MODULE 3 SUPPORTING DOCUMENTS. 3.1 The basics of supporting documentation and how to organize it 3.2 How to organize the authorization processes?

Transcription

1 MODULE 3 SUPPORTING DOCUMENTS 3.1 The basics of supporting documentation and how to organize it 3.2 How to organize the authorization processes?

2 COLOPHON CNV Internationaal P.O. Box GL Utrecht The Netherlands T: E: I: Author: Funding Support, Michael Schwerzel Copyright CNV Internationaal, 2015 All rights reserved. Any part of this publication may be reproduced by trade union partner organisations of CNV Internationaal without specific permission, provided that the source is cited as follows: CNV Internationaal, 2015, Toolkit Financial Management for Trade Unions (P.O. Box 2475, 3500 GL Utrecht, The Netherlands). If non trade union partner organisations of CNV Internationaal wish to reproduce parts of this publication, written permission from CNV Internationaal is required.

3 MODULE 0 INTRODUCTION AND OVERVIEW / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ Purpose of the Financial Toolkit This Financial Toolkit aims to help recipients of CNV Internationaal (CNVI) funds to improve their financial management capacities. It aims to help organisations to comply with the financial standards that are set out in the contract between CNV Internationaal and partner organisations worldwide. Its specific objectives are: To improve budgeting, accounting and financial reporting of partner organisations. To improve the transparency and accountability of partner organisations. To increase knowledge on the financial standards of CNVI. To increase skills of financial staff, working at partner organisations, to comply with these financial standards. To provide for best practices, tools and templates and to be a practical guidance how to use these tools and templates. What the Toolkit is not The Toolkit: is not a set of rules in addition to the existing legal, contractual and regulatory framework and guides. is not an interpretation of the existing contractual regulations. is not a substitute for reading the contractual conditions and existing guides and instructions. Use of the Toolkit The Toolkit is developed for recipient of CNVI funds. Recipients of CNVI funds can either be Confederations (direct funding) or Federations (indirect funding). Recipients of CNVI funds can be: National Trade Union Confederations that have engaged into a contract with CNVI; Trade Union Federations being member of the National Trade Union Confederation and participating in the National Program that is mainly funded by CNVI. This Toolkit should be a guidance for organisations, and in particular for financial staff, to help them with specific tasks, like preparing a budget or a financial report. When working on a specific financial management area, organisations and financial staff can better prepare themselves by studying the corresponding module of the Toolkit first. By studying the corresponding module, organisations will better understand how to comply with the financial standards of CNVI and also be able to work with the provided templates. In principle the modules only need to be studied and used when organisations (or financial staff) are working on a specific financial management area. It s not intended as a book to read from beginning to end but as a work book: only study a module when it s relevant. 3

4 Structure and content of the Financial Toolkit The Financial Toolkit covers 8 financial management areas and is structured into 8 modules. The content of the Financial Toolkit is: Module 3 Supporting documents 3.1 The basics of supporting documentation and how to organize it P How to organize the authorization processes? P. 13 4

5 The toolkit and the financial templates can also be downloaded from the partner intranet at CNVI s website, at (see below partner login ) 5

6 6 FUNDING SUPPORT CNV INTERNATIONAAL

7 MODULE 3 ORGANIZING SUPPORTING DOCUMENTS / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ REAL LIFE STORY In 2010 a confederation of trade unions was successful in applying for external funds for one of their projects. They received from one donor organization a grant of $ 200,000. The donor organization paid out an installment of 65% of the grant (i.e. $ 130,000). The final payment (i.e. $ 70,000) would be transferred after the confederation had submitted a financial report, including original invoices. After three years the project was finished and the confederation had to submit a financial report. Unfortunately the confederation didn t have a well organized financial department. Because of that, they lacked a great deal of invoices. Although the confederation had spent $ 200,000 according to the budget, after two hectic weeks they only could present invoices of a total worth of $ 133,000. The donor was very strict in keeping the rules and decided that the final grant was $ 133,000 instead of $ 200,000, based on the presented invoices. The donor organization only paid out a last installment of $ 3,000, while the confederation had expected $ 70,000. This caused a huge financial loss for the confederation as they didn t receive a financial compensation for expenditures already made. Should they have had a better organized and structured system for keeping their financial documents, this loss would not have occurred. 7

