Professional Documents
Culture Documents
DEVELOPMENT
FINANCE
AND
ACCOUNTS OPERATIONS
ACCOUNTING POLICIES
Table of Contents
A
Accounting Policies
01
Budgeting
02
Procurement
03
Fixed Assets
11
04
16
05
18
06
Microfinance
24
07
29
08
Financial Analysis
33
09
General
38
10
40
11
Internal Audit
41
12
Annual Audit
42
Accounting system
AND
ACCOUNTS OPERATIONS
ACCOUNTING POLICIES
Accrual basis
Conservatism and prudence
Materiality
Realization
Matching
AND
ACCOUNTS OPERATIONS
ACCOUNTING POLICIES
AND
ACCOUNTS OPERATIONS
ACCOUNTING POLICIES
Owners, resources obtained through borrowings (short-term
or long-term) as well as donor funds.
Portfolio Report provides information about the lending and
savings operations of an MFI. It provides timely and accurate
data about the quality of the portfolio. It usually also includes
other
key
portfolio
performance
indicators
(e.g.,
outreach).Information usually includes:
Number and value of loans outstanding end of period
Total value and number of loans disbursed during the period
Average outstanding balance of loans
Value of outstanding loan balances in arrears, value of
payments in arrears
Value of loans written off during period
Portfolio aging analysis
Information on loan terms, loan officers, savings accounts
and balances, etc.
FIXED ASSETS
AND
DEPRECIATION
UP ON
LOAN
AND
ACCOUNTS OPERATIONS
ACCOUNTING POLICIES
Funds provided by donors to subsidize operating and administrative
expenses will be recognized as deferred Income when grant is
received and recognized income in accordance with the terms of
agreement and budgeting with the donors.
Funds utilized for acquiring fixed assets will be deferred and
amortized over the useful life of the assets.
LOAN LOSS PROVISION
Specific Loan loss provision will be provided monthly to maintain the
allowance for bad loans at adequate levels. The adequacy of the
allowance for loan losses will be determined by applying defined
percentages to the outstanding balances of principal amounts in
various aging categories as per specified rates, as shown below:
Allowance
In order to maintain the allowance for bad loans at adequate levels,
provisions for loan losses will be made every month on the following
basis
1-30 Days
10% of
balance
outstanding
31-60 Days
40% of
balance
outstanding
61-90 Days
65% of
balance
outstanding
91-180 Days
85% of
balance
outstanding
Write Offs
Loan losses will be charged on an annual basis.
AND
ACCOUNTS OPERATIONS
ACCOUNTING POLICIES
Loans that is overdue for or more than 360 days will be written off in
accordance to write off strategy detailed in MFDP SOP.
AND
ACCOUNTS OPERATIONS
ACCOUNTING POLICIES
STANDARD OPERATING
PROCEDURES
(SOPS)
03
Issue
Date:
AND
ACCOUNTS OPERATIONS
April 2nd 2011
Revision:
Second
1. BUDGETING
1.1. Policy
1.1.1.OPD programs/projects will have an activity plan for
achieving the desired targets/results assigned to it in
accordance with implementation plan with donors and
marketing research analysis carried out by OPD.
1.1.2.The plan will be reviewed regularly on quarterly basis and as
per need to ascertain progress made towards achieving the
desired targets as well as to keep the plan update.
1.1.3.The activity plan will be used as framework for forecasting
program or area budget estimates.
1.1.4.Budget functions of OPD will be overseen by the following;
Tasks
Implemented by
Program Manager
Review,
finalization,
implementation, Monitoring, and
revision of budgets
Program
Internal
Manager
Accounts
Manager(s),
Auditor
&
Finance
&
1.3. Procedure
Process Overview
1.3.1.The budget process will involve the following major steps:
03
AND
Issue
Date:
ACCOUNTS OPERATIONS
April 2nd 2011
Revision:
Second
Program Forecast
1.3.2.Basic planning and budget input data will be gathered for the
program forecasts by the PMs through:
Demand;
Products;
Donors/partner.
03
AND
Issue
Date:
ACCOUNTS OPERATIONS
April 2nd 2011
Revision:
Second
been
1.3.11. After having been compiled and approved by the BOD, the
final budget document will be submitted to CE for review and
recommendations.
