MDLF Financial Manual.pdf - Muncipal Development Lending Fund FINANCIAL POLICIES AND PROCEDURES A practical training manual Version 2.0 Financial

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Unformatted text preview: žģÚĐÂď½í½Þć·ĝÞģĞôÇąĝÚĘë Muncipal Development & Lending Fund FINANCIAL POLICIES AND PROCEDURES A practical training manual Version 2.0 Financial Policies and Procedures Manual Distribution: Name Title Revision History: Revision 0 1 2 Date 16 December 2009 15 February 2010 24 May 2010 Description of Changes Initial Release Modify flow charts Change management fees 2 Requested By MDLF Management MDLF Management Financial Policies and Procedures Manual Table of Contents Introduction ...................................................................................................................................................................................................... 4 Budget and Cash Forecasts ................................................................................................................................................................ 7 Grants Management............................................................................................................................................................................... 22 Cash Handling............................................................................................................................................................................................. 38 Procurement and Accounts Payable ....................................................................................................................................... 91 Fixed Assets .............................................................................................................................................................................................. 102 Payroll .............................................................................................................................................................................................................. 126 Closing ........................................................................................................................................................................................................... 141 Reporting....................................................................................................................................................................................................... 148 Structure and Jobs Descriptions .............................................................................................................................................. 171 3 Financial Policies and Procedures Manual Introduction Welcome to the MDLF Accounting Manual Welcome to the MDLF Financial Policies and Procedures Manual. Treat it well and find it easy to use! This manual incorporates, to the extent possible, the World Bank’s Financial Management Guidelines, as agreed with all donors in the appraisal mission and the Memo of Understanding. However, MDLF might use other procedures and arrangements required by other donors if agreed with MDLF. What is this Manual? The Manual sets detailed guidelines for the Financial Department and its employees to assist them in ensuring the orderly and efficient management and control of all program resources, and to render proper accountability to all stakeholders. It is concerned with effective financial control over program assets, liabilities, funds, and expenditure together with the systems required to account for the financial operations of the program. In sum, the policies and guidelines convey procedures for sound financial management and administration of the Financial Department’s work. In specific terms, the policies and procedures are designed to: • Promote orderly, economic, efficient and effective operations consistent with program objectives; • Minimize and attempt to prevent and detect fraud and errors; • Ensure accuracy and completeness of the accounting records; • Facilitate timely preparation of financial information and ensure that financial statements are fairly and accurately presented; • Safeguard program assets; and • Ensure compliance with applicable laws, financial policies and regulations. Who should use this Manual? Financial Department Staff are expected to be the main users of this Manual. However, Managing Directors may find it useful when considering the financial implications of entering into a contract. Do I have to implement all the procedures in this Manual? The Manual is a guideline, however generally it is anticipated that users should follow the 4 Financial Policies and Procedures Manual policies outlined in the manual, unless there is a justified reasons to depart from them. In case of departure, proper approvals should be obtained and maintained. How is it set out? The Manual is clearly set out, with each broad area as a chapter heading. Each chapter clearly explains its purpose, policy, and procedures followed by process maps in order to facilitate quick references and understanding of processes. What are the subjects and areas covered by this Manual? This Manual covers areas that are deemed necessary for the MDLF Financial Department in order to run their activities smoothly and properly. These areas are as follows: • Budget and Cash Forecasts • Grants Management • Cash Handling • Procurement and Accounts Payable • Fixed Assets • Payroll • Closing • Reporting Who is responsible for ensuring these procedures are followed? The Financial Department of MDLF is in charge of implementing this Financial Policies and Procedures Manual. The Financial and Administrative Manager must review and approve, if possible, significant deviations from the policies outlined in this Manual. All employees at the Financial Department are expected to be familiar with and comply with the policies and procedures set forth in this Manual. Further, they are also expected to be familiar with the accounting and reporting policies. The Audit Committee of the Board of Directors might appoint an internal auditor to make sure that this manual is being complied with, as this is important for the Audit Committee to discharge their duties. How often and how will this Manual be updated? There is no fixed schedule for updating this Manual. Updates will be carried out on an ad hoc basis, when necessary, rather than on a certain timetable. Any significant revision proposed to the manual should be approved by the MDLF Board of Directors upon recommendation by the Financial and Administrative Manager to the General Director. 