Final Internship Report

Doing internship is mandatory for the students of Department of Business Administration of Jahangirnagar University. Final and 8th _{semester of BBA program requires internship which}

involves 3 months organizational attachment for practical experience and 1 month time for report writing. As per norm this report is the fulfillment of the mandatory requirement for the evaluation process of the 8th _{semester and internship program. This report titled “Financial}

Management of NGO: Case of ActionAid 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 ActionAid Bangladesh. The topic is assigned by Syed Naushad Ahmed, Sun Support Accountant of ActionAid International and former Head of Finance and Administration of ActionAid 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 ActionAid Bangladesh. I have prepared this internship report with the mentioned topic, which was supervised by my academic supervisor Mohammad Farhad Hossain, Associate Professor of Jahangirnagar University.

1.1.1

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 non-profit oriented firms.

1.1.2 Scope of the Report

The scope is limited within the Country Office of ActionAid Bangladesh and especially within the Finance & Administration Unit of ActionAid Bangladesh. Here I mentioned a part of financial works of ActionAid Bangladesh giving emphasis on their finance structure, accounting, auditing, budgeting, taxation, and performance evaluation & controlling of projects in financial aspect.

1.1.3 Methodology

The method is mainly discussion and sharing of information with staff members of AAB and review of their operational documents and manuals. AAB’s publications have used to prepare this report. I also incorporated with verbal suggestions of the staff members, which helped me a lot to enhance my knowledge. The secondary sources for data collection were published annual reports, annual financial reports of AAB, electronic publications of AAB and their

1.1 CHAPTER ONE: Introduction

1.1 CHAPTER ONE: Introduction

country strategic paper.

1.1.4 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 Actionaid Bangladesh.

1.1.5 Structure of the Report

The report is divided into two main parts:

Part 1: Organizational overview contains snapshot of ActionAid Bangladesh, functions of ActionAid Bangladesh, overall financial performance of AAB (In 2005 and 2006), and AAB’s current state of operations and future direction.

Part 2: First portion of the project part is the introduction to the project. ActionAid Bangladesh’s Financial Management, Accounting System, Budgeting, Taxation, Auditing, Performance Evaluation & Controlling of Projects are the core chapters of this part. Major findings, recommendations and lastly conclusion are given to end the project.

ActionAid is an international development organization working over 35 countries, with its head quarter based in the United Kingdom and Secretariat at South Africa. Actionaid Bangladesh (AAB) 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 AAB e.g. Education, Governance, Livelihood and Stop Violence against Women & Girls. Actionaid Bangladesh (AAB) 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.

1.2.1 Location of ActionAid Bangladesh and ActionAid International

The addresses of ActionAid International and ActionAid Bangladesh are as follows:

1.2.2 Historical background of AAB

1.2.2.1 ActionAid International

ActionAid was founded in 1972 by Mr. Cecil Jackson-Cole, a business man who believed that business people should actively support charities, with the name Action in distress (Aid) with the objective to provide education, health support, and emergency relief to the poor children as service oriented activities. In 1979 it changes its name to ActionAid and started to work in 20 countries.

1.2.2.2 Brief history

When ActionAid was established in 1972, its primary aim was to assist some of the world’s poorest children, firstly with primary education, and then with practical skills, which would help them build a more secure future. It soon learnt that providing primary education and training was not enough. It was only the first step in building a program that will reduce poverty and enable children to have a better future. By the end of the decade, its work had expanded to include long-term health, sanitation and

ActionAid International Post Net Suite # 248

Private Bag X31 Saxonwold 2132

Johanesburg, South Africa

ActionAid Bangladesh Road no#136,

House no#8,

Gulshan-1, Dhaka-1212 Bangladesh

agricultural projects that would improve living conditions for children and their families. In 1978 it started its first project undertaking integrated community development.

In 1974 it supplied emergency relief for the first time when Hurricane Fifi struck Honduras - funding food, clothing, medicines and tools for thousands of homeless people in 250 isolated villages. In the same year in Bangladesh it also funded provision of 50,000 meals a day, glucose and medicines for the people of eight towns devastated by floods.

From the mid seventies, the focus of its work started shifting. From solely providing education it moved on to helping children and their families to become self-supporting. By the start of the1980s, its focus had shifted again to ensure it was tackling the root causes of poverty, not just the symptoms. There are many complex and inter-related causes of poverty. High child mortality and malnutrition, high birth rates, low literacy rates, limited access to clean water and sanitation, health care and education, insufficient land to grow food and lack of credit to buy seeds and tools - these are just some of the factors that can contribute to poverty.

