FINANCIAL MANAGEMENT ESSENTIALSBY: DAMILOLA MAKANJUOLA

FOR : PRESTON HEALTHCARE CONSULTING LTD

DATE 10 TH NOVEMBER, 2017

Outline

•Objectives

•Introduction/ Importance of financial management.

•Building blocks and Tools of Financial management.

•Understanding Accounts (Accounting Records)

•Financial Planning.

•Financial Reports (monitoring).

•Safeguarding your assets(Financial/internal control)

•Managing Audit

•Conclusion

•References

Objective

•The aim of the class is to develop necessary skills and understanding needed to apply appropriate concepts, techniques and approaches for sound decision-making in financial management: To enable students to analyze financial situations and offer solutions to financial management problems.

Introduction

Financial management entails planning, organizing controlling and monitoring the financial resources of an organization to achieve objectives.

In practice , financial management is all about looking after the financial health of an organization, not leaving things to chance. This includes

1. Managing scarce resources (limited funds)2. Managing risk (e.g withdrawal of funds by a donor)3. Managing strategically (the bigger picture)4. Managing by objectives (organization objectives)

Importance of financial management1. To be accountable to the people that give us money.

2. To be able to produce financial statements for regulatory bodies.

3. To minimized fraud , theft and abuse of recourses.

4. To plan for the future and become more financially secure

5. To enable management to make good decisions.

6. To achieve the objectives of the organization.

7. To enhance the credibility of the organization.

8. To get value for money.

Who is responsible for financial managementBoard of Directors

Executive Directors/CEOs

Managers

All staff

Four building blocks of financial management

Accounting Records

Financial Planning

Financial Monitoring

Internal control

Four building blocks of financial managementThere are no specific models to suit any organization but there are four building blocks which an organization must put in place

Accounting records: Accurate records of financial transactions to show how funds are been used

Financial planning: This is linked to strategic and operational plan.

Financial monitoring: Internal budget monitoring helps managers and budget holder to monitor progress of projects

Internal control: This helps to safeguard organizations asset and manage internal risk

Tools of financial management

Tools of financial managementThere are many tools which an organization can use to achieve good practice in financial management. We can identify these tools under each of the four functions of financial management

1. Planning: Strategic plan, business plan, activity plan, work plan, feasibility study

2. Organizing: The recourses of the organization (staff, volunteer, vehicles, property, money) have to be coordinated to ensure implementation of the overall plan. Tools: Constitution, organization chart, job description, financial manual etc.

3. Controlling: checks and balances are essentials to ensure proper application of resources. Tools (delegated authority, procurement procedure, reconciliation.

4. Monitoring: This involves comparing the actual from the budgeted. Tools: Evaluation report, budget monitoring report, project report, donor report, audit report

Accounting Records (Understanding Account)Good financial records are the basis for sound financial management of an organization.

There are two main methods of keeping accounts.

Cash accounting: This is the simplest method of book keeping and does not require advance accounting skills.

Notes:

Payment transactions are recorded in a bank or cash book (expenses as at when they are paid and income as at when they are received

The system takes no account of time lags and any bills which might be outstanding.

The system does not automatically maintains liabilities and assets

The system cannot record non-cash transactions( e.g donations in kind or depreciation)

Accounting Records (Understanding Account)Good financial records are the basis for sound financial management of an organization.

There are two main methods of keeping accounts.

Accrual Accounting: This involves double entry book keeping i.e. debit and credit entry

Notes:

Expenses/income are recorded in the general ledger as they are incurred/earned rather than when paid for or received.

The system can deal with all types of transaction.

The system automatically builds in up to date information on assets and liabilities.

Accounting Records (Understanding Account)Financial statement: financial statement are produced from the organization accounting records they are simple summary of all the transactions for a specific period of time and it shows the financial position of an organization.

The income and expenditure or the profit and loss account:

All category of income and expenditures within the period

All income not yet received but belong to that period

All payment not yet paid but belong to that period.

Accounting Records (Understanding Account)Balance sheet: The purpose of balance sheet is to assess the financial position (net worth) of an organization within a specified period. The components of balance sheet includes

Assets

Fixed Assets: Tangible long term (more than a year) assets such as properties, plants, equipment (PPE)

Current Assets: This are more liquid assets such as cash, prepayment (rent), stocks.

Intangible Assets: This are asset you cant see or touch e.g. software's.

Accounting Records (Understanding Account)Liabilities: Liabilities are divided into long term and short term

Current or short term liability: This includes outstanding payments and short term borrowing (those having to be paid within 12 months eg account payable, income taxes etc.

Long term liability: Loans that needed to be paid after 12 month eg Bond, mortgages

Reconciliation: is the process of matching the balances in an firms' accounting records for a cash account to the corresponding information on a bank statement.

Accounting Records (Understanding Account)Source document: They get their name from the fact that they are the origin of the information that is recorded into the accounting books.The documents come in all sorts of shapes, sizes, colors and types of paper. There is no right or wrong format. Every document has a few things in common such as:- The transaction date, The amount, The name of both businesses/people, A reference number, A description of the transaction. Examples are;

Quotes, Orders, invoices, cheques, receipt, deposit slips, loan or lease terms etc.

