INTERNSHIP REPORT Letter of Transmittal October 10, 2012. To Prof. Dr. Md. Shah Alam The Head of The Department of Business Administration The University of Asia Pacific. Dhaka From: Lutfa Khanom, ID : 102036036 Subject: Submission of Internship report on “Financial Management of NGO: Association for Realizations of Basic Needs (ARBAN).” Dear Sir, I am pleased and happy to submit this dissertation report on ‘Financial Management of NGO of Association for Realizations of Basic Needs (ARBAN)’ which you asked me to prepare. Endeavors have been made to make it comprehensive as far as possible. 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. I would like to request you to accept my report and oblige thereby. Thanking you,
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INTERNSHIP REPORT
Letter of Transmittal
October 10, 2012.
To
Prof. Dr. Md. Shah AlamThe Head ofThe Department of Business AdministrationThe University of Asia Pacific.Dhaka
From: Lutfa Khanom, ID : 102036036
Subject: Submission of Internship report on “Financial Management of NGO:
Association for Realizations of Basic Needs (ARBAN).”
Dear Sir,
I am pleased and happy to submit this dissertation report on ‘Financial Management of NGO
of Association for Realizations of Basic Needs (ARBAN)’ which you asked me to prepare.
Endeavors have been made to make it comprehensive as far as possible.
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.
I would like to request you to accept my report and oblige thereby.
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
I
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Supervisor’s Declaration
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.
The report is approved and accepted in quality form.
…………………………………………
Prof. Jesmin Sultana
Associate Professor
Department of Business Administration
The University of Asia Pacific.
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ACKNWEDGEMENT
Completion of anything requires supports from various sources. I am very much fortunate
to get the sincere guidance and supervision from a number of persons.
I am deeply indebted to my internal guide teacher Jesmin Sultana, Associate professor of
UAP, for her whole-hearted supervision to me. Her suggestions and comments to make
the report a good one was really a great source of spirit for me.
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.
IntroductionIntroduction
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
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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.
Objective of the Report
The objective of the report is to know the financial management of NGOs as non-profitable
organization and also to present a comparative scenario of financial management of non-profit and
profit oriented firms.
Scope of the Report
The scope is limited within the Country Office of Association for Realizations of Basic Needs
(ARBAN) Bangladesh and especially within the Finance & Administration Unit of Association for
Realizations of Basic Needs (ARBAN) Bangladesh. Here I mentioned a part of financial works of
Association for Realizations of Basic Needs (ARBAN) Bangladesh giving emphasis on their finance
structure, accounting, auditing, budgeting, taxation, and performance evaluation & controlling of
projects in financial aspect.
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
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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.
Structure of the Report
The report is divided into two main parts:
Part 1: Organizational overview contains snapshot of Association for Realizations of Basic
Needs (ARBAN) Bangladesh, functions of Association for Realizations of Basic
Needs (ARBAN) Bangladesh, overall financial performance of ARBAN (In 2005 and
2006), and ARBAN’s current state of operations and future direction.
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..
Snapshot of Association for Realizations of Basic Needs (ARBAN)Snapshot of Association for Realizations of Basic Needs (ARBAN)
BangladeshBangladesh
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Association for Realizations of Basic Needs (ARBAN) is an international development organization
working over 35 countries, with its head quarter based in the United Kingdom and Secretariat at South
Africa. Association for Realizations of Basic Needs (ARBAN) Bangladesh (ARBAN) is one of the
five country programs in Asia and has been operating in Bangladesh since 1983. Four broad thematic
areas are main program intervention areas of ARBAN e.g. Education, Governance, Livelihood and
Stop Violence against Women & Girls.
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.
Location of Association for Realizations of Basic Needs (ARBAN)
The addresses of Association for Realizations of Basic Needs (ARBAN) International and
Association for Realizations of Basic Needs (ARBAN) Bangladesh are as follows:
7. Arrangement of staff capacity building, staff retrenchment, staff leave, staff leaving a job,
staff medical benefits.
Head of Finance and AdministrationHead of Finance and Administration
Manager AdministrationManager Administration
Deputy ManagerDeputy Manager
OfficerOfficer
Assoc. OfficerAssoc. Officer
Officer
Administration
Officer
Administration
Support StaffSupport Staff
Manager Finance Manager Finance
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8. Management of smooth and uninterrupted ISP service
9. Plan, organize and procure IT items as per need
Figure: Organogram of HR & IT Unit
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.
