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1.1 CHAPTER ONE: Introduction

Doing internship is mandatory for the students of Department of Business Administration of


Jahangirnagar University. Final and 8th semester of BBA program requires internship which
involves 3 months organizational attachment for practical experience and 1 month time for
report writing. As per norm this report is the fulfillment of the mandatory requirement for the
evaluation process of the 8th semester and internship program. This report titled “Financial
Management of NGO: Case of ActionAid Bangladesh with Comparative Discussions of
Practices in Profit Oriented Firms” is the outcome of 3-months internship in the Finance
and Administration Unit at the Country Office of ActionAid Bangladesh. The topic is
assigned by Syed Naushad Ahmed, Sun Support Accountant of ActionAid International and
former Head of Finance and Administration of ActionAid Bangladesh. During the internship
period I was assigned with the jobs related to the Fund Management of the partners, and Cash
Management Section of Finance Department. I was under the direct supervision of Ms.
Jesmin Banu, Head of Finance and Administration of ActionAid Bangladesh. I have prepared
this internship report with the mentioned topic, which was supervised by my academic
supervisor Mohammad Farhad Hossain, Associate Professor of Jahangirnagar University.

1.1.1 Objective of the Report


The objective of the report is to know the financial management of NGOs as non-profitable
organization and also to present a comparative scenario of financial management of non-
profit and profit oriented firms.

1.1.2 Scope of the Report


The scope is limited within the Country Office of ActionAid Bangladesh and especially
within the Finance & Administration Unit of ActionAid Bangladesh. Here I mentioned a part
of financial works of ActionAid Bangladesh giving emphasis on their finance structure,
accounting, auditing, budgeting, taxation, and performance evaluation & controlling of
projects in financial aspect.

1.1.3 Methodology
The method is mainly discussion and sharing of information with staff members of AAB and
review of their operational documents and manuals. AAB’s publications have used to prepare
this report. I also incorporated with verbal suggestions of the staff members, which helped me
a lot to enhance my knowledge. The secondary sources for data collection were published
annual reports, annual financial reports of AAB, electronic publications of AAB and their

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country strategic paper.

1.1.4 Limitations
Proper guidance from more professionals of similar sector could enrich this report and also
could make it more informative and comparable. But their time constraints could not allow
me to do that, which seemed to me a limitation to prepare this report. Another limitation is
that, comparable information is not available in this report as I was only permitted to
complete my internship in a single organization, i.e Actionaid Bangladesh.

1.1.5 Structure of the Report


The report is divided into two main parts:

Part 1: Organizational overview contains snapshot of ActionAid Bangladesh, functions of


ActionAid Bangladesh, overall financial performance of AAB (In 2005 and
2006), and AAB’s current state of operations and future direction.

Part 2: First portion of the project part is the introduction to the project. ActionAid
Bangladesh’s Financial Management, Accounting System, Budgeting,
Taxation, Auditing, Performance Evaluation & Controlling of Projects are the
core chapters of this part. Major findings, recommendations and lastly
conclusion are given to end the project.
.

1.2 CHAPTER TWO: Snapshot of ActionAid Bangladesh

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ActionAid is an international development organization working over 35 countries, with its


head quarter based in the United Kingdom and Secretariat at South Africa. Actionaid
Bangladesh (AAB) is one of the five country programs in Asia and has been operating in
Bangladesh since 1983. Four broad thematic areas are main program intervention areas of
AAB e.g. Education, Governance, Livelihood and Stop Violence against Women & Girls.

Actionaid Bangladesh (AAB) is registered with NGO Affairs Bureau of Bangladesh


Government under the Foreign Donations (Voluntary Activities) Regulation Rules, 1978 vide
registration no. FD/R No-210, Date 27/04/1986.

1.2.1 Location of ActionAid Bangladesh and ActionAid International


The addresses of ActionAid International and ActionAid Bangladesh are as follows:

ActionAid International ActionAid Bangladesh


Post Net Suite # 248 Road no#136,
Private Bag X31 House no#8,
Saxonwold 2132 Gulshan-1, Dhaka-1212
Johanesburg, South Africa Bangladesh

1.2.2 Historical background of AAB

1.2.2.1 ActionAid International


ActionAid was founded in 1972 by Mr. Cecil Jackson-Cole, a business man who
believed that business people should actively support charities, with the name Action
in distress (Aid) with the objective to provide education, health support, and
emergency relief to the poor children as service oriented activities. In 1979 it changes
its name to ActionAid and started to work in 20 countries.

1.2.2.2 Brief history


When ActionAid was established in 1972, its primary aim was to assist some of the
world’s poorest children, firstly with primary education, and then with practical
skills, which would help them build a more secure future. It soon learnt that providing
primary education and training was not enough. It was only the first step in building a
program that will reduce poverty and enable children to have a better future. By the
end of the decade, its work had expanded to include long-term health, sanitation and

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agricultural projects that would improve living conditions for children and their
families. In 1978 it started its first project undertaking integrated community
development.

In 1974 it supplied emergency relief for the first time when Hurricane Fifi struck
Honduras - funding food, clothing, medicines and tools for thousands of homeless
people in 250 isolated villages. In the same year in Bangladesh it also funded
provision of 50,000 meals a day, glucose and medicines for the people of eight towns
devastated by floods.

From the mid seventies, the focus of its work started shifting. From solely providing
education it moved on to helping children and their families to become self-
supporting. By the start of the1980s, its focus had shifted again to ensure it was
tackling the root causes of poverty, not just the symptoms. There are many complex
and inter-related causes of poverty. High child mortality and malnutrition, high birth
rates, low literacy rates, limited access to clean water and sanitation, health care and
education, insufficient land to grow food and lack of credit to buy seeds and tools -
these are just some of the factors that can contribute to poverty.

It had learned that for its work to be of lasting benefit, it needed to work with whole
communities to boost agricultural production, improve water supplies, gain access to
basic healthcare and find new sources of income. Programs in education, agriculture,
health, water, skills training and helping people to organize and access savings and
credit were integrated so that each supported the other. It also helped communities
organize themselves to challenge injustice and ensure they received their entitlements
and as much assistance as they could from their own governments.

1.2.3 Introduction to ActionAid Bangladesh


ActionAid Bangladesh (AAB) started as a small operator in the coastal areas of Bangladesh in
the district of Bhola in 1983 to manage disaster but over the years its work shifted more
towards a rights-based approach. This was one of the key approach changes. AAB's current
strategy is aligned with the poor and excluded people. It emphasizes the agency and the action
of the poor and excluded people as the primary engine of development to eradicate poverty
and injustice from society of Bangladesh.

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A rights-based approach to development implies, as mentioned in 1CSP III, recognition of the


rights of people not only to fulfill their basic needs, but also to treat them with equal dignity
and realize their creative potential and state obligations to create an enabling environment for
assertion of their fundamental rights. In the promotion of the rights-based approach to end
poverty and injustice, the concepts of equality, citizenship and justice are critical.

This evolution has been the imperative of the empirical experience that the organization
gained through its long and deep involvement in combating poverty and knowing its
structural causes. Questions of rights of women, excluded groups and the livelihoods of the
poor and the marginalized now occupy a front seat.

At present AAB works in 35 districts and has more than 200 local and community-based
partner organizations. While AAB sets its own strategy, it is an international organization
with national accountability. The unity with ActionAid International is in the common
vision, mission and values, this enables AAB to take a determined action in the fight to
eradicate poverty and establish equal rights.

From its inception to the present times, AAB moved from the regional to the thematic
approach in its work. However the core values remain unchanged. There are 12 ongoing
projects with major donors and child sponsorship continues to be a major source of fund.
The present Country Strategy Paper III of AAB focuses on “Equality, Citizenship and
Justice” which sums up the core concerns of AAB’s work.

A new Country Strategy Paper was initiated in 2004, which required operational changes to
cope with new challenges. As a result, there has been a change from regionalization to
thematic programs based on AAB’s learning, experience and history of work for better
coherence. The themes are now pursuing to achieve specific strategic objectives and this has
provided greater space to engage the partners and other actors both at the local and national
level. With stronger position at the policy making level, there is now increased synergy in
AAB’s work as it benefits from linkages across themes.