Financial planningFinancial planning is both a strategic and operational process linked to the achieving of objectives. It involves building longer term funding strategies and short term budget and forecast. It lies at the heart of effective financial management.

Vision

Mission

Objectives

Strategies

Activity plans

Financial report Financial Monitoring)Financial report: One of the main reasons for keeping accounting records is to access information about how the organization is running. Financial reporting is the process of producing statements that disclose an organization's financial status to management, investors and the government.

There are different reports for different users:

Programme management Stakeholder accountability

Internal Budget monitoring report, forecasting report,Cash flow report

Board report

External Donor progress report (financial and narrative)

Donor ReportAudited financial statementsAnnual report

Financial report (Financial Monitoring)Who needs financial Information

Stakeholders Why do they need it?

Project staff To no how much money and resources are available for their projects and what has been spent so far

Managers To keep an eye on how project funds are being used (budgeted /actual)

Finance staff To monitor inflow and outflow of funds to ensure availability of resources

Board of trustees To keep an eye on how resources are being used to achieve organization objective

Donors To make sure that there grants are being used as agreed and that project objectives are fulfilled

Government To ensure that the organization pays any taxes due

Safeguarding your Assets (financial control)•Financial controls play an important role in ensuring the accuracy of reporting, eliminating fraud and protecting the organization's resources, both physical and intangible.

A good way to set up your internal control system and procedure is to use the four actions approach.

1. Direct: This is to encourage the right action

2. Prevent: To deter the wrong actions

3. Detect: Identify if and where it has gone wrong

4. Correct: Put right the errors or losses detected

Financial control (Safeguarding your Assets )1, DIRECT (Before)

BudgetsCode of conductDelegated authorityDisciplinary policy Finance manualJob descriptionsInduction training

Financial control (Safeguarding your Assets )

2, PREVENT (During)

A safe for valuables Authorization limitsComputer passwordSeparation of duties Vehicle logs, insurance coverQuotation for large purchase

Financial control (Safeguarding your Assets )

3, DETECT (Ongoing)

Bank reconciliationBudget monitoring reportsCash count, fixed asset register Stock countExternal and internal audit

Financial control (Safeguarding your Assets )

4, CORRECT (After)

Act on audit recommendationsCorrect errors in the recordsRevise policy and proceduresRefresher training

Managing AuditAn Audit is an independent examination of records, procedures and activities of an organization, resulting in a report on the findings. There are two main types of auditing

Internal audit:

Undertaken for the benefits of those inside the organization i.e. management.

The independent review will include but not limited these range of checks

1. Financial accounting system and procedures

2. Management accounting system and procedure

3. Internal control mechanism

Managing AuditExternal audit:

This is an independent examination of the financial statements prepared by the organization. It is usually conducted for statutory purposes

The purpose will include but not limited these range of checks

1. To act as a fraud/mismanagement investigation.

2. To certify that the prepared accounts are done based on standard.

3. To proof that internal control systems are free of error.

4. To provide a certified report of the financial health of the organization.

Managing AuditAuditors opinion:

A qualified (modified) opinion is a statement issued after an audit is done by a professional auditor that suggests the information provided was limited in scope and/or the company being audited has not maintained Generally Accepted Accounting Principles (GAAP).

An unqualified (Unmodified) opinion is an independent auditor's judgment that a company's financial records and statements are fairly and appropriately presented, and in accordance with (GAAP)

Managing AuditAuditors opinion:

Unqualified opinion What it says and means

It shows a true and fair view of ….This is a clean report (unmodified opinion)

Managing AuditAuditors opinion:

Unqualified opinion(With emphasis of matter)

What it says and means

It shows a true and fair view of …. But followed with a note.This is a clean report (unmodified opinion), but followed with a warning. E.g. to be aware of something

Managing AuditAuditors opinion:

Qualified opinion(‘subject to’ or ‘except for’)

What it says and means

Except for the matters described above … But followed with a note.This is an ok report (Modified opinion), but followed some issues raised eg some unsupported documents for expenditure or an incorrect accounting policy

Managing AuditAuditors opinion:

Adverse opinion What it says and means

The financial statement do not present fairly (or give a true and fair view of ….) There so many significant errors that the account do not give a true and fair view (modified opinion).

Managing AuditAuditors opinion:

Disclaimer opinion What it says and means

Because of the significance of the matter described above… we do not express an opinion on the financial statement.Modified opinion. The auditors are unable or unwilling to give an opinion because the records are so poor or incomplete.

Conclusion Financial accounting is basically for presenting the financial health of an organization to its external stakeholders. Board of directors, shareholders, financial institutions, government and other investors are the audience for financial accounting reports.

Management or managerial accounting is for managers to make decisions concerning the day-to-day operations of a business.

RefrencesFinancial management essentials by MANGO (Management Accounting for NGOs).

www.smallbusiness.chron.com

www.accountingtools.com

https://en.wikipedia.org/wiki/Financial_management

www.investopedia.com

The End