In this section we will look at what financial models are and which may be best for your group. The three models we will look at have their own advantages and disadvantages and it will be up to you and any organisations you are partnered with to decide which model you follow. Funding bodies may insist on controlling finances as part of their donation requirements but even if this is the case, it is worthwhile considering your options.
Model A has the advantage that it is the least complex. A single organisation is at the hub of all financial activity and should therefore be in a position to monitor, report and forecast with relative accuracy. It is also completely clear where financial authority and responsibility lies. The big disadvantage is that unless there is a very inclusive governance mechanism, this model may serve to exclude other partner organisations from the project.
An alternative model, Model B, is where the partner managing the finances passes monies on to other partners (via contacts or funding agreements) who then spend it on the project. This has the advantage of keeping one organisation at the hub, able to have a complete financial overview, but it is far more inclusive than Model A and involves other partners more directly in the project delivery process.
For either Model A or Model B, the decision on which organisation should assume the central financial role will need to take into account:
Contractual issues: The organisation responsible for payments to suppliers or contractors is the organisation that will be the legal client (albeit that this organisation may engage other partners to act as project agents).
Financial management systems: The question of which organisation has the financial management systems most appropriate to the project should be considered (e.g. the ability to deal quickly and effectively with contractors’ valuation certificates).
Tax advantages: Can exposure to tax be minimised by the finances passing via any particular organisation (likely to be a public body)?
Discounts: Which organisation is likely to be able to negotiate the best rates with suppliers or contractors?
The attitude of potential project funding bodies: The rules associated with some funding sources preclude certain types of organisations from being recipients.
Issues of risk: Risk, both in regard to risks to the money (i.e. with which organisation would the finances be most secure from misappropriation, theft or organisational insolvency?) and to risk to the organisation (i.e. which organisation puts itself at least overall risk by taking on the responsibility for financial management?).
Desire: Some organisations may be keen to manage project finances (and may see this as their legitimate role). Other partner organisations may specifically not wish to do so.
The nature of the project or of the partnership may mean that it is not practical or desirable for a single body to manage all the finances. Different partners may manage the finances, and delivery, of different project aspects. This is not uncommon but raises issues of project control, co-ordination, and of ‘valuing’ work carried out by other partners.
Go to the next section - Insurance
Go to the previous section - Financial management