It had learned that for its work to be of lasting benefit, it needed to work with whole communities to boost agricultural production, improve water supplies, gain access to basic healthcare and find new sources of income. Programs in education, agriculture, health, water, skills training and helping people to organize and access savings and credit were integrated so that each supported the other. It also helped communities organize themselves to challenge injustice and ensure they received their entitlements and as much assistance as they could from their own governments.

1.2.3 Introduction to ActionAid Bangladesh

ActionAid Bangladesh (AAB) started as a small operator in the coastal areas of Bangladesh in the district of Bhola in 1983 to manage disaster but over the years its work shifted more towards a rights-based approach. This was one of the key approach changes. AAB's current strategy is aligned with the poor and excluded people. It emphasizes the agency and the action of the poor and excluded people as the primary engine of development to eradicate poverty and injustice from society of Bangladesh.

A rights-based approach to development implies, as mentioned in 1_{CSP III, recognition of the}

rights of people not only to fulfill their basic needs, but also to treat them with equal dignity and realize their creative potential and state obligations to create an enabling environment for assertion of their fundamental rights. In the promotion of the rights-based approach to end poverty and injustice, the concepts of equality, citizenship and justice are critical.

This evolution has been the imperative of the empirical experience that the organization gained through its long and deep involvement in combating poverty and knowing its structural causes. Questions of rights of women, excluded groups and the livelihoods of the poor and the marginalized now occupy a front seat.

At present AAB works in 35 districts and has more than 200 local and community-based partner organizations. While AAB sets its own strategy, it is an international organization with national accountability. The unity with ActionAid International is in the common vision, mission and values, this enables AAB to take a determined action in the fight to eradicate poverty and establish equal rights.

From its inception to the present times, AAB moved from the regional to the thematic approach in its work. However the core values remain unchanged. There are 12 ongoing projects with major donors and child sponsorship continues to be a major source of fund. The present Country Strategy Paper III of AAB focuses on “Equality, Citizenship and Justice” which sums up the core concerns of AAB’s work.

A new Country Strategy Paper was initiated in 2004, which required operational changes to cope with new challenges. As a result, there has been a change from regionalization to thematic programs based on AAB’s learning, experience and history of work for better coherence. The themes are now pursuing to achieve specific strategic objectives and this has provided greater space to engage the partners and other actors both at the local and national level. With stronger position at the policy making level, there is now increased synergy in AAB’s work as it benefits from linkages across themes.

1.2.4 Organizational Objectives, Goals & Strategic Objectives by Themes, Mission, Vision, and Core Values of AAB

1.2.4.1 Organizational Objectives

The organizational objectives for AAB according to Country Strategy Paper III which is applicable for the time period 2005-2009 are presented below.

Organizational objectives according to CSP III • To promote effective organizational culture

• To promote Human Resource Development system that continuously addresses the needs and updates the capacities of staff

• To promote gender equity and equality

• To nurture shared learning and establish a system of knowledge management to promote institutional memory and greater synergy of work

•

Commitment towards monitoring and evaluation for better understanding for the changes in the lives of poor and marginalized

• To establish national accountability in light of internationalization

• To allocate resources at the optimum level for cost effectiveness and ensuring financial transparency

• To raise sufficient resources and effectively manage the resources to be efficient, effective and transparent

1.2.4.2 Goals & Strategic Objectives of AAB by Themes

Goal 1: Poor and marginalized people’s rights over their livelihoods are more secure

Strategic objectives for achieving goal 1

• To facilitate an enabling environment where poor and marginalized people are able to exercise their right to sustainable livelihood through access to employment opportunities, and also able to claim their fair share from the institutions, capital and market

• To reduce vulnerability and risk to the livelihood of the poor and marginalized from disasters

• To increase access and control over natural resources and public services by the poor and marginalized

Goal 2: Women’s rights are advanced for gender equality Strategic objectives for achieving goal 2

• To promote women’s right to self determination and create an enabling environment for their effective participation in social, political, economic and environmental dimensions

• To create an enabling environment for practice of egalitarian gender relations and active citizenship by adolescent

• To promote a culture of zero tolerance of violence against women

Goal 3: Development of a society inclusive culture where diversity is celebrated, equal citizenship exercised, and non- discrimination is actively practiced

Strategic objectives for achieving goal 3

• To assert equal citizenship by those of diverse origins based on ethnicity, language and religion

• To promote an inclusive and barrier free society where enabling environment and conditions prevail for the people of disabilities

• To promote active processes for inclusion of the socially excluded Goal 4: People’s movements for social and economic justice are strengthened Strategic objectives for achieving goal 4

• To promote the right to “quality education” for the poor and marginalized children

•

To promote public accountability of the government, private sector and international development agencies that secures economic justice for all • To promote the right to quality health care for the poor and marginalized

1.2.4.3 AAB’s Mission

A confident and responsible nation, free from poverty and indignity, in which its citizens can lead an active life of freedom and livelihood security.