Figure: Organogram of Country Director's Unit
Head of HR & IT Head of HR & IT
Coordinator-IT Coordinator-IT
Coordinator-HRCoordinator-HR
OfficerOfficer
OfficerOfficer
Assoc. OfficerAssoc. Officer
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Livelihood Security & Risk Reduction
The goal of this sector is to ensure a more secure livelihood for the poor and marginalized people.
Promotion and strengthening of livelihoods, protection from disasters, access to and control over
natural resources are the three themes in this sector.
Women’s Rights & Gender Equality
Gender sensitivity and promotion of women’s right and equal access for women in all the programs
and projects are the primary focus of ARBAN. It works to advance women’s rights for gender
equality, create an enabling culture to practice gender equality among youth and adolescents and
prevent violence against women.
Rights & Social Justice
ARBAN works for a socially inclusive culture where diversity is celebrated, equal citizenship
exercised and non-discrimination is actively practiced. This sector includes three themes diversity and
citizenship, disability & enabling environment and social inclusion.
Social Development & Economic. Justice
ARBAN tends to strengthen people’s movements for social development and economic justice
through ensuring quality education, economic justice and quality health care for all. Their objective is
to promote public accountability of government, private sector and international development
agencies that secures economic justice for all.
Figure: Organogram of Livelihood Security & Risk Reduction, Women’s Rights & Gender Equality,
Country DirectorCountry Director
Monitoring &
Evaluation
Monitoring &
EvaluationInternal Audit
Internal AuditReflect
Development
Reflect
Development Shared Learning
Shared Learning
Assistance to CDAssistance to CD
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Rights & Social Justice and Social Development & Economic. Justice Units
Sector HeadSector Head
LS & RRLS & RR WR & GEWR & GE R & SJR & SJ SD & EJSD & EJ
Theme LeaderTheme Leader
Program OfficerProgram Officer
Assoc. Program OfficerAssoc. Program Officer
Sector HeadSector Head Sector HeadSector Head Sector HeadSector Head
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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:
Organ gram of Association for Realizations of Basic Needs (ARBAN) Bangladesh
An organogram of Association for Realizations of Basic Needs (ARBAN) Bangladesh is attached in
the following page.
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Head-
IRMHead-
IRM
Identity &
Communication
s
Identity &
Communication
s
Sponsor
ship
Manage
ment
Sponsor
ship
Manage
ment
Fundrais
ing and
Contract
Mgt
Fundrais
ing and
Contract
Mgt
ARBAM
BangladeshARBAM
Bangladesh
Head-
HR &
IT
Head-
HR &
IT
CD’s
UnitCD’s
Unit
Head- Liveliho
od Security & Risk Reducti
on
Head- Liveliho
od Security & Risk Reducti
on
Head-Women’s Rights
& Gender Equality
Head-Women’s Rights
& Gender Equality
Head-Rights
& Social Justice
Head-Rights
& Social Justice
Finance Partners
& capacity building
Finance Partners
& capacity building
HR
Manage
ment
HR
Manage
ment
Monitori
ng &
Evaluati
on
Monitori
ng &
Evaluati
on
Livelihood
Promotion
Livelihood
Promotion
Women’
s RightWomen’
s Right
Diversit
y &
Citizens
hip
Diversit
y &
Citizens
hip
Educatio
nEducatio
n
Head-Finance
and Administration
Head-Finance
and Administration
Finance
ProjectsFinance
Projects
Adminis
trationAdminis
tration
Informat
ion
Technol
ogy
Informat
ion
Technol
ogy
Reflect
Develop
ment
Unit
Reflect
Develop
ment
Unit
Natural Resourc
es & Public
Services
Natural Resourc
es & Public
Services
Violence against Women
Violence against Women
Social
Inclusion
Social
Inclusion
HealthHealth
Organiz
ational
Develop
ment
Organiz
ational
Develop
ment
Internal
AuditInternal
Audit
Emergency and
Risk Reducti
on
Emergency and
Risk Reducti
on
Adolesc
ent &
Youth
Adolesc
ent &
Youth
Disabilit
yDisabilit
y
Econom
ic
Justice
Econom
ic
Justice
Head- Social
Development &
E. Justice
Head- Social
Development &
E. Justice
Shared
Learnin
g
Shared
Learnin
g
Figure: Organogram of ActionAid Bangladesh
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Overall Financial Performance of ARBAN (In 2010 and 2011)Overall Financial Performance of ARBAN (In 2010 and 2011)
The overall financial performance of ARBAN is measured by the total income it received,
percentage of costs according to international themes, and trends of income & expenditure.