8 3.0 INTRODUCTION This module is about organizing your supporting documents. The module contains 2 sections: 1. The basics of supporting documentation and how to organize it 2. How to organize the internal authorization processes 3.1 THE BASICS OF SUPPORTING DOCUMENTATION AND HOW TO ORGANIZE IT The importance of organized supporting documentation To have an organized and structured system that contains all supporting documents can really be a blessing. In such a system you can always find the invoice that you seek. Also it is easy to assess its status (e.g. paid, in the process of paying or not paid yet). Unfortunately, sometimes non profit organisations have poorly organized systems of archiving supporting documents. Because of that they face problems like: Spending too much time on finding missing invoices, on accounting or developing financial reports for donors Facing difficult questions from auditors, the treasurer, partner organisations and donors Cannot sufficiently present financial information to management or donors Missing invoices can cost money as donors may not compensate expenditures that cannot be verified by invoices Otherwise, having an organized and structured system for your supporting documents will: Facilitate your accounting process Make it easier to develop financial reports Facilitate the audits, as transparent and verifiable information must be presented to an auditor, to support the audit trail Contribute to a better reputation of your organisation Increase the level of internal control and by having that, reduce the risk of missing money. KEY MESSAGE: THERE ARE TOO MANY BENEFITS HAVING A WELL ORGANIZED SYSTEM FOR YOUR SUPPORTING DOCUMENTATION NOT TO INVEST TIME AND EFFORT INTO IT! Basic content of your supporting documents All recordings in your accounting system must be supported by original documents. These documents must be archived in a proper way, so that information easily can be collected. There are various supporting documents that need to be processed and archived. Receipts or vouchers for money received and for money paid out Invoices certified and stamped as paid Bank paying-in vouchers stamped and dated when money is taken to the bank Bank statements Salary slips Non-financial documents 8

9 3.1.3 How to organize a system for supporting documents? Perhaps you are very content with your current system. If you are, don t change your system. There isn t only one perfect way of organizing supporting documents. If you have developed a system that works for you, you should stick to it. However, if you are not content with your current system this module may be of interest to you. For starters, there are some simple principles that you can apply for organizing your files. 1. Keep separate files for separate documents (e.g. invoices are kept in a separate invoice file and bank statements are kept in a separate file for bank statements) 2. Keep a register for supporting financial supporting documents (i.e. each document must contain an unique registration number) 3. Keep separate files for each accounting year; start the new year with new files 4. If you receive an electronic invoice or document, always make a print for the paper administration Organising your files into more detail Basically each administration consists of 7 types of documents 1. Sales invoices: invoices your organisation sends to debtors (e.g. clients, union members) to collect money 2. Purchase invoices: invoices your organisation receives by creditors (e.g. suppliers of goods and services, and typical creditors like the tax department) 3. Bank statements: statements containing all financial transactions on your bank accounts 4. Cash receipts and vouchers 5. Salary slips and wage records 6. Non-typical documents 7. Permanent documents (mostly legal documents with financial impact) For each of these types of documents some practical tips for improving the organisation of your supporting documents are presented. Sales invoices Archive your sales invoices in order of invoice, which is determined by its date All sales invoices must be kept in a separate file Consider subdividing your sales invoices into more separate folders if you have different types of sales invoices (e.g. contribution from members and sales invoices for services rendered) Use subsequent numbers only. It ll help you to detect missing sales invoices more easily. In order to keep track on sales invoices a register is necessary. If you work with a computerized bookkeeping system, this is a standard book of account. However, if you do not have this, you should develop a register, similar to the example as presented in table