1.2.4.4 AAB’s Vision

To work with poor and marginalized women, men, girls and boys to eradicate poverty by overcoming the injustice and inequity that causes it.

1.2.4.5 AAB’s Core Values

Throughout ActionAid the following values are maintained form the common basis to help in designing all organizational policy and practice.

Each person in ActionAid has the right to expect to be treated and the obligation to treat others according to these principles implicit in organizational values. AAB will actively, explicitly and continuously invest in keeping its values alive.

Mutual Respect: ActionAid recognizes the innate dignity and worth of all people and

the value of diversity.

Equity and justice: ActionAid will ensure that every person, irrespective of sex, age,

race, colour, class and religion has an equal opportunity to express and utilize her or his potential.

Honesty and transparency: ActionAid will be accountable for the effectiveness of

their actions and open in their judgments and communications with others.

Solidarity: ActionAid’s only bias will be a commitment to the interest of the poor and

powerless.

Courage and conviction: ActionAid will have the courage of our convictions to be

creative and radical, without fear of failure, in pursuit of making the greatest possible impact on the causes of poverty.

Independence: ActionAid will be independent of any religious or party political

affiliation.

Humility: ActionAid recognize that they are part of an alliance against poverty and

so, in their presentation and behavior, they will demonstrate humility.

Efficiency: ActionAid will manage their organization in the most cost effective and

efficient manner possible in order to maximize the impact of the resources that are dedicated to their ultimate objective of eradicating poverty.

view to establishing ActionAid as a world leader in terms of the quality of the their development work.

Proximity: ActionAid will take decisions as close to their consequences as possible.

1.2.5 International organizational structure of ActionAid

With its head office in UK, Actionaid has three regional offices based in Asia, Africa and Latin America in the world to operationalize its work in the poorest countries in the world.

The Head office primarily comprised of the following units:

Table 1: International organizational structure of ActionAid

Name of the department Purpose

Marketing department It assigned to manage and raise funds for the organization. It has diversified funding sources, starting from regular giving income from sponsors to huge grants from large donors, e.g. DFID, European Commission, Ford Foundation etc.

Policy support unit The unit is assigned to lobby the international agencies in the arena of formulation of policies in education, food rights, tied aid, emergency response, HIV/AIDS, trade issues, etc. In addition to that it is also involved in the building partnership with global agencies. Finance unit & IT unit It maintains the global accounts linked with

income from the alliance partners to expenditure to the country where it is operating. It also maintaining the IT infrastructure of the organization.

The regional offices with the same functions as above are maintaining the linkages between the country program and the head office.

1.3 CHAPTER THREE: Functions of ActionAid Bangladesh

1.3 CHAPTER THREE: Functions of ActionAid Bangladesh

Common work approaches followed in AAB form a strong basis for their unity. AAB is committed to creating a diverse workforce that positively acknowledges the differences existing between people- such as sex, gender, race, age, ethnic origin, caste, class, color, belief, nationality, HIV status, sexual orientation, disability, education, social background etc. These differences may lead to differences in attitudes, experiences, and ways of thinking, behaving, communicating and working. AAB reserves the right to add other categories to this list and will apply this principle in all aspects of organizational practice. AAB recognizes that a diverse workforce leads to better organizational performance, improved productivity.

This chapter gives the detailed description of various functional units of AAB, it’s logo & slogan, and organogram.

1.3.1 Identity & Resources Mobilization

IRM Dept. through its three unique functions of Sponsorship, Partnership Development and Identity hope to create a cohesive and winning team environment to achieve a cost-effective funding base for AAB through horizontal team work as well as interlink AAB’s local and national issues and identity with other development stakeholders. It also hopes to create wider space for shared learning and best practices through regular flow of information both from its local partnerships as well as AAI Country Programs.

1.3.1.1 Sponsorship

1. Rights Based Approach and its outcomes/impacts more tangible to the supporters in its telling of the reports

2. Creating opportunities for supporters to move on from being donors to becoming active supporters of the social movements.