The analysis of these data for the year 2005 and 2006 is presented in the following section.
Income mix
The total income for 2005 and 2006 was £ 3.59 and £ 3.94 million
respectively. From this ARBAN has spent £ 2.88 and £ 2.96 million as
project cost for the year 2010 and 2011. The percentage of income mix
was:
Table: Income mix in 2010and 2011 Figure: Income mix 2010
Income mix 2005
61%
0.97%
35%
2.36% 1.13%0.31%
Regular giving Other regular giving
Partnership (off icial) Partnership (others)
Others Transfer in
The income from Regular Giving is high for both the year 2005 and 2006. The income from
Partnership (official) is high in 2005 but in 2006 the second highest position held by other
regular giving. The least income came from other source for both the year as shown in the
graphs.
Year 2010 2011
Regular giving 61% 48.51%
Other regular giving 0.97% 16.23%
Partnership (official) 35% 9.81%
Partnership (others) 2.36% 12.07%
Others 0.31% 0.33%
Transfer in 1.13% 13.05%
Total 100% 100%
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Figure: Income mix 2011
Income mix 2006
48.51%
16.23%
9.81%
12.07%
13.05%0.33%
Regular giving Other regular giving
Partnership (off icial) Partnership (others)
Others Transfer in
In 2005 the income from Regular giving and Partnership (official) are higher from 2006 as
shown in the above graphs. The income form Other Regular Giving, Partnership (others) and
Transfer in are higher in 2006 than 2005.
Percentage of costs according to International Themes
The analysis according to the various international themes is the following.
Table: Percentage of costs according to Figure 9: % of costs according to International Themes 2010
International Themes in 2010 and 2011Year 2005 2006
Food and hunger25% 31%
Women’s rights12% 20%
Human security22% 18%
Right to education28% 15%
Governance7% 7%
HIV/AIDS5% 5%
Others 2% 4%
Total100% 100%
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% of costs according to international themes 2005
25%
12%
22%
2%
28%
5%7%
Food and hunger Women’s rights Human security
Right to education Governance HIV/AIDS
Others
In the year 2005 ARBAN had spent most in Right to Education Theme, but
in the following year it turned its policy and spent most in Food and
Hunger Theme. The second highest contribution of ARBAN was Food and
Hunger and Women’s Rights for 2005 and 2006 respectively.
Figure: % of costs according to International Themes 2011
% of costs according to international themes 2005
25%
12%
22%
2%
28%
5%7%
Food and hunger Women’s rights Human security
Right to education Governance HIV/AIDS
Others
The development works of ARBAN for its international themes are higher
in 2006 than 2005 in the themes like: Food and Hunger, Women’s Rights
and Others. In Human Security and Right to Education the costs are more
in 2005 where in Governance and HIV/AIDS themes it remained almost
same for the both year.
Trends of income and expenditure in ARBAN
The following graph shows ARBAN’s last four years income and
expenditure pattern from year 2004 to 2006 are given below. Here we can
see the expenditures increased with incomes and in the year 2005 and
2006 the expenditures were almost equal to incomes.
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Table: Income and expenditure trend (2004-2006)
In GBP ‘000Year
2004 2005 2006 Income 4,394 3,396 3,784 Expenditure
3,492 3,296 3,765
Figure 11: Trends of income and expenditure in ARBAN
Trends of income & expenditure
0500
1,0001,5002,0002,5003,0003,5004,0004,5005,000
2004 2005 2006
Year
In G
BP
'00
0
Income Expenditure
SWOT Analysis of ARBAN
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.
The strengths of ARBAN are:
Good organizational culture of ARBAN.
Its young, energetic, sincere and skilled workers.
To attract donor Association for Realizations of Basic Needs (ARBAN) has priority
over other companies because it spreads in 40 countries.
Association for Realizations of Basic Needs (ARBAN) is centralized. So each
Country Director has responsibility to the head of Association for Realizations of
Basic Needs (ARBAN) for reporting.
