Internship of NGO
Internship of NGO
Internship of NGO
Letter of Transmittal
To
Prof. Dr. Md. Shah Alam
The Head of
The Department of Business Administration
The University of Asia Pacific.
Dhaka
Dear Sir,
Any shortcoming or mistake in the report is my fault. Please call me any time at your
convenience if there is any point, which needs further clarification.
Thanking you,
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Student Declaration
I am Md. Mahfuza Akter Mili the student of Mastered of Business Administration (MBA)
Registration ID: 10206038, major in Finance from The University of Asia Pacific would
like to solemnly declare here that an internship report on “ Financial Management of NGO:
Case of Association for Realizations of Basic Needs (ARBAN) ” has been authentically prepared
by me.
While preparing this internship report, I didn’t breach any copyright act intentionally. I
am further declaring that, I did not submit this report anywhere for awarding any
degree, or certificate.
--------------------------------
Mahfuza Akter Mili
MBA (Major in Finance)
The University of Asia Pacific
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Supervisor’s Declaration
I
This is to certify that, the thesis on “Banking System Practice in NCC Bank Ltd.” is
prepared by Mahfuza Akter Mili a student of under my supervisor and guidance. I have
gone through the thesis and found his thirst for seeking depth of every aspect of the
research topic is very much enthusiastic and satisfactory.
It is to be noticed that the thesis fulfills the partial requirement of the degree of MBA. It
has not been submitted to any other university or institute for any of the degree or
certificate or for publication.
…………………………………………
Prof. Jesmin Sultana
Associate Professor
Department of Business Administration
The University of Asia Pacific.
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ACKNWEDGEMENT
My heartfelt gratitude goes to Prof. Dr. Shah Alam, Head, Department of Business of
School, UAP for reviewing the whole report so carefully and expertly and for giving me
valuable advices and suggestions to complete the whole thing in a right manner.
It is my pleasure to them and my grateful appreciation goes to ARBAN authority for
rending me their expertise, knowledge and giving me opportunity of having a practical
experience the this internship program.
Lastly, I like to give many special thanks the entire person in ARBAN who help me and
the Department Of Business Administration, suggestion and for inspiring me in some
cases. Thanks for all from the core of my heart.
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Introduction
Doing internship is mandatory for the students of Department of Business Administration of The
University of Asia Pacific. Final of MBA program requires internship which involves 3 months
organizational attachment for practical experience and 1 month time for report writing. As per norm
this report is the fulfillment of the mandatory requirement for the evaluation process of the internship
program. This report titled “Financial Management of NGO: Case of Association for Realizations
of Basic Needs (ARBAN) Bangladesh with Comparative Discussions of Practices in Profit
Oriented Firms” is the outcome of 3-months internship in the Finance and Administration Unit at the
Country Office of Association for Realizations of Basic Needs (ARBAN) Bangladesh. The topic is
assigned by Syed Lutfa Khanom, Financial Management of Association for Realizations of Basic
Needs (ARBAN) International and former Head of Finance and Administration of Association for
Realizations of Basic Needs (ARBAN) Bangladesh. During the internship period I was assigned with
the jobs related to the Fund Management of the partners, and Cash Management Section of Finance
Department. I was under the direct supervision of Ms. Jesmin Banu, Head of Finance and
Administration of Association for Realizations of Basic Needs (ARBAN) Bangladesh. I have prepared
this internship report with the mentioned topic, which was supervised by my Professor, Jesmin
Sultana of The University of Asia Pacific.
Methodology
The method is mainly discussion and sharing of information with staff members of ARBAN and
review of their operational documents and manuals. ARBAN’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 ARBAN, electronic publications of ARBAN and their country strategic
paper.
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. Association for Realizations of Basic Needs (ARBAN) Bangladesh.
Part 2: First portion of the project part is the introduction to the project. Association for
Realizations of Basic Needs (ARBAN) Bangladesh’s Financial Management,
Accounting System, Budgeting, Taxation, Auditing, and 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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Association for Realizations of Basic Needs (ARBAN) Bangladesh (ARBAN) is registered with
NGO Affairs Bureau of Bangladesh Government under the Foreign Donations (Voluntary Activities)
Regulation Rules, 1978 vide registration no. FD/R No-210, Date 27/04/1986.