3. Capacity building of the staff of partner organizations to ensure the real and organized program information from the field

4.

Arranged communication training for Development Area (DA) staff

1.3.1.2 The Identity Unit

1.

The identity of AAB is rolled out through information and case stories of their work published in newsletters, brochures, information packs, identity materials ( such as posters, leaflets, greeting cards, year planners etc), photographs, media and news articles ( both national and international), participation in national and

2. Identity produces social messages in the print media and regularly follow up with the media on programmatic involvements as well as continue dialogues on a regular basis.

3. Develops partnerships with educational institutions to promote future leadership in the development sector and to familiarize the young leaders of tomorrow about work in development.

4. Shares local/national issues in the international forums through electronic media, website and external publications and regular communications update “The Asia Update”

5.

Produce television and radio spots on priority sectored issues

6. Produces items for enhancing AAB’s Identity through video documentation 7. Developing media strategy for better professional linkages and capacity building

of grass roots level journalists

8. Gives active support to local and international campaigns

1.3.1.3 Partnership Development

1.

Partnership Development Unit started with the inception of Identity & Resource Mobilization Department (IRM) of AAB (Oct.2001). Since then Partnership Development initiated a process of developing a structured fundraising system with strategies, policies, donor relationship, systems of archiving, contract management and overall capacity of official and non official fundraising, etc 2. Partnership development deals with official funding and relationships with

bilateral and multilateral donors, trusts, foundations & corporations.

3. Partnership Development unit also closely works with the DA and project partners to build their fundraising capacity

4. Partnership Development unit critically engages itself with donors to influence 5. Partnership Development unit works both with internal and external entities

1.3.2 Finance and Administration

AAB finance and administration unit work together. The main responsibilities of finance department are:

1. Financial management (Planning, Fund management, Monitoring & Controlling) 2. Financial accountability

3. Internal controls

4. Recording financial events 5. Audits

6. Budgeting and planning 7. Treasury management

8. Reporting financial information 9. Financial efficiency measurement

10. Capacity building of Finance Staff members of AAB and at partners’ end

Work done by a ten (10) member team of dedicated and expert staff members under the leadership and management responsibilities of Head of Finance and Administration. Team contains different level of staff members, i.e Manager, Deputy Manager, Officer, Associate Officer.

Setting Strategic Direction done by Board of Trustees and International Directors.

The core responsibilities of Administration department are: Head

Sponsorship Partnership Development

Identity

Assoc. Coordinator Officer Assoc. Officer Assoc. Coordinator Assoc. Coordinator Assoc. Coordinator Assoc. Officer

1.

Assisting in organizing International & national meetings, seminars, workshops, training courses and projects related events including administrative and logistics support 2. Processing visa & ticketing, maintaining petty cash ,coordinating and monitoring work of support staff, keeping an inventory record of all properties, supervising office equipments and maintenance

3.

Procuring and purchasing equipments, reviewing vouchers and requesting for payments related administrative functions, ensuring office safety, security and cleanliness, making arrangements for travel and accommodation

4. Ensuring and keep functioning the communication systems of the office (internal & external)

5. Vehicle management and provide vehicle support to field visit and different events

Figure 2: Organogram of Finance & Administration Unit

1.3.3 Human Resources & IT

1. Staff recruitment as per need

2.

Placement of staff

3. Confirmation of regular staff, extension of probation period

4.

Preparing Employment Policy, Consultant & Outsourcing Policy, Volunteer Policy, International Secondment Policy

5. Preparing job description of each personnel 6. Performance appraisal of the staffs

7. Arrangement of staff capacity building, staff retrenchment, staff leave, staff leaving a job, staff medical benefits.

Head of Finance and Administration

Manager Administration Deputy Manager Officer Assoc. Officer Officer Administration Support Staff Manager Finance

8. Management of smooth and uninterrupted ISP service 9. Plan, organize and procure IT items as per need

Figure 3: Organogram of HR & IT Unit

1.3.4 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 AAB works for

4. To finalize various policies and publish the CSP.

5. To build up the relationship with the partners as well as AAB’s donors.

Figure 4: Organogram of Country Director's Unit

Country Director

Monitoring &

Evaluation Internal Audit

Reflect

Development Shared Learning

Assistance to CD

Head of HR & IT

Coordinator-IT

Coordinator-HR Officer

Officer

Assoc. Officer

1.3.5 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.

1.3.6 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 AAB. 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.

1.3.7 Rights & Social Justice

AAB 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.