Association for Realizations of Basic Needs (ARBAN) acts as pressure group for
the Government.
Good organizational culture of ARBAN.
Participatory program development on need basis, which promotes harmony and
goodwill with in the organization, in the communities where it works and amongst
the donors.
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The weaknesses of ARBAN are:
Violation of policy as per senior management instruction sometimes happened.
None is directly liable to anyone for his/her duties. The leader is all in one. So
negligence in service may occur.
Sometimes, Association for Realizations of Basic Needs (ARBAN) is criticized for
not maintaining good relationship with NGO affairs bureau.
Weakness in management system including unbalanced distribution of
responsibilities, inadequate and inappropriate assessment and evaluation of projects,
lack of unity in management.
The opportunities of ARBAN are:
More scope of collaboration with various government programs.
Greater collaborative programs with other NGOs.
Diversification of donor source.
Expanding activities in new areas and new fields of activities.
The policies are reviewed time to time, so there is lot of opportunity to adapt the
policies with the changing demand of the world.
The threats of ARBAN are:
Association for Realizations of Basic Needs (ARBAN) may lose donor fund if they
don’t maintain good liaison relationship with donor organization.
Multiplicity of NGOs in Bangladesh.
Government policy change and bureaucratic nature of decision making lead to
unequal exchange.
ARBAN’s Current State of Operations and its Expected Future DirectionARBAN’s Current State of Operations and its Expected Future Direction
Currently ARBAN is operating in Bangladesh with a hope to eradicate poverty. AA has six
international themes. They are Food and hunger, Women’s rights, Human security, Right to
education, Governance and HIV/AIDS. Of that, in Bangladesh it gives most emphasize on
food and hunger theme. The rationale of this, they are trying to enhance the livelihood of the
marginalized people of Bangladesh.
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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 and operational issues facing ARBAN
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
in the board view of changing the nation in a positive direction.
The strategic and operational issues that ARBAN is facing can be minimized by the following
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strategies and tactics:
The strategies and tactics used to cope with them
Building responsive governance within the organization.
Developing policy guidelines and manuals as open document.
Coordination and creation of space for shared learning in terms of accountability.
Regular revisit of the policies, values and norms in line with existing policies.
Minimum standard setting for organizational accountability.
Promoting self assessment with organizational domain.
Developing relationship with government officials.
Dissemination of information at all levels.
Practice of participatory decision making process.
In case of preparation and implementation of policy the method should be sharing,
involvement, and dissemination.
Peer accountability should be trust building, development of mindset about shared
learning.
Downward accountability should be mind setting of subordinates, trust building and
reducing dependency.
Real partnership has to build up with donor through local fund mobilization.
Introduction to the ProjectIntroduction to the Project
Association for Realizations of Basic Needs (ARBAN) Bangladesh is a leading International
Non Government Organization in Bangladesh. In preparing this report financial management
practice of ARBAN has taken among non government sector. The study is based on the three
months internship program at the ARBAN. The study is about the overview of the financial
management practice of ARBAN.
Objective of the Study
Through this study, I tried to attain the following objectives:
Prime objective of my study was to find out financial management of NGO
To reach in a comparative analysis of financial management of profitable and non-
profitable organization.
Significance of the Study
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This project titled “Financial Management of NGO: Case of Association for Realizations
of Basic Needs (ARBAN) Bangladesh with Comparative Discussions of Practices in
Profit Oriented Firms” was designed to present the financial management of NGOs in an
easy and understandable way. I have selected this topic to present the financial management
of non profitable organization. As non profitable organization has no profit motive, so how
they organize their income and expenditure in their financial statements according to their
organizational objective was my attempt to prepare this report. The report is totally
descriptive in nature.
Scope of the Study
The scope of the project part is limited to the financial manuals of Association for
Realizations of Basic Needs (ARBAN) and their financial reports only. Reviews of their
operational manuals are also used to prepare the report. Besides, text books were used as
supplementary when needed. A detailed list of them has mentioned in the bibliography.
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:
Figure: Methodology of the research
Define the ProblemDefine the Problem Research ObjectiveResearch Objective
Findings & RecommendationsFindings & Recommendations Data Analysis Data Analysis
Develop Research Plan
Data Collection
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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
Primary source of data
Personal observation of the financial activities.
Interview with the officials of the Association for Realizations of Basic Needs
(ARBAN) Bangladesh.
