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1.1.3 Methodology
The method is mainly discussion and sharing of information with staff members of AAB and
review of their operational documents and manuals. AAB’s publications have used to prepare
this report. I also incorporated with verbal suggestions of the staff members, which helped me
a lot to enhance my knowledge. The secondary sources for data collection were published
annual reports, annual financial reports of AAB, electronic publications of AAB and their
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1.1.4 Limitations
Proper guidance from more professionals of similar sector could enrich this report and also
could make it more informative and comparable. But their time constraints could not allow
me to do that, which seemed to me a limitation to prepare this report. Another limitation is
that, comparable information is not available in this report as I was only permitted to
complete my internship in a single organization, i.e Actionaid Bangladesh.
Part 2: First portion of the project part is the introduction to the project. ActionAid
Bangladesh’s Financial Management, Accounting System, Budgeting,
Taxation, Auditing, Performance Evaluation & Controlling of Projects are the
core chapters of this part. Major findings, recommendations and lastly
conclusion are given to end the project.
.
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agricultural projects that would improve living conditions for children and their
families. In 1978 it started its first project undertaking integrated community
development.
In 1974 it supplied emergency relief for the first time when Hurricane Fifi struck
Honduras - funding food, clothing, medicines and tools for thousands of homeless
people in 250 isolated villages. In the same year in Bangladesh it also funded
provision of 50,000 meals a day, glucose and medicines for the people of eight towns
devastated by floods.
From the mid seventies, the focus of its work started shifting. From solely providing
education it moved on to helping children and their families to become self-
supporting. By the start of the1980s, its focus had shifted again to ensure it was
tackling the root causes of poverty, not just the symptoms. There are many complex
and inter-related causes of poverty. High child mortality and malnutrition, high birth
rates, low literacy rates, limited access to clean water and sanitation, health care and
education, insufficient land to grow food and lack of credit to buy seeds and tools -
these are just some of the factors that can contribute to poverty.
It had learned that for its work to be of lasting benefit, it needed to work with whole
communities to boost agricultural production, improve water supplies, gain access to
basic healthcare and find new sources of income. Programs in education, agriculture,
health, water, skills training and helping people to organize and access savings and
credit were integrated so that each supported the other. It also helped communities
organize themselves to challenge injustice and ensure they received their entitlements
and as much assistance as they could from their own governments.
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This evolution has been the imperative of the empirical experience that the organization
gained through its long and deep involvement in combating poverty and knowing its
structural causes. Questions of rights of women, excluded groups and the livelihoods of the
poor and the marginalized now occupy a front seat.
At present AAB works in 35 districts and has more than 200 local and community-based
partner organizations. While AAB sets its own strategy, it is an international organization
with national accountability. The unity with ActionAid International is in the common
vision, mission and values, this enables AAB to take a determined action in the fight to
eradicate poverty and establish equal rights.
From its inception to the present times, AAB moved from the regional to the thematic
approach in its work. However the core values remain unchanged. There are 12 ongoing
projects with major donors and child sponsorship continues to be a major source of fund.
The present Country Strategy Paper III of AAB focuses on “Equality, Citizenship and
Justice” which sums up the core concerns of AAB’s work.
A new Country Strategy Paper was initiated in 2004, which required operational changes to
cope with new challenges. As a result, there has been a change from regionalization to
thematic programs based on AAB’s learning, experience and history of work for better
coherence. The themes are now pursuing to achieve specific strategic objectives and this has
provided greater space to engage the partners and other actors both at the local and national
level. With stronger position at the policy making level, there is now increased synergy in
AAB’s work as it benefits from linkages across themes.
1
Country Strategy Paper III
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Goal 1: Poor and marginalized people’s rights over their livelihoods are more secure
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Goal 4: People’s movements for social and economic justice are strengthened
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Throughout ActionAid the following values are maintained form the common basis to
help in designing all organizational policy and practice.
Each person in ActionAid has the right to expect to be treated and the obligation to
treat others according to these principles implicit in organizational values. AAB will
actively, explicitly and continuously invest in keeping its values alive.
Mutual Respect: ActionAid recognizes the innate dignity and worth of all people and
the value of diversity.
Equity and justice: ActionAid will ensure that every person, irrespective of sex, age,
race, colour, class and religion has an equal opportunity to express and utilize her or
his potential.
