Presentation on theme: "ZHRC/HTI Financial Management Training"— Presentation transcript:
1 ZHRC/HTI Financial Management Training Session 3: Budgeting, Accounting and Financial ReportingINTRODUCE session 3 to participants.EXPLAIN to participants that this session provides an overview of the budgeting, accounting and financial reporting.
2 Learning ObjectivesBy the end of this session, participants will be able to:Define the terms: budgeting, accounting, financial planning and budgeting processesDescribe the financial planning and budgeting processesDescribe importance of financial managementExplain good practices in budgetingList the key financial reports that monitor the organization’s financial affairsExplain the process for preparing financial reportsREAD or ASK participants to read the learning objectives.ENCOURAGE participants to ask questions about any of the concepts that will be presented during this session.
3 Financial Planning Process EXPLAIN to participants that financial planning is challenging for many organizations. Some of the common difficulties include:Short-term project funding is the norm for many organizations so very few organizations have 3 – 5 year strategic plans.There may be poor cash flow management, so sufficient funds are not available when needed to implement programs.Budgets are often not used as project implementation and control tools. Rather, budgets are often created for fundraising purposes and then not used as the activities are implemented.
4 Financial PlanningBoth a strategic and operational process linked to the achievement of objectivesInvolves building both longer-term funding strategies and shorter-term budgets and forecastsEXPLAIN the following to participants:It is impossible to start a financial forecast without a clear idea about what it is you want to do and how you intend to do it.Financial planning does not start with budgets and numbers – effective budgets are produced as a result of good plans.'If you don’t know where you are going, then you are sure to end up somewhere else.'-- Mark Twain
5 The Planning Pyramid (1) EXPLAIN to participants that organizations exist to achieve certain objectives.A strategic plan is normally the document created that lays out how the objectives will be accomplished.A strategic planning document generally has several components, starting with an outline of long-term goals and then going into greater detail about how the mission is to be achieved.The planning steps comprise the planning pyramid.REFER participants to Handout 3.1: The Planning Pyramid.REVIEW Handout 3.1 with participants to ensure that they understand each level of the planning pyramid.
6 The Planning Pyramid (2) Once plans are set, the organization draws up its budgets and cash flow forecasts to help implement the plansThroughout the year, financial reports are produced to compare actual performance to the budgetThe review stage is very important as it highlights areas where the plans did not occur as expectedThis learning process helps identify revisions needed to the plansREMIND participants that, this process is all part of the 'Plan, Do, Review' cycle that was discussed previously (Session 1).
7 What is a Budget?It is an amount of money that an organization plans to raise and spend for a set purpose over a given period of time.This slide is animatedASK participants: What is a budget?ALLOW them time to respond before you display the answer appearing in first bullet on this slide.
8 Importance of Budgeting (1) PlanningBudgeting gives an accurate idea of the project’s costsFundraisingA budget is a critical component of negotiations with development partnersREFER participants to Handout 3.2: Importance of a Budgeting for more information about each point listed on this slide.
9 Importance of Budgeting (2) Project ImplementationAn accurate budget is needed to control the projectMonitoring and EvaluationA budget is a tool for evaluating the success of a project
10 Who Needs and Uses a Budget? (1) Governing Body: Needs budgets to formally approve an organization’s budget and monitor its progress.Management Team: Needs budgets to manage the progress of the organization and monitor the funding situation.Project Managers: Need budgets to oversee the implementation of their project activities.ASK participants: Who are some other people that might need to use a budget?ALLOW for some responses, then go to the next slide for more information.
11 Who Needs and Uses a Budget? (2) Fundraisers: Need budgets to accompany funding applications.Finance Staff: Need budgets for cash flow management.Development Partners: Need budgets in order to see how an organization intends to spend its grants.
12 Budgeting Process The process should address the following questions: What are the objectives of the project?What activities will be involved in achieving these objectives?What resources will be needed to perform these activities?What will these resources cost?Where will the funds come from?Is the planned result realistic?EXPLAIN to participants that preparing budgets as an organized and structured group exercise will usually result in the best budgets.
13 Good Practice in Budgeting ClarityBudget is clear and accurateTimetableHave a budget development timetable and start earlyEstimating CostsMake a list of all the inputs required and specify the number and unit cost of each itemForgotten CostsThere is a tendency in non-profits to underestimate the true costs of running a project for fear of not receiving funding for a projectREFER participants to Handout 3.3: Good Practices in Budgeting for more information.REVIEW Handout 3.3 with participants to ensure that they understand each point listed on this slide.
