Good financial control procedures and a sound accounting system are the foundation for effective financial management. While financial managers or bookkeepers are responsible for setting up and maintaining an accounting and financial control system, the general manager bears the ultimate responsibility for a program and must know enough about the system to supervise both bookkeepers and financial managers.

Developing Standardized Financial Controls

The two main principles for an effective financial control system are:

Duties are divided among individuals in such a way that no one person can control all the phases of a transaction. For example:

• One single employee cannot request, approve, and make payments
• Bank account reconciliations are done by an employee who doesn't sign checks, has no access to cash, and doesn't record cash transactions
• Financial records are reviewed periodically by a responsible person other than the person who normally maintains the records.
• The person controlling commodities, equipment, and supplies is not responsible for purchase and receipt of these items
• The person distributing salary cash or checks should not be the same person who calculates and prepares the payroll

Accounting and financial control procedures regulate transactions as they occur in the system. For example:

• All inflows and outflows of cash or resources are documented.
• Pre-printed, serially numbered receipts and payment vouchers are used.
• Monthly bank account reconciliations are performed, and any discrepancies found are investigated.
• Time and attendance records are kept for all employees.
• When payments are made with cash rather than a check, petty cash vouchers and receipts must be submitted.
• Deposits of cash sales or fees are made frequently.
• All grant payments must be approved in writing by the director.
• All purchases are approved before an order is placed.

Having an annual external audit is an important way for you as a manager to know whether controls and procedures are operating properly. However, it is important for the institutional audit to cover both the donor funds and the organization's own funds, so that it gives a complete picture. Audits of individual donor funds should be discouraged since they do not provide a complete picture. Instead, it is better to have donors help pay for an institutional audit.

Vignette - Authorizing and Tracking Expenditures

Some non-financial managers, particularly those in smaller organizations or in charge of service sites, have the responsibility of authorizing expenditures and purchases. How can they ensure that:

• The purchase is justified
• The cost is competitive
• The transaction is properly documented
• There are sufficient funds to make the purchase?

To ensure that a purchase is justified, the manager institutes a voucher or purchase order system, whereby purchases must be pre-approved before any checks or cash are disbursed. As a criterion for approval, the manager or financial officer can check to see whether or not the item appears in the budget and can request documentation for purchases that had not been anticipated.

To ensure that the cost is competitive, the manager can make sure that at least three suppliers (when available) were contacted in order to make price comparisons. In the case of supplies or a piece of equipment, it often suffices to compare prices in catalogs or through phone calls. For larger expenditures, such as a printing job or construction, it is customary to solicit bids or written estimates and to use the contractor that offers the lowest bid along with acceptable quality of work.

To ensure that the transaction is properly documented, all checks and pre-printed, serially numbered cash receipts bear the corresponding purchase order number.

To ensure that there are sufficient funds to cover the purchase, the manager can check the budget performance report and the cash flow report, which monitor actual expenses and expenditures, against the budget in order to see whether a particular category is being overspent, or whether the whole budget is overspent, thus necessitating cutbacks in all categories. The budget performance report should also monitor the actual receipt of revenues against those projected in the budget and cash flow forecast, as well as whether these revenues are government allocations, service-generated revenues, or grants. If the timing of receipts is delayed, or if generated income is lower than expected, there may not be enough funds to cover a large purchase.

Checklist - Manager's Checklist to Ensure Good Financial Control

Understanding the principles of managing cash is especially important for programs that collect revenues in order to cover some or all costs of the program. The most important principle is to leave a "paper trail" at every level on which cash is collected. A typical CBD program that sells contraceptives to users would organize the paper trail in the following manner:

1. The CBD agent records each contraceptive sale on a numbered duplicate receipt. The receipt goes to the client and the duplicate serves as a record of contraceptive sales.
2. Every month the supervisor collects the cash and receipts from the CBD agents. The money collected by the supervisors usually equals a fixed percentage of the total amount on the receipts, since the CBD agents often receives a percentage of the sales as a commission.
3. The supervisor also checks the stock of contraceptives and the stock of unused receipts to ensure that the contraceptives have not been sold without being recorded.
4. The supervisor issues a receipt to the CBD agent. This receipt is both proof that the agent has turned over the money which she or he collected and a record that the supervisor has received this money.
5. The supervisor writes a summary report of the amount of money received from and contraceptives issued by all her or his agents.
6. The supervisor turns the money over to a financial manager, who issues a receipt for this money.
7. The financial manager totals the amounts from all the supervisors and deposits the money in the bank, recording clearly the source, date, and amount of the money deposited.

There is good financial control in this scenario because the flow of money can be traced all the way back to the original sale of contraceptives and receipt of cash.

Example from Swaziland - Monitoring the Receipt of Fees in a Public System

All transactions involving petty cash, the monthly deposits, and the amount of each volunteer for the corresponding budget line items should be recorded in the accounting journals by your bookkeeper.