Solidarity: ActionAid’s only bias will be a commitment to the interest of the poor and
powerless.
Courage and conviction: ActionAid will have the courage of our convictions to be
creative and radical, without fear of failure, in pursuit of making the greatest possible
impact on the causes of poverty.
Humility: ActionAid recognize that they are part of an alliance against poverty and
so, in their presentation and behavior, they will demonstrate humility.
Efficiency: ActionAid will manage their organization in the most cost effective and
efficient manner possible in order to maximize the impact of the resources that are
dedicated to their ultimate objective of eradicating poverty.
Excellence: ActionAid will try and attain the highest standards in their work with a
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view to establishing ActionAid as a world leader in terms of the quality of the their
development work.
The regional offices with the same functions as above are maintaining the linkages
between the country program and the head office.
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Common work approaches followed in AAB form a strong basis for their unity. AAB is
committed to creating a diverse workforce that positively acknowledges the differences
existing between people- such as sex, gender, race, age, ethnic origin, caste, class, color,
belief, nationality, HIV status, sexual orientation, disability, education, social background etc.
These differences may lead to differences in attitudes, experiences, and ways of thinking,
behaving, communicating and working. AAB reserves the right to add other categories to this
list and will apply this principle in all aspects of organizational practice. AAB recognizes that
a diverse workforce leads to better organizational performance, improved productivity.
This chapter gives the detailed description of various functional units of AAB, it’s logo &
slogan, and organogram.
IRM Dept. through its three unique functions of Sponsorship, Partnership Development and
Identity hope to create a cohesive and winning team environment to achieve a cost-effective
funding base for AAB through horizontal team work as well as interlink AAB’s local and
national issues and identity with other development stakeholders. It also hopes to create wider
space for shared learning and best practices through regular flow of information both from its
local partnerships as well as AAI Country Programs.
1.3.1.1 Sponsorship
1. Rights Based Approach and its outcomes/impacts more tangible to the supporters
in its telling of the reports
2. Creating opportunities for supporters to move on from being donors to becoming
active supporters of the social movements.
3. Capacity building of the staff of partner organizations to ensure the real and
organized program information from the field
4. Arranged communication training for Development Area (DA) staff
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2. Identity produces social messages in the print media and regularly follow up with
the media on programmatic involvements as well as continue dialogues on a
regular basis.
3. Develops partnerships with educational institutions to promote future leadership
in the development sector and to familiarize the young leaders of tomorrow about
work in development.
4. Shares local/national issues in the international forums through electronic media,
website and external publications and regular communications update “The Asia
Update”
5. Produce television and radio spots on priority sectored issues
6. Produces items for enhancing AAB’s Identity through video documentation
7. Developing media strategy for better professional linkages and capacity building
of grass roots level journalists
8. Gives active support to local and international campaigns
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Head
Officer
Work done by a ten (10) member team of dedicated and expert staff members under the
leadership and management responsibilities of Head of Finance and Administration.
Team contains different level of staff members, i.e Manager, Deputy Manager, Officer,
Associate Officer.
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Officer
Deputy Manager
Administration
Officer
Support Staff
Assoc. Officer
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Head of HR & IT
Coordinator-IT Coordinator-HR
Officer Officer
Assoc. Officer
Country Director
Assistance to CD
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Figure 5: Organogram of Livelihood Security & Risk Reduction, Women’s Rights & Gender
Equality, Rights & Social Justice and Social Development & Economic. Justice Units
Theme Leader
Program Officer
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ActionAid
Bangladesh
Monitori
Identity Finance HR Diversit
Liveliho
& Partners ng &
Manage od Women’ y& Educatio
Commu &
Evaluati Promoti
nication capacity
ment on s Right Citizens n
s building
on
hip
Sponsor Organiz
Emerge Adolesc Econom
ship ational ncy and
Finance Internal Risk ent & Disabilit ic
Manage Develop Reducti
Projects Audit Youth y Justice
on
ment ment
Reflect
Fundrais Informat
Develop Natural
Social
ing and ion Resourc Violenc
Adminis ment es & e against
Contract Technol Inclusio Health
Public Women
tration Unit n
Services
Mgt ogy
Shared
Learnin
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1.4 CHAPTER FOUR: Overall Financial Performance of AAB (In 2005 and 2006)
The overall financial performance of AAB is measured by the total income it received,
percentage of costs according to international themes, and trends of income & expenditure.