14 Group Work: Calculate Variance in a Budget Report Total activity time: 50 minutesREFER participants to Worksheet 3.1: The Budget Report of Central Zone Health Center.INSTRUCT participants to work individually on the worksheet for 30 minutes.ALLOW 20 minutes for groups to present portions of their answers and discuss as a large group.SUMMERISE the responses using possible answers provided for the activity.
15 Accounting, Financial Reports and Making Sense of the Numbers
16 What is Accounting?The process of recording, classifying, summarizing, interpreting and reporting financial data to permit informed judgments and decisions by users of the informationThis slide is animated.ASK participants: 'What is Accounting/what do you understand about accounting?'ALLOW them time to respond before you display the answer appearing in the first bullet of this slide.
17 Accounting Process (1) Recording Classifying Summarizing Transactions must be recorded in the books of accountClassifyingGroup transactions of one nature at one place. This is normally done in the general ledger under different accountsSummarizingTransactions are summarized in financial reportsCLARIFY to participants that in recording, books of account may include: journals, cash books for revenue and expenditures, imprest registers, revenue registers, asset registers, ledgers and the vote book.EXPLAIN:Summarizing: Accounting transactions are summarized in financial reports, allowing users to more easily understand and interpret the information. Financial reports include the statement of income and expenditures, the balance sheet and budget monitoring reports.
18 Accounting Process (2) Interpreting Reporting and Communicating Interpreting accounting information helps users make meaningful judgments about an organizationPercentage analysis and footnotes are often used to help interpret the accounting informationReporting and CommunicatingThis is done through distribution of accounting reports and additional information such as tables, graphs, ratios and diagramsEXPLAIN:Interpreting: Tools used to interpret accounting information include: ratio or percentage analysis as well as footnotes to financial statements.REMIND participants that reporting and communicating financial information should be done in the proper manner to appropriate people.
19 Accounting Process (3) 1. Recording 2. Classifying 3. Summarizing 4. Interpreting5.ReportingEXPLAIN to participants that this diagram shows the steps of the accounting process, starting with recording accounting information, moving to classifying accounting information, then summarizing, interpreting and ending with reporting.
20 Role of Accounting in ZHRCs/HTIs (1) To manage the approved organizational and financial framework to ensure:Sound internal control and efficiencyEffective revenue mobilization and collectionSound management of assets and liabilitiesProvision of accurate, complete, timely, consistent and transparent financial statementsProvision of annual statutory accountsEXPLAIN the following to participants:The ZHRCs/HTIs need to produce financial reports for the various stakeholders including, the Central Government, taxpayers and development partners in order to justify the use of resources entrusted to them.Accounting is one of the major ways through which such reports can be produced.In this way, accounting facilitates the achievement of the points listed on this slide and the next.
21 Role of Accounting for ZHRC/HTIs (2) Assist the ZHRC/HTI to formulate a realistic medium term financial plan and annual budget, consistent with:National priorities, policies and objectivesService delivery targetsResource base, expected revenue, and financial capacityProvide prudent, professional and impartial financial advice
22 What Does Accounting Achieve? (1) Keep systematic recordsProtect property of the ZHRC/HTIAscertain operational results and financial position of the ZHRCs/HTIsGenerate and disseminate information to relevant decision makersEXPLAIN to participants that through accounting, we assemble information from various sources documents like invoices, receipts etc. into a readable and meaningful report, from which we can use them for protecting property ascertain operations results and disseminate information to decision makers.
23 What Does Accounting Achieve? (2) Compliance with legal requirements including:The Constitution of the United Republic of TanzaniaThe Public Finance ActThe Local Government Finance ActThe Cost-sharing ManualRules and regulations of the National Board of Accountants and Auditors (NBAA)EXPLAIN to participants that for accounting to achieve the above functions it should comply with principles and regulations such as:Public Finance ActConstitutionLocal government finance actMOHSW Finance ManualGuidelines from NBAA (National Bureau for Accounting and Auditing)REFER participants to Handout 3.4: Accounting Principles and Preparation of Financial Statements for more detailed information.23
24 Financial ReportsOne of the main reasons for keeping accounting records is to provide information about how the organization is being runAfter setting up accounting systems and budgets, the next step is to produce financial reports that monitor the organization’s financial affairs
25 What are Financial Statements? Products of the financial accounting processThey are a summary of all transactions for a specified period of time and show the financial position of the organizationThis slide is animated.ASK participants: 'What are financial statements?'ALLOW them time to respond before you display the answers on this slide.RECORD responses on the flip chart/board before display the answers on the next bullets.REMIND participants that financial statements can cover any period of time – a month, a quarter or a year. The annual financial statements are used as the basis for the annual audit.