1
Country Strategy Paper III

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1.2.4 Organizational Objectives, Goals & Strategic Objectives by Themes, Mission,


Vision, and Core Values of AAB

1.2.4.1 Organizational Objectives


The organizational objectives for AAB according to Country Strategy Paper III which
is applicable for the time period 2005-2009 are presented below.
Organizational objectives according to CSP III
• To promote effective organizational culture
• To promote Human Resource Development system that continuously
addresses the needs and updates the capacities of staff
• To promote gender equity and equality
• To nurture shared learning and establish a system of knowledge
management to promote institutional memory and greater synergy of
work
• Commitment towards monitoring and evaluation for better understanding
for the changes in the lives of poor and marginalized
• To establish national accountability in light of internationalization
• To allocate resources at the optimum level for cost effectiveness and
ensuring financial transparency
• To raise sufficient resources and effectively manage the resources to be
efficient, effective and transparent

1.2.4.2 Goals & Strategic Objectives of AAB by Themes

Goal 1: Poor and marginalized people’s rights over their livelihoods are more secure

Strategic objectives for achieving goal 1


• To facilitate an enabling environment where poor and marginalized
people are able to exercise their right to sustainable livelihood through
access to employment opportunities, and also able to claim their fair
share from the institutions, capital and market
• To reduce vulnerability and risk to the livelihood of the poor and
marginalized from disasters
• To increase access and control over natural resources and public
services by the poor and marginalized

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Goal 2: Women’s rights are advanced for gender equality

Strategic objectives for achieving goal 2


• To promote women’s right to self determination and create an enabling
environment for their effective participation in social, political, economic
and environmental dimensions
• To create an enabling environment for practice of egalitarian gender
relations and active citizenship by adolescent
• To promote a culture of zero tolerance of violence against women

Goal 3: Development of a society inclusive culture where diversity is celebrated,


equal citizenship exercised, and non- discrimination is actively practiced

Strategic objectives for achieving goal 3


• To assert equal citizenship by those of diverse origins based on ethnicity,
language and religion
• To promote an inclusive and barrier free society where enabling
environment and conditions prevail for the people of disabilities
• To promote active processes for inclusion of the socially excluded

Goal 4: People’s movements for social and economic justice are strengthened

Strategic objectives for achieving goal 4


• To promote the right to “quality education” for the poor and marginalized
children
• To promote public accountability of the government, private sector and
international development agencies that secures economic justice for all
• To promote the right to quality health care for the poor and marginalized

1.2.4.3 AAB’s Mission


A confident and responsible nation, free from poverty and indignity, in which its
citizens can lead an active life of freedom and livelihood security.

1.2.4.4 AAB’s Vision


To work with poor and marginalized women, men, girls and boys to eradicate poverty
by overcoming the injustice and inequity that causes it.

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1.2.4.5 AAB’s Core Values

Throughout ActionAid the following values are maintained form the common basis to
help in designing all organizational policy and practice.

Each person in ActionAid has the right to expect to be treated and the obligation to
treat others according to these principles implicit in organizational values. AAB will
actively, explicitly and continuously invest in keeping its values alive.

Mutual Respect: ActionAid recognizes the innate dignity and worth of all people and
the value of diversity.

Equity and justice: ActionAid will ensure that every person, irrespective of sex, age,
race, colour, class and religion has an equal opportunity to express and utilize her or
his potential.

Honesty and transparency: ActionAid will be accountable for the effectiveness of


their actions and open in their judgments and communications with others.

Solidarity: ActionAid’s only bias will be a commitment to the interest of the poor and
powerless.

Courage and conviction: ActionAid will have the courage of our convictions to be
creative and radical, without fear of failure, in pursuit of making the greatest possible
impact on the causes of poverty.

Independence: ActionAid will be independent of any religious or party political


affiliation.

Humility: ActionAid recognize that they are part of an alliance against poverty and
so, in their presentation and behavior, they will demonstrate humility.

Efficiency: ActionAid will manage their organization in the most cost effective and
efficient manner possible in order to maximize the impact of the resources that are
dedicated to their ultimate objective of eradicating poverty.

Excellence: ActionAid will try and attain the highest standards in their work with a

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view to establishing ActionAid as a world leader in terms of the quality of the their
development work.

Proximity: ActionAid will take decisions as close to their consequences as possible.

1.2.5 International organizational structure of ActionAid


With its head office in UK, Actionaid has three regional offices based in Asia, Africa and
Latin America in the world to operationalize its work in the poorest countries in the world.

The Head office primarily comprised of the following units:

Table 1: International organizational structure of ActionAid


Name of the department Purpose
Marketing department It assigned to manage and raise funds for the
organization. It has diversified funding
sources, starting from regular giving income
from sponsors to huge grants from large
donors, e.g. DFID, European Commission,
Ford Foundation etc.
Policy support unit The unit is assigned to lobby the international
agencies in the arena of formulation of
policies in education, food rights, tied aid,
emergency response, HIV/AIDS, trade issues,
etc. In addition to that it is also involved in
the building partnership with global agencies.
Finance unit & IT unit It maintains the global accounts linked with
income from the alliance partners to
expenditure to the country where it is
operating. It also maintaining the IT
infrastructure of the organization.

The regional offices with the same functions as above are maintaining the linkages
between the country program and the head office.

1.3 CHAPTER THREE: Functions of ActionAid Bangladesh

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Common work approaches followed in AAB form a strong basis for their unity. AAB is
committed to creating a diverse workforce that positively acknowledges the differences
existing between people- such as sex, gender, race, age, ethnic origin, caste, class, color,
belief, nationality, HIV status, sexual orientation, disability, education, social background etc.
These differences may lead to differences in attitudes, experiences, and ways of thinking,
behaving, communicating and working. AAB reserves the right to add other categories to this
list and will apply this principle in all aspects of organizational practice. AAB recognizes that
a diverse workforce leads to better organizational performance, improved productivity.

This chapter gives the detailed description of various functional units of AAB, it’s logo &
slogan, and organogram.

1.3.1 Identity & Resources Mobilization

IRM Dept. through its three unique functions of Sponsorship, Partnership Development and
Identity hope to create a cohesive and winning team environment to achieve a cost-effective
funding base for AAB through horizontal team work as well as interlink AAB’s local and
national issues and identity with other development stakeholders. It also hopes to create wider
space for shared learning and best practices through regular flow of information both from its
local partnerships as well as AAI Country Programs.

1.3.1.1 Sponsorship
1. Rights Based Approach and its outcomes/impacts more tangible to the supporters
in its telling of the reports
2. Creating opportunities for supporters to move on from being donors to becoming
active supporters of the social movements.
3. Capacity building of the staff of partner organizations to ensure the real and
organized program information from the field
4. Arranged communication training for Development Area (DA) staff

1.3.1.2 The Identity Unit


1. The identity of AAB is rolled out through information and case stories of their
work published in newsletters, brochures, information packs, identity materials
( such as posters, leaflets, greeting cards, year planners etc), photographs, media
and news articles ( both national and international), participation in national and
international programs and exhibitions, the website and the intranet.

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2. Identity produces social messages in the print media and regularly follow up with
the media on programmatic involvements as well as continue dialogues on a
regular basis.
3. Develops partnerships with educational institutions to promote future leadership
in the development sector and to familiarize the young leaders of tomorrow about
work in development.
4. Shares local/national issues in the international forums through electronic media,
website and external publications and regular communications update “The Asia
Update”
5. Produce television and radio spots on priority sectored issues
6. Produces items for enhancing AAB’s Identity through video documentation
7. Developing media strategy for better professional linkages and capacity building
of grass roots level journalists
8. Gives active support to local and international campaigns

1.3.1.3 Partnership Development


1. Partnership Development Unit started with the inception of Identity & Resource
Mobilization Department (IRM) of AAB (Oct.2001). Since then Partnership
Development initiated a process of developing a structured fundraising system
with strategies, policies, donor relationship, systems of archiving, contract
management and overall capacity of official and non official fundraising, etc
2. Partnership development deals with official funding and relationships with
bilateral and multilateral donors, trusts, foundations & corporations.
3. Partnership Development unit also closely works with the DA and project
partners to build their fundraising capacity
4. Partnership Development unit critically engages itself with donors to influence
5. Partnership Development unit works both with internal and external entities

Figure 1: Organogram of IRM Department

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Head

Sponsorship Partnership Development Identity

Assoc. Coordinator Assoc. Coordinator Assoc. Coordinator

Officer

Assoc. Officer Assoc. Coordinator


Assoc. Officer

1.3.2 Finance and Administration


AAB finance and administration unit work together. The main responsibilities of finance
department are:

1. Financial management (Planning, Fund management, Monitoring & Controlling)


2. Financial accountability
3. Internal controls
4. Recording financial events
5. Audits
6. Budgeting and planning
7. Treasury management
8. Reporting financial information
9. Financial efficiency measurement
10. Capacity building of Finance Staff members of AAB and at partners’ end

Work done by a ten (10) member team of dedicated and expert staff members under the
leadership and management responsibilities of Head of Finance and Administration.
Team contains different level of staff members, i.e Manager, Deputy Manager, Officer,
Associate Officer.

