It is important to strike a balance between your internal information needs and the reporting requirements of donors. Failure to consider your organization's internal needs as well as the needs of the donor can lead to the following situations:

• In a decentralized management system, where lower-level managers are involved in financial planning, budgeting, controlling and reporting, it is vital that they be able to get financial information at their level. Many organizations have difficulty providing reports at this level when their financial information systems are donor-driven.
• Many organizations with several donors have a separate project budget for each donor, each covering several years, but have no consolidated information or financial plan to allow them to make organization-wide strategic decisions.

To create a system that meets both the needs of your organization and those of your funding institution, it is helpful to:

Negotiate with donors. Donors demand a great many detailed financial reports that often do not correspond to either the needs of the organization or its reporting periods. In order to make it easier to prepare a consolidated financial plan, you can try to negotiate with donors so that their projects cover logical portions of the plan. For example, it can be confusing when one person's time or the costs for one operating center, such as a clinic, are being paid for by several donors. It is useful to organize donor "projects" so that they correspond to the operating centers that you have set up in your accounting system. It is also useful to try to negotiate donor reporting periods that fit in with your existing system.

Sort information by funding source and operating center. The basis for developing a unified planning and reporting system budget is an accounting system, which allocates expenses to both operating centers and sources of funding. In a computerized system, putting your financial information in a database simplifies this task. One field allows you to sort expenses and revenues by operating center, while another field allows you to sort them by funding source.

It is still possible, but more time-consuming, to organize your financial information by donor or source of revenue in a non-computerized system, by developing a numbering code for each possible source. When recording expenses, one column in the journal could be titled "account charged." Besides each expense, your bookkeeper will be able to put a number in this column for the project or grant to which this is charged. In programs that generate revenues from sales or unrestricted donations, there will always be one code for "unrestricted." In order to collect the expense information for each source of revenue into one report, the bookkeeper will have to collect it manually by reviewing each expense account and selecting those marked with the appropriate code.

Another way to produce reports on expenses by source is to have a separate set of accounting journals for each project or funding source. When the accounting system is organized this way, however, it becomes a challenge to produce financial information for the whole organization or program.

Recording revenues by source is easier for the accounting system to handle, since each source will have a separate journal or account.

Donors generally have differing financial reporting formats and reporting periods, which complicates the tasks of accounting and reporting. The most common problems and possible solutions are as follows:

Donors have different reporting periods. Some require reports every three months, some every four months, while often none of these may correspond to your organization's fiscal year.

Solution: Your information may need to be organized by month, so that differing reporting periods can be handled by your system.

Variations in donor requirements create inconsistencies in the categories under which certain line items fall. For example, some donors require office supplies to be shown under "Administrative Expenses," and other donors wish it to be shown under "Supplies" together with contraceptives.

Solution: A computerized sorting system is often the only way to deal with conflicting categorization of criteria for different funders.

However, the ideal solution for both problems is to have a detailed accounts structure and to negotiate with all donors to accept your standard formats and reporting periods.

Tools and Techniques - Reports that Managers Can Develop and Use

The design of all elements of the system can and should be reviewed regularly, because as your environment changes, your needs for financial information will change: a new donor will have different reporting requirements, or your program will begin to charge fees for the first time, or new activities will require the creation of new budget line items. Your system will need to be flexible enough to incorporate these changes.

Different types of family planning programs have very different financial monitoring needs. Usually, public sector organizations, such as ministries of health, produce budgets and expenditure reports that don't include revenues. Most public sector managers only use expenditure reports to compare actual expenditures with their budget; the reports are rarely used for any cost accounting or cost-effectiveness analysis, such as analyzing the cost per unit of service.

Since ministry accounting systems are usually on a cash basis, fixed assets and supplies are written off as expenses at the time they are purchased and are not depreciated as annual expenses over the course of their useful life. There are therefore no assets to be included in a balance sheet and such a report is not produced. However, some ministries' services do charge user fees, while others wish to use scarce resources in the most efficient and effective way possible and therefore need cost accounting information. In these cases, a switch to at least a modified accrual accounting system is in order, and full financial statements are helpful.

In the private sector, where organizations generate revenues, there are two important financial reports which provide information about financial status of the organization: the balance sheet and the income statement.

A balance sheet is designed to show the financial position of an organization at a particular point in time. It shows the assets, liabilities (debts of payables), and reserves (also known as equity). It is called a balance sheet because it must "balance," that is, the liabilities subtracted from the assets must equal the reserves. A balance sheet is used to assess the financial structure and stability of an organization, for example, to see whether its liabilities can be met. "Reserves" can be defined as the financial value of the organization after the liabilities are settled. In a commercial organization, this is generally the equity - the value of the owner's investment plus accumulated profits or income (revenues minus expenses). In a nonprofit organization, this represents the institutional "fund balance."

An income statement (also called "profit and loss statement") is designed to show the income (profit) or deficit (loss) of an organization during a specific period of time. It shows the revenues minus the expenses and the resulting profit or loss. The income statement is used to assess the overall financial performance of the organization as well as the relative performance of departments. It is also used to compare actual with budgeted income and expenditures, in order to monitor the budgetary performance and to identify where budgets need to be revised or action needs to be taken to modify activities, reduce costs, or change prices.

Example from Zimbabwe - Income Statement

For programs that generate income from sales of goods or services, the monthly sales report is an essential monitoring document that allows the manager to compare the sales performance of different service sites and to determine how total sales compare with those projected in the budget. The box below gives an adapted example of a monthly sales report from a community-based distribution program in Liberia.

Example from Liberia - CBD Monthly Sales Report

There are many other types of financial reports that you may find useful. Cost and revenue information can be used by managers at many different levels to assess program performance and examine the results of any changes in program procedures, structure, or design. The system can provide such information as the cost of resource used, the cost of providing each type of service to clients, and the amount of money generated by the different types of services.

Managing Your Finances