1.3.12. A specimen of the Final Budget is attached as Annexure
FA-01.
Approval and Adoption of the Budget
03
AND
Issue
Date:
ACCOUNTS OPERATIONS
April 2nd 2011
Revision:
Second
Chief Executive
2nd Copy
PMs
3rd Copy
Manager F&A
4th Copy
File
03
Issue
Date:
AND
ACCOUNTS OPERATIONS
April 2nd 2011
Revision:
Second
1.3.18. Manager F&A will prepare the following reports (at the
minimum) based no the current information available on
monthly basis during the execution:
Reports
Financial
Report
Annexure FA-02
Budget
Expansions
Represent
enhancement
to
departmental/program base budget e.g. by adding new
budget line or increment in already apportioned budget.
2. PROCUREMENT
2.1. Policy
2.1.1.All Procurements will be made after approval of competent
authority as prescribed.
2.1.2.Selection of method of procurement will be based on the
estimated value and nature of goods/services.
2.2. Responsibility
2.2.1.Procurement Committee will be responsible to ensure that all
the procurement functions are performed in accordance with
the policies and procedures.
2.3. Procedure
2.3.1.The person requiring the goods will prepare Requisition
Form Annexure FA-03.
2.3.2.Concerned PM will approve the Requisition Form and will
forward it to Admin & Finance for further action.
2.3.3.In case of availability of the required items in the stock, Admin
will issue the items to the requisite and record the same in
memorandum stock register.
2.3.4.If the required items are not available or out of stock, Admin
will initiate the procurement process.
2.3.5. Admin
Estimated Amount
Approving Authority
Capital items
All
Chief Executive
Revenue
items
Chief Executive
Up to PKR 2,500
Program Manager
or
handed
over
to
the
authorized
Tax
Ordinance
2001
should
be
prepared
and
2.3.2.2.
2.3.2.3.
2.3.2.4.
The sole
Method of Procurement
2.3.8.Method of procurement will be determined on the value of
items to be procured.
Value
Method
Up
to
2,500
PKR
Local Procurement
Up
to
5,000
PKR
Above
15,000
PKR
Local Procurement
2.3.9.Goods will be procured by taking three verbal quotations and
recording prices and other terms and conditions on
Comparative Statement Annexure FA-04.
2.3.10. Comparative Statement will be prepared and verified by
Manager HR and Admin.
2.3.11. Goods will be procured from the supplier quoting the lowest
rate and matching the goods specification as per Requisition.
2.3.12. Admin will inspect the procured items and will record the
same in memorandum stock register.
2.3.13. Suppliers bill/Invoices and Goods Receiving Note (GRN) will
be forwarded to Finance department for disbursement and
recording.
Formation of Procurement Committee
2.3.14. Procurement Committee will carry out all procurements
above PKR 5,000.
2.3.15. Committee will have at least four members as follow:
PM(s)
Price quoted;
3. FIXED ASSETS
3.1. Policy
3.1.1.Fixed asset purchased by OPD will be capitalized as per the
prescribed criteria.
3.1.2.Initially all assets will be recognized at cost of acquisition plus
other costs directly attributable to the acquisition.
3.1.3.Depreciation will be charged to income and expenditure
account by applying reducing balance method. Depreciation
will be provided by using the rates as prescribed.
3.1.4.Depreciation will be calculated and accounted from the month
the asset is available for use, while no depreciation will be
charge for the month the asset is being disposed off.
3.1.5.No asset will be taken out of the premises of OPD without
proper approval by CE Annexure Gate Pass Form.
3.1.6.Physical Stock Take will be carried out quarterly basis.
3.1.7.Fixed assets which are obsolete, worn out, or no longer
required will be sold, scrapped as considered appropriate by
the CE and/or BOD. Gains and losses on disposal of fixed asset,
if any, will be included in income and expenditure.