The addresses of Association for Realizations of Basic Needs (ARBAN) International and Association
for Realizations of Basic Needs (ARBAN) Bangladesh are as follows:
Brief history
When Association for Realizations of Basic Needs (ARBAN) was established in 1972, its primary
aim was to assist some of the world’s poorest children, firstly with primary education, and then with
practical skills, which would help them build a more secure future. It soon learnt that providing
primary education and training was not enough. It was only the first step in building a
Program that will reduce poverty and enable children to have a better future. By the end of the decade,
its work had expanded to include long-term health, sanitation and 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 ARBAN works in 35 districts and has more than 200 local and community-based
Partner organizations. While ARBAN sets its own strategy, it is an international organization
With national accountability. The unity with Association for Realisation of Basic Needs (ARBAN)
International is in the common
Vision, mission and values, this enables ARBAN to take a determined action in the fight to
Eradicate poverty and establish equal rights.
From its inception to the present times, ARBAN 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 ARBAN focuses on “Equality, Citizenship and
Justice” which sums up the core concerns of ARBAN’s work.
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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 ARBAN’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
ARBAN’s work as it benefits from linkages across themes.
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Organizational Objectives
The organizational objectives for ARBAN according to Country Strategy Paper III which is applicable
for the time period 2005-2009 are presented below.
Goal 1: Poor and marginalized people’s rights over their livelihoods are more secure
To promote women’s right to self determination and create an enabling environment for
their effective participation in social, political, economic and environmental dimensions
To create an enabling environment for practice of egalitarian gender relations and active
citizenship by adolescent
To promote a culture of zero tolerance of violence against women
Goal 3: Development of a society inclusive culture where diversity is celebrated, equal citizenship
exercised, and non- discrimination is actively practiced
Goal 4: People’s movements for social and economic justice are strengthened
ARBAN’s Mission
A confident and responsible nation, free from poverty and indignity, in which its citizens can lead an
active life of freedom and livelihood security.
ARBAN’s Vision
To work with poor and marginalized women, men, girls and boys to eradicate poverty by overcoming
the injustice and inequity that causes it.
Each person in Association for Realizations of Basic Needs (ARBAN) has the right to expect to be
treated and the obligation to treat others according to these principles implicit in organizational
values. ARBAN will actively, explicitly and continuously invest in keeping its values alive.
Mutual Respect: Association for Realizations of Basic Needs (ARBAN) recognizes the innate
dignity and worth of all people and the value of diversity.
Equity and justice: Association for Realizations of Basic Needs (ARBAN) 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.
Honesty and transparency: Association for Realizations of Basic Needs (ARBAN) will be
accountable for the effectiveness of their actions and open in their judgments and communications
with others.
Solidarity: Association for Realizations of Basic Needs (ARBAN)’s only bias will be a commitment
to the interest of the poor and powerless.
Courage and conviction: Association for Realizations of Basic Needs (ARBAN) 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.
Independence: Association for Realizations of Basic Needs (ARBAN) will be independent of any
religious or party political affiliation.
Humility: Association for Realizations of Basic Needs (ARBAN) recognizes that they are part of an
alliance against poverty and so, in their presentation and behavior, they will demonstrate humility.
Efficiency: Association for Realizations of Basic Needs (ARBAN) 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: Association for Realizations of Basic Needs (ARBAN) will try and attain the highest
standards in their work with a view to establishing Association for Realizations of Basic Needs
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(ARBAN) as a world leader in terms of the quality of the their development work.
Proximity: Association for Realizations of Basic Needs (ARBAN) will take decisions as close to
their consequences as possible.
Table: International organizational structure of Association for Realizations of Basic Needs (ARBAN)
The regional offices with the same functions as above are maintaining the linkages between
the country program and the head office.
Common work approaches followed in ARBAN form a strong basis for their unity. ARBAN 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. ARBAN reserves the right to add other categories to this list and will apply this principle in
all aspects of organizational practice. ARBAN recognizes that a diverse workforce leads to better
organizational performance, improved productivity.
This chapter gives the detailed description of various functional units of ARBAN, its 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
ARBAN through horizontal team work as well as interlink ARBAN’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.
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
2. An identity produces social messages in the print media and regularly follows up with the media
on programmatic involvements as well as continues 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 ARBAN’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
Partnership Development
1. Partnership Development Unit started with the inception of Identity & Resource Mobilization
Department (IRM) of ARBAN (Oct.2001). Since then Partnership Development initiated a
process of developing a structured fundraising system with strategies, policies, donor relationship,
systems of archiving, contract management and overall capacity of official and non official
fundraising, etc
2. Partnership development deals with official funding and relationships with bilateral and
multilateral donors, trusts, foundations & corporations.
3. Partnership Development unit also closely works with the DA and project partners to build their
fundraising capacity
4. Partnership Development unit critically engages itself with donors to influence
5. Partnership Development unit works both with internal and external entities
Head
Head
Officer
Officer
Assoc. Officer Assoc. Coordinator
Assoc. Officer Assoc. Coordinator
Assoc. Officer
Assoc. 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, and Associate Officer.