The analysis of these data for the year 2005 and 2006 is presented in the following section.
Table 2: Income mix in 2005 and 2006 Figure 7: Income mix 2005
Year 2005 2006
Regular giving 61% 48.51%
Other regular giving 0.97% 16.23%
Partnership (official) 35% 9.81%
Partnership (others) 2.36% 12.07%
Others 0.31% 0.33%
Transfer in 1.13% 13.05%
Total 100% 100%
Incomemix2005
35%
61%
0.97%
The income from Regular Giving is high for both the year 2005 and 2006. The income from
Partnership (official) is high in 2005 but in 2006 the second highest position held by other
regular giving. The least income came from other source for both the year as shown in the
graphs.
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Incomemix2006
13.05%
0.33%
12.07% 48.51%
9.81%
16.23%
Regular giving Other regular giving
Partnership (official) Partnership (others)
Others Transfer in
In 2005 the income from Regular giving and Partnership (official) are higher from 2006 as
shown in the above graphs. The income form Other Regular Giving, Partnership (others) and
Transfer in are higher in 2006 than 2005.
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12%
28%
22%
Food and hunger Women’s rights Human security
Right to education Governance HIV/AIDS
Others
The development works of AAB for its international themes are higher in
2006 than 2005 in the themes like: Food and Hunger, Women’s Rights and
Others. In Human Security and Right to Education the costs are more in
2005 where in Governance and HIV/AIDS themes it remained almost same
for the both year.
In GBP ‘000
Year 2004 2005 2006
Income 4,394 3,396 3,784
Expenditure
3,492 3,296 3,765
3,000
2,500
2,000
1,500
1,000
500
0
2004 2005 2006
Income Year Expenditure
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The SWOT analysis comprises of the organization’s internal strength and weakness and
external opportunities and threats. SWOT analysis helps the company an insight of what they
can do very important to identify the current position of the strategic analysis of the
organization.
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The policies are reviewed time to time, so there is lot of opportunity to adapt the
policies with the changing demand of the world.
1.5 CHAPTER FIVE: AAB’s Current State of Operations and its Expected Future
Direction
Currently AAB is operating in Bangladesh with a hope to eradicate poverty. AA has six
international themes. They are Food and hunger, Women’s rights, Human security, Right to
education, Governance and HIV/AIDS. Of that, in Bangladesh it gives most emphasize on
food and hunger theme. The rationale of this, they are trying to enhance the livelihood of the
marginalized people of Bangladesh.
ActionAid International, which has been working in Bangladesh since 1983, is uniquely
placed to address the development challenges that the people of Bangladesh will face in the
coming years. Over the past 20 years, AAB has established a track record for working
effectively with communities for their advancement and empowerment. Since 1998, AAB has
expanded its partnership to include organizations from vulnerable locations throughout the
country. It has developed expertise in working with disabled, development of adolescent
programs.
The special characteristics of AAB to promote and strengthen national leadership within an
international organization, and its funding structure provide AAB with a unique opportunity
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to pursue the challenges faced by Bangladesh in the coming years through development of
innovative grassroots programs and provide policy insights and directions. This will provide
AAB the strategic advantage. Though, AAB faces some problems in strategic and operational
level.
NGOs should have accountability relationship between their peer organizations from
the perspective of upholding the standard, value tradition and reputation from the
sector. However, the reality is that the norms around the sharing of good
accountability practice are often absent and as a result NGOs frequently lack a
common standard or accepted behavior to hold each other to account.
The strategic and operational issues that AAB is facing can be minimized by the following
strategies and tactics:
• Regular revisit of the policies, values and norms in line with existing policies.
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topic to present the financial management of non profitable organization. As non profitable
organization has no profit motive, so how they organize their income and expenditure in their
financial statements according to their organizational objective was my attempt to prepare this
report. The report is totally descriptive in nature.
2.1.4 Methodology
Preparing a report about the financial management of an organization is a difficult and
complicated task and no single method is appropriate for preparing the report. Effective
research involves six basic steps, shown in the following figure:
The project title is “Financial Systems of NGO: Case of ActionAid Bangladesh (AAB)
with Comparative Discussions of Practices in Profit Oriented Firms”. This is a
descriptive research. The major purpose of this descriptive research is to describe the
financial management of non profit oriented organizations.