5 Financial Policies and Procedures Manual Can we distribute or share this Manual? This Manual is for distribution within the MDLF only. Copies should not be made available to other individuals or parties outside the MDLF without prior approval from the General Manager and the MDLF Board of Directors. Where is the Accounting Policies and Reporting Manual? An Accounting Policies and Reporting Manual has been developed as a separate document from this Manual. The Accounting Policies and Reporting Manual sets out the basic principles of International Financial Reporting Standards (IFRS). It states the standards and guidance needed to be followed in order to produce financial statements that are in accordance with IFRS. It also includes the key principles of IFRS and sets out the basis for the conceptual framework, which should be used as a point of reference by preparers of financial statements in the absence of specific guidance. The Organization of the MDLF Financial Department: The MDLF Financial Department should be organized according to the following structure: Board of Directors General Director General Director of Operations Administrative & Financial Manager Admin Assistant Senior Accountant Gaza Financial Controller Budgeting and Financial Planning Specialist Senior Accountant The structure can also be found in the Organizational Structure and Job Descriptions section of this Manual. Accountants Financial Department 6 Financial Policies and Procedures Manual Budget and Cash Forecasts The purpose of this section is to set responsibilities and requirements for budgeting and cash projections in the MDLF. I. Budget Preparation Purpose To have an adequate budget setting process in place, in line with the organization’s needs and objectives. Policy Preparation: 1. Budgetary accounting is a management control technique employed to assist in controlling expenditures and in forcing revenue restrictions. 2. The budget shall cover both operating expenditures of the MDLF staff as well as grants and disbursements. 3. Budgets should be prepared on annual basis but analyzed by quarter. 4. The first step in preparing the budget would be identifying the expected programmes and disbursements to Local Government Units and the related grants and donations. Based on that, management should prepare the budgeted revenues. Budgeted revenues are mainly dependent on the calculated management fees. Accordingly it is based on the budgeted programmes and the related disbursements to Local Government Units (“LGUs”). Consequently, this Budget should be initially prepared by the Technical Department in-coordination with the Financial Department. 5. Disbursements to LGUs are budgeted in accordance with the Transfer Mechanism, the priorities and the needs of the LGUs and with a warrant presented to the MDLF by the Board of Directors, and sets of the expected revenues from all sources (donors, Palestinian Authority (“PA”) and/or etc…). 6. Disbursements to LGUs are not fully predictable at the time when the budget is prepared. These disbursements will depend on several factors that will unfold over the course of the budget year: • The project proposals made by the LGUs. • The actions of the MDLF Management for approving or rejecting LGU proposals. • The decisions of donors, the PA and other contributors as to the amounts they would provide to the MDLF and other restrictions they may impose on how their contributions to be used. 7 Financial Policies and Procedures Manual 7. Accordingly, the budget for disbursements to the LGUs will need to be adjusted from time to time during the course of the year. Responsibilities 1. The Budgeting and Planning Specialist, acting under the direction of the Financial and Administrative Manager, is responsible for collecting the needs from the department’s heads for the MDLF operating budget. Further, he is expected to get all the needed information from the Strategic and Planning Department for the MDLF disbursement Budget to LGUs. Accordingly, this will enable him to prepare the first draft of the annual budget. 2. The Budgeting and Planning Specialist is responsible for submitting the initial budget to the Financial and Administrative Manager. 3. The General Director is responsible for proposing a budget to the Board of Directors. 4. The Board of Directors is responsible for approving the budget. 5. The General Director, with the assistance of the General Director of Operation and the Financial and Administrative Manager, is responsible for administering the budget and ensuring that funds are received and disbursed in accordance with the budget. 6. The General Director of Operations and the Financial and Administrative Manager are responsible for monitoring actual revenues and expenditures by comparing them against the approved budget. 7. The Financial and Administrative Manager is responsible for submitting the relationship of actual revenues and expenditures to the budget for the following parties: the General Director, the General Director of Operations, department heads and staff of patterns. 8. The Financial and Administrative Manager is responsible for recommending actions through the General Director to the General Director of Operations and department heads and staff to ensure compliance with the budget. 9. The General Director is responsible to keep the Board of Directors informed of patterns of actual revenues and expenditures and their relationship to the budget. 10. The General Director is responsible for recommending actions to the Board of Directors to ensure compliance with budget or propose modifications if warrants. 11. The Board of Directors is responsible for monitoring compliance with the budget, for formulating directives to the General Directors to ensure compliance, and for making modifications, as needed. Budget analysis 1. Within ten days after the end of each Quarter, a written budget analysis shall be performed consisting of the following elements: • Actual revenues and expenditures will be compared to budgeted amounts; both for the current month and for the year-to-date (see formats below). 8 Financial Policies and Procedures Manual • • Significant variances will be noted and their causes determined. Recommended actions to ensure budget compliance for the remainder of the year will be set forth. 2. The General Director will forward the quarterly budget analysis, in whole or in summary, to the Board of Directors along with recommended actions, if necessary. Budget modification The programme budget may require modifications during the course of the year. When changes take place, the General Director should present a report indicating the significant changes in the facts or assumptions underlying the current budget. If appropriate, the General Director should propose modifications in the budget to the Board of Directors. Procedures 1. The Budgeting and Financial Planning Specialist should prepare budget format, templates and budget procedures. 