HeadofofFinance
Financeand
andAdministration
Administration
Head
Assoc. Officer
Assoc. Officer
Head of HR & IT
Head of HR & IT
Coordinator-IT Coordinator-HR
Coordinator-IT Coordinator-HR
Officer Officer
Officer Officer
Assoc. Officer
Assoc. Officer
Country Director’s Unit
Country Director’s (CD) unit consists of CD’s unit, internal audit, monitoring & evaluation, reflects
development and shared learning. The responsibility of CD is
1. To rebuild and re-invigorate the organization and bring about stability within the organization
2. To deal with the negative publicity and other troublesome issues
3. To spend time on mission level issues and to do field visits to understand the perspectives of the
poor and marginalized people that ARBAN works for
4. To finalize various policies and publish the CSP.
5. To build up the relationship with the partners as well as ARBAN’s donors.
CountryDirector
Director
Country
Assistance to CD
Assistance to CD
Figure: Organogram of Livelihood Security & Risk Reduction, Women’s Rights & Gender Equality,
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Rights & Social Justice and Social Development & Economic. Justice Units
Theme Leader
Theme Leader
Program Officer
Program Officer
The logo and slogan of Association for Realizations of Basic Needs (ARBAN) Bangladesh
The logo of Association for Realizations of Basic Needs (ARBAN) Bangladesh is:
The slogan of Association for Realizations of Basic Needs (ARBAN) Bangladesh is:
ARBAM
ARBAM
Bangladesh
Bangladesh
Head- Head-
Head- Head-
Liveliho Head-
Women’ Head- Head-
Head -
Finance Liveliho
od Women’
s Rights Head-
Rights Head-
Social
Head- Finance Head- CD’s od s Rights Rights Social
Head- and Head- CD’s Security & & Social Develop
and
Adminis Security
& Risk &
Gender & Social
Justice Develop
ment &
IRM Adminis HR & Unit &Reducti
Risk Gender Justice mentE.&
IRM tration HR & Unit Equality
tration IT Reducti
on Equality E.
Justice
IT on Justice
Shared
Shared
Learnin
Learnin
g
g
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In GBP ‘000
Year 2004 2005 2006
Income 4,394 3,396 3,784
Expenditure
3,492 3,296 3,765
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.
food and hunger theme. The rationale of this, they are trying to enhance the livelihood of the
marginalized people of Bangladesh.
Association for Realizations of Basic Needs (ARBAN) 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, ARBAN
has established a track record for working effectively with communities for their
advancement and empowerment. Since 1998, ARBAN 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 ARBAN to promote and strengthen national leadership within
an international organization, and its funding structure provide ARBAN with a unique
opportunity 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 ARBAN the strategic advantage. Though, ARBAN faces some problems in
strategic and operational level.
Strategic issues
Although ARBAN emerged as public benefit organizations in advancing the interests of a
broader community where a large number of men and women are marginalized, vulnerable to
structural social injustice and victim of violation of human rights, their management practice
does not show any line of accountability to the community. The lack of defined accountability
to the community blurs the downward accountability of ARBAN & other NGOs and therefore
creates accountability gap.
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.
Operational issues
For an effective organization leadership, accountability and transparency are needed. So,
ARBAN has to build up leadership and develop inner strategies. ARBAN has to elect people
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The strategic and operational issues that ARBAN is facing can be minimized by the following
strategies and tactics:
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 Association for Realizations of
Basic Needs (ARBAN) Bangladesh (ARBAN) 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.
Types of Data
The report is mainly based on 2 types of data-
1. Primary data
2. Secondary data
Collection of Data
(ARBAN) Bangladesh
The core requirements of the financial management aspects of ARBAN include structure of
finance unit, accounting procedures, recording of accounting information, budgeting,
taxation, auditing, and performance measurement & controlling of projects by finance
section.
Board of Trustees/International
Board of Trustees/International
Directors
Directors
Set Strategic
Direction
Country
Country
Director
Director
Head-Finance
Leadership and Head-Finance
and
and
management Administration
Administration
1 3 4 2 1 1 10
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 expenditure
information to the budget holders of ARBAN, 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
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 ARBAN 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.
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.
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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.
Accounting Principles
Monetary principle: ARBAN uses Bangladeshi Taka (BDT) as its based currency in all local
financial reports. However, the transactions incurring in other 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.
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.
Materiality principle: A transaction will be considered as material when its value equals to
or is over GBP 1,000 or USD 1,600 or BDT 114,000.