10 Table 3.1 Example register of sales invoices Number Date Name debtor Description services rendered Amount Date of payment jan jan jan 2015 A register enables you to keep track on outstanding sales invoices, including its status (e.g. invoice paid or not?). Invoices that haven t been paid yet for example after one month, can easily be detected and you can send a reminder to the debtor. Not having such a register will surely cost your organisation a lot of money This register can be used as a table of content for the sales invoice file. This is only an example and you may adapt this table to your needs. Purchase invoices Keep the purchase invoices in a separate file. Each purchase invoice you receive must carry an unique document number Preferably this number is determined by its date of receipt For this purpose you develop a system for numbering. Be careful that the numbers used are different than the numbers you use for sales invoices For example you may add a code like PI (Purchase Invoice) and than a number, so PI001, PI002, PI003 and so on. Use subsequent numbers only so you can easily detect missing sales invoices Add this unique document number to the purchase invoice. You may write this down on the invoice, but it s recommended to attach an approval sheet to the invoice. On this sheet more information can be added, that is needed for accounting purposes. See the last section of this module for more information. If invoices are not in the file this is probably because they are with some one else in the organisation for approval To prevent losing invoices you can make a copy of each invoice before it is distributed in the organisation. Especially when you face this problem often, you should consider this Each purchase invoice must be registered. If you work with a computerized bookkeeping system this is one of the standard books of account. If you do not work with a bookkeeping system you should have a register similar to the example of table 3.2 Table 3.2 Example register of purchase invoices Date of registration Name creditor Description of goods or services rendered Amount Date of Invoice for Invoice back in file after PI001 4 jan 2015 Ironware Technical supplies $ jan X TD X PI jan 2015 Knowhow Training $ 200 X AK X PI jan 2015 Dr. Smart Research $ 150 X JR PI jan 2015 Staples Office supplies $ 150 X 10

11 This register enables you to keep track on outstanding purchase invoices and also on its status (e.g. is the invoice paid or not?). The register enables you to keep track on invoices. Consider the last three columns. These columns show where the invoice is and its status. For example: PI001 = > PI002 = > PI003 = > PI004 = > The invoice is in the file, authorized (by TD) and paid (16 th January) The invoice is back in the file and authorized (by AK), but not yet paid The invoice is not in the file, but with staff member (JR) for authorization In the file, but not yet authorized You may use abbreviations for the staff members concerned (in Table 3.2 TD, AK & JR) This register can be used as a table of content for the sales invoice file This is only an example and you may adapt this table by adding / changing columns Bank statements For each bank account your organisation has, you receive statements from the bank. If the bank doesn t send you these automatically, request your bank to do so Make arrangements that you receive your bank statements regularly and swiftly (for example every 2 weeks and no longer interval between payments and bank statement of one week). For each bank account, the related bank statements must be kept in separate files Keep in each file the bank statements in order of bank statement number. Check regularly if bank statements are missing; when bank statements are missing and you cannot retrieve them, approach your bank and request a copy. If you receive your bank statements electronically, or if you have to download them from a secured website, you should always make a print for your financial records. If you want to know more about bank transactions and bank statements, Module 2 presents elaborate information on this subject. 11

12 Organizing your cash receipts and vouchers To organize the cash administration is sometimes difficult for organizations and therefore needs extra attention. All cash receipts and vouchers need to be numbered They need to be registered in date order in a cash book All cash receipts need to be embodied in a dedicated folder, as well as all cash vouchers Each month the cash book must be checked and reconciled with the cash count A copy of the monthly cash book sheet must be added in the dedicated folder If you want to know more about cash books, Module 4 presents more information on this topic. Salary slips and wage records Organisations may employ staff who receives a (monthly) salary. Mostly staff receives a salary slip that presents net salary, deductions, compensations and gross salary. Salary slips must be kept in a separate file This file should not only contains salary slips, but a summary payroll register as well For example consider table 3.3 Table 3.3 Example Summary Payroll register As salaries are normally paid monthly, the Summary Payroll register should be equally developed each month This register must be added to the salary slips in the file The file should have tabs to separate each month As each employee must have a labour contract, these contracts must be kept together in a separate folder as well. 12