3.2. Responsibility
3.2.1.The safeguarding of fixed assets will be responsibility of
concerned manager and staff holding the asset. This includes;
ensuring
only
the
authorized
persons
use
that
asset,
3.3. Procedures
3.3.1.Fixed Assets will be capitalize as per the following criteria:
Item
Description
Threshold
Nonexpendable
Capitalize
Expendable
Do not
capitalize
Consumabl
es
Expense
out
Category
(% per annum)
Land
Nil
Building
Nil
Office equipment
10%
Surgical equipment
20%
Computer equipment/Accessories
25%
20%
10%
Vehicles
20%
Location
code
Asset
type
Sequential
number
4 digits
2 digits
2 digits
4 digits
4 digits
Category
Unique
Code
Asset
Land
LD
Building
BD
Office equipment
OE
Computer
Accessories
CA
FF
Motor Vehicles
MV
Type
Duplicate
Triplicate
To Finance
Finance; and
Admin
CE
PM(s)
MF&A
Admin
4.1. Policy
3.1.1. Cash will be transferred to employees only for direct
programmatic expenditures,
such as training activities or the
procurement of goods and services where an immediate
purchase is necessary and the exact amount payable is not
known.
3.1.2. Issuances of cash to employees for transfer to sub-offices or
field offices.
3.1.3. Purchase of miscellaneous small items that cannot be
purchased through cheque.
3.1.4. In the absence of signatories the cash requirement for routine
office expense.
3.1.5. Operating Advance will be settled after the completion of
activity with in 3 days otherwise it will be adjusted against
salary of the particular employee.
TRAVEL ADVANCE
4.1.6. Cash will be issued to B employees in advance against their
proposed travel request duly approved by Chief Executive as
detailed in HR SOP.
4.1.7. Finance & Accounts Department will only consider those
travel requests which will be received before 24 hours of travel
in case of out station travel.
4.1.8. Travel Advance will be settled after the completion of activity
with in 3 days other wise it will be adjusted against salary of the
particular employee.
SALARY ADVANCE
4.1.9. Advance salary will be issued to employees only in the
situation of acute personal financial crises duly approved by
Chief Executive.
4.1.10. Salary advance shall be recovered in the same month
through the payroll.
4.1.11. Advance shall be issues to employees maximum 50% of total
salary after 15th of the month.
4.2. Policy
4.2.1. Accounts will be responsible to maintain all sorts of advances.
4.3. Procedures
4.3.1 To avail any sort of advance for Expense Annexure FA-14
will be filled by the employee.
4.3.2 Only those requests will be entertained which will be
forwarded by PM and approved by Chief Executive.
4.3.3 In case of Travel advance Request (TAR), approved TAR form
5. CASH
AND
BANK
5.1. Policy
5.1.1. New bank account for organization will be opened after the
prior approval of BOD.
5.1.2. All bank accounts will be maintained in the name of OPD.
5.1.3. Accounts will be maintained as per the requirement of
organization/donor.
5.1.4. Separate bank account will be
project/program carried out for donor.
opened
for
each
5.2. Responsibility
5.2.1. Finance and Accounts will be responsible
documentation relating to banking procedures.
for
all
5.3. Procedures
Bank Signatories
5.3.1. BOD will designate three signatories for each bank account.
The penal of signatories will be as follows:
Single Mandatory CE
Two Optional (PM and MF&A)
Respective bank
Second Copy
Bank signatories
Third Copy
Bank file
5.3.4.Only one cheque book will be used at any one time for each
bank account.
5.3.5.Receipt and issue of cheque books to the authorized persons
will be controlled through Cheque Book Register
Annexure FA-11.
5.3.6.All cheques will bear the official stamp of OPD.
5.3.7.Custody of cheque books will be responsibility of Finance
5.3.8.All used and unused cheque books will be kept under lock
and key.
5.3.9.All particulars of the dispatched cheques will be recorded in
Cheque Dispatch Register Annexure FA-12.
5.3.10. Undelivered cheques will be retained for a period at the
end month and/or of thirty days which ever comes first.
Afterwards the cheques will be cancelled and retained in the
cheque book.
5.3.11. In case of lost cheque, bank will be intimated vide a letter
containing the particulars of the cheque to stop payment.
5.3.12. Used cheque books will be kept in the possession of
Finance for at least a period of three years.