26 Commonly Used ReportsThere are several primary reports commonly used by organizations:The Trial BalanceThe Income and Expenditure ReportThe Budget Monitoring ReportThe Balance SheetTogether, these reports provide useful information about the status of an organization
27 The Trial Balance An arithmetical check on the accounts maintained It is also the basis for the preparation of the annual financial statements The Trial Balance is the final stage of the accounting processIt is the result of recording all the transactions that occur in an organization
28 EXPLAIN to participants that this flow chart shows the accounting information that is used to create the Trial Balance. The Trial Balance, in turn, is the basis for many other financial reports, including the Income and Expenditure report and the Balance Sheet.REFER participants to Handout 3.5: Flow Chart to Create a Trial Balance for a larger picture of this diagram.INFORM participants of the following:Source documents for the Trial Balance include: Petty Cash receipts, bank slips and statements, payment vouchers and invoices.These source documents are recorded in 'Books of Original Entry', including: the Petty Cash book, the Cash or Bank book, and other ledgers.From these Books of Original entry, the General Ledger and Trial Balance are produced.2828
29 The Income and Expenditure Report In the not-for-profit sector, this report is equivalent to the Profit and Loss Report or Income Statement used in the private sectorIt records in summary form all income and expenditures for the time periodIncome items appear first in the list, followed by expensesThe difference between total income and total expenses, called the 'Outcome' or 'Surplus/(Deficit)', appears on the bottom line
30 Example of Income & Expenditure Account REFER participants to Handout 3.6: Sample Income and Expenditure Report for an example.
31 Budget Monitoring Report Takes the budget for the reporting period and compares it to the actual expenditures for the same time periodThe difference between the budgeted and actual amount is called the varianceThe ‘burn rate’ is an important component of the budget monitoring reportEXPLAIN the following to participants: This report has several different names, including: Budget Compared to Actual, Budget Variance and Budget versus Actual.Variances can tell you a lot about what is happening on a project.Another commonly used term is the burn rate. This is a measure of the amount of budget or grant that is used up as of the reporting period.
32 Example of Budget Monitoring Report REFER participants to Handout 3.7: Sample Budget Monitoring Report for an example.REFER participant to Handout 3.8: Overview of International Public Sector Accounting Standards (IPSAS).
33 The Balance SheetA list of all the assets and liabilities of an organization as of a particular dateIt provides a snapshot of the financial position of an organization at a point in time
34 Example of Balance Sheet REFER participants to Handout 3.9: Sample Balance Sheet for an example.
35 Management Reporting Flow Chart EXPLAIN the following to participants:Managers need financial information throughout the year to monitor project progress. Ideally, management reports should be produced monthly or at least every quarter. The reports are produced so that managers can make decisions about the future management of the organization.This flow chart shows how the financial planning and accounting processes come together to produce management reports. The process begins with the creation of Activity Plans. Project budgets are then produced, based on the Activity Plans. The Project budgets are consolidated into a Master Budget. From this, a cash flow forecast is produced. Next, actual expenditures and revenues are recorded in the Accounting Records. Actual expenditures and revenues are compared with budgeted amounts and the Budget Monitoring Report is produced which compares budget to actual and explains variances. In a similar manner, actual cash flow is compared to forecasted in the cash flow report and variances explained.ASK participants if they have any questions about this session before you provide the key points on the next slides.
36 Preparation of Training Budget Group Work:Preparation of Training BudgetTotal activity time: 60 minutesREFER participants to Worksheet 3.2: Preparation of a Budget for Nurses’ TrainingDIVIDE participants into small manageable groups made up of people from different HITs, creating variety within the groups.ALLOW 30 minutes for participants to prepare a training budget.TELL participants to record their answers on the worksheet.ALLOW 20 minutes for large group discussion, having some groups present portions of their answers.SUMMERIZE their responses using the possible answers provided for the activity.
37 Key Points (1)Financial planning takes into account the vision, mission, objectives, strategies, and activity plans of an organizationBudgeting is important at every stage of a projectFinancial reports provide information about how an organization is being run
38 Key Points (2)The most commonly used reports by non- profit organizations are:Budget Monitoring ReportIncome and Expenditure ReportTrial Balance and Balance Sheet