Setting Strategic Direction done by Board of Trustees and International Directors.

The core responsibilities of Administration department are:

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1. Assisting in organizing International & national meetings, seminars, workshops,


training courses and projects related events including administrative and logistics support
2. Processing visa & ticketing, maintaining petty cash ,coordinating and monitoring work
of support staff, keeping an inventory record of all properties, supervising office equipments
and maintenance
3. Procuring and purchasing equipments, reviewing vouchers and requesting for
payments related administrative functions, ensuring office safety, security and
cleanliness, making arrangements for travel and accommodation
4. Ensuring and keep functioning the communication systems of the office (internal &
external)
5. Vehicle management and provide vehicle support to field visit and different events

Figure 2: Organogram of Finance & Administration Unit

Head of Finance and Administration

Manager Administration Manager Finance

Officer
Deputy Manager
Administration

Officer
Support Staff

Assoc. Officer

1.3.3 Human Resources & IT


1. Staff recruitment as per need
2. Placement of staff
3. Confirmation of regular staff, extension of probation period
4. Preparing Employment Policy, Consultant & Outsourcing Policy, Volunteer
Policy, International Secondment Policy
5. Preparing job description of each personnel
6. Performance appraisal of the staffs
7. Arrangement of staff capacity building, staff retrenchment, staff leave, staff
leaving a job, staff medical benefits.

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8. Management of smooth and uninterrupted ISP service


9. Plan, organize and procure IT items as per need

Figure 3: Organogram of HR & IT Unit

Head of HR & IT

Coordinator-IT Coordinator-HR

Officer Officer

Assoc. Officer

1.3.4 Country Director’s Unit


Country Director’s (CD) unit consists of CD’s unit, internal audit,
monitoring & evaluation, reflects development and shared learning. The
responsibility of CD is
1. To rebuild and re-invigorate the organization and bring about
stability within the organization
2. To deal with the negative publicity and other troublesome
issues
3. To spend time on mission level issues and to do field visits to
understand the perspectives of the poor and marginalized
people that AAB works for
4. To finalize various policies and publish the CSP.
5. To build up the relationship with the partners as well as AAB’s
donors.

Figure 4: Organogram of Country Director's Unit

Country Director

Assistance to CD

Monitoring & Reflect


Internal Audit Shared Learning
Evaluation Development

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1.3.5 Livelihood Security & Risk Reduction


The goal of this sector is to ensure a more secure livelihood for the poor and marginalized
people. Promotion and strengthening of livelihoods, protection from disasters, access to and
control over natural resources are the three themes in this sector.

1.3.6 Women’s Rights & Gender Equality


Gender sensitivity and promotion of women’s right and equal access for women in all the
programs and projects are the primary focus of AAB. It works to advance women’s rights for
gender equality, create an enabling culture to practice gender equality among youth and
adolescents and prevent violence against women.

1.3.7 Rights & Social Justice


AAB works for a socially inclusive culture where diversity is celebrated, equal citizenship
exercised and non-discrimination is actively practiced. This sector includes three themes
diversity and citizenship, disability & enabling environment and social inclusion.

1.3.8 Social Development & Economic. Justice


AAB tends to strengthen people’s movements for social development and economic justice
through ensuring quality education, economic justice and quality health care for all. Their
objective is to promote public accountability of government, private sector and international
development agencies that secures economic justice for all.

Figure 5: Organogram of Livelihood Security & Risk Reduction, Women’s Rights & Gender
Equality, Rights & Social Justice and Social Development & Economic. Justice Units

Sector Head Sector Head Sector Head Sector Head

LS & RR WR & GE R & SJ SD & EJ

Theme Leader

Program Officer

Assoc. Program Officer

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1.3.9 The logo and slogan of ActionAid Bangladesh

1.3.9.1 The logo of ActionAid Bangladesh is:

1.3.9.2 The slogan of ActionAid Bangladesh is:

1.3.10 Organogram of ActionAid Bangladesh

An organogram of ActionAid Bangladesh is attached in the following page.

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Figure 6: Organogram of ActionAid Bangladesh

ActionAid
Bangladesh

Head- Head- Head-


Head- Liveliho Women’ Social
Finance od s Rights Head- Develop
and Head- CD’s & ment &
Security Rights
Head- Adminis Gender E.
HR & Unit & Risk & Social
tration Reducti Equality Justice Justice
IRM
IT on

Monitori
Identity Finance HR Diversit
Liveliho
& Partners ng &
Manage od Women’ y& Educatio
Commu &
Evaluati Promoti
nication capacity
ment on s Right Citizens n
s building
on
hip

Sponsor Organiz
Emerge Adolesc Econom
ship ational ncy and
Finance Internal Risk ent & Disabilit ic
Manage Develop Reducti
Projects Audit Youth y Justice
on
ment ment

Reflect
Fundrais Informat
Develop Natural
Social
ing and ion Resourc Violenc
Adminis ment es & e against
Contract Technol Inclusio Health
Public Women
tration Unit n
Services
Mgt ogy

Shared

Learnin

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1.4 CHAPTER FOUR: Overall Financial Performance of AAB (In 2005 and 2006)

The overall financial performance of AAB is measured by the total income it received,
percentage of costs according to international themes, and trends of income & expenditure.
The analysis of these data for the year 2005 and 2006 is presented in the following section.

1.4.1 Income mix


The total income for 2005 and 2006 was £ 3.59 and £ 3.94 million
respectively. From this AAB has spent £ 2.88 and £ 2.96 million as project
cost for the year 2005 and 2006. The percentage of income mix was:

Table 2: Income mix in 2005 and 2006 Figure 7: Income mix 2005
Year 2005 2006
Regular giving 61% 48.51%
Other regular giving 0.97% 16.23%
Partnership (official) 35% 9.81%
Partnership (others) 2.36% 12.07%
Others 0.31% 0.33%
Transfer in 1.13% 13.05%
Total 100% 100%

Incomemix2005

2.36% 0.31% 1.13%

35%

61%
0.97%

Regular giving Other regular giving


Partnership (official) Partnership (others)
Others Transfer in

The income from Regular Giving is high for both the year 2005 and 2006. The income from
Partnership (official) is high in 2005 but in 2006 the second highest position held by other
regular giving. The least income came from other source for both the year as shown in the
graphs.

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Figure 8: Income mix 2006

Incomemix2006
13.05%
0.33%

12.07% 48.51%

9.81%
16.23%
Regular giving Other regular giving
Partnership (official) Partnership (others)
Others Transfer in

In 2005 the income from Regular giving and Partnership (official) are higher from 2006 as
shown in the above graphs. The income form Other Regular Giving, Partnership (others) and
Transfer in are higher in 2006 than 2005.

1.4.2 Percentage of costs according to International Themes


The analysis according to the various international themes is the following.

Table 3: Percentage of costs according to Figure 9: % of costs according to International


Themes 2005
International Themes in 2005 and 2006
Year 2005
% of costs according 2006themes 2005
to international
5%
Food and hunger7% 25% 31%
2%
Women’s rights 12% 20% 25%
Human security 22% 18%
Right to education 28% 15%
12%
28%
Governance 7% 7%
22%
HIV/AIDS 5% 5%
Food and hunger Women’s rights Human security
OthersRight to education 2%
Governance 4%HIV /A IDS
Total Others 100% 100%

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% of costs according to international themes


2005
5%
7%
2%
25%

12%
28%
22%
Food and hunger Women’s rights Human security
Right to education Governance HIV/AIDS
Others

The development works of AAB for its international themes are higher in
2006 than 2005 in the themes like: Food and Hunger, Women’s Rights and
Others. In Human Security and Right to Education the costs are more in
2005 where in Governance and HIV/AIDS themes it remained almost same
for the both year.

1.4.3 Trends of income and expenditure in AAB


The following graph shows AAB’s last four years income and expenditure
pattern from year 2004 to 2006 are given below. Here we can see the
expenditures increased with incomes and in the year 2005 and 2006 the
expenditures were almost equal to incomes.

Table 4: Income and expenditure trend (2004-2006)

In GBP ‘000
Year 2004 2005 2006
Income 4,394 3,396 3,784
Expenditure
3,492 3,296 3,765

Figure 11: Trends of income and expenditure in AAB


Trends of income & expenditure
5,000
4,500
4,000
3,500
In GBP '000

3,000
2,500
2,000
1,500
1,000
500
0
2004 2005 2006
Income Year Expenditure

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1.4.4 SWOT Analysis of AAB

The SWOT analysis comprises of the organization’s internal strength and weakness and
external opportunities and threats. SWOT analysis helps the company an insight of what they
can do very important to identify the current position of the strategic analysis of the
organization.