2.1.4.1 Types of Data
The report is mainly based on 2 types of data-
1. Primary data
2. Secondary data
2.1.4.2 Collection of Data
2.1.4.2.1 Primary source of data
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The core requirements of the financial management aspects of AAB include structure of
finance unit, accounting procedures, recording of accounting information, budgeting,
taxation, auditing, and performance measurement & controlling of projects by finance
section.
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Board of Trustees/International
Set Strategic Directors
Direction
Country
Director
1 3 4 2 1 1 10
2.2.2.1 Performance, standards and capacity building: The team is responsible in capacity
building of the partners as well as AAB in house staff. The team engaged in appraisal and
review of projects/partners performance, review of performance In addition to that they
prepare different financial reports for AAI, Regional Office and AAB Management (as per
requirement), provide support during planning & budgeting, developing policies & procedure
and reserve management to HOF.
2.2.2.2 Reporting & statutory compliance: This team is responsible for the overall
reporting to internal as well external entities that is a part of the overall financial information
system of the organization. This includes providing expenditure/income/committed
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expenditure information to the budget holders of AAB, project reporting to the donors, project
reporting to the NGO bureau, and reporting to the international offices. Finance uses financial
software SUN for recording of all financial information, transaction, budget etc. They use
another software named VISION (Version 5) for reporting purpose. In doing so, Team
members are involved with partner expenditure checking as well as providing feedback to
them, monitoring the utilization, reconciling partner expenditure with SUN, finalizing
contracts of partners/third parties and providing support in preparation of project proposal.
Team prepares final accounts of projects of AAB and help external auditors to conduct
external audit and meet audit queries. Team also involved with providing support to internal
audit and different donor audit.
2.2.2.3 Disbursement and cash management: This team is responsible to ensure timely
payment to all third parties, including proper coding of the expenditure and verification of the
documents provided to them for payment preparation. Team members are responsible to
record transactions and reconciliation of the control account codes. The team leader of this
team will be responsible for treasury management of the Country Program.
In profit oriented organization, generally the finance team is divided in three sections, such
as Finance, Personal Accounts and Costing. Finance section handles all activities related to
debtors. It is responsible for the payment of bills. Personal account section deals with salary
payment, group insurance, foreign affairs and issues related with corporate heads. Costing
section deals with the production cost and profit related issues. So profit oriented
organization’s finance team is broad than non profit oriented organizations finance team.
Non profit organizations such as NGOs need accounting to record and account for fund
received and disbursed. Though they do not have a profit motive, yet they should operate
efficiently and use resources effectively. This chapter will give idea about the accounting
principles of AAB, their accounting cycle, financial reports & statements, accounting
equation of AAB, accounting policy and procedure, recording of accounting information, and
software used in AAB by finance unit..
2.3.1.2 Monetary principle: AAB uses Bangladeshi Taka (BDT) as its based
currency in all local financial reports. However, the transactions incurring in other
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currencies such as US Dollar (USD), Great Britain Pound (GBP) should be recorded
in the original currencies and translated into BDT based on the accounting exchange
rates for reporting purposes.
2.3.1.3 Consistent principle: This principle regulates that all the accounting
methods, books and reports should remain unchanged until their financial manual is
revised or communicated through memo and notice.
2.3.1.5 Fully disclose principle: All transactions must be recorded in the books and
be disclosed in all financial reports.
2.3.3.2 Balance sheet- The balance sheet provides a picture of the assets, liabilities
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and capital reserves of AAB at a given point in time. A sample of balance sheet is
included in the appendix part (Table 2).
These two statements in combination with more frequently generated performance reports can
form the basis of financial reporting for AAB. Besides, the statements needed to support this
two base statement are as follows:
2.3.3.3 Summary of movements in reserves- This table gives the summary of fund
flow from different country programs and check the reserve held at the end of the
year.
2.3.3.4 Expenditure, income and reserves by DA- Opening reserve, expenditure
and closing reserve by each Development Area is shown here.
2.3.3.5 Financial performance measures (FPM table) - It shows the progress of the
development work in a year. It is the key table to show accountability to the trustees
and donors.