Fully disclose principle: All transactions must be recorded in the books and be disclosed in
all financial reports.
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Bookkeeping steps
1. Record transaction in a journal. Transaction means cash receipt and payment.
2. Transfer amounts from various journals to general ledger.
3. Calculate whether sum of all debit balances equals sum of all credit balances.
Accounting steps
4. Posting the cash ledger to the accounting software SUN.
6. Analysis of data for reporting and preparing financial statements.
Balance sheet- The balance sheet provides a picture of the assets, liabilities and capital
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reserves of ARBAN at a given point in time. A sample of balance sheet is included in the
appendix part
These two statements in combination with more frequently generated performance reports can
form the basis of financial reporting for ARBAN. Besides, the statements needed to support
this two base statement are as follows:
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.
Expenditure, income and reserves by DA- Opening reserve, expenditure and closing
reserve by each Development Area is shown here.
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 ARBAN has to submit to AAI, regional office, CD, donors are mentioned below:
Table: Financial reports of ARBAN
policies and procedures ARBAN should use to record and monitor financial transactions. Its
purpose is to help Association for Realizations of Basic Needs (ARBAN):
. 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.
Income
ARBAN 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.
Income restricted at DA level is to be spent with sole purpose of the development of that
particular DA with the expenditure of supporting that DA. National level income is restricted
to be spent at national level to support the DA level work and to address the broader poverty
issue. Un-restricted income is spent with the approval of the CD without having any
restriction as said above.
Income from individual donor is classified according to the following structure received from
the Alliance partners.
Income received from institutions is restricted according the objectives/activities that have
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been agreed between the donor and ARBAN. Only the administrative levy is part of the
unrestricted income if the said project has covered its all operational level expenditure.
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,
Chillan /invoice, bills, claims, Work order etc.)
Expenditure only which are incurred for the organization will be included in the books of
accounts.
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
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AFMF 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.
Fixed Asset
Fixed asset are purchased and controlled to support the functions in order to efficiently
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Depreciation is charged to the income and expenditure account in order to write up the cost of
a fixed asset over its expected life. This means that the cost of asset will be divided by the
number of years of asset life to get the annual depreciation charge.
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.
Liabilities
As ARBAN is following the accrual basis of accounting, it is important that financial
obligation to the third parties who have provided resources or to whom ARBAN is liable to
pay (e.g. Association for Realizations of Basic Needs (ARBAN) Bangladesh employee
provident fund, Association for Realizations of Basic Needs (ARBAN) Bangladesh Employee
Gratuity Fund) is accounted in the local balance sheet in the accounting period in which the
resources have been received and against whom expenditure has been charged. It should be
paid in the following accounting period and be removed from the balance sheet
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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.
In order to accrue expenditure, the goods or services to be received against the expenditure
must be received in the accounting period with the purpose of matching the expenditure with
the budget and for which payment has not been made. While considering the accrued
expenditure the followings are to be considered by HOF:
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.
Where the incoming resources are received in advance then Association for Realizations of
Basic Needs (ARBAN) may not have entitlement to these resources until the goods or
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services have been provided. In this situation, incoming resources received in advance should
be deferred until Association for Realizations of Basic Needs (ARBAN) 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.
Recording of Accounting Information in ARBAN
In the cash payment section, when any advance is taken by an individual it is recorded as
debit. At the time of returning the remaining amount it is recorded as credit. All the
expenditure is recorded as debit in the journal. The transaction part of a sample Cash Payment
and Receipt journal in included the appendix part (Table 3 and 4).
ARBAN 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 ARBAN use a software HEXAGON which is supplied by HSBC. After
preparing voucher the transactions again recorded in Excel which later converted into 3SUN
software for further analysis.
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Vision: Vision is reporting software. Through this ARBAN 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 ARBAN, 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 ARBAN 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 ARBAN are their three year
rolling budgeting process, budget responsibility and implementation, and yearly budgeting
process.
Responsibility
The regional finance coordinator (RFC) provides guidelines and table formats annually.
In ARBAN, Asia finance coordinator provides these formats.
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Budget holder is responsible to formulate the plan and budget for the area of her/his
responsibility.
Funding & fundraising head in collaboration with the HOF is responsible to prepare the
funding plan for the whole organization.
The senior management team is responsible to review and approve the plan/budget as
well as plan execution.
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.
The team leader of reporting and statutory compliance team is responsible to review the
coding and import the budget into accounting software (SUN).
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.
A major review & planning process involving larger stakeholders will be undertaken once
every 3 years. In the years between a minor review and readjustment of the plan will be
done.
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
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.
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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.
