Budget for NGOs Archives - fundsforNGOs - Grants and Resources for Sustainability

How Can NGOs Meet the Challenges of Ethical Spending?

Worldwide humanitarian aid contributions in 2013 were at their highest level for five years, putting the sector’s aims and practices under the spotlight.

According to analysts Global Humanitarian Assistance, donations from government and private bodies totalled $22bn (about £13bn) – up nearly a third on the previous year.

With such large amounts of money involved, there is obviously a pressure for humanitarian and development NGOs to show transparency and accountability in their aid flows. This means demonstrating value for money in their procurement policies and, ideally, strengthening the communities involved.

“Any attempt to procure goods and services locally promotes self-reliance,” says Jason Baldaro, global procurement and facilities manager at Voluntary Services Overseas (VSO). “Even if the goods are unavailable, it can highlight an opportunity and challenge local businesses. It could be argued that this is one of many tools in developing an economy – basic supply and demand,” he adds.

However, sourcing from local providers is not without its challenges. As Clea Kahn and Elena Lucchi from the Médecins Sans Frontièresoperational centre in Amsterdam have argued in Humanitarian Exchange Magazine, local procurement can risk neutrality, especially in conflict zones where opposing sides control vital goods and services.

NGO Responsibilities

Clare Battle, a policy analyst at Water Aid, believes the responsibility for getting it right lies with the NGOs involved. “When the quality of local procurement systems is poor, donors and NGOs should help strengthen these systems, rather than employing other practices that may even undermine attempts to move towards country-led processes,” she says.

However, many donors have policies that dictate the circumstances under which procurement can take place. Four years after the Haiti earthquake, for instance, a substantial proportion of US development funding in the country still goes via American, rather than Haiti-owned companies.

Rose Longhurst, funding policy adviser at NGO development membership agency Bond, acknowledges that this can be an issue. “Sometimes donors have specific procurement stipulations, saying that you may have to source certain goods or services from certain areas or organisations,” she says.

Clearly, there is a need for NGOs to balance ethical intervention with consistent funding. Conventional wisdom in this area suggests that the relationship between donors and NGOs creates a self-regulating mechanism against bad practice. An NGO’s spending is accountable to its donors through audits, which are presumed to be a sufficient safeguard against misspending and corruption.

Developments such as the International Aid Transparency Initiative also demonstrate a move toward a greater openness about how aid flows work.

That said, there are few legal frameworks to challenge malpractice, and the closeness of donors and NGOs remains unchallenged. In the case of Haiti, this has led to local aid organisations being largely ignored.

Longhurst, however, maintains that because many charities conform toISO 9000, their procurement practices are externally audited to prevent unethical behaviour.

Read the full article at the Guardian.

Education for Sustainable Energy Development Scholarships for Master’s Level

Deadline: 7 March 2014

Global Sustainable Electricity Partnership is accepting applications from Masters level students for ‘Education for Sustainable Energy Development (ESED) scholarship’ 2014. ESED scholarship aims to support outstanding students pursuing advanced studies in sustainable energy development and to encourage meaningful contributions to the collective body of knowledge about this subject.

The scholarships amount US$ 23,000 per year for up to two years are offered under ESED Scholarships to each of up to 10 students in Master’s level.

Eligibility Criteria –

Applicants must plan to undertake studies at the Masters level in areas directly related to sustainable energy development.
Applicants must be citizens of the developing countries and territories identified for OECD official development aid in the DAC List of ODA Recipients.

Complete application includes – passport or birth certificate, curriculum Vitae, copies of transcripts, admission or deferral Letter, program outline, academic reference, and personal reference.

Application must be submitted via online scholarship application system.

For more information, please visit Global Electricity Scholarship Program page.

Mango Guide to Receiving Funds

It can be useful to think about your relationship with donors from the donors’ point of view.

Donors usually make grants to organisations that they have confidence in. All your dealings with donors should aim to build up their confidence in your organisation, for instance by:

• Describing how you plan to use funds – through clear plans and budgets.

• Demonstrating that you have proper controls in place, including good management.

• Providing honest and accurate reports of your work.

Most donors have run into trouble in the past when funds have been mis-used. They know that they cannot rely on trust alone (just like in personal life). Donors also have to be careful with the funds they handle and account for how they have used them.

Above all, keep your donors informed – they do not like nasty surprises!