The reports AAB has to submit to AAI, regional office, CD, donors are mentioned below:
Table 6: Financial reports of AAB
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ActionAid has Financial Management Framework where accounting policy and procedures
are established. This involves the policies and procedures AAB should use to record and
monitor financial transactions. Its purpose is to help ActionAid:
. Record all financial transactions
. Monitor and control expenditures
. Satisfy statutory reporting requirements
. Ensure timely and accurate financial and management reporting to donors and grant-
makers
The core aspects of their accounting policy are about: income, expenditure, reserve, currency
and exchange rate movement, fixed asset, depreciation method, liabilities, accrued income
and expenditure, and advance and pre payments.
2.3.5.1 Income
AAB receives its income as donation and contribution from individual donor or
institutional donor from Bangladesh or outside of Bangladesh in support of its
activities taken under the Country Strategic Paper (CSP). Only when the income has
practical certainty of being approved then it is realized in the accounts. Main child
sponsors are from UK, Ireland, Spain, Italy and Greece.
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2.3.5.2 Expenditure
Expenditure incurred must follow the internal control procedure set within the policy
and in particularly follow:
All expenditures must be supported with appropriate supporting (i.e. cash memo,
challan /invoice, bills, claims, Work order etc.)
Expenditure only which are incurred for the organization will be included in the
books of accounts.
2.3.5.3 Reserve
Reserves represent the capital of the organization, fixed and working, including short-
term resources. The statutory reserve level will remain over the Country Program
according to the 2AFMF guideline which will be not less than 2 months and not more
than 4 months of planned expenditure of the following year. Every year the reserve
level will be analyzed and reviewed before annual budgeting and it would be adjusted
in the plans & budget for the next year.
2
ActionAid Financial Management Framework
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exchange rate information received from The HongKong and Shanghai Banking
Corporation (HSBC) and from the website www.oanda.com to translate foreign
currency to local currency.
Capital items are subject to properly authorize, purchase, recorded, and accounted for,
valuation and disposal. It is also subject to depreciation according to the following
principle and depreciation of assets to be charged in straight-line method.
2.3.5.7 Liabilities
As AAB is following the accrual basis of accounting, it is important that financial
obligation to the third parties who have provided resources or to whom AAB is liable
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However, any goods and services purchased by the CP will be on payment on delivery
basis. The CP must not have any agreement with any suppliers that require an interest
payable in case of failure of terms and conditions for payment without written approval
from the HOF and CD.
What are the legal arrangement of the contract and how any disputes arising are to
be settled
Whether funds can be used for any of the purposes of the organization, or whether
they can only be used for a specific purpose
Accruals expenditure should not be booked in the accounts merely to show expenditure
utilization against the budget for that specific period, unless the goods or services have
been received in that specific period.
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Where the incoming resources are received in advance then ActionAid may not have
entitlement to these resources until the goods or services have been provided. In this
situation, incoming resources received in advance should be deferred until ActionAid
becomes entitled to the resources.
Finance staff ensures that invoices are verified to identify areas where prepayments
may occur. Prepayments are considered a standard business practice for the following
types of transactions; Memberships and Subscriptions, Rent, Insurance Premiums,
Payment to Government Units and Required Deposits. Other prepayments may be
acceptable only if it is cost beneficial. The location, reputation and other characteristics
of the vendor should be taken into consideration when making prepayments as it could
have a bearing on the ability to recover the payment if the vendor defaults in the
delivery of the supply or service.
AAB maintains two types of vouchers. One is for payment and another one is for receipt. At
the time of receipt the all the expenditure is debited along with received amount. The original
amount that had taken as advance is recorded as credit as follows:
Only payment up to 10,000 taka is paid in cash. Payment above 10,000 taka is paid by check.
For preparing check AAB use a software HEXAGON which is supplied by HSBC. After
preparing voucher the transactions again recorded in Excel which later converted into 3SUN
3
SUN is specially designed accounting software for ActionAid which is fully equipped with lot of data
recording and analyzing tools.
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2.3.7.2 Vision: Vision is reporting software. Through this AAB can further analysis
the financial data recorded/ processed through SUN. It also gives them the space to
prepare report in time donor’s requirement. They also produce the internal
management reports (budget and actual expenditure) through vision.
