Capacity Building through Financial Management[2024]
What is Power Building ..? “Systematic strengthening of the Organization’s ability to perform its function effectively.”
What is Financial Management? “The use of financial information, skills and strategies for the efficient use of the Organization’s resources.”
Capacity building in financial planning is the key to finding the most effective organization. This in turn leads to an improved operating system. With strong financial handling, a group or organization manages its affairs. Without you, the future is often uncertain: it can be difficult to predict when funds will be in short supply and, most importantly, it can be difficult to fund programs.
This document presents effective ways to build financial management capacity in the context of international development (although it is most applicable to any non-profit organization). Defines excellence in certain financial management functions — for example, budget planning and financial management. It provides examples of how groups and organizations build their power. It also looks at what leadership teams can do to direct their long-term organizational direction (a function sometimes called ‘management’) and outlines some of the financial management elements that can be built into organizational structures.
Building strong financial management capabilities is not difficult. If you follow the suggestions in this book, you should immediately see the result. Your organization will be in a better position to demonstrate accountability, transparency, honesty and trustworthiness.
1 Capacity building and funding:
This Section looks at the links between capacity building and finance and provides specific guidelines for guiding organizations in building their capacity. We will look at who can build capacity, what this means for organizations of different sizes, and some of the challenges they face.
Building financial management capacity is a way to provide and maintain infrastructure. It can be a ‘scaffolding’ that can build on the whole organization. If it is strong, the organization can prosper; otherwise, the organization may struggle or fall.
At one level, some basic financial skills are essential for keeping financial records and providing the financial information required by law. But if financial management skills are used throughout the organization, they can further lead to empowered staff, improved resilience, and better system quality and impact.
It is not difficult for a team or organization to strengthen its financial management capacity, and it is not necessary to have an accountant to access it. Non-financial individuals, such as leaders, managers, and program staff, can do this. Great tools are presented in this book. By using them, you will begin to see the impact. You will also create a model that you pass on to beneficiaries, communities, or partner organizations.
2 Every organization can build its own capacity:
It is very important to see that the organization has its own building capacity, and that its needs are different. This gives better results.
3 Trust between the organization and the skills builder is important:
Trust is at the heart of this relationship. When trust is built, these nine principles work. Trust makes it acceptable to communicate freely, to put oneself at risk of being rejected, and to learn.
4 The organization must be prepared to build capacity:
Organizations can benefit from capacity building in all areas of their lives. To be ready to build skills, an organization must be such
• Be open to change and willing to ask;
• It is able to explain its work clearly;
- Willingness to believe that capacity building will further its purpose;
- Ready to make time and resources;
5 Continuing questioning means better answers:
The most successful talent builders continue to ask questions, accept feedback, and encourage change. This creates a situation where real understanding is acceptable, which can be avoided.
6 Team learning with peers is an effective tool for building skills:
Individuals and groups are important for building skills. Facilitators can bring good ideas, but they do not have all the answers, although they can add a lot of momentum to the process.
7 Capacity building should allow for different learning styles:
People learn in many different ways: some by doing, some by listening, some by speaking, some by trying. Some think more visibly, others think verbally. Good capacity building recognizes and exploits these differences.
8 Power construction takes time:
Time-building skills are more likely to be included in the ongoing work of the organization. But temporary inputs, for example to strengthen a particular skill, are also important.
9 Assessing financial management capabilities:
In this chapter we will look at how we can assess the financial management of the organization in the key areas of budgeting, accounting, financial reporting, and financial management. We also look at external audits and other organizational aspects that contribute to financial management capacity. Building financial management capacity is one of the many roles played by leaders, managers, program staff, and volunteers. It is usually part of the overall structure of the organization. and building financial management capacity is one of the many roles played by leaders, managers, program staff, and volunteers. It is usually part of the overall structure of the organization. People often see that the organization has weak financial capabilities, but they find it difficult to see what the real problem is and where it is. To start building, we need a structure that will help us decide where to focus our efforts.
10 Planning and Budgeting:
The management and management committee determines their annual goals and predicts the cost of achieving them. This is an annual budget. As the year progresses, the management committee and managers compare actual performance with budget forecasts. They can then decide which action is needed — for example, to increase or decrease spending, or to make more money. This regular review of the budget also helps with financial management and reporting.
11 Record keeping:
The party or organization must keep accurate accounting records and up-to-date records. This is the basis for the information required to manage the organization, and will be used for internal and external financial statements.
12 Financial Reporting:
Financial reporting includes the submission of annual financial statements and reporting to beneficiaries, sponsors, and (if applicable) to government.
13 Financial management responsibilities:
The management committee and managers are responsible for financial management that protects property and property and reduces the chances of misappropriation and theft — for example, a procurement authorization system.
Financial officials can advise which controls will be introduced, but the team must make sure that the controls are working properly.
14 External audit:
Auditing is an independent annual review that tests (among other things) whether the four specific financial management functions are effective. It is a great way to build strong financial skills and strengths.
15 Organizational features of financial management:
- Management Committee:
One committee member must be responsible for ensuring that financial matters are considered at each meeting. Other members should be able to ask appropriate questions about any financial information presented to them.
2. Financial staff:
In small organizations with no paid employees, the finance person of the management committee does most of the financial work. Large corporations hire financial personnel to do this. The level of staff will depend on the size and complexity of the organization. As organizations grow, qualified staff may be needed.
16 Accounting and Management:
Other accountants are often required by national law, which varies from country to country. The management committee and financier must be aware of the relevant requirements and must keep records from the beginning of the activities of the Organization. This information, called ‘accounting’, does not always provide everything needed to manage the Organization and inform decisions.
17 Financial management:
Financial (or internal) control is essential to any party or Organization. They help the Organization to prevent errors and possibly steal. Most importantly, financial controls help protect prestige.
The team of leaders and managers are responsible for ensuring that financial management systems are in place, and in some countries the management committee is responsible for this. Once appointed, professional accounting staff (or external auditors) can advise on what programs are required and how to present them.
18 External audit:
External audit can help build financial management capacity. It looks at the appropriate audit standards for organizations of all sizes, the services you can expect from an auditor, and what documents you can expect or request.
External auditing is an important tool for skill builders. Best of all, the annual review provides an opportunity for an independent review of the organization’s records and programs, as well as development recommendations. Encouraging external audits and ensuring that their recommendations are taken seriously will improve financial management capacity.
However, not all organizations will have, or officially require, audits. There are three stages of organization:
• Small, where external audits are not required by law or were not considered necessary;
• To a lesser extent, where no formal audit is required, but rather less unnecessary audits by an ‘independent auditor’;
• Medium to large, where auditing may be required by law and / or sponsors.
It is important to check the legal requirements in the country in which you work. Although not required by law, your organization may benefit from an audit.
Conclusion:
These principles can be applied to all forms of capacity building, including capacity building. If development is to be sustainable, it is very important to remember that financial management capacity must be developed in all parts of the Organization.