2. The first step in preparing the budget would be identifying the expected programmes and disbursements to Local Government Units and the related grants and donations. Based on that, management should prepare the budgeted revenues. Budgeted revenues are mainly dependent on the calculated management fees. Accordingly, it is based on the budgeted programmes and the related disbursements to Local Government Units (“LGUs”). This Budget should be initially prepared by the Technical Department in-coordination with the Financial Department. 3. The Technical Department should prepare the programme budget based on approved proposals submitted by municipalities and other related assumptions and expectations for the coming year. The budget for each quarter will reflect the detailed specifications for programme activities, schedules (including procurement plan), and expenditure on quarterly programme activities. Furthermore, the budget should be prepared using the Interim Financial Reporting (IFR) forms. Additionally, the Technical Department will provide its own running cost budget similar to other departments as further detailed in the next point. 4. The Budgeting and Financial Planning Specialist obtains the programmes’ budget from the Technical Department and calculates the management fees. 5. The Budgeting and Financial Planning Specialist should prepare the revenues budget according to calculated management fees and then he should communicate the following with all departments: • Assumptions, • Budget procedures 9 Financial Policies and Procedures Manual • • • Budget Formats and templates Timetable and Key Dates Budget constraints (revenues are already budgeted) 6. Each department head should complete the assumptions and templates within the stated timetable taking into consideration constrains provided. Each department head prepare the budget for the department based on assumptions and technical aspects of that department. For instance, the Human Resources department should take into consideration the hiring, firing, and increases in salaries and number of employees. 7. The Budgeting and Financial Planning Specialist should collect the sub-budgets from different departments. Further, he has to ensure the accuracy and completeness of the summary budgets. Based on the collected information, the Budgeting and Financial Planning Specialist should prepare the following detailed budgets: • Revenues and grants budget, • MDLF operating budget. • Programme budget, • Prepare Capital/investment budget, 8. The Budgeting and Financial Planning Specialist should prepare consolidated budget, and communicate it to the Financial and Administrative Manager who should: a. Review summary budgets: • The Financial and Administrative Manager should review budget and assumptions against economic and business constraints; • Ensure that relationships between grants, programme expenditures, and operating expenditures are valid; • Review capital spend and investment and Returns; • Review growth of base business and new grants; • Ensure that non financial measures are consistent with financial. b. Agree accuracy and completeness of detailed budgets: • Drill down into detailed budgets; • Determine the major variables by quantity/value; • Challenge the budget holders assumptions; • Ensure that proposed investment is not exceeding targets and constraints in achieving proposed results; • Amend detailed budgets. c. Evaluate budget and assumptions against economic and business constraints: • Review variances with targets and goals; • Determine cause of variance; 10 Financial Policies and Procedures Manual • Determine if targets are valid or amendment is required. 9. The Financial and Administrative Manager should provide his comments on the budget to the Budgeting and Financial Planning Specialist, who should communicate these comments to the department heads and adjust the budget accordingly. At this point the budget owners/departments heads should sign on the detailed budgets and assumptions, 10. After signing the adjusted budget, the Budgeting and Financial Planning Specialist should signoff the budget and send it back to the Financial and Administrative Manager, 11. The Financial and Administrative Manager should review and sign off the budget for completeness and accuracy and correct consolidation if necessary, and deliver it to the General Director of Operation for review. 12. The General Director of Operation should review the budget and submit it to the General Director for approval, 13. The General Director should review and sign the budget before delivering it to the Board of Directors for final approval. 14. The Board of Directors should discuss and approve the budget. In case the Board of Directors has any comments on the budget, management should perform the same above procedure to address the Board of Directors queries. 15. After obtaining the Board of Directors approval, the Budgeting and Financial Planning Specialist should communicate the approved budget to all departments. 16. The Senior Accountant should prepare monthly comparison between the actual and budgeted amount, and submit it to the Budgeting and Financial Planning Specialist, 17. The Budgeting and Financial Planning Specialist should approve the variance report and submit it to the Financial and Administrative Manager for approval, 18. The Financial and Administrative Manager should : • Identify key variances against budget and forecasts by comparing actual performance reported with budget KPI’s • Investigate all key variances, • Substantiate with justifiable reasons, • Ensure corrective measures in place to bring actual performance in line with financial targets and/or manage risk. • Communicate the variance report with the General Director of Operation and the General Director, 19. The General Director should communicate the variance with stakeholders such as the Board of Directors and donors. 11 Financial Policies and Procedures Manual II. CASH FORCASTS: Purpose To provide guidelines for preparing cash forecast for MDLF request of a manual check. Policy 1. Cash forecasts should be prepared on consistent basis to monitor and manage borrowings and idle cash. 2. Cash forecasts is the responsibility of the Financial and Administrative Manager, and should be reviewed by the General Director of Operation and approved by the General Director. 3. Cash forecasts should be prepared by the Senior Accountant on a quarterly basis i.e. (three months period), and should be submitted for do...
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