In profit oriented organization and also in non profit oriented organization, accounting
policies are established based on the organization need. The objectives of accounting i.e.
analyzing and interpreting financial information, preparing financial statements, conducting
audits, designing accounting system, preparing forecasting and budgets, and providing tax
services are same. But it varies in its operational nature with the need of the organization
whether it is profit oriented or not. For example, most organizations use a standard accounting
software for accounting purpose. But it is not same in all organizations; accountants choose
the software according to their organization’s need. All NGOs require a financial
management system, however, many small NGOs may only have an accounting or
bookkeeping system. Accounting or bookkeeping are a subset of financial management. In
NGOs, financial management systems can be broken down simply into administrative
systems and accounting systems. Administrative systems assist all NGO managers in
decision-making, planning, communicating, controlling and evaluating. Accounting system is
concerned with identifying financial information, expressing the information in numeric terms
and communicating this information to interested parties. An accounting system provides the
framework for working with financial information.
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Budgets have a crucial role to play in strong financial management. For budgets to be useful,
they must be accurate and complete. That means that they have to be based on a realistic
assessment of the activities that NGOs expect to carry out and of how they expect to pay for
them.
An important internal control of financial management is the operating and activity budget.
This budget includes all monies approved in donor proposals and all activities planned for a
given period of time (preferably the fiscal year of an organization). The line items in the
budget should coincide with chart of account line items so that expenses can easily be tagged
to budget. In AAB, budget done in accordance with its income. They follow zero based
budgeting. Using a zero-based budgeting and properly dealing with the difference from month
to month allows AAB to gain total control over every money they spend. If they spend less
than planned during the year, they can easily redirect that money where they really want it
instead of letting it misused through unfocused spending.
The parties involved in preparation of budget are sector head, finance department, and partner
organization for partner budget. Important aspect of budgeting of AAB are their three year
rolling budgeting process, budget responsibility and implementation, and yearly budgeting
process.
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2.4.1.1 Responsibility
• The regional finance coordinator (RFC) provides guidelines and table formats
annually. In AAB, Asia finance coordinator provides these formats.
• Budget holder is responsible to formulate the plan and budget for the area of
her/his responsibility.
• The CD in consultation with the HOF and other concerned line managers
authorizes supplement plan/budget and or makes any adjustment when and
where necessary.
2.4.1.2 Implementation
• Time for planning: September every year for 3 year plan; November every year
for annual budget.
• Process: the HOF in consultation with the CD and management team will issue
guidelines for the process every year.
For the budgeting purpose each sector has given a budget range. Then the finance section
revises the budget and finally prepares it.
After completion of the 1+2 budgeting process the reporting and compliance team will
provide formatted budgeted expenditure with codes (for tracking expenditure) to every units
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in the CP in order to provide their plan of expenditure across twelve months. The final
individual budget is approved by the CD of the CP and a signed copy is circulated from the
finance. After completion of the monthly budget, the budget is uploaded before
commencement of the budget year.
Profit-oriented organizations sell goods or service, so they have revenues and operating cost
that must have to be budgeted. They prepare projected income statements and balance sheets.
Non profit oriented organizations prepare cashflow forecast that tells them when receipts and
payments will happen, because they cannot start spending money on the project before they
have actually received the cash. They also prepare partner budget for various projects. So the
classifications of budgets for NGOs are: Unit budget, Cashflow forecast, Salary budget,
Project budget. Unit wise budget is their master budget because it includes costs, income,
salary, and DA/ non DA budget.
Taxation is the system of raising money to finance government. All governments require
payments of money i.e. taxes from people. But non profit organizations do not have to pay
any tax for their income from grants. But the employees, who are working in there, have to
pay taxes for the incomes they received. Most of the organizations follow tax deduction at
source. The suppliers VAT are also deducted at the time of payment by accounts unit of
NGOs.
For the taxation purpose in terms of salary of employees of AAB it follows tax deduction at
income source. The withholding of Tax and suppliers’ VAT are described in the following
section:
There is no any tax imposed on NGO income as it is grant. It is totally tax exempted. But
recently Bangladesh government is thinking to impose tax on the income from micro credit
and other small income generated activities of NGOs. But AAB has no any micro credit
scheme.
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Suppliers’ VAT is also deducted at source by payment and cash disbursement section of AAB
at the time of payment.