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Most donors ask recipient organisations to sign an agreement (or contract) before giving them funds. This can provide an opportunity to build up a shared understanding about what you are trying to achieve and how you will work together.

Some donors have very strict conditions, for example about precisely what expenditure they will allow and auditing or purchasing procedures. (The European Union and USAID are very rigid.) Other donors are more flexible. But they probably still have rules, for example about changing the budget and reporting requirements.

It is very important to check the conditions before you sign the agreement. Otherwise you may be left with big bills that the donor will not cover – for instance, they may declare some of your costs as ‘unallowable’ and fail to re-imburse you. Or the donor may ask for its money back.

It is often possible to negotiate with donors about their conditions – if you feel certain conditions are unreasonable then do not be afraid to make your case. It is better to negotiate at the beginning than sign the contract but fail to comply!

Make sure your budgets are as complete as possible, including a proper amount of core costs and staff time, before you submit them to donors.

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Restricted funds can only be used for the purposes agreed with the donor; they cannot be used to pay for any other costs. It is very important to track restricted funds separately and carefully.

This means (a) having a clear understanding of exactly how donors will allow you to spend restricted funds, and (b) tracking expenditure and income very carefully for each project that receives restricted funds. You can achieve these by using a tool called a ‘funding grid’ and detailed accounts codes.

A funding grid shows in detail how all of your income is allocated to spent on your overall budget. It needs to be carefully set up by finance staff who know the details of restricted grants.

Follow the links to see an example funding grid and for a more detailed explanation of how the tool works.

A detailed coding system can categorise expenses to a cost type (Eg Travel expenses account) as well as to a specific restricted grant or cost centre (Eg Comic Relief funded water project).

See an example of a Chart of Accounts here including both account codes and cost centres.

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Donors usually like to have reports in a specific format and by a specified time. It is normal for there to be both narrative and financial reports, and it is important that they match and complement each other.

It is really important to try to meet donor reporting conditions as late or wrong reports reduce a donor’s confidence in your organisation.

The key to easy reporting at the end of a period is setting up systems properly at the beginning!

1. Set up your account codes (Chart of Accounts) in such a way that you can map from your own account codes to the donor’s codes if they are different.

2. Identify and be sure to understand each donor’s reporting requirements.

3. Set up a timetable with internal targets (eg bank reconciliation, advance accountabilities etc) so that the reporting deadlines can be met.

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Often the end of a grant means the end of a project. Preparation for the closure should begin 3-6 months prior to the end date of the grant. Key considerations include:

• accurately forecasting expenses and any adjusting entries that need to be made

• ensuring maximum usage of remaining fund (on meaningful, beneficiary focussed activities!)

• ensuring that all supporting documents are filed safely and securely, ready for audit

• applying for ‘no cost extensions’ if appropriate

• arranging for proper disposal of assets and equipment

• making arrangements for departing staff

• preparing the final donor report

• organising the final audit

Read more expert guides from the multi award winning Mango at www.mango.org.uk

10 Top Tips for Grant Management

1. Building Trust

In all aspects of grant management, problems can be avoided with clear and regular communications with grants officers. Put everything in writing!

2. Observe project start and end dates for spending

Don’t make payments or enter into commitments before the agreed contract start date. All invoices must be dated between the official start and end dates. It is OK to spend right up to the of the end of contract date as long as the invoice is dated before the end of the project as the expenses can be accrued. This is one useful method to avoid large under-spends.

3. Meet project targets within budget

Make sure the activities covered in the project proposal match the activities carried out and the amount of money spent. It is no good putting ten workshops in the proposal, then only carrying out five and the cost is the same as ten.

Tell beneficiaries and project officers about who the donor is and what their conditions and restrictions are. Hold regular meetings with other staff (e.g. project and administrative staff) to discuss the donor’s conditions, and to review progress compared to the project plans agreed with the donor.

4. Avoid under spending

This is as much, if not more, of a problem for a donor as over-spending is. Donors have targets to meet too and they really don’t want the hassle of funds being returned to them. If you do not use up all of their allocation, the donors may then lose this money from their next year’s allocation.

5. Monitor donor-by-donor expenditure

In multiple-donor funded projects, keep an eye on the individual expenditure allocated to each donor to make sure you do not under- or over-spend for each donor. The total expenditure might show you are on target overall but conceal the donor by donor position.

6. Spend Capital expenditure budgets early

Equipment should be spent in the first part of the programme. Donors do not generally allow this to take place in the closing months or to be the subject of a no-cost extension.