1.4.4.1 The strengths of AAB are:


 Good organizational culture of AAB.
 Its young, energetic, sincere and skilled workers.
 To attract donor ActionAid has priority over other companies because it spreads in
40 countries.
 ActionAid is centralized. So each Country Director has responsibility to the head of
ActionAid for reporting.
 ActionAid acts as pressure group for the Government.
 Good organizational culture of AAB.
 Participatory program development on need basis, which promotes harmony and
goodwill with in the organization, in the communities where it works and amongst
the donors.

1.4.4.2 The weaknesses of AAB are:


 Violation of policy as per senior management instruction sometimes happened.
 None is directly liable to anyone for his/her duties. The leader is all in one. So
negligence in service may occur.
 Sometimes, ActionAid is criticized for not maintaining good relationship with NGO
affairs bureau.
 Weakness in management system including unbalanced distribution of
responsibilities, inadequate and inappropriate assessment and evaluation of projects,
lack of unity in management.

1.4.4.3 The opportunities of AAB are:


 More scope of collaboration with various government programs.
 Greater collaborative programs with other NGOs.
 Diversification of donor source.
 Expanding activities in new areas and new fields of activities.

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 The policies are reviewed time to time, so there is lot of opportunity to adapt the
policies with the changing demand of the world.

1.4.4.4 The threats of AAB are:


 ActionAid may lose donor fund if they don’t maintain good liaison relationship with
donor organization.
 Multiplicity of NGOs in Bangladesh.
 Government policy change and bureaucratic nature of decision making lead to
unequal exchange.

1.5 CHAPTER FIVE: AAB’s Current State of Operations and its Expected Future
Direction

Currently AAB is operating in Bangladesh with a hope to eradicate poverty. AA has six
international themes. They are Food and hunger, Women’s rights, Human security, Right to
education, Governance and HIV/AIDS. Of that, in Bangladesh it gives most emphasize on
food and hunger theme. The rationale of this, they are trying to enhance the livelihood of the
marginalized people of Bangladesh.

ActionAid International, which has been working in Bangladesh since 1983, is uniquely
placed to address the development challenges that the people of Bangladesh will face in the
coming years. Over the past 20 years, AAB has established a track record for working
effectively with communities for their advancement and empowerment. Since 1998, AAB has
expanded its partnership to include organizations from vulnerable locations throughout the
country. It has developed expertise in working with disabled, development of adolescent
programs.

The special characteristics of AAB to promote and strengthen national leadership within an
international organization, and its funding structure provide AAB with a unique opportunity

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to pursue the challenges faced by Bangladesh in the coming years through development of
innovative grassroots programs and provide policy insights and directions. This will provide
AAB the strategic advantage. Though, AAB faces some problems in strategic and operational
level.

1.5.1 Strategic and operational issues facing AAB

1.5.1.1 Strategic issues


Although AAB emerged as public benefit organizations in advancing the interests of
a broader community where a large number of men and women are marginalized,
vulnerable to structural social injustice and victim of violation of human rights, their
management practice does not show any line of accountability to the community. The
lack of defined accountability to the community blurs the downward accountability of
AAB & other NGOs and therefore creates accountability gap.

NGOs should have accountability relationship between their peer organizations from
the perspective of upholding the standard, value tradition and reputation from the
sector. However, the reality is that the norms around the sharing of good
accountability practice are often absent and as a result NGOs frequently lack a
common standard or accepted behavior to hold each other to account.

1.5.1.2 Operational issues


For an effective organization leadership, accountability and transparency are needed.
So, AAB has to build up leadership and develop inner strategies. AAB has to elect
people in the board view of changing the nation in a positive direction.

The strategic and operational issues that AAB is facing can be minimized by the following
strategies and tactics:

1.5.2 The strategies and tactics used to cope with them

• Building responsive governance within the organization.

• Developing policy guidelines and manuals as open document.

• Coordination and creation of space for shared learning in terms of accountability.

• Regular revisit of the policies, values and norms in line with existing policies.

• Minimum standard setting for organizational accountability.

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• Promoting self assessment with organizational domain.

• Developing relationship with government officials.

• Dissemination of information at all levels.

• Practice of participatory decision making process.


• In case of preparation and implementation of policy the method should be
sharing, involvement, and dissemination.
• Peer accountability should be trust building, development of mindset about
shared learning.
• Downward accountability should be mind setting of subordinates, trust building
and reducing dependency.
• Real partnership has to build up with donor through local fund mobilization.

2.1 CHAPTER ONE: Introduction to the Project

ActionAid Bangladesh is a leading International Non Government Organization in


Bangladesh. In preparing this report financial management practice of AAB has taken among
non government sector. The study is based on the three months internship program at the
AAB. The study is about the overview of the financial management practice of AAB.

2.1.1 Objective of the Study


Through this study, I tried to attain the following objectives:
 Prime objective of my study was to find out financial management of NGO
 To reach in a comparative analysis of financial management of profitable and non-
profitable organization.

2.1.2 Significance of the Study


This project titled “Financial Management of NGO: Case of ActionAid Bangladesh with
Comparative Discussions of Practices in Profit Oriented Firms” was designed to present
the financial management of NGOs in an easy and understandable way. I have selected this

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topic to present the financial management of non profitable organization. As non profitable
organization has no profit motive, so how they organize their income and expenditure in their
financial statements according to their organizational objective was my attempt to prepare this
report. The report is totally descriptive in nature.

2.1.3 Scope of the Study


The scope of the project part is limited to the financial manuals of ActionAid and their
financial reports only. Reviews of their operational manuals are also used to prepare the
report. Besides, text books were used as supplementary when needed. A detailed list of them
has mentioned in the bibliography.

2.1.4 Methodology
Preparing a report about the financial management of an organization is a difficult and
complicated task and no single method is appropriate for preparing the report. Effective
research involves six basic steps, shown in the following figure:

Figure 12: Methodology of the research

Define the Problem Research Objective Develop Research Plan

Findings & Recommendations Data Collection


Data Analysis

The project title is “Financial Systems of NGO: Case of ActionAid Bangladesh (AAB)
with Comparative Discussions of Practices in Profit Oriented Firms”. This is a
descriptive research. The major purpose of this descriptive research is to describe the
financial management of non profit oriented organizations.
2.1.4.1 Types of Data
The report is mainly based on 2 types of data-
1. Primary data
2. Secondary data
2.1.4.2 Collection of Data
2.1.4.2.1 Primary source of data

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 Personal observation of the financial activities.


 Interview with the officials of the ActionAid Bangladesh.
2.1.4.2.2 Secondary Source of data
 Annual financial reports of ActionAid Bangladesh.
 Published documents and reports.
 Relevant Websites

2.1.5 Limitations of the Study


Some of the limitations faced while preparing this report are mentioned here:
♦ Time was the most important limitation in preparation of the internship report.
The program allotted only 3 (three) months for entire study, which disable many
opportunities for a comprehensive study.
♦ Relevant papers and documents were not available sufficiently.
♦ In many causes updated information were not available.
♦ The time schedule of AAB senior staffs did not allow me to discuss with them.
But their opinion could make this report so informative. It seems a great
limitation to me.
♦ The lack of experience of the researcher in this field may have become another
limiting factor.

2.2 CHAPTER TWO: Financial Management of ActionAid


A Bangladesh

The core requirements of the financial management aspects of AAB include structure of
finance unit, accounting procedures, recording of accounting information, budgeting,
taxation, auditing, and performance measurement & controlling of projects by finance
section.

2.2.1 Structure of Finance Unit of AAB


The structure of finance department of AAB is as follows:

Figure 13: Structure of Finance Department of AAB

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Board of Trustees/International
Set Strategic Directors

Direction

Country
Director

Leadership and Head-Finance


and
management Administration

Planning, controlling Reporting and


Payment and Cash
Statutory Capacity Building
and reporting Management
Compliance
financial activities

Table 5: Number of Employees in Finance and Administration Unit

Finance section Administration section


Head of
Payment and Reporting and Capacity Administrati Admin
Finance and
Cash Statutory Building ve Support
Administration
Management Compliance Officer Officer Staff
(HOF)

1 3 4 2 1 1 10

2.2.2 Composition of the finance team


The HOF of the Country Program has the responsibility to manage the overall financial
management of the country program. The HOF reports to the Country Director of the CP,
who is appointed by the International office of ActionAid International. In absence of the
HOF the CD is responsible of overall financial management and financial integrity of the
organization.