1.3.8 Social Development & Economic. Justice

AAB 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 5: Organogram of Livelihood Security & Risk Reduction, Women’s Rights & Gender Equality, Rights & Social Justice and Social Development & Economic. Justice Units

Sector Head

LS & RR WR & GE R & SJ SD & EJ

Theme Leader

Program Officer

Assoc. Program Officer

1.3.9 The logo and slogan of ActionAid Bangladesh

1.3.9.1 The logo of ActionAid Bangladesh is:

1.3.9.2 The slogan of ActionAid Bangladesh is:

1.3.10 Organogram of ActionAid Bangladesh

Head-IRM Identity & Commu nication s Sponsor ship Manage ment Fundrais ing and Contract Mgt ActionAid Bangladesh Head-HR & IT CD’s Unit Head- Liveliho od Security & Risk Reducti on Head-Women’ s Rights & Gender Equality Head-Rights & Social Justice Finance Partners & capacity building HR Manage ment Monitori ng & Evaluati on Liveliho od Promoti on Women’ s Right Diversit y & Citizens hip Educatio n Head -Finance and Adminis tration Finance Projects Adminis tration Informat ion Technol ogy Reflect Develop ment Unit Natural Resourc es & Public Services Violenc e against Women Social Inclusio n Health Organiz ational Develop ment Internal Audit Emerge ncy and Risk Reducti on Adolesc ent & Youth Disabilit y Econom ic Justice Head- Social Develop ment & E. Justice Shared Learnin g

The overall financial performance of AAB 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.

1.4.1 Income mix

The total income for 2005 and 2006 was £ 3.59 and £ 3.94 million respectively. From this AAB has spent £ 2.88 and £ 2.96 million as project cost for the year 2005 and 2006. The percentage of income mix was:

Table 2: Income mix in 2005 and 2006 Figure 7: Income mix 2005

Income mix 2005

61% 0.97%

35%

2.36% 0.31% 1.13%

Regular giving Other regular giving Partnership (official) 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 2005 2006

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%

1.4 CHAPTER FOUR: Overall Financial Performance of AAB (In 2005 and 2006) 1.4 CHAPTER FOUR: Overall Financial Performance of AAB (In 2005 and 2006)

Figure 8: Income mix 2006 Income mix 2006 48.51% 16.23% 9.81% 12.07% 13.05% 0.33%

Regular giving Other regular giving Partnership (official) 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.

1.4.2 Percentage of costs according to International Themes

The analysis according to the various international themes is the following.

Table 3: Percentage of costs according to Figure 9: % of costs according to International Themes 2005

International Themes in 2005 and 2006

% 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

Year 2005 2006

Food and hunger 25% 31%

Women’s rights 12% 20% Human security 22% 18% Right to education 28% 15% Governance 7% 7% HIV/AIDS 5% 5% Others 2% 4% Total 100% 100%

% 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 AAB 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.

1.4.3 Trends of income and expenditure in AAB

The following graph shows AAB’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.

Table 4: Income and expenditure trend (2004-2006)

In GBP ‘000

Year _{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 AAB Trends of income & expenditure

0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 2004 2005 2006 Year In G B P '0 0 0 Income Expenditure

1.4.4 SWOT Analysis of AAB

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.

1.4.4.1 The strengths of AAB are:



Good organizational culture of AAB.

 Its young, energetic, sincere and skilled workers.



To attract donor ActionAid has priority over other companies because it spreads in 40 countries.



ActionAid is centralized. So each Country Director has responsibility to the head of ActionAid for reporting.



ActionAid acts as pressure group for the Government.



Good organizational culture of AAB.

 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.

1.4.4.2 The weaknesses of AAB 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, ActionAid 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.

1.4.4.3 The opportunities of AAB are:

 More scope of collaboration with various government programs.  Greater collaborative programs with other NGOs.

 Diversification of donor source.

 The policies are reviewed time to time, so there is lot of opportunity to adapt the policies with the changing demand of the world.

1.4.4.4 The threats of AAB are:



ActionAid 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.

Currently AAB 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.

ActionAid 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, AAB has established a track record for working effectively with communities for their advancement and empowerment. Since 1998, AAB 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 AAB to promote and strengthen national leadership within an 1.5 CHAPTER FIVE: AAB’s Current State of Operations and its Expected Future 1.5 CHAPTER FIVE: AAB’s Current State of Operations and its Expected Future

Direction Direction

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 AAB the strategic advantage. Though, AAB faces some problems in strategic and operational level.