7. Make time to prepare donor reports

Putting a financial report together always takes longer than you think! This is especially true if you need to ask questions from busy programme and project managers. Delayed reporting from the field and poor follow up at head office to chase reporting often leads to under- or over-spending going unnoticed for far too long. It is then too late to rectify.

8. Reports must be complete and accurate

Make sure all expenditure is reported in the correct period. For instance:

Do not allow working advances to remain unreconciled for longer than necessary.

Do not change previously reported budget or actual figures.

If a previously reported figure is wrong, do not change the figures. It is better to make an adjustment to the current figures – and use notes to explain what you have done.

9. Keep clear contract files and budget notes

Put dates and notes on all papers relating to the grant. It will then always be clear to whoever manages the project implementation (often two years after the initial proposal) which is the latest version of the contract and the final budget, and what changes have been requested and agreed by the donor.

10. Donors don’t like surprises

If you cannot meet reporting deadlines or fulfil other conditions, warn the donor as soon as possible; don’t ignore it. You may be able to negotiate on unrealistic terms and conditions.

For example, reporting deadlines may not be realistic because a lot of spending takes place in remote areas of the field, where there is no internet access so reports have to be physically delivered when field staff return to base. It is better to explain this to donors in advance and they will often respond favourably.

Similarly, if certain budget items are going to cost more than budgeted due to unforeseen changes, give the donor advance notice.

For more great guides and other information for NGOs visit: www.mango.org.uk

The Great Debate: Non-Profits and Financial Reserves

Anyone who has worked on the financial side of a non profit organisation will be familiar with the debate around exactly how much money, if any, should be kept in reserve. Resources donated to your organisation were intended to support a cause not to sit in a bank account, yet nonprofits just like any other company need financial reserves for cash flow and emergencies. Every organisation is unique, but to help you answer this question we have created a quick guide on how best to manage your organisations reserve finances.

For many organisations who struggle to raise funds or deliver all the projects they aspire to, maintain a cash reserve in case of emergencies can seem like a luxury. However financial reserves prove to be absolutely vital for thousands of organisations every year and all around the world when they face financial difficulties. The long term health of your organisations depends on its ability to resist shocks and a cash reserve is a vital part of any sustainability strategy. Yet recent reports suggest that many non profits do not have sufficient operating reserves in their accounts for a “rainy day”.

In nonprofit accounting, an “operating reserve” is commonly used to refer to unrestricted cash on hand available to sustain an organization, and nonprofit boards usually specify a target of maintaining several months of operating cash or a percentage of their annual income, called an Operating Reserve Ratio. The reserve is in place to protect against unexpected financial shocks such as delayed payments, unexpected building repairs, or economic conditions.Other factors to take into account include cash requirements, long term strategies, business plan and risk tolerance.

Each NGO or nonprofit should set its own reserve goal and lower limit based on an analysis of its cash flow and expenses. Try to take a long term view and try to highlight any previous financial shocks the organisation has had to endure. Organisations that have contracts or fees with regular and reliable payments don’t need as much in cash reserves as organizations that rely on periodic grants, fundraising events or campaigns, or seasonal activities.

To protect your organisation’s operating reserve ratio, there should be a management and board agreement about how funds can be used, when they should or shouldn’t be used and who is authorised to use them.

It is appropriate at this moment to challenge a myth that many people believe about nonprofits, that they cannot or should not make a profit. In fact, just like any other organisation it needs to make a profit, often referred to as surplus in nonprofit terms, to avoid operating at a deficit. Organisations will absolutely come in for criticism if they focus on profit or continue to aggressively fundraise whilst maintaining excessive reserves, but maintain a few months of operating costs is extremely justifiable for the long term health your organisation.

Organisations should always be prepared to be open and honest with donors on their financial reserve policy. People donating to your cause deserve to know why you are not spending certain monies you already have. Donors who care for your organisation and who want to see it be successful and grow will understand the reasons for having a backup plan just in case.

One other source of guidance is Charity Navigator which was founded in 2001 as arbiter of financial ratings for larger nonprofits that raise significant sums from the general public. They calculate a Working Capital Ratio to evaluate the adequacy of cash reserves. This determines how long, in years, a charity could sustain itself using only its net liquid assets. The Working Capital ratio is defined as:

(Short Term Assets – Short Term Liabilities) / 12 Months Expenses * Executive Service Corps

In order to garner the most points toward a top rating by Charity Navigator, most non-profits would need a ratio greater than 1. This is the equivalent of 12 months or more of Working Capital. Food Banks and Humanitarian Relief Supplies can get by with less, while Museums and other non-profits that have lots of “bricks and mortar” need much more according to Charity Navigator.