2.2.2.1 Performance, standards and capacity building: The team is responsible in capacity
building of the partners as well as AAB in house staff. The team engaged in appraisal and
review of projects/partners performance, review of performance In addition to that they
prepare different financial reports for AAI, Regional Office and AAB Management (as per
requirement), provide support during planning & budgeting, developing policies & procedure
and reserve management to HOF.

2.2.2.2 Reporting & statutory compliance: This team is responsible for the overall
reporting to internal as well external entities that is a part of the overall financial information
system of the organization. This includes providing expenditure/income/committed

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expenditure information to the budget holders of AAB, project reporting to the donors, project
reporting to the NGO bureau, and reporting to the international offices. Finance uses financial
software SUN for recording of all financial information, transaction, budget etc. They use
another software named VISION (Version 5) for reporting purpose. In doing so, Team
members are involved with partner expenditure checking as well as providing feedback to
them, monitoring the utilization, reconciling partner expenditure with SUN, finalizing
contracts of partners/third parties and providing support in preparation of project proposal.
Team prepares final accounts of projects of AAB and help external auditors to conduct
external audit and meet audit queries. Team also involved with providing support to internal
audit and different donor audit.

2.2.2.3 Disbursement and cash management: This team is responsible to ensure timely
payment to all third parties, including proper coding of the expenditure and verification of the
documents provided to them for payment preparation. Team members are responsible to
record transactions and reconciliation of the control account codes. The team leader of this
team will be responsible for treasury management of the Country Program.

In profit oriented organization, generally the finance team is divided in three sections, such
as Finance, Personal Accounts and Costing. Finance section handles all activities related to
debtors. It is responsible for the payment of bills. Personal account section deals with salary
payment, group insurance, foreign affairs and issues related with corporate heads. Costing
section deals with the production cost and profit related issues. So profit oriented
organization’s finance team is broad than non profit oriented organizations finance team.

2.3 CHAPTER THREE: Accounting System of Actionaid Bangladesh

Non profit organizations such as NGOs need accounting to record and account for fund
received and disbursed. Though they do not have a profit motive, yet they should operate
efficiently and use resources effectively. This chapter will give idea about the accounting
principles of AAB, their accounting cycle, financial reports & statements, accounting
equation of AAB, accounting policy and procedure, recording of accounting information, and
software used in AAB by finance unit..

2.3.1 Accounting Principles


2.3.1.1 Dual aspect principle: Double entry should be recorded in all ledgers.

2.3.1.2 Monetary principle: AAB uses Bangladeshi Taka (BDT) as its based
currency in all local financial reports. However, the transactions incurring in other

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currencies such as US Dollar (USD), Great Britain Pound (GBP) should be recorded
in the original currencies and translated into BDT based on the accounting exchange
rates for reporting purposes.

2.3.1.3 Consistent principle: This principle regulates that all the accounting
methods, books and reports should remain unchanged until their financial manual is
revised or communicated through memo and notice.

2.3.1.4 Materiality principle: A transaction will be considered as material when its


value equals to or is over GBP 1,000 or USD 1,600 or BDT 114,000.

2.3.1.5 Fully disclose principle: All transactions must be recorded in the books and
be disclosed in all financial reports.

2.3.2 The Accounting Cycle in AAB


The accounting cycle practiced in NGOs is almost same with accounting cycle of profitable
organization. They also contain bookkeeping and accounting steps.
2.3.2.1 Bookkeeping steps
1. Record transaction in a journal. Transaction means cash receipt and payment.
2. Transfer amounts from various journals to general ledger.
3. Calculate whether sum of all debit balances equals sum of all credit balances.
2.3.2.2 Accounting steps
4. Posting the cash ledger to the accounting software SUN.
6. Analysis of data for reporting and preparing financial statements.

2.3.3 Financial Reports AAB Produce (Formal & Informal)


To measure the overall financial performance of a country program each country program has
to send their Annual Financial Report to AAI. This report contains the following financial
statements:
2.3.3.1 Statement of income and expenditure - This include income from regular
giving donation, income from partnership, net transfers in, transfers out, expenditure
by project, support, fundraising & government. This statement shows the amount of
money coming into AAB, how this money was paid out and any leftover money for a
given period of time (ie: three months, one year, etc).This statement is equivalent of a
Profit and Loss Statement for profit oriented organizations. In some NGOs this
statement is called Statement of Receipts and Disbursements. A sample of income
and expenditure statement is included in appendix part (Table 1)

2.3.3.2 Balance sheet- The balance sheet provides a picture of the assets, liabilities

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and capital reserves of AAB at a given point in time. A sample of balance sheet is
included in the appendix part (Table 2).

These two statements in combination with more frequently generated performance reports can
form the basis of financial reporting for AAB. Besides, the statements needed to support this
two base statement are as follows:

2.3.3.3 Summary of movements in reserves- This table gives the summary of fund
flow from different country programs and check the reserve held at the end of the
year.
2.3.3.4 Expenditure, income and reserves by DA- Opening reserve, expenditure
and closing reserve by each Development Area is shown here.
2.3.3.5 Financial performance measures (FPM table) - It shows the progress of the
development work in a year. It is the key table to show accountability to the trustees
and donors.
The reports AAB has to submit to AAI, regional office, CD, donors are mentioned below:
Table 6: Financial reports of AAB

Report type To be submitted


Yearly financial report AAI
Annual report & Half yearly report To Regional Office

Consolidated Quarterly management To CD and Regional Office


report
Monthly management report To the CD and every budget
holder of the CP

Project financial report for the donor To the donor

2.3.4 Accounting Equation in AAB


The principal of accounting that is Asset = Liability + Owner’s Equity is also
maintained in AAB. AAB uses accrual basis of accounting.
Total assets = Debt to staffs, other country programs, income due from local contracts + cash
at bank and ST bank deposit.
Total liabilities = Due to staffs, other country programs, deferred income on local contracts
Total assets-Total liabilities = Total equity.

2.3.5 Accounting Policy and Procedure

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ActionAid has Financial Management Framework where accounting policy and procedures
are established. This involves the policies and procedures AAB should use to record and
monitor financial transactions. Its purpose is to help ActionAid:
 . Record all financial transactions
 . Monitor and control expenditures
 . Satisfy statutory reporting requirements
 . Ensure timely and accurate financial and management reporting to donors and grant-
makers

The core aspects of their accounting policy are about: income, expenditure, reserve, currency
and exchange rate movement, fixed asset, depreciation method, liabilities, accrued income
and expenditure, and advance and pre payments.

2.3.5.1 Income
AAB receives its income as donation and contribution from individual donor or
institutional donor from Bangladesh or outside of Bangladesh in support of its
activities taken under the Country Strategic Paper (CSP). Only when the income has
practical certainty of being approved then it is realized in the accounts. Main child
sponsors are from UK, Ireland, Spain, Italy and Greece.

For management purpose income is restricted according to the following group:

 (Development Area) DA /Project level

 National level and

 Un-restricted at country level

Income restricted at DA level is to be spent with sole purpose of the development of


that particular DA with the expenditure of supporting that DA. National level income
is restricted to be spent at national level to support the DA level work and to address
the broader poverty issue. Un-restricted income is spent with the approval of the CD
without having any restriction as said above.

Income from individual donor is classified according to the following structure


received from the Alliance partners.

Table 7: Income allocation

Alliance partner DA level National level Unrestricted Fundraising


UK/Italy/Ireland 70% 10% 10% 10%
Greece 60% 40%

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Spain 80% 10% 10%


Note: Income allocation is used after deduction of Alliance partner levy.

Income received from institutions is restricted according the objectives/activities that


have been agreed between the donor and AAB. Only the administrative levy is part of
the unrestricted income if the said project has covered its all operational level
expenditure.

2.3.5.2 Expenditure
Expenditure incurred must follow the internal control procedure set within the policy
and in particularly follow:

 Expenditure should be included in the financial statements in accordance with the


accruals concept i.e. recognizing expenditure in the period in which they incur.

 Must be consistent with the intention of the mission/objective of the organization.

 Must be processed in accordance with the guidelines, policies and procedures.

 Expenditure should be appropriately authorized as guided by the existing Authority


Protocol and changes there in time to time.

 All expenditures must be supported with appropriate supporting (i.e. cash memo,
challan /invoice, bills, claims, Work order etc.)

 Expenditure only which are incurred for the organization will be included in the
books of accounts.