For the taxation purpose in terms of salary of employees of ARBAN it follows tax deduction
at income source. The withholding of Tax and suppliers’ VAT are described in the following
section:
Withholding Tax
The team leader of payment and cash disbursement shall ensure that withholding tax is
deducted as envisaged in the Bangladesh statutory laws. The tax deducted shall be deposited
to government treasury every quarter. S/he shall prepare statutory/tax returns and get it
approved from HOF to be submitted to authorities. The tax heads are like salary tax, VAT on
suppliers’ goods.
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 ARBAN has no any micro credit
scheme.
Suppliers’ VAT
Suppliers’ VAT is also deducted at source by payment and cash disbursement section of
ARBAN 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
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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.
Like profit and non profit oriented organization, in ARBAN both external and
internal audit is followed. This chapter discusses the internal and external audit of
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ARBAN, audit terms of reference, major areas covered by each audit, and the
process of recruitment of an external auditor.
Internal audit
ARBAN internal audit function is completely independent of the finance function and is
administratively reportable to the CD & functionally reportable to the SMT of the CP. There
core role include:
Update the SMT and local of the audit issues and follow up the recommendation with
focal person of the CP.
External audit
Head of Finance and Administration initiates the process through a circulation of Terms of
Reference (TOR) of audit. Checking or verification is done by Senior Management Team and
approved by the Country Director.
The purpose of external audit is to independently examine records, procedures and activities,
and provide a legally valid report outlining the auditor’s opinion on the state of affairs.
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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 organizations)
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).
4
ALPS 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
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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.
Plan audit Audit Plan
Appoint audit team
Contact audit Audit questionnaire
Prepare work documents
Initial document review
2.Onsite auditing Opening meeting
activities
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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 Final Audit Report and Management
Report
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
In the above figure, only the steps under the blocked area are maintained to evaluate
performance of projects in ARBAN.
about control of the project. For the controlling of projects the authority matrix is as follows:
Country Director
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. ARBAN 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.
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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 ARBAN can measure performance
of its projects.
Their attempt is to minimize the support and fundraising cost as well as maximizing project
cost with quality output.
Major Findings
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.
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 ARBAN differs in the following areas as a non-
profitable organization.
Differences between the financial management of non profit oriented and profit oriented
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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
Individuals are always trying international donor and
to increase income by strong, sometimes from long term
attractive, and costly and short term investment.
promotional campaign. Their promotional campaigns
are not vast.
Types of costs Costs are defined as Costs are defined as project
operating costs, costs, support costs,
manufacturing cost, and fundraising costs, and
service cost etc. Governance costs.
Auditing Most of the organizations Both internal and external
follow both internal and audit is followed. But here
external audit. But here audit audit is related with
work area is vast; like audit transparency of financial
of procurement, purchased statements, project work etc.
raw materials etc.
Taxation Tax is assessed as per Income tax of employees is
Government rule. From its assessed as per Government
income government earns rule. From the income from
revenue. As they have to pay grants is totally tax
tax on their revenue, they exempted. Deduct statutory
also can enjoy some tax Tax and VAT from suppliers
rebates, like; excise duty, and vendors and deposit to
import duty etc. Government treasury
Performance of the Performance is measured by Performance is measured by
organization in terms of total income from sales or expenditure to various
financial activities service. Ratio analysis is the themes. Their key method for
key method to measure their measuring financial
financial performance. performance is analysis of
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As the motive of the business is different in profit and none 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.
Recommendations
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1. In case of disbursing expenditure ARBAN follows specific codes. These are helpful
to track the expenditure with its budgeted range. The whole ARBAN 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 ARBAN 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.
3. The staff members of ARBAN who are working in thematic unit have no clear
understanding of ARBAN’s Financial and Accounting policies and practices. ARBAN
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. ARBAN has to organize more regular training to enhance their capacity.
4. For evaluation of projects there is no any standard format in ARBAN. They may
follow a standard format for performance measurement prepared by an expert in that
field.
6. ARBAN 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. ARBAN 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.
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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
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NGOs and 150 international NGOs are contributing to different sector, especially, livelihood,
education, housing, etc.
Association for Realizations of Basic Needs (ARBAN) Bangladesh is an open, flexible &
innovative organization for the healthy growth of its program & activities. ARBAN 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 ARBAN a
distinct one.
According to the recent Country Strategy Paper (CSP III) Association for Realizations of
Basic Needs (ARBAN) Bangladesh is going to measure the performance of its objectives. It is
promising the ARBAN 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 Association for Realizations of Basic Needs (ARBAN) 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 Association for Realizations of Basic Needs
(ARBAN) 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.