13 Other non-typical documents Documents that contain financial information but cannot be classified as one of the above documents, should be filed in a separate folder Examples of such documents are: memo s, internal invoices, one off vouchers. Tips for organizing your permanent documents Other documents, often legal documents, should be filed as well. For example: Insurance Policies Extract Chamber of Commerce Articles of Incorporation Loans and Lease contracts Lease contact with the landlord Other and similar documents These are often important documents that need to be kept safe. Preferably these documents should be kept in a centralized file and not in various files, at different departments. It is recommended to appoint someone in the organisation who is responsible for archiving these documents in a central file. If some departments need these documents as well, you may provide them with copies. The original documents should be kept in a central file. A table of content should be added to this file. 3.2 HOW TO ORGANIZE THE AUTHORIZATION PROCESSES? Authorization refers to the signing of a document to approve for payment. The signature verifies that an authorized member has reviewed the document and has agreed to its content. Authorization of financial transactions ensures that staff / board members of sufficient seniority are aware of their responsibilities in safeguarding the financial means and assets and helps guard against errors and irregularities. The FPMF sets standards for authorization policies and procedures. These standards apply to confederations and federations with an annual income more than 75,000. Federations having an annual income less than 75,000 should strive to comply with these standards as much as possible Authorization Policy Organizations must have an authorization policy that assigns employees of sufficient seniority having responsibility for approving documents and payments. Organizations should develop and implement an authorization sheet that appoint all levels of authority in their organization. See Figure

14 Figure 3.5 Example Authorization Sheet Field of authority Limited amounts Authorized staff members: Purchases and other uses of resources Hiring staff and signing of contracts of employment Approving payments Issuing cheques Other fields of authority Limit 1: 500 Limit 2: Limit 3: Limit 4: > n.a. Limit 1: 500 Limit 2: Limit 3: Limit 4: > Limit 1: 500 Limit 2: Limit 3: Limit 4 : > Project officer Project manager Executive manager 2 Board members Executive manager and 1 Board member Project officer Project manager Executive manager 2 Board members Bookkeeper Head of Finance Head of Finance and Executive manager 2 Board members Explanation of the Authorization Sheet 1. Column Field of Authority specifies the items that need to be authorized. 2. Column Limited amounts specifies the relevant amounts to which staff / board members have authority to sign. Each organisation must develop their own limits. 3. Column Authorized staff members specifies the position of the staff / board member who is authorized for a specific item and amount. 4. Note that sometimes signatories of more than one person is needed. 5. An extra column may be added. In this extra column authorized staff can write down there signature, so that finance staff can recognize this when verifying payment orders. Especially for organizations employing many staff ( + 100) this is recommended. This sheet presents only an example of some fields of authority that must be clarified within each organization. Each organization should assess their own internal processes and decide for which processes authorization need to be arranged. They must identify these processes and appoint staff members who must have delegated authority, in order to let operations run smoothly. Organizations should strive for a balance between being in control versus having an efficient organization. Operational staff members should not have to waist time getting a signature from a board member for standard operations. Only for high amounts, board members should be involved in the authorization process. An authorization sheet must be present in each organization and should be reviewed yearly. 14