While this is a credible goal, this is national data for large non-profits that have had decades to build their financial strength. The data on the Charity Navigator website shows a national average of .75 years or 9 months. Even in this elite group of large non-profits most have a ratio of less than a year of working capital reserves.

What is your organisation’s reserve policy? How do you handle unexpected financial events? Let us know in the comments.

Free Mango Guide to Preparing and Implementing Budgets

Every NGO and every project needs to have a budget. A budget describes the money that an organisation plans to raise and spend for a set purpose over a given period of time.

“Failing to plan is planning to fail.”

The budget plays an important role in every stage of NGO work: planning new work, raising funds, implementing activities, monitoring work and evaluation.

The programme cycle and the financial cycle go hand in hand.

Writing a budget involves answering a number of questions, that can only be answered byprogramme staff and finance staff working together: They start with plans and goals, not numbers:

1. What objectives are we trying to achieve?

2. What activities will be involved in achieving these objectives?

3. What resources will we need to carry out these activities?

4. What will these resources cost?

5. Where will the funds come from? What will the source be?

6. Is the result realistic?

This might look like hard work, but we actually work through these questions every day, when we handle our own personal money. You can see a short illustrated example here: Rudi goes to the cinema.

A good format to start with is a detailed budget worksheet that can later be summarised or re-coded to match donor formats as needed. After the budget has been prepared it needs to be approved by the Board and / or donors.

Implementing the Budget

The person with the responsibility for implementing a budget is called a ‘Budget Holder’, and is usually a Programme or Project Manager, not a finance person.

They use the budget to guide the implementation, checking BEFORE spending that items are budgeted for, and allocating expenditure to appropriate budget lines.

Budget holders should focus on delivering the project objectives within the total budget rather than on spending all the cash outlined in the budget.

Over or under spending within reasonable limits is not a problem as long as there are good explanations (but check your grant conditions, as some can be more restrictive than others).

Read the full guide and download a template budget spreadsheet from award-winning UK registered charity Mango here.

Understanding a Budget Format in a Proposal

Introduction

Budget is the most important part of any proposal. The budget depicts a clear picture of all expenditures involved in carrying out a research project. Any research project, right from its very inception, requires several activities involving the financial aspect. Therefore, it becomes necessary to focus on the budget and to ensure that it is clear and all the expenditures proposed are justified. Though, developing a budget is not much tedious task, provided the concepts regarding all expenditures involved are clear.

Components of Budget

To develop a budget, is a step by step procedure. A budget is majorly categorized into four parts viz. Staff, Recurring expenses, non recurring expenses and institutional overhead. Recurring expenses are those which are variable and which keep on occurring throughout the entire project duration. Non recurring expenses are those which are one-time in nature or which do not occur at regular intervals. Various activities or particulars in a budget are categorized in recurring or non recurring expenses. At the end of the budget, a particular amount is provisioned as institutional overhead charges.

The table below depicts a picture of basic layout of a research budget. Changes in the particulars and break up of the duration of study of the budget can, however, be made as per the needs of the study.

Budget Format

While initiating to develop a budget, as per the needs of the project, it is first ascertained how much manpower is needed. The category of personnel i.e. director, assistant director, project associate, project officer, research associate(s), research officer/ fellow(s), field investigator(s), supervisor(s), consultant(s), computer operator, data entry personnel, etc. are to be figured out. It helps in the estimated expenditure on the remuneration of the overall project human resources. The category of personnel to be appointed is shown separately under the ‘staff’ head. A detailed description is also given in terms of their number, tenure of their drawing the remuneration and the amount of monthly remuneration. This is done for all categories of staff. The ascertainment of personnel required to be appointed constitutes a major and most important part of the budget. The number of people to be appointed should be as specific as possible. The monthly remuneration of the project personnel for the entire duration of the project is determined this way.

