INTERNAL CONTROLS, BUDGETS & Accounting for Donor Funded

ProjectJanuary 26, 2014

Colombo , SrilankaBy: Huzaifa Shabbir Hussain

WHY ARE WE CONDUCTING THIS SESSION??

CIPE Pakistan Experiences

• Lack of Interest of Board in managing grant funds .

• Weak Financial Reporting System. • Feeble internal control. • Integrating program activity in to a proper

budget.

OBJECTIVES

• UNDERSTANDING internal controls• Budgeting techniques to prepare effective

budget• Accounting for donor funded project

Do Frauds Happen?

Can it happen at your organization?• If yes, how?• If no, why not?

Case studyMr. Raza has recently joined the Business chamber of commerce as chief accountant. The President and Secretary of Chamber have full faith and trust on Mr. Raza and as a result, Mr. Raza is all in all in finance.

The President and Secretary of Chamber have authorized Mr. Raza to:• Finalize rates of transactions with vendors• Receive invoices• Verify invoices• Prepare cheques• Deliver cheques to vendors• Record transactions in the books of account

Case study• There is no further check on Mr. Raza except for trust of the President and

Secretary. The only oversight by the President and Secretary of the Business chamber is the signature on cheques.

ASSIGNMENT / GROUP DISCUSSION & PRESENTATION• Please consider the above scenario and after discussion in your group, answer the

following:• How can Mr. Raza conduct fraud or what are two frauds Mr. Raza can conduct?• What are three suggested internal controls which will help mitigate chances of

fraud at the Business Chamber of Commerce?• Are there any internal controls at your chamber? Please explain three of them• What one internal control do you consider you will implement once you are back

from this session?

Who is this man?• New York money

manager Bernard Madoff's tricked investor in a $65 billion Ponzi scheme, the largest fraud ever by an individual, was exposed in December 2008 when Madoff, now doing 150 years in prison, confessed to his sons.

Guess who?• WorldCom's internal

auditing department uncovered $3.8 billion of fraud. Inflated assets by as much as $11 billion, leading to 30,000 lost jobs and $180 billion in losses for investors. Former CEO WorldCom Mr. Bernard Ebbers was convicted of fraud and is doing 25 years in federal prison.

Why Internal Control?

Internal control system ensures: • Orderly and efficient conduct of the business • Safeguarding of assets of the business • Prevention of detection of fraud and error • Accuracy and completeness of the accounting

record• Timely preparation of financial statement

For Effective Internal Control System

Have a Financial Accounting Manual!!

Key components of an accounting manual includes:

•Guidelines for various accounting policies and procedures

•Written procedures for accounting staff

Budget Preparation: Best Practice & Strategy

WHAT IS A BUDGET

• A budget is a detailed plan of income and expenses.

Why Budget and Forecast?Budgets and Forecasts

Measure actual and forecasts against the budget throughout the planning process

Analyze anticipated versus actual results

Predict future performance and anticipate changes

FINANCIAL BUDGET PREPARATIONPROFIT AND LOSS BUDGET

Income Rs 100

Expenses Rs 80

Great! I will make profit of

Rs 20

FINANCIAL BUDGET PREPARATIONPROFIT AND LOSS BUDGET

Income Rs 80, Expenses Rs 100,

What will I do??

FINANCIAL BUDGET PREPARATION

• IN CASE OF LOSS

– Increase income

– Reduce expenses

BUDGET TEMPLATE

Accounting for Donor Funded Project

ACCOUNTANTS ARE NOT EXPERT IN MANAGING GRANTS

SUB COMMITTEES DON’T TAKE INTEREST IN FINANCIAL REPORTING

REGULAR FOLLOW UPS REPORTING REQUIREMENTS• OPENING A SEPERATE BANK ACCOUNT.• BUGGING FOR DEADLINES OF FINANCIAL REPORTS• EXPLAINING THE SKELETON/FORMATS FOR

REPORTS and ADVANCE REQUEST

CHALLENGES FACED!!

• ASSISTING THE GRANTEE:–Preparation of Project Budgets –Working out the Direct Cost & Indirect

Cost with the Project Manager

INITIAL STEPS TAKEN!!

• NARRATIVE REPORTS • PROJECT OBJECTIVES ARE FULFILED • FINANCIAL REPORTS ARE SUBMITTED AS PER

THE DATES MENTIONED IN THE GRANT AGREEMENT

• EVALUATION REPORTS• FAILURE OF SUBMISSION OF FINANCIALS ON

TIME.. RESULTS IN WITHOLDING GRANT PAYMENTS

DONOR KEEPS A CLOSE EYE ON!!

Monthly Advance Request Template!!

• COMMON FINDINGS ARE!!

REGULAR SITE VISITS

INADEQUATEINTERNAL CONTROLS

UN ALLOWABLE COSTS

CONTRIBUTION OFGIFT WAS RECORDED

IN MONTHLY FINANCIALREPORT TO THE BOARD MEMEBERS

“THE AMOUNT OF $1000 –on continuous follow-up reversed from the

grantee project and in the end they managed it from their own resources”!

STANDARD GRANT PROVISIONS

QUESTIONS ASKED?

BOARD MEMBER OF A CHAMBER AFTER APPROVAL OF A GRANT ASK US!! HOW

MUCH DO WE HAVE TO CONTRIBUTE DURING THE PROJECT OF $8500??

CONFUSING ABOUT MATHCHING FUNDS

• CHECKING ADEQUACY OF FINANCIAL ACCOUNTING POLICIES ARE IN PLACE.

• BOOK-KEEPING FOR VERIFICATION – INCLUDES QUOTATIONS,CHEQUES, BANK-STATEMENT & TIME-SHEET. USING BE SPOKE SOFTWARE – QUICK BOOKS

• SENDING FINANCIAL AND NARRATIVE REPORTS ON DEADLINES.

WHAT DONOR REQUIRES!!

THANK YOU