2.3.5.3 Reserve
Reserves represent the capital of the organization, fixed and working, including short-
term resources. The statutory reserve level will remain over the Country Program
according to the 2AFMF guideline which will be not less than 2 months and not more
than 4 months of planned expenditure of the following year. Every year the reserve
level will be analyzed and reviewed before annual budgeting and it would be adjusted
in the plans & budget for the next year.

2.3.5.4 Currency and exchange rate movement


Dealing with international institutions, and having an international presence AAB is
exposed to varieties of exchange rate and as a result is open to exchange rate gain or
loss. The policy of the CP is to minimize exchange rate loss through maintaining a
Great Britain Pound sterling (GBP). Foreign currency account and utilizing the

2
ActionAid Financial Management Framework

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exchange rate information received from The HongKong and Shanghai Banking
Corporation (HSBC) and from the website www.oanda.com to translate foreign
currency to local currency.

2.3.5.5 Fixed Asset


Fixed asset are purchased and controlled to support the functions in order to efficiently
manage the organization. Fixed asset are of two types:

Table 8: Types of fixed asset

Fixed asset type Nominal value Economic life


Capital items Above or equal to £ 5,000 or 3 years
equivalent amount in BDT
Non-Capital items Below £ 5,000 or equivalent amount More than one year
in BDT

2.3.5.6 Depreciation method in AAB

Depreciation is charged to the income and expenditure account in order to write up


the cost of a fixed asset over its expected life. This means that the cost of asset will be
divided by the number of years of asset life to get the annual depreciation charge.

Capital items are subject to properly authorize, purchase, recorded, and accounted for,
valuation and disposal. It is also subject to depreciation according to the following
principle and depreciation of assets to be charged in straight-line method.

Table 9: Depreciation period of capital items

ASSET DESCRIPTION OUTSIDE EUROPE


FREEHOLD Buildings owned by ActionAid 10 years
PROPERTY International, AAB has no such
property in Bangladesh
OFFICE EQUIPMENT Computer Equipment 3 years
Other Equipment e.g. photocopiers, 3 years
generators and any other equipment
used in the CP
MOTOR VEHICLES All Motorized transport e.g. cars, trucks 3 years
Note to mention in case of depreciation: Freehold land will not be part of depreciation. Full year
depreciation charged in the year of purchase of an asset and nil in the year of disposal.

2.3.5.7 Liabilities
As AAB is following the accrual basis of accounting, it is important that financial
obligation to the third parties who have provided resources or to whom AAB is liable

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to pay (e.g. ActionAid Bangladesh employee provident fund, ActionAid Bangladesh


Employee Gratuity Fund) is accounted in the local balance sheet in the accounting
period in which the resources have been received and against whom expenditure has
been charged. It should be paid in the following accounting period and be removed
from the balance sheet simultaneously. Transaction recorded as liabilities must be
supported by sufficient documentation that establishes the basis for their inclusion in
the accounts.

However, any goods and services purchased by the CP will be on payment on delivery
basis. The CP must not have any agreement with any suppliers that require an interest
payable in case of failure of terms and conditions for payment without written approval
from the HOF and CD.

2.3.5.8 Accrued income and expenditure


Accrued income represents income due from local/international contractors with
sufficient documents supporting the realization of the income with certainty for the
project activities already completed in an accounting year. This income is categorized
to be received in the local bank account of the CP. Income due from international
donor for which the money is to be received in ActionAid International office is not
accounted for in the local account. During the year-end process, this needs to be
informed to those offices in order to be incorporated in there accounts. Income due
must properly recorded in the debtor account.

In order to accrue expenditure, the goods or services to be received against the


expenditure must be received in the accounting period with the purpose of matching
the expenditure with the budget and for which payment has not been made. While
considering the accrued expenditure the followings are to be considered by HOF:

 What are the legal arrangement of the contract and how any disputes arising are to
be settled

 Whether any entitlement to the funding requires a specific performance to be


achieved (a contract or performance related grant)

 Whether funds can be used for any of the purposes of the organization, or whether
they can only be used for a specific purpose

Accruals expenditure should not be booked in the accounts merely to show expenditure
utilization against the budget for that specific period, unless the goods or services have
been received in that specific period.

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Where the incoming resources are received in advance then ActionAid may not have
entitlement to these resources until the goods or services have been provided. In this
situation, incoming resources received in advance should be deferred until ActionAid
becomes entitled to the resources.

2.3.5.9 Advance and pre-payment


All payments in advance of the current period should be recorded as assets until receipt
of the goods or services involved or until contract terms are met. This excludes Grants
to Partners which should be expensed in the Income and Expenditure Account.
However a separate ledger to be maintained to track expenditure against the advance
made to the partners.

Finance staff ensures that invoices are verified to identify areas where prepayments
may occur. Prepayments are considered a standard business practice for the following
types of transactions; Memberships and Subscriptions, Rent, Insurance Premiums,
Payment to Government Units and Required Deposits. Other prepayments may be
acceptable only if it is cost beneficial. The location, reputation and other characteristics
of the vendor should be taken into consideration when making prepayments as it could
have a bearing on the ability to recover the payment if the vendor defaults in the
delivery of the supply or service.

2.3.6 Recording of Accounting Information in AAB


In the cash payment section, when any advance is taken by an individual it is recorded as
debit. At the time of returning the remaining amount it is recorded as credit. All the
expenditure is recorded as debit in the journal. The transaction part of a sample Cash Payment
and Receipt journal in included the appendix part (Table 3 and 4).

AAB maintains two types of vouchers. One is for payment and another one is for receipt. At
the time of receipt the all the expenditure is debited along with received amount. The original
amount that had taken as advance is recorded as credit as follows:

Only payment up to 10,000 taka is paid in cash. Payment above 10,000 taka is paid by check.
For preparing check AAB use a software HEXAGON which is supplied by HSBC. After
preparing voucher the transactions again recorded in Excel which later converted into 3SUN

3
SUN is specially designed accounting software for ActionAid which is fully equipped with lot of data
recording and analyzing tools.

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software for further analysis.

2.3.7 Software Used in Finance Unit of AAB


2.3.7.1 SUN: SUN (Version 4) is accounting software used by most of Country
Programs of ActionAid. Software is fully equipped with lot of data recording and
analyzing tools.

Through SUN they can capture:-

• Staff wise transactions (training , advance etc),


• Partner NGO wise transactions (advance, expenditure),
• Theme/ Sector wise expenditure
• Donor/ funding country wise expenditure
• Expense incurred on behalf of other county program & vice versa
• Budget

2.3.7.2 Vision: Vision is reporting software. Through this AAB can further analysis
the financial data recorded/ processed through SUN. It also gives them the space to
prepare report in time donor’s requirement. They also produce the internal
management reports (budget and actual expenditure) through vision.

In profit oriented organization and also in non profit oriented organization, accounting
policies are established based on the organization need. The objectives of accounting i.e.
analyzing and interpreting financial information, preparing financial statements, conducting
audits, designing accounting system, preparing forecasting and budgets, and providing tax
services are same. But it varies in its operational nature with the need of the organization
whether it is profit oriented or not. For example, most organizations use a standard accounting
software for accounting purpose. But it is not same in all organizations; accountants choose
the software according to their organization’s need. All NGOs require a financial
management system, however, many small NGOs may only have an accounting or
bookkeeping system. Accounting or bookkeeping are a subset of financial management. In
NGOs, financial management systems can be broken down simply into administrative
systems and accounting systems. Administrative systems assist all NGO managers in
decision-making, planning, communicating, controlling and evaluating. Accounting system is
concerned with identifying financial information, expressing the information in numeric terms
and communicating this information to interested parties. An accounting system provides the
framework for working with financial information.

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2.4 CHAPTER FOUR: Budgeting of Actionaid Bangladesh

Budgets have a crucial role to play in strong financial management. For budgets to be useful,
they must be accurate and complete. That means that they have to be based on a realistic
assessment of the activities that NGOs expect to carry out and of how they expect to pay for
them.

An important internal control of financial management is the operating and activity budget.
This budget includes all monies approved in donor proposals and all activities planned for a
given period of time (preferably the fiscal year of an organization). The line items in the
budget should coincide with chart of account line items so that expenses can easily be tagged
to budget. In AAB, budget done in accordance with its income. They follow zero based
budgeting. Using a zero-based budgeting and properly dealing with the difference from month
to month allows AAB to gain total control over every money they spend. If they spend less
than planned during the year, they can easily redirect that money where they really want it
instead of letting it misused through unfocused spending.