Tax is the largest income source for government. For this taxation has a crucial role in
profit oriented organization. They try to give minimum tax and sometimes evade tax so
that they can enjoy most profit. They have to give tax for both the personal and corporate
income. Governments impose many types of taxes for which only profit oriented
organizations are entitled. When high tax rates affect the behavior of profit oriented firms to
pay their corporate tax by evasion, non profit oriented organizations do not have any such
impact.
When the auditors are satisfied that the organization’s accounts are in order, they
issue a statement certifying that they believe the organization’s balance sheet,
income statement, and records fairly reflect the organization’s financial condition.
The audit statement is then made public in the organization’s annual report.
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Like profit and non profit oriented organization, in AAB both external and internal
audit is followed. This chapter discusses the internal and external audit of AAB,
audit terms of reference, major areas covered by each audit, and the process of
recruitment of an external auditor.
Update the SMT and local of the audit issues and follow up the recommendation with
focal person of the CP.
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In an audit the standard terms of reference are Scope of Work, General Control and
Compliance Requirements, Special Audit Areas, Reporting of Audit and Fees.
Review of financial and management controls (in countries this will include both in
country office and in at least 1 DA/partner organisations)
Identification of major risk areas and a review of risk management
Review of progress against strategy/strategic plan.
Other support functions, including local internal audit function (if applicable), work
with partners and partner relations, information technology, compliance with local
laws (tax etc).
4ALPS core requirements, including how ALPS core requirements, processes and
standards have been implemented and includes appraisals, strategies/ strategic plans,
external reviews, annual review and reflection processes, annual review and learning
reports
4
Accountability, Learning and Planning System
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Audit report depends on the TOR of the organization. If external auditor is appointed to audit
the financial statements of the organization then they report about that. No major difference
between the audit of profitable and non-profitable organization. Only scope of work may be
different. Because in profit oriented organization auditors have to audit the inventory of the
organization.
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Plan audit Audit Plan
Appoint audit team
Contact audit Audit questionnaire
Prepare work documents
Initial document review
2.Onsite auditing Opening meeting
activities
Collect evidence: Checklist,
Documents, interviews, Register of interviews, Register of
observations documents, Register of observations
Audit team meetings
Audit findings: Findings
Non-compliance/ issue of
concern
Conclusions
Recommendations
Closing meeting
3.Audit reporting Report Fianl Audit Report and Mannagement
Report
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Performance evaluation is very important for the organizational goal achievement. This is true
for both profit and non profit oriented organizations. Because it shows the gap between the
present and future position of an organization. Performance evaluation is not directly involved
with the financial management but it has a close link to financial activities. Donors are
financing for the development projects and actually whether their objective is fulfilled or not
can be measured by performance evaluation.
Quarterly financial and progress report to donor and NGO affairs bureau
Performance
Evaluation
Visit by donor and NGO affairs bureau and audit
In the above figure, only the steps under the blocked area are maintained to evaluate
performance of projects in AAB.
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Sector Head
Theme Leader
Program Officer
The objective of this Balanced Scorecard is to maximize the service provided to marginalized
people within the constraints of the available finances. AAB will perform better by using this
Balanced Scorecard in three aspects such as: it will be able to provide better service with
limited funds, provide higher output and make the project very adapting in nature with any
change.
Table 10: Performance Measurement Record Sheet for Balanced Scorecard
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administrative support
Notes and comments
Note: From this four perspective, performance can be measured for other criterion, based on the need of the
project. This BALANCED SCORECARD has prepared as a sample by which AAB can measure performance of
its projects.
A profit oriented organization exists primarily to generate a profit, that is, to take in more
money than it spends. The owners can decide to keep all the profit themselves, or they can
spend some or all of it on the business itself. A non profit oriented organization is organized
under rules that forbid the distribution of profits to owners. "Profit" in this context is a
relatively technical accounting term, related to but not identical with the notion of a surplus of
revenues over expenditures. So, there exist lots of differences in the activities of these two
types of organizations. In this chapter, how non profit differ from profit oriented organization
and how their financial management differ is described.
2.8.1 How does a nonprofit organization differ from a profit oriented organization
Here are some of the differences between a nonprofit and a profit oriented organization:
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• When a profit oriented firm starts a business, it is for the financial benefit of its
owners and/or shareholders. Profit is the goal and the business pays taxes on that
profit.
