Both parties should sign agreements highlighting the following points:
• Accounting information: what information should the bills contain?
• Payment procedures
• Prices and payment deadlines
• Quality of service
• Periodic evaluations
• Procedures to follow in the event of conflict
• Frequency of meetings
Relations with the Board of Directors and Other Committees
Good relations should be maintained with the Board of Directors and any other committees formed within the scheme.
An internal manual has to be developed stating clearly about the roles and responsibilities of the staff and others, frequency of meetings, report submission etc.
Key Aspects for Efficient Financial Management
Following key aspects have to observed for efficient financial management:
• Planning and budgeting
• Recording transactions
• Control over revenues, expenditure, data and use of assets
• Generating reports for financial outcomes
Following areas have to considered carefully for sound financial management practice:
(a) Protection of Data
(b) Accounting for Financial Transactions
(c) Internal Control
(d) Auditing
(a) Protection of Data
Since the success of the scheme depends on the monitoring and refining of the scheme within a certain interval of time, historical evidences are key in this process. Proper protection of data is crucial to generate such historical experiences and to best tailor the scheme. It should be clear that who should access the data and how standardised is the database. A back-up mechanism should be developed to store the data.
(b) Accounting for Financial Transactions
A sound accounting practice should be in place to record daily transactions and serve as the basis for the financial monitoring of the scheme. The major accounting books to be maintained and practices to be followed are:
(i) Cash Book and Bank Book: Cash book for cash transactions and bank book for cheques. They should be used to record all payments and receipts made in connection to the scheme. The entry resources are payment vouchers, cheques, receipts etc.
(ii) Safeguarding Cash: This is very important and should be ensured that appropriate actions are taken up. Ensure all transactions are authorised and entered on a timely basis, prevent unauthorised access not only to cash, but also to non-asset items such as pre-numbered receipts. Also ensure the recorded accountability of assets such as cash on hand are periodically compared and tested against actual amounts and that appropriate action is taken to correct any discrepancy.
(iii) Reconciliation Statements: These reconcile or correct the difference between the balance shown in office bank records and the balance in the bank’s statement of accounts. The balance on the bank book and the bank statement should correspondence. Possible causes of differences are bank charges, commission, standing orders and transfers into the account of the scheme.
(iv) Invoice Register: This needs to be maintained to keep a log of all incoming and outgoing invoices. Payments should be made to the providers on a timely basis and funds are collected in order to make the payments.
(v) The Fixed Asset Register: This provides information on all equipment planned, bought, supplied and installed; on the preventive maintenance schedule of existing equipment; on the availability of a manual related to each piece of equipment etc Depreciation effect in each equipment is calculated and adjusted every year.
(vi) Financial Statements: These are the basis to measure the financial health of the institution, which is also frequently sought by the stakeholders. To do this, management needs at least a fundamental understanding of financial systems. The four major financial systems are the budget, the cash flow projection, the statement of income and expenditure and the balance sheet.
(vii) Financial Ratios: These are computed by scheme managers to maximise the use of its financial statements. These ratios compare different items on the balance sheet or income or expenditure account to given an indication of the financial health of an organisation. For example, the scheme may wish to know how easily it can meet its financial obligations as they fall due, in which case it is necessary to look at the ratio of current assets to current liabilities.
