Generally accepted Systems and procedures

1. Internal Controls
2. Professional accounting System
3. Reporting and Monitoring systems
4. Handing Over systems

Internal Controls: The operation of internal controls is not a guarantee that fraud or mistake will not occur. These controls minimize the risk of acceptable levels and should enable management to be aware of problems at an early stage.

1. Cash Transactions
   1. Holding limits
   1. Cheque Payment/Bank payment Vs Cash payments
   1. Closing of Books
   1. Physical Verification of Cash
   1. Cash Receipt Treatment
2. Bank Transactions
   1. Few Bank Accounts – FC/IC
   1. Bank Reconciliation Statements
   1. Cheque Issue Register
   1. Bearer cheques, post-dated cheque, blank cheque
   1. Two or three Signatories
   1. Cancelled Cheque
   1. Safe custody of cheque books
   1. Acknowledgement through pre-numbered receipts
3. Fixed Assets
   1. Fixed Assets only when project provides. Never to divert
   1. Maintenance of a fixed asset register (even for donated assets)
   1. Annual physical verifications
   1. Preservation of original documents
   1. Asset Numbering for identification
   1. Disposed off only upon proper authorization
   1. Insurance of assets
4. Purchase procedures
   1. As per budget
   1. Purchase committee
   1. Standard items/local
   1. Quotations
   1. Purchase order terms and conditions
   1. Receipt in stock/fixed asset register
   1. Payment
5. Investment Control
   1. Approved Securities (11(5))
   1. FCRA – No Mutual Funds
   1. Investment Register
   1. Timely planning of investment
   1. TDS
   1. Keep all investment in the safe custody
6. Loans/Advance Control: Frame a good policy for effective procedures for granting and recovering of loan/advance. Fix limits. No fresh loan/advance till earlier is cleared. Balance Confirmation. Repayment schedule. More than 20000 – only account payee cheque.

 Points while processing expenses:

• Supporting documents
• Booking under correct heads
• Tally Tour schedule
• Per Diem as per service condition
• Identification of unauthorized expenses
• Paid Stamp
• Follow up

Maintenance of files

• Voucher File for Cash/Bank
• Voucher file for petty Cash book
• Voucher File for journal
• A separate bank file for each bank account
• Receipt book
• Fixed assets File/Registers
• Fixed Deposit and Investment File
• Management Reports (monthly/Quarterly)
• Financial statement/audited accounts
• Audited Accounts
• Budget File
• Separate file for Telephone bills/Electricity bills/Internet Bills
• Income Tax Files
• Registrar of societies file
• Foreign Contribution File

Professional Accounting Systems: Books generally accepted and found to be practical:

• Main Cash Book
• General Ledger
• Petty Cash Book
• Sub Ledger
• Journal
• Investment Register and Fixed Register
• Loans & Advance Register

Final Accounts:

• Receipts and Payment Accounts
• Income and Expenditure Accounts
• Balance Sheet

TYPES OF FUNDS

General Fund: (unrestricted Fund) Funds which neither have any restriction on their use nor they have been designated for any specific purpose by the management.

Designated Fund: These are unrestricted funds set aside by the trustees/management of a NPO for specific purpose or to meet the future commitments.

Restricted Funds: These funds are subject to certain conditions set out by the contributors and agreed to by the NPO when accepting the contribution or are funds subject to certain legal restrictions.

Endowment Funds: These funds that are received with the stipulation that only the income earned can be used either for the general purpose of NPF or for the specific purposes.