Bank Reconciliation
5.3.13. Standing instruction will be given at the time of opening of
new bank account for dispatch of monthly bank statement.
5.3.14. Finance will receive the monthly bank statement from the
bank.
5.3.15. Bank Reconciliation Statements Annexure FA-13 will
be prepared by Finance up to 5th of subsequent month.
5.3.16. Finance Manager will be responsible for checking and
follow up of all Bank Reconciliation Statements. He will also
ensure that no item remains unidentified and unrecognized.
5.3.17. SMT will verify all Bank Reconciliation Statement.
Documentation Related to Bank
5.3.18. Bank file will be maintained for each bank. This file will
contain the following documents:
Requisition;
Quotations/Proposal received;
Comparative Statement;
Original Invoice/bill;
PM(s) or Manager
Finance
and
Accounts
CE
PKR
6. MICROFINANCE
6.1. Policy
As detailed in MFDP SOP
6.2. Responsibility
As detailed in MFDP SOP
6.3. Procedures
Donor Funds
Receipt of Funds
6.3.1. Manager Finance and Accounts, as per agreed schedule with
donor, will prepare a request and get their approval by CE, after
approval sent that request letter to donor for release of funds to
OPD.
6.3.2. All banking or monetary instruments will be received, Manager
Finance and Accounts will be kept under lock and key until
deposited.
6.3.3. CE will forward the banking instrument to Manager Finance
and Accounts for deposit.
6.3.4. Finance will prepare Official Receipt as acknowledgement
verified by Manager Finance and Accounts and issue the same to
the donor.
6.3.5. Accounts and Finance Officer (A&FO) to prepare the deposit
slip for the instrument received and deposit it in the specified
bank account.
6.3.6. A&FO will prepare Bank Receipt Voucher and it will be checked
by Manager Finance and Accounts and attach copies of banking
instrument deposited and bank deposit slips along with it.
Repayment of Funds and Service Charges
6.3.7.A&FO will prepare a recalculation sheet of the principal and
service charges payable (including late payment charges if any)
and ensure that repayment is as per terms agreed with the
donors.
6.3.8.A&FO will prepare separate crossed cheques of principal and
service charges.
6.3.9.Manager Finance and Accounts will send cheques to the donor
with the approval of CE vide a covering letter.
6.3.10. The letter will contain the acknowledgment of receipt of
cheques.
6.3.11. A&FO will prepare Bank Payment Voucher checked by MF&A
and after getting it approved from the competent authority will
7. INTER-FUND TRANSACTION
7.1. Policy
Such borrowing should be done ONLY to relieve a temporary cashflow shortage in a particular project. The Inter-Fund Accounts are
NOT to be used for non-reimbursable transfers (i.e. commitment by
donor and later on not received) of funds between fund/projects.
There is a prohibition against borrowing from donor project monies
for OPD own funds or funding for OPD own projects.
7.2. Responsibility
7.2.1 MF&A will be responsible for inter fund transactions, and
A&FO will prepare Inter fund Transfer Form verified by MF&A
and approve by CE.
7.3. Procedure
Inter-Fund Activity between Two Bank Accounts
In this procedure, funds are temporarily borrowed by a project whose
monies are deposited in one bank account from another project whose
monies are deposited in another bank account. This is a cash
transaction; it is a physical transfer of cash.
Borrowing from any Government Grant funds is prohibited.
Debit
Credit
PKR 100,000
B
Habib Bank Limited A/C #
PKR
47101
100,000
Debit
PKR 100,000
47105
Credit
PKR
100,000
Inter-Fund Reporting
The Inter-Fund Payables & Receivable should be generated at the
month end to know the outstanding balances in the respective project
for adjusting those at the month end. The Manager Finance Accounts
will use this report to ensure that the total of these two reports are
equal.
All Inter-Fund Payables must be offset by an Inter-Fund
Receivable and net to zero at each month end wherever possible. This
report should be run prior to closing the current month to ensure the
required balancing of inter fund activity.
8. FINANCIAL ANALYSIS
8.1. Policy
Financial analysis for management purpose will be prepared at the
end of each quarter on year to date basis and for external reporting at
the end of each year.
