Financial governance, cash crisis and final project

1Financial governance

Financial governance divides responsibilities so that no one decides alone on the organisation's money:

• Board: adopts the annual budget, the reserves policy, the investment policy and the financial statements; appoints the external auditor; sets delegations of authority to management.
• Treasurer (board member): follows the financial position between meetings, presents the accounts to the board and the general assembly.
• Audit and risk committee: oversees external and internal audit, the risk register and fraud reports. Its members must be independent of management.
• Executive and finance management: manage day to day within the limits of their delegations, produce the information, implement the controls.

Signs of weak governance: a board that sees the accounts only once a year, no audit committee, audit recommendations not followed up year after year, a chief executive who is also the sole bank signatory.

2Financial information for the board

The board does not need the general ledger; it needs to understand the situation and decide. A useful quarterly pack contains:

• a one-page dashboard (the ratios from week 9: reserves, liquidity, dependency, shared cost coverage, old receivables);
• the income statement, distinguishing restricted and unrestricted funds, compared with the budget;
• the 6- or 12-month cash forecast;
• the status of major financial risks and audits;
• the decisions requested, clearly worded.

A good board pack ends with decisions to be taken, not with "for information".

3Financial systems and digital transformation

Systems must keep pace with the size and complexity of the organisation:

• Under 1 million USD, one office: simple accounting software with cost accounting by project and by donor, online banking with dual approval.
• 1 to 20 million, several offices: multi-site software, a single chart of accounts, monthly consolidation, a grant management module (budgets, forecasts, reports by donor).
• Beyond that: an ERP integrating procurement, inventory, HR and payroll, and finance, with electronic approval workflows.

Digital payments (bank transfers, mobile money for salaries, suppliers and transfers to households) reduce cash-related risks, but create new ones: data protection, bank detail change fraud, dependency on an operator. Any change to a supplier's bank details must be verified by a call to a number already on file, never the one shown in the request email.

System change project. Allow 12 to 18 months, a training budget at least equal to the cost of licences in the first year, a period of parallel running, and migration of opening balances verified by the auditor.

4Recognising a financial crisis

An NGO financial crisis almost never strikes all at once. It is heralded by a combination of signals:

• a negative cash forecast within 3 to 6 months;
• major projects ending with no follow-on funding (funding cliff);
• significant costs declared ineligible following an audit;
• a negative unrestricted result several years in a row;
• late payments to suppliers, of taxes or of social contributions;
• use of one donor's advances to pay the expenses of another project (which is prohibited and masks the crisis).

Example. Free cash 150,000 USD. Forecast uncovered net outflows: 60,000 USD a month for 4 months (overhead costs after the end of a large project), then 20,000 a month. Cash in 3 months: 150,000 − 180,000 = −30,000 USD. The crisis is less than three months away: action is needed now, not in month 3.

5Leading a recovery

A recovery plan combines quick measures and structural measures:

• Immediate cash: chase and escalate receivables from donors, request advances, agree payment schedules with suppliers, postpone non-essential purchases, draw on a credit line if one exists.
• Cost reduction: freeze recruitment of overhead posts, renegotiate rents, merge offices, reduce staff in an orderly and lawful way (notice, indemnities, consultation).
• Income: emergency appeal to private donors, foundations, proposals at full cost, revision of indirect cost rates.
• Governance: inform the board without delay, monitor cash weekly, appoint a lead for the plan.
• Communication: inform donors transparently; many will help an organisation that anticipates, few an organisation that hides.

What is prohibited, even in a crisis: using one donor's restricted funds for another purpose, withholding staff taxes and contributions without paying them over, presenting inaccurate financial reports. These practices turn a financial crisis into a legal and reputational crisis.

6Final project: financial recovery plan

The final project of the Mini MBA Finance and Grants consists of writing, for a real (anonymised) or fictitious but realistic organisation, a financial recovery plan of 6 to 10 pages, structured as follows:

• 1. Diagnosis: summary financial statements, key ratios (liquidity, months of reserves, HHI, shared cost coverage), three-year trends.
• 2. Cash forecast over 12 months, with a base scenario and a downside scenario.
• 3. Full cost analysis: allocation keys, true indirect cost rate, shortfall by donor.
• 4. Measures, quick and structural, costed, with owners and dates.
• 5. Internal control and compliance: weaknesses identified, action plan, preparation for the next audits.
• 6. Proposed reserves policy and replenishment trajectory.
• 7. Message to the board and donors: one page.

Assessment criteria: accuracy of calculations, consistency between diagnosis and measures, realism (timeframes, amounts, donor rules), respect of what is prohibited, clarity of communication. The project is part of the third month's exam.