After the determination of staff, contingencies in terms of recurring and non recurring expenses are drawn. Recurring expenses, as the name itself indicates, are periodic or regular in nature. They include expenditure to be incurred on stationery, telephone, etc. Non recurring expenses frame the next important aspect of the budget. In non recurring expenses, travel forms an integral part as it is the next major expenditure after staff compensation. In the determination of travel expenditure, it is important to calculate the total number of days required for data collection. The expenditure to be incurred on collection of data is calculated as per the number of personnel required to be in field for particular number of days. The travel reimbursements and dearness allowances on per day basis or anything else admissible as per the rules of the organization is also included. Total travel cost is calculated keeping in view these aspects.

Training sessions, workshops, meetings, etc. are also proposed in a new budget. Since such sessions are not a periodic event, they fall in the category of non recurring expenses. Printing charges are also a part of this category as it usually deals with final report printing.

Last segment of the budget is institutional overhead. These overhead charges go directly to the institution carrying out the proposed study. This is provisioned so as to meet several costs on the part of institution such as furniture, electricity and other running costs. The institutional overhead ranges between 6 to 16 percent of the total cost of the project. The range may, however, be flexible on the basis of type of organization, the funding agency or the total cost of the project.

Conclusion

To develop a budget is not a difficult task. The prime and only matter of concern is that concepts regarding all expenditures should be clear and it should define all minute details involved. Detailing of all expenditures not only facilitates the work on the part of fund seeker but it also lets build a better understanding of the donor agency. More transparent the budget, fairer will be the chances of it being accepted.

How NGOs can develop budgets in their Proposals

Developing and managing budgets can be a challenging task for NGOs whenever they need to plan a project, write a proposal and implement an activity. Efficient financial management is essential for the growth of any organization.

Besides, if you have well-managed and transparent financial system, it also enables donor agencies to gain confidence in your NGO and offer to support to it. However, setting up an efficient financial management system requires a sound understanding of financial practices and principles.

Here we are providing a basic guide for NGOs so that they can improve their capacity in developing and managing budgets for their organization and project and contribute towards an overall effective financial system.

Advantages of Effective Financial Management System in NGOs

Click on the links below to know all about developing budgets in proposals:

What is a Budget – for NGOs?

…Continued from the Main Page

“Budget” is a term that NGOs often come across when they need to plan and implement a project activity. Besides, we also come across this term again and again when we are in the process of developing a proposal. Any donor funding for NGOs is limited and a proper and planned budget is required to convince the donor to access this funding. Donor agencies also have their limitations and they distribute their financial resources evenly amongst NGOs based not only on their project plans but also according to the budget they present.

Budget, in simple terms, means a document where you specify how much money you are going to spend (in other words, expenditure), especially if your organization has received grants. In some cases, as in businesses, budgets can also include the money that the organization is going to generate or “income.” The latter is important for all NGOs now because managing any organization, including an NGO does not mean just spending – we also need to look at how costs can be covered and money can be saved for other activities.

In another sense, budget is all about planning your expenses and saving your costs.

Many NGOs tend to plan out a budget only when they need to develop a project proposal for a donor agency. Besides, they only think of the short term project needs – not about the long-term sustainability of the organization.

What should the Budget consider?

What should not be done with a Budget – for NGOs?

…Continued from the Main Page

We have read about what NGOs can do with a budget: manage organizational expenses and income, plan project activities, fulfill donor expectations and also work towards long-term sustainability of the organization.

Now we try to understand the essential things that should not be done with a budget. For example, we tend to believe that a budget submitted to a donor agency cannot be changed. Practically speaking, this is not true to some extent. Budgets can be changed, but in many cases, it is required to take prior permission from the concerned donor agency.

Myths about Budgets clarified:

“Budgets cannot be changed”	Budgets can be modified to some extent. You can diversify your resources and cut your costs. Of course, take prior permission from your donor agency for this.
“Budgets can be developed overnight”	Often in our effort to meet proposal deadlines, we develop budgets overnight. This ends up in poor planning and even rejection of proposals. Always take time to build your budget – your NGO should live with a budget always!
“Budgets do not have a basis”	Budgets should be developed on a certain base. They cannot be developed without any basis. In most cases, the basis should be the previous year’s income and expenditure. If applying for a project, look out for the expenses of the project’s previous year. Donor funding limitation to be also considered
“Budget can be developed by a single person”	Budget work is a joint exercise. It is a team work. Involving the entire team is important to produce an effective budget.
“Budgets have same formats”	All budgets do not have same formats. Different budgets are developed for different purposes. If you are writing a proposal, it is a different budget format and if you managing an organization, you will have a different budget format. Similarly, different donor agencies have different budget formats