1.5.1 Strategic and operational issues facing AAB

1.5.1.1 Strategic issues

Although AAB 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 AAB & 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.

1.5.1.2 Operational issues

For an effective organization leadership, accountability and transparency are needed. So, AAB has to build up leadership and develop inner strategies. AAB has to elect people in the board view of changing the nation in a positive direction.

The strategic and operational issues that AAB is facing can be minimized by the following strategies and tactics:

1.5.2 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.

ActionAid Bangladesh is a leading International Non Government Organization in Bangladesh. In preparing this report financial management practice of AAB has taken among non government sector. The study is based on the three months internship program at the AAB. The study is about the overview of the financial management practice of AAB.

2.1.1 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.

2.1.2 Significance of the Study

This project titled “Financial Management of NGO: Case of ActionAid 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

2.1 CHAPTER ONE: Introduction to the Project 2.1 CHAPTER ONE: Introduction to the Project

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.

2.1.3 Scope of the Study

The scope of the project part is limited to the financial manuals of ActionAid 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.

2.1.4 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 12: Methodology of the research

The project title is “Financial Systems of NGO: Case of ActionAid Bangladesh (AAB) 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.

2.1.4.1 Types of Data

The report is mainly based on 2 types of data- 1. Primary data

2. Secondary data 2.1.4.2 Collection of Data

2.1.4.2.1 Primary source of data

Define the Problem Research Objective

Findings & Recommendations

Data Analysis

Develop Research Plan



Personal observation of the financial activities.



Interview with the officials of the ActionAid Bangladesh. 2.1.4.2.2 Secondary Source of data



Annual financial reports of ActionAid Bangladesh.  Published documents and reports.

 Relevant Websites

2.1.5 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 AAB 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.

The core requirements of the financial management aspects of AAB include structure of finance unit, accounting procedures, recording of accounting information, budgeting, taxation, auditing, and performance measurement & controlling of projects by finance section.

2.2.1 Structure of Finance Unit of AAB

The structure of finance department of AAB is as follows:

Figure 13: Structure of Finance Department of AAB 2.2 CHAPTER TWO: Financial Management of A

Table 5: Number of Employees in Finance and Administration Unit

2.2.2 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 ActionAid International. In absence of the HOF the CD is responsible of overall financial management and financial integrity of the organization.

2.2.2.1 Performance, standards and capacity building: The team is responsible in capacity building of the partners as well as AAB 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 AAB Management (as per requirement), provide support during planning & budgeting, developing policies & procedure and reserve management to HOF.

2.2.2.2 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

Set Strategic Direction Leadership and management Board of Trustees/International Directors Head-Finance and Administration Payment and Cash

Management

Reporting and Statutory

Compliance Capacity Building Country Director Planning, controlling and reporting financial activities 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

expenditure information to the budget holders of AAB, 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 another 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 AAB 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.

2.2.2.3 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.

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 AAB, their accounting cycle, financial reports & statements, accounting equation of AAB, accounting policy and procedure, recording of accounting information, and software used in AAB by finance unit..

2.3.1 Accounting Principles

2.3.1.1 Dual aspect principle: Double entry should be recorded in all ledgers.

2.3.1.2 Monetary principle: AAB uses Bangladeshi Taka (BDT) as its based 2.3 CHAPTER THREE: Accounting System of Actionaid Bangladesh

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.

2.3.1.3 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.

2.3.1.4 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.

2.3.1.5 Fully disclose principle: All transactions must be recorded in the books and be disclosed in all financial reports.

2.3.2 The Accounting Cycle in AAB

The accounting cycle practiced in NGOs is almost same with accounting cycle of profitable organization. They also contain bookkeeping and accounting steps.

2.3.2.1 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. 2.3.2.2 Accounting steps

4. Posting the cash ledger to the accounting software SUN. 6. Analysis of data for reporting and preparing financial statements.

2.3.3 Financial Reports AAB 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:

2.3.3.1 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 AAB, how this money was paid out and any leftover money for a given period of time (ie: 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)

and capital reserves of AAB at a given point in time. A sample of balance sheet is included in the appendix part (Table 2).

These two statements in combination with more frequently generated performance reports can form the basis of financial reporting for AAB. Besides, the statements needed to support this two base statement are as follows:

2.3.3.3 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.

2.3.3.4 Expenditure, income and reserves by DA- Opening reserve, expenditure and closing reserve by each Development Area is shown here.