Secondary Source of data
Annual financial reports of Association for Realizations of Basic Needs (ARBAN)
Bangladesh.
Published documents and reports.
Relevant Websites
Limitations of the Study
Some of the limitations faced while preparing this report are mentioned here:
Time was the most important limitation in preparation of the internship report. The
program allotted only 3 (three) months for entire study, which disable many opportunities
for a comprehensive study.
Relevant papers and documents were not available sufficiently.
In many causes updated information were not available.
The time schedule of ARBAN senior staffs did not allow me to discuss with them. But
their opinion could make this report so informative. It seems a great limitation to me.
The lack of experience of the researcher in this field may have become another limiting
factor.
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Financial Management of Association for Realizations of Basic NeedsFinancial Management of Association for Realizations of Basic Needs
(ARBAN) (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.
Structure of Finance Unit of ARBAN
The structure of finance department of ARBAN is as follows:
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Figure: Structure of Finance Department of ARBAN
Table: Number of Employees in Finance and Administration Unit
Head of
Finance and
Administration
(HOF)
Finance section Administration section
Payment and
Cash
Management
Reporting and
Statutory
Compliance
Capacity
Building
Administrati
ve
Officer
Officer
Admin
Support
Staff
1 3 4 2 1 1 10
Composition of the finance team
The HOF of the Country Program has the responsibility to manage the overall financial
management of the country program. The HOF reports to the Country Director of the CP,
who is appointed by the International office of Association for Realizations of Basic Needs
(ARBAN) International. In absence of the HOF the CD is responsible of overall financial
management and financial integrity of the organization.
Performance, standards and capacity building: The team is responsible in capacity
building of the partners as well as ARBAN in house staff. The team engaged in appraisal and
review of projects/partners performance, review of performance In addition to that they
prepare different financial reports for AAI, Regional Office and ARBAN Management (as per
Set Strategic
Direction
Leadership and
management
Board of Trustees/International DirectorsBoard of Trustees/International
Directors
Head-Finance and
Administration
Head-Finance and
Administration
Payment and Cash Management
Payment and Cash Management Reporting and
Statutory Compliance
Reporting and Statutory
ComplianceCapacity Building
Capacity Building
Country Director
Country Director
Planning, controlling
and reporting
financial activities
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requirement), provide support during planning & budgeting, developing policies & procedure
and reserve management to HOF.
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.
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 System of Association for Realizations of Basic Needs (ARBAN)
Bangladesh
Non profit organizations such as NGOs need accounting to record and account for fund
received and disbursed. Though they do not have a profit motive, yet they should operate
efficiently and use resources effectively. This chapter will give idea about the accounting
principles of ARBAN, their accounting cycle, financial reports & statements, accounting
equation of ARBAN, accounting policy and procedure, recording of accounting information,
and software used in ARBAN by finance unit..
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Accounting Principles
Dual aspect principle: Double entry should be recorded in all ledgers.
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.
The Accounting Cycle in ARBAN
The accounting cycle practiced in NGOs is almost same with accounting cycle of profitable
organization. They also contain bookkeeping and accounting steps.
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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.
Financial Reports ARBAN Produce (Formal & Informal)
To measure the overall financial performance of a country program each country program has
to send their Annual Financial Report to AAI. This report contains the following financial
statements:
Statement of income and expenditure - This include income from regular giving donation,
income from partnership, net transfers in, transfers out, expenditure by project, support,
fundraising & government. This statement shows the amount of money coming into ARBAN,
how this money was paid out and any leftover money for a given period of time (i.e.: three
months, one year, etc).This statement is equivalent of a Profit and Loss Statement for profit
oriented organizations. In some NGOs this statement is called Statement of Receipts and
Disbursements. A sample of income and expenditure statement is included in appendix part
(Table 1)
Balance sheet- The balance sheet provides a picture of the assets, liabilities and capital
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:
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Table: Financial reports of ARBAN
Report type To be submitted
Yearly financial report AAI
Annual report & Half yearly report To Regional Office
Consolidated Quarterly management
report
To CD and Regional Office
Monthly management report To the CD and every budget
holder of the CP
Project financial report for the donor To the donor
Accounting Equation in ARBAN
The principal of accounting that is Asset = Liability + Owner’s Equity is also maintained in
ARBAN. ARBAN uses accrual basis of accounting.