15 KEY MESSAGE: CONFEDERATIONS AND FEDERATIONS WITH AN ANNUAL INCOME OF MORE THAN 75,000 MUST DEVELOP A SIMILAR AUTHORIZATION SHEET THAT IS APPROPRIATE FOR THEIR OWN ORGANISATION. The Finance department must have a copy of this Authorization Sheet, since they need to be informed who may sign specific documents and to which level Authorization Procedures Documents need to be authorized in writing. Verbal approval is not sufficient for authorization. For this purpose organizations should use an approval sheet. An approval sheet is a paper sheet that is attached to each supporting document for coding and approval. KEY MESSAGE: ON AN APPROVAL SHEET USEFUL ACCOUNTING INFORMATION CAN BE COLLECTED FROM THE DESIGNATED STAFF MEMBER. THEREFORE IT IS A VERY HANDY TOOL THAT SHOULD BE USED. Figure 3.6 presents an example approval sheet. Organizations may adapt this sheet according to their own needs and situation. Figure 3.6 Example Approval Sheet To be filled in by the finance department 1. Details of the document Date: Amount: Reference number: 2. Details of supplier or payee Name: Address: City: 3. Method of payment Bank: Cash: Details of Bank Name Bank: Address of bank: City: Bank account number: Bank code (if requested): To be filled in by authorized staff member 4. Coding and approval Cost centre Project code / (Sub)-activity code Approved: By: Date: To be filled by book keeper 5. Accounting Entered in records by: Date: Date of payment: 15

16 Explanation of the Approval Sheet The Approval Sheet consists of 5 boxes Details of the document Details of supplier or payee Method of payment Coding and approval Accounting The financial department (administrator / bookkeeper) fills the boxes 1,2 and 3. Box 1: Date of the document, the amount (VAT included) and the reference number. This can be the subsequent internal registration number or external invoice number of the supplier. Box 2: the details of the supplier or the payee. Fill in the name, address en city of the supplier. Box 3: Method of payment; mark the bank or cash box When the payment is performed by bank than details of the bank must be filled in. Fill in the name and address of the supplier / payee, the bank account number. Sometimes there s a banking code (e.g. SWIFT) needed. If so, please add this code on the sheet as well. After having the information written on the approval sheet, attach this to the invoice / document and distribute it to the designated staff member for authorization. If your organization manages multiple projects, having an overview of projects and signatories can be handy. See Figure 3.7 Figure 3.7 Project Overview and budget holders PROJECT OF AUTHORITY: LIMITS APPLIED: DESIGNATED PERSONS / BUDGET HOLDER: 1. Project name: 2. Project name: 3. Project name: Up to $ 2,500 Over $ 2,500 Up to $ 2,500 Over $ 2,500 Up to $ 2,500 Over $ 2,500 Project leader Name Manager Name Project leader Name Manager Name Project leader Name Manager Name The authorizer (budget holder) fills in box 4: cost centre project code / (sub)-activity code These codes are needed for proper accounting. 16

17 The cost centre is the internal code that accounting uses for departments or donors. For example all projects that are financed by CNVI should have the same cost centre code. See Module 4 Each project / activity that is managed by your organization must have a project or activity code. This is an internal code to separate and to recognize different projects. Authorizers must be informed about these codes. The Finance department must provide a list. The authorizer / budget fills in the codes and signs for approval. After that the authorizer / budget holder returns the document to the finance department. The bookkeeper fills in box 5. The bookkeeper fills the date that the invoice / document is recorded in the bookkeeping system and fills in the date of payment as well. After this the process is finished and the document can be archived in the dedicated file. KEY MESSAGE: ORGANIZATIONS SHOULD USE THESE TOOLS TO ENHANCE THEIR INTERNAL FINANCIAL PROCESSES FOR SUPPORTING DOCUMENTS AND AUTHORIZATION Final Practical Tips for Archiving Documents and Files After one accounting year, create new folders for the new year. The folders of the previous year must be archived. Create if possible a separate place for this purpose. Make sure that this is a safe, dry and clean place. Consider risks of flooding (e.g. by heavy rainfall), burning and moisture. Consider the risks of insects and bugs eating up your files. Consider how long you must keep your supporting documents in your file. Take into account any regulatory terms or terms imposed by donor organisations. 17

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