2.3.3.5 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 AAB has to submit to AAI, regional office, CD, donors are mentioned below: Table 6: Financial reports of AAB

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

2.3.4 Accounting Equation in AAB

The principal of accounting that is Asset = Liability + Owner’s Equity is also maintained in AAB. AAB 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.

ActionAid has Financial Management Framework where accounting policy and procedures are established. This involves the policies and procedures AAB should use to record and monitor financial transactions. Its purpose is to help ActionAid:



. 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.

2.3.5.1 Income

AAB receives its income as donation and contribution from individual donor or institutional donor from Bangladesh or outside of Bangladesh in support of its activities taken under the Country Strategic Paper (CSP). Only when the income has practical certainty of being approved then it is realized in the accounts. Main child sponsors are from UK, Ireland, Spain, Italy and Greece.

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 7: Income allocation

Alliance partner DA level National level Unrestricted Fundraising

UK/Italy/Ireland 70% 10% 10% 10%

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 AAB. Only the administrative levy is part of the unrestricted income if the said project has covered its all operational level expenditure.

2.3.5.2 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.

 All expenditures must be supported with appropriate supporting (i.e. cash memo, challan /invoice, bills, claims, Work order etc.)



Expenditure only which are incurred for the organization will be included in the books of accounts.

2.3.5.3 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 2_{AFMF guideline which will be not less than 2 months and not more}

than 4 months of planned expenditure of the following year. Every year the reserve level will be analyzed and reviewed before annual budgeting and it would be adjusted in the plans & budget for the next year.

2.3.5.4 Currency and exchange rate movement

Dealing with international institutions, and having an international presence AAB 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 HongKong and Shanghai Banking Corporation (HSBC) and from the website www.oanda.com to translate foreign currency to local currency.

2.3.5.5 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 8: 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

2.3.5.6 Depreciation method in AAB

Depreciation is charged to the income and expenditure account in order to write up the cost of a fixed asset over its expected life. This means that the cost of asset will be divided by the number of years of asset life to get the annual depreciation charge. Capital items are subject to properly authorize, purchase, recorded, and accounted for, valuation and disposal. It is also subject to depreciation according to the following principle and depreciation of assets to be charged in straight-line method.

Table 9: Depreciation period of capital items

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.

2.3.5.7 Liabilities

As AAB is following the accrual basis of accounting, it is important that financial obligation to the third parties who have provided resources or to whom AAB is liable

ASSET DESCRIPTION OUTSIDE EUROPE

FREEHOLD PROPERTY

Buildings owned by ActionAid International, AAB 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

to pay (e.g. ActionAid Bangladesh employee provident fund, ActionAid 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.

2.3.5.8 Accrued income and expenditure

Accrued income represents income due from local/international contractors with sufficient 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 ActionAid 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

Where the incoming resources are received in advance then ActionAid 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 ActionAid becomes entitled to the resources.

2.3.5.9 Advance and pre-payment

All 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 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.

2.3.6 Recording of Accounting Information in AAB

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).

AAB 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 AAB use a software HEXAGON which is supplied by HSBC. After preparing voucher the transactions again recorded in Excel which later converted into 3_SUN

3 _{SUN is specially designed accounting software for ActionAid which is fully equipped with lot of data}

software for further analysis.

2.3.7 Software Used in Finance Unit of AAB

2.3.7.1 SUN: SUN (Version 4) is accounting software used by most of Country Programs of ActionAid. Software is fully equipped with lot of data recording and analyzing tools.

Through SUN they can

capture:-• Staff wise transactions (training , advance etc),

• Partner NGO wise transactions (advance, expenditure), • Theme/ Sector wise expenditure

• Donor/ funding country wise expenditure

• Expense incurred on behalf of other county program & vice versa • Budget

2.3.7.2 Vision: Vision is reporting software. Through this AAB can further analysis the financial data recorded/ processed through SUN. It also gives them the space to prepare report in time donor’s requirement. They also produce the internal management reports (budget and actual expenditure) through vision.

In profit oriented organization and also in non profit oriented organization, accounting policies are established based on the organization need. The objectives of accounting i.e. analyzing and interpreting financial information, preparing financial statements, conducting audits, designing accounting system, preparing forecasting and budgets, and providing tax services are same. But it varies in its operational nature with the need of the organization whether it is profit oriented or not. For example, most organizations use a standard accounting software for accounting purpose. But it is not same in all organizations; accountants choose the software according to their organization’s need. All NGOs require a financial management system, however, many small NGOs may only have an accounting or bookkeeping system. Accounting or bookkeeping are a subset of financial management. In NGOs, financial management systems can be broken down simply into administrative systems and accounting systems. Administrative systems assist all NGO managers in decision-making, planning, communicating, controlling and evaluating. Accounting system is concerned with identifying financial information, expressing the information in numeric terms and communicating this information to interested parties. An accounting system provides the framework for working with financial information.