• A nonprofit entity has a mission that benefits the "greater good" of the community,
society, or the world. It does not pay taxes, but it also cannot use its funds for
anything other than the mission for which it was formed.
• Nonprofit organizations can and do make a profit, but it must be used solely for the
operation of the organization or, in the case of a foundation, granted to other
nonprofit organizations.
• When a profit oriented organization goes out of business, its assets can be liquidated
and the proceeds distributed to the owners or the shareholders.
• When a nonprofit goes out of business, its remaining assets must be given to another
nonprofit.
Comparing with profitable organization AAB differs in the following areas as a non-
profitable organization.
2.8.2 Differences between the financial management of non profit oriented and profit
oriented organization
Criteria Profit Oriented Non-profit Oriented
Organization Organization
Portfolio of Investment Different lines of product or Different development
service, with the growth of projects, with the growth of
the organization new product the organization idea of new
lines add. project initiates, and
possibility of getting funds
from donors increases.
Source of Income Comes from sales or service. All the income is grants from
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As the motive of the business is different in profit and non profit oriented organizations,
many distinctions can be found and this list will get longer if we further proceed. The core
aspect is same, but it differs in practice. Organizations design their financial management
practice according to the needs of the organization.
This chapter will tell the recommendations based on findings of the researcher and also the
conclusion of the report.
2.9.1 Recommendations
1. In case of disbursing expenditure AAB follows specific codes. These are helpful to
track the expenditure with its budgeted range. The whole AAB employees have to be
much concerned about mentioning the codes at the time of submitting the bill.
Finance unit may provide to all sector the table of code of various expenditures. So
the employees can write the code at the time of submitting the bill.
2. The suppliers of AAB sometimes complained about the payable amount fixed by the
finance department. They are not concerned about the tax, vat amount which are
deducted at source. For clear understanding of this finance section may deliver the
printed copy of calculation of tax to the suppliers.
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3. The staff members of AAB who are working in thematic unit, have no clear
understanding of AAB’s Financial and Accounting policies and practices. AAB has
to organize more regular training to enhance their capacity. It is important to have
some understanding of finance to them because financial activities deal with all
sections. AAB has to organize more regular training to enhance their capacity.
4. For evaluation of projects there is no any standard format in AAB. They may follow a
standard format for performance measurement prepared by an expert in that field.
6. AAB may use financial models for managing programs. Financial models can
streamline the administration and monitoring of programs, standardize the
procedures, and customize how performance should be evaluated.
7. AAB has rich resources of publications, but those are not organized. A library may
form where both interested parties and staff members can access to those.
2.9.2 Conclusion
The NGO sector in Bangladesh is one of the most active in the world. Successive
governments have developed effective partnership with them to improve services – such as
microcredit/microfinance, non formal education, quality education campaign, health,
nutrition, disaster management, social mobilization etc. More than 25000 national and local
NGOs and 150 international NGOs are contributing to different sector, especially, livelihood,
education, housing, etc.
ActionAid Bangladesh is an open, flexible & innovative organization for the healthy
growth of its program & activities. AAB has widely experimented & used a wide variety
of participatory tools like report card methodology, participatory budget analysis, public
hearing / citizen jury, popular theatre, opinion poll, participatory video, reflect etc.
Additionally, child space, cooperative marketing, pot song, adolescence program, TV
program & anti trafficking video film made AAB a distinct one.
According to the recent Country Strategy Paper (CSP III) ActionAid Bangladesh is going to
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measure the performance of its objectives. It is promising the AAB plans to develop and
introduce systems to register changes in the lives of the poor and marginalized people. If they
are able to measure the performance successfully, then it will lead ActionAid Bangladesh to
an ongoing process of success.
The conclusion drawn from the findings becomes very precise and obvious. The collected
information about the financial management of ActionAid Bangladesh indicates few
parameters on which deliberation of judgment can be done. NGO sector is recently criticized
fin the question of accountability to the governments and civil society. From the financial
point of view, it is very difficult to be hundred percent efficient in the execution of the
projects. But auditors have a significant role for judging the accountability of the
development works operated by NGOs.
Whether profit or non profit oriented, both the organizations have to be accountable to their
stakeholders and governments. NGOs can take the glory of transparency by straightforward
sharing of financial information to the interested parties.
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