The parties involved in preparation of budget are sector head, finance department, and partner
organization for partner budget. Important aspect of budgeting of AAB are their three year
rolling budgeting process, budget responsibility and implementation, and yearly budgeting
process.

2.4.1 Three years rolling budgeting process


AA introduced 3 year rolling plan in 2000 which enables each AA offices to have medium

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view on its program, organizational and funding aspects.

2.4.1.1 Responsibility
• The regional finance coordinator (RFC) provides guidelines and table formats
annually. In AAB, Asia finance coordinator provides these formats.

• The HOF is responsible to coordinate the process from providing guidelines to


consolidating AAB budget tables and submit to the region.

• Budget holder is responsible to formulate the plan and budget for the area of
her/his responsibility.

• Funding & fundraising head in collaboration with the HOF is responsible to


prepare the funding plan for the whole organization.

• The senior management team is responsible to review and approve the


plan/budget as well as plan execution.

• The CD in consultation with the HOF and other concerned line managers
authorizes supplement plan/budget and or makes any adjustment when and
where necessary.

• The team leader of reporting and statutory compliance team is responsible to


review the coding and import the budget into accounting software (SUN).

2.4.1.2 Implementation

• Time for planning: September every year for 3 year plan; November every year
for annual budget.

• Time for approval within the country: October every year.

• Process: the HOF in consultation with the CD and management team will issue
guidelines for the process every year.

• A major review & planning process involving larger stakeholders will be


undertaken once every 3 years. In the years between a minor review and
readjustment of the plan will be done.

2.4.2 Yearly budgeting process

For the budgeting purpose each sector has given a budget range. Then the finance section
revises the budget and finally prepares it.

After completion of the 1+2 budgeting process the reporting and compliance team will
provide formatted budgeted expenditure with codes (for tracking expenditure) to every units

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in the CP in order to provide their plan of expenditure across twelve months. The final
individual budget is approved by the CD of the CP and a signed copy is circulated from the
finance. After completion of the monthly budget, the budget is uploaded before
commencement of the budget year.

Profit-oriented organizations sell goods or service, so they have revenues and operating cost
that must have to be budgeted. They prepare projected income statements and balance sheets.
Non profit oriented organizations prepare cashflow forecast that tells them when receipts and
payments will happen, because they cannot start spending money on the project before they
have actually received the cash. They also prepare partner budget for various projects. So the
classifications of budgets for NGOs are: Unit budget, Cashflow forecast, Salary budget,
Project budget. Unit wise budget is their master budget because it includes costs, income,
salary, and DA/ non DA budget.

2.5 CHAPTER FIVE: Taxation of Actionaid Bangladesh

Taxation is the system of raising money to finance government. All governments require
payments of money i.e. taxes from people. But non profit organizations do not have to pay
any tax for their income from grants. But the employees, who are working in there, have to
pay taxes for the incomes they received. Most of the organizations follow tax deduction at
source. The suppliers VAT are also deducted at the time of payment by accounts unit of
NGOs.

For the taxation purpose in terms of salary of employees of AAB it follows tax deduction at
income source. The withholding of Tax and suppliers’ VAT are described in the following
section:

2.5.1 Withholding Tax


The team leader of payment and cash disbursement shall ensure that withholding tax is
deducted as envisaged in the Bangladesh statutory laws. The tax deducted shall be deposited
to government treasury every quarter. S/he shall prepare statutory/tax returns and get it
approved from HOF to be submitted to authorities. The tax heads are like salary tax, VAT on
suppliers’ goods.

There is no any tax imposed on NGO income as it is grant. It is totally tax exempted. But
recently Bangladesh government is thinking to impose tax on the income from micro credit
and other small income generated activities of NGOs. But AAB has no any micro credit
scheme.

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2.5.2 Suppliers’ VAT

Suppliers’ VAT is also deducted at source by payment and cash disbursement section of AAB
at the time of payment.

Tax is the largest income source for government. For this taxation has a crucial role in
profit oriented organization. They try to give minimum tax and sometimes evade tax so
that they can enjoy most profit. They have to give tax for both the personal and corporate
income. Governments impose many types of taxes for which only profit oriented
organizations are entitled. When high tax rates affect the behavior of profit oriented firms to
pay their corporate tax by evasion, non profit oriented organizations do not have any such
impact.

2.6 CHAPTER SIX: Auditing of Actionaid Bangladesh

Auditing is the process inspection and verification of the accuracy of financial


records and statements. Private businesses and all levels of government conduct
internal audits of accounting records and procedures. Internal audits are conducted
by a firm’s own personnel to uncover bookkeeping errors and also to check the
honesty of employees. An external audit is used to give the public a true statement of
a company’s financial position. It is made at least once a year by public accountants
who are not regular employees of the organization. The auditors make sure that the
organization has followed proper accounting procedures in its financial records and
statements. They compare the current financial statements with those of the previous
year to determine whether the statements are calculated consistently. If they are not,
they present a distorted picture of the organization’s financial position. The auditors
also inspect real estate, buildings, and other assets to see if their value is overstated.
Debts and other liabilities are checked to see if they have been understated.

When the auditors are satisfied that the organization’s accounts are in order, they
issue a statement certifying that they believe the organization’s balance sheet,
income statement, and records fairly reflect the organization’s financial condition.
The audit statement is then made public in the organization’s annual report.

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Like profit and non profit oriented organization, in AAB both external and internal
audit is followed. This chapter discusses the internal and external audit of AAB,
audit terms of reference, major areas covered by each audit, and the process of
recruitment of an external auditor.

2.6.1 Internal audit


AAB internal audit function is completely independent of the finance function and is
administratively reportable to the CD & functionally reportable to the SMT of the CP. There
core role include:

 Strengthening the financial integrity of the organization.

 Ensure compliance with international/local policies and procedures.

 Coordinates the outsourced audit to the third parties of CP.

 Coordinates the risk management of the organization.

 Update the SMT and local of the audit issues and follow up the recommendation with
focal person of the CP.

Internal Audits are required for:


 Country programs and affiliates (every 2 years)
 International themes (every 2 years)
 Regions (every 2 years)
 International secretariat (every 2 years)
 International functions, like for international themes of AA. Whether planned
expenditure is utilized for the adequate purpose.

2.6.2 External audit


Head of Finance and Administration initiates the process through a circulation of Terms of
Reference (TOR) of audit. Checking or verification is done by Senior Management Team and
approved by the Country Director.
The purpose of external audit is to independently examine records, procedures and activities,
and provide a legally valid report outlining the auditor’s opinion on the state of affairs.

External audits are required for:

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 ActionAid International consolidated statutory accounts (every year)


 Affiliates, associates and country programs (as per local law)
 NGO Affairs Bureau
 Government bodies, Tax authority etc.

2.6.3 Standard terms of reference for an external audit will include:

In an audit the standard terms of reference are Scope of Work, General Control and
Compliance Requirements, Special Audit Areas, Reporting of Audit and Fees.

 Review of financial and management controls (in countries this will include both in
country office and in at least 1 DA/partner organisations)
 Identification of major risk areas and a review of risk management
 Review of progress against strategy/strategic plan.

2.6.4 Major areas to be covered in each audit:


 Asset control and payments

 Financial reporting, including management accounts, reporting to institutional


donors/sponsors etc, cost classification, performance measures (including partners),
donor relationship management, revolving funds and savings and credit schemes (if
applicable)

 Other support functions, including local internal audit function (if applicable), work
with partners and partner relations, information technology, compliance with local
laws (tax etc).

 4ALPS core requirements, including how ALPS core requirements, processes and
standards have been implemented and includes appraisals, strategies/ strategic plans,
external reviews, annual review and reflection processes, annual review and learning
reports

 How countries/regions and themes have applied the principles of accountability to


stakeholders especially to poor and excluded groups and their organisations. This will

4
Accountability, Learning and Planning System

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include budget transparency processes, implementation of open information policy


etc.

Audit report depends on the TOR of the organization. If external auditor is appointed to audit
the financial statements of the organization then they report about that. No major difference
between the audit of profitable and non-profitable organization. Only scope of work may be
different. Because in profit oriented organization auditors have to audit the inventory of the
organization.

In both profit and non profit oriented organizations, internal auditing is an


ongoing procedure. There is no any difference in the appointment procedure of an
external auditor in profit and non profit oriented organizations, only the regulating
body of that particular industry can affect in the recruitment of an auditor. In case of
NGOs external auditors should be from the approved list of NGO Affairs bureau and
internationally reputed firm.