Budgets have a crucial role to play in strong financial management. For budgets to be useful, they must be accurate and complete. That means that they have to be based on a realistic assessment of the activities that NGOs expect to carry out and of how they expect to pay for them.

An important internal control of financial management is the operating and activity budget. This budget includes all monies approved in donor proposals and all activities planned for a given period of time (preferably the fiscal year of an organization). The line items in the budget should coincide with chart of account line items so that expenses can easily be tagged to budget. In AAB, budget done in accordance with its income. They follow zero based budgeting. Using a zero-based budgeting and properly dealing with the difference from month to month allows AAB to gain total control over every money they spend. If they spend less than planned during the year, they can easily redirect that money where they really want it instead of letting it misused through unfocused spending.

The parties involved in preparation of budget are sector head, finance department, and partner organization for partner budget. Important aspect of budgeting of AAB are their three year rolling budgeting process, budget responsibility and implementation, and yearly budgeting process.

2.4.1 Three years rolling budgeting process

AA introduced 3 year rolling plan in 2000 which enables each AA offices to have medium 2.4 CHAPTER FOUR: Budgeting of Actionaid Bangladesh

view on its program, organizational and funding aspects. 2.4.1.1 Responsibility

•

The regional finance coordinator (RFC) provides guidelines and table formats annually. In AAB, Asia finance coordinator provides these formats.

• The HOF is responsible to coordinate the process from providing guidelines to consolidating AAB budget tables and submit to the region.

• Budget holder is responsible to formulate the plan and budget for the area of her/his responsibility.

• Funding & fundraising head in collaboration with the HOF is responsible to prepare the funding plan for the whole organization.

• The senior management team is responsible to review and approve the plan/budget as well as plan execution.

• The CD in consultation with the HOF and other concerned line managers authorizes supplement plan/budget and or makes any adjustment when and where necessary.

• The team leader of reporting and statutory compliance team is responsible to review the coding and import the budget into accounting software (SUN).

2.4.1.2 Implementation

• Time for planning: September every year for 3 year plan; November every year for annual budget.

• Time for approval within the country: October every year.

• Process: the HOF in consultation with the CD and management team will issue guidelines for the process every year.

• A major review & planning process involving larger stakeholders will be undertaken once every 3 years. In the years between a minor review and readjustment of the plan will be done.

2.4.2 Yearly budgeting process

For the budgeting purpose each sector has given a budget range. Then the finance section revises the budget and finally prepares it.

in the CP in order to provide their plan of expenditure across twelve months. The final individual budget is approved by the CD of the CP and a signed copy is circulated from the finance. After completion of the monthly budget, the budget is uploaded before commencement of the budget year.

Profit-oriented organizations sell goods or service, so they have revenues and operating cost that must have to be budgeted. They prepare projected income statements and balance sheets. Non profit oriented organizations prepare cashflow forecast that tells them when receipts and payments will happen, because they cannot start spending money on the project before they have actually received the cash. They also prepare partner budget for various projects. So the classifications of budgets for NGOs are: Unit budget, Cashflow forecast, Salary budget, Project budget. Unit wise budget is their master budget because it includes costs, income, salary, and DA/ non DA budget.

Taxation is the system of raising money to finance government. All governments require payments of money i.e. taxes from people. But non profit organizations do not have to pay any tax for their income from grants. But the employees, who are working in there, have to pay taxes for the incomes they received. Most of the organizations follow tax deduction at source. The suppliers VAT are also deducted at the time of payment by accounts unit of NGOs.

For the taxation purpose in terms of salary of employees of AAB it follows tax deduction at income source. The withholding of Tax and suppliers’ VAT are described in the following section:

2.5.1 Withholding Tax

The team leader of payment and cash disbursement shall ensure that withholding tax is deducted as envisaged in the Bangladesh statutory laws. The tax deducted shall be deposited to government treasury every quarter. S/he shall prepare statutory/tax returns and get it approved from HOF to be submitted to authorities. The tax heads are like salary tax, VAT on suppliers’ goods.

There is no any tax imposed on NGO income as it is grant. It is totally tax exempted. But recently Bangladesh government is thinking to impose tax on the income from micro credit and other small income generated activities of NGOs. But AAB has no any micro credit scheme.