Total assets = Debt to staffs, other country programs, income due from local contracts + cash
at bank and ST bank deposit.
Total liabilities = Due to staffs, other country programs, deferred income on local contracts
Total assets-Total liabilities = Total equity.
Accounting Policy and Procedure
Association for Realizations of Basic Needs (ARBAN) has Financial Management
Framework where accounting policy and procedures are established. This involves the
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
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being approved then it is realized in the accounts. Main child sponsors are from UK, Ireland,
Spain, Italy and Greece.
For management purpose income is restricted according to the following group:
(Development Area) DA /Project level
National level and
Un-restricted at country level
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.
Table: Income allocation
Alliance partner DA level National level Unrestricted Fundraising
UK/Italy/Ireland 70% 10% 10% 10%
Greece 60% 40%
Spain 80% 10% 10%
Note: Income allocation is used after deduction of Alliance partner levy.
Income received from institutions is restricted according the objectives/activities that have
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:
Expenditure should be included in the financial statements in accordance with the
accruals concept i.e. recognizing expenditure in the period in which they incur.
Must be consistent with the intention of the mission/objective of the organization.
Must be processed in accordance with the guidelines, policies and procedures.
Expenditure should be appropriately authorized as guided by the existing Authority
Protocol and changes there in time to time.
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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 2AFMF guideline which will be not less than 2 months and not more than 4 months of
planned expenditure of the following year. Every year the reserve level will be analyzed and
reviewed before annual budgeting and it would be adjusted in the plans & budget for the next
year.
Currency and exchange rate movement
Dealing with international institutions, and having an international presence ARBAN is
exposed to varieties of exchange rate and as a result is open to exchange rate gain or loss. The
policy of the CP is to minimize exchange rate loss through maintaining a Great Britain Pound
sterling (GBP). Foreign currency account and utilizing the exchange rate information received
from The Hong Kong and Shanghai Banking Corporation (HSBC) and from the website
www.oanda.com to translate foreign currency to local currency.
Fixed Asset
Fixed asset are purchased and controlled to support the functions in order to efficiently
manage the organization. Fixed asset are of two types:
Table: Types of fixed asset
Fixed asset type Nominal value Economic life
Capital items Above or equal to £ 5,000 or
equivalent amount in BDT
3 years
Non-Capital items Below £ 5,000 or equivalent amount
in BDT
More than one year
Depreciation method in ARBAN
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.
2
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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.
Table 9: Depreciation period of capital items
ASSET DESCRIPTION OUTSIDE EUROPE
FREEHOLD
PROPERTY
Buildings owned by Association for
Realizations of Basic Needs (ARBAN)
International, ARBAN has no such
property in Bangladesh
10 years
OFFICE EQUIPMENT Computer Equipment
Other Equipment e.g. photocopiers,
generators and any other equipment
used in the CP
3 years
3 years
MOTOR VEHICLES All Motorized transport e.g. cars, trucks 3 years
Note to mention in case of depreciation: Freehold land will not be part of depreciation. Full year
depreciation charged in the year of purchase of an asset and nil in the year of disposal.
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
simultaneously. Transaction recorded as liabilities must be supported by sufficient
documentation that establishes the basis for their inclusion in the accounts.
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.
Accrued income and expenditure
Accrued income represents income due from local/international contractors with sufficient
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documents supporting the realization of the income with certainty for the project activities
already completed in an accounting year. This income is categorized to be received in the
local bank account of the CP. Income due from international donor for which the money is to
be received in Association for Realizations of Basic Needs (ARBAN) International office is
not accounted for in the local account. During the year-end process, this needs to be informed
to those offices in order to be incorporated in there accounts. Income due must properly
recorded in the debtor account.
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 any entitlement to the funding requires a specific performance to be achieved (a
contract or performance related grant)
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
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.
Advance and pre-paymentAll payments in advance of the current period should be recorded as assets until receipt of the
goods or services involved or until contract terms are met. This excludes Grants to Partners
which should be expensed in the Income and Expenditure Account. However a separate
ledger to be maintained to track expenditure against the advance made to the partners.
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
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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.
Software Used in Finance Unit of ARBAN
SUN: SUN (Version 4) is accounting software used by most of Country Programs of
Association for Realizations of Basic Needs (ARBAN). Software is fully equipped with lot of