8.2. Policy
IA and Manager Finance and Accounts will be responsible for the
preparation of financial analysis and Internal Audit Committee will be
responsible for review.
8.3. Procedures
Financial analysis will be required for the following management
decisions:
To increase profitability;
actual
Formula
on
equity
Adjusted return on
equity (AROE)
Return
(ROA)
on
assets
Average return on
assets
Operational
sufficiency
self-
Profit margin
= (Financial
provision
expenses)
=
expenses
expense
+
+
Loan loss
Operating
Financial
sufficiency
self-
Formula
Current ratio
= Short-term assets
Short-term liabilities
= Cash revenue from loan portfolio
Yield gap
Funding
ratio
expense
Formula
Portfolio
at
(PAR) ratio
risk
Adjusted
ratio
write
off
Formula
officer
Personnel
productivity (A)
Ratio Name
Formula
Personnel
productivity (B)
Average distributed
loan size
Average
outstanding
size
Operating
ratio
= Total number
during period
of
loans
disbursed
expense
9. GENERAL
9.1. Policy
9.1.1. The preparation, verification and approval of all the vouchers
will be as follow:
Prepared by
Verified by
Approved by
Accounts
and
Finance Officer
Manager Finance
and Accounts
CE
9.2. Responsibility
9.2.1. Finance Manager will be responsible for the coordination of
audit of annual financial statements of OPD.
9.3. Procedures
Vouchers
Following is the list of voucher used for recording of entry in accounts
ledgers:
Vouch
er
Description
Prepared:
JV
Journal Voucher
BR
Bank
Voucher
Receipt
BP
Bank
Voucher
Payment
CR
Cash
Voucher
Receipt
CP
Cash
Voucher
Payment
Books to be Maintained
Books to be maintained at OPD:
Books of Accounts
Other Books
Bank Book
Cash Book
Expense Ledger
Advance/
Ledger
Payable Ledger
Petty
Cash
Ledger
Receivable
Imprest
Monthly
Vehicle
Consumption Report
Consumable
Register
Attendance Register
Fuel
Stationery
Closing Process
Accounts will be closed manually and FIS on monthly basis. Standard
monthly adjustments will include:
Depreciation;
Prepayment charge off; and
Accruals and provision.
Donor Reporting
ADJUSTMENT OF DEDUCTIONS
&
SURPLUS AMOUNT
11. INTERNAL
AUDIT
11.1 Policy
11.1.1. Internal Audit (IA) will exclusively provide the internal audit
function within organization on monthly & quarterly basis.
11.1.2. IA will be given direct and ready access to, records, reports,
files, contracts, vouchers, and other documents, as they consider
necessary, for the proper conduct of their audits.
11.1.3. At the conclusion of every investigative assignment, IA will
submit a written report/findings to the Chief Executive
11.1.4. IA will ensure that financial and operating information is
accurate and reliable
11.1.5. IA will ensure the daily up-dating of accounts on manual and
FIS.
11.1.6. IA will provide professional assistance & guidance to Accounts
and Finance department when it is needed.
11.1.7. IA will ensure the practical implication of policies and
procedures on regular basis.
11.2. Responsibility
Internal Auditor will be solely responsible to initiate internal audit at
organizational and program level.
11.3. Procedures
11.3.1IA as per plan will conduct internal audit of accounts and field
units regularly.
11.3.2IA will produce internal audit reports/findings after every
visit/activity and submit to CE.
11.3.3IA will plan periodic audit activities at organizational level.
11.3.4IA will prepare analytical reports on Accounting & Financial
management.
11.3.5IA will conduct annual internal audit after closing the financial
year and submit their report/finding to CE.
12.2. Responsibility
12.2.1. MF&A will be responsible to ensure annual audit as per policy and
correspondence with appointed audit firm for annual audit.
12.3. Procedures
12.3.1. MF&A will prepare consolidated financial reports within 20 calendar days
after closing the financial year and submit to BOD.
12.3.2. MF&A will communicate with appointed auditor/audit firm after the final
submission of consolidated financial reports.
12.3.3. MF&A and IA will be responsible to facilitate the auditor during audit
exercise.
12.3.4. After the completions of annual audit all accounting record will be stored in
a safe place for at least three years.