Financial management is a generic subject relevant to any endeavour. Good financial management is crucial to ensuring that money is properly procured, spent and accounted for. It is beyond the scope of this toolkit to examine the whole subject in depth. Instead, this section looks at some features of the subject that are particularly relevant to community projects.
Resolving or at least considering these matters at an early stage in the project should help to avoid finance-related problems arising at a later stage. Note that the specific issues of cash flow management and of costing are dealt with in other sections.
Which organisation should manage the finances?
There may be several partner organisations involved in the project, and a decision needs to be taken as to how the responsibility for financial management is shared. It may be sensible for one organisation to take the lead role, with all project income passing through an account that it manages. There are a number of models for how this might operate, including the situation where the partner managing the finances is also the partner spending the money.
For most community projects, this level of financial management will not be required as the projects will be smaller scale and fairly simple. For more complex projects though, there will need to be some thought on which model will work best and therefore who will be responsible.
This is looked at in more detail on the Financial models page.
Other financial management issues
'Capturing' Value of Other's Work
One issue that often arises is that of valuing work that is being administered by other bodies. This is particularly important when the value of work being carried out by one organisation is being used as match funding to lever funding into another. Different organisations have different financial and accounting systems, so it is important to agree a workable solution for how financial information is to be exchanged.
Costs of financial management
Any project can become financially complex. Funding is often secured from different bodies, with different accounting requirements, different accounting periods, etc. It is therefore important not to underestimate the cost of putting in place good financial systems and assigning adequate resources to ongoing financial management.
Investment in systems
Ideally, when taking on the financial management of a project, an organisation’s existing systems should be suitable and adequate. However, these may well need to be supplemented with bespoke systems developed specifically for the project. The complexity of these will clearly need to be commensurate with the scale and complexity of the project but time spent at the outset in putting these in place and testing their robustness is likely to be a good investment.
One very basic tool for monitoring project cash is bank statements; a task that is made easier if a project has its own bank account. A separate bank account makes a project’s cash transactions transparent to partners or auditors. It also correctly apportions bank interest earnings or charges to the correct project. It is therefore well worth considering at the outset of a project how bank accounts should best be structured.
Links to governance mechanisms
In addition to good integration between the financial management system and the project management system, it is also important that financial management is properly integrated with project governance. Those with ultimate responsibility for the project need to be provided financial information at appropriate periods in order that they can reasonably satisfy themselves that money is being properly and effectively spent.
Valuing non-cash contributions
Although no money may be exchanged when non-cash contributions are made to a project, it is nevertheless worth seeking to apply a cash value to these. The benefits are three-fold.
- placing a cash value on something can serve to increase its perceived value, which may have positive consequences
- it helps to provide a truer picture of the value of a project (relative to just counting the cash).
- the value of non-cash contributions can be used to lever in cash funding from other sources.
The practical issue here is how to value non-cash contributions. This question can appear particularly difficult when looking at the value of volunteers’ time. Should, for example, a volunteer lawyer be valued the same per hour as a volunteer labourer? There is no one answer – what is most important is that a consistent, defensible and fully recorded approach is used.
Financial Management Spreadsheet System
Groundwork has used spreadsheets extensively in the management of its programmes. It contends with both the management of individual projects and the wider programme comprising all the individual projects.
Go to the next section - Insurance
Financial controls (for charities)
Bank accounts for community groups