2.6.5 The process of recruitment of an external auditor:

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2.7 CHAPTER SEVEN: Performance Evaluation & Controlling of Projects in AAB


PROCESS AUDIT ACTIVITIES Supporting DOCUMENTS

1.Pre-audit Check audit TOR (objectives, TOR, HR policy, Project Objectives,


preparations scope & criteria) Project Logical Framework


Plan audit Audit Plan

Appoint audit team

Contact audit Audit questionnaire

Prepare work documents

Initial document review

2.Onsite auditing Opening meeting
activities


Collect evidence: Checklist,
Documents, interviews, Register of interviews, Register of
observations documents, Register of observations
Audit team meetings

Audit findings: Findings
Non-compliance/ issue of
concern

Conclusions
Recommendations

Closing meeting

3.Audit reporting Report Fianl Audit Report and Mannagement
Report

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Performance evaluation is very important for the organizational goal achievement. This is true
for both profit and non profit oriented organizations. Because it shows the gap between the
present and future position of an organization. Performance evaluation is not directly involved
with the financial management but it has a close link to financial activities. Donors are
financing for the development projects and actually whether their objective is fulfilled or not
can be measured by performance evaluation.

2.7.1 Performance Evaluation of Projects in AAB


For the evaluation of performances of any proposed project by the partner AAB organizes
some field visits to evaluate the performance. After the field visit the visitor have to submit a
report to the immediate supervisor. The partner organization has to submit their financial
report to AAB. All the expenditures have to shown with appropriate supporting documents
which ensure the expenditure are properly utilized. The financial statements of partner
organization are also monitored to evaluate their performance. AAB also evaluate the
performance of the project based on the Terms of Reference (TOR) of agreement.

Figure 14: Steps of Performance Evaluation of Projects

Feasibility study for monitoring by donor

Agreement between donor and NGO

Letter of Intent by donor

Fund approval letter by NGO affairs bureau

Quarterly financial and progress report to donor and NGO affairs bureau

Performance

Evaluation
Visit by donor and NGO affairs bureau and audit

In the above figure, only the steps under the blocked area are maintained to evaluate
performance of projects in AAB.

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2.7.2 Responsibility for the Controlling of Projects


The controlling of various projects is done by sector heads. There are various themes under
each sector. The theme leader is liable to the sector head for the controlling of his/her theme.
For controlling of projects the terms and conditions of agreement is maintained. Regular field
visit is done to see the activities of partners. The theme leader is liable to the sector head
about control of the project. For the controlling of projects the authority matrix is as follows:

Figure 15: Responsibility Matrix for the controlling of Projects


Country Director

Sector Head

Theme Leader

Program Officer

Associate Program Officer


Associate Program Officer

2.7.3 Proposed Performance Measurement Record Sheet for Balanced Scorecard


AAB can improve its performance evaluation and control by using a standard evaluation
technique. The following is a proposed Balanced Scorecard for measuring AAB’s projects
performance evaluation. This balanced scorecard will measure the performance of any project
from four perspectives. They are: Financial perspective, Partner perspective, Internal process
perspective, and Innovation & learning perspective.

The objective of this Balanced Scorecard is to maximize the service provided to marginalized
people within the constraints of the available finances. AAB will perform better by using this
Balanced Scorecard in three aspects such as: it will be able to provide better service with
limited funds, provide higher output and make the project very adapting in nature with any
change.
Table 10: Performance Measurement Record Sheet for Balanced Scorecard

Table 10.1: Financial Perspective

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Measure Work progress


Purpose To measure the percentage of work progress within the
allocated fund for this period.
Relates to The need to fulfill the project objective
Target To provide maximum service with minimum fund
Formula Number of people participating in the project
Total fund spent X 100
Frequency To be measured monthly, to be reviewed quarterly
Who measures? Project Officer
Source of data Monthly financial and field report of the project
Who acts on the data Program officer, Associate program officer
What do they do? Visit field for monitoring, direct partners to use the resources
efficiently, ensure financial transparency
Notes and comments

Table 10.2: Partner Perspective


Measure Partner performance
Purpose To measure the performance of the partner NGO
Relates to The need to track the contribution of partner in the project
objective
Target Increase the partner’s efficiency
Formula Partner’s output in the project
Total output of the project X 100
Frequency To be measured monthly, to be reviewed quarterly
Who measures? Project Officer
Source of data Monthly financial report of the partner, Qualitative report of the
project
Who acts on the data Program officer, Associate program officer
What do they do? Visit field for monitoring, direct partners to use the resources
efficiently, ensure financial transparency
Notes and comments

Table 10.3: Internal Process Perspective


Measure Service quality
Purpose To measure rate of improvement in service
Relates to The need to reduce waste, minimize rework
Target Achieve a first time transfer of goods
Formula Number of goods processed to DA
Number of goods purchased X100
Frequency To be measured monthly, to be reviewed quarterly
Who measures? Finance officer-Project
Source of data Material requisition form, Monthly cash ledger
Who acts on the data Finance officer, Administrative officer
What do they do? Ensure quality goods are purchased, give adequate logistics and

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administrative support
Notes and comments

Table 10.4: Innovation & Learning Perspective


Measure Employee development
Purpose To measure the improvement of the employee
Relates to The need to increase the employee effectiveness
Target Achieve the project objective 100% on time and if possible
perform extra ordinary performance
Formula Number of employee participating in the training, and cutting
better in appraisal
Frequency Once in a year
Who measures? Trainer
Source of data Appraisal submitted by the employee
Who acts on the data Sector head, HR head
What do they do? Conduct the appraisal of the employee, take necessary action for
improvement
Notes and comments

Note: From this four perspective, performance can be measured for other criterion, based on the need of the
project. This BALANCED SCORECARD has prepared as a sample by which AAB can measure performance of
its projects.

In profit oriented organization, generally performance is measured by ratio analysis. In case


of NGOs they measure their performance by the actual utilization of project cost of total cost.
Their attempt is to minimize the support and fundraising cost as well as maximizing project
cost with quality output.

2.8 CHAPTER EIGHT: Major Findings

A profit oriented organization exists primarily to generate a profit, that is, to take in more
money than it spends. The owners can decide to keep all the profit themselves, or they can
spend some or all of it on the business itself. A non profit oriented organization is organized
under rules that forbid the distribution of profits to owners. "Profit" in this context is a
relatively technical accounting term, related to but not identical with the notion of a surplus of
revenues over expenditures. So, there exist lots of differences in the activities of these two
types of organizations. In this chapter, how non profit differ from profit oriented organization
and how their financial management differ is described.

2.8.1 How does a nonprofit organization differ from a profit oriented organization
Here are some of the differences between a nonprofit and a profit oriented organization:

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• When a profit oriented firm starts a business, it is for the financial benefit of its
owners and/or shareholders. Profit is the goal and the business pays taxes on that
profit.

• A nonprofit entity has a mission that benefits the "greater good" of the community,
society, or the world. It does not pay taxes, but it also cannot use its funds for
anything other than the mission for which it was formed.

• Nonprofit organizations can and do make a profit, but it must be used solely for the
operation of the organization or, in the case of a foundation, granted to other
nonprofit organizations.

• When a profit oriented organization goes out of business, its assets can be liquidated
and the proceeds distributed to the owners or the shareholders.

• When a nonprofit goes out of business, its remaining assets must be given to another
nonprofit.

Comparing with profitable organization AAB differs in the following areas as a non-
profitable organization.

2.8.2 Differences between the financial management of non profit oriented and profit
oriented organization
Criteria Profit Oriented Non-profit Oriented
Organization Organization
Portfolio of Investment Different lines of product or Different development
service, with the growth of projects, with the growth of
the organization new product the organization idea of new
lines add. project initiates, and
possibility of getting funds
from donors increases.
Source of Income Comes from sales or service. All the income is grants from

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Individuals are always trying international donor and


to increase income by strong, sometimes from long term
attractive, and costly and short term investment.
promotional campaign. Their promotional campaigns
are not vast.
Types of costs Costs are defined as Costs are defined as project
operating costs, costs, support costs,
manufacturing cost, and fundraising costs, and
service cost etc. Governance costs.
Auditing Most of the organizations Both internal and external
follow both internal and audit is followed. But here
external audit. But here audit audit is related with
work area is vast; like audit transparency of financial
of procurement, purchased statements, project work etc.
raw materials etc.
Taxation Tax is assessed as per Income tax of employees is
Government rule. From its assessed as per Government
income government earns rule. From the income from
revenue. As they have to pay grants is totally tax
tax on their revenue, they exempted. Deduct statutory
also can enjoy some tax Tax and VAT from suppliers
rebates, like; excise duty, and vendors and deposit to
import duty etc. Government treasury
Performance of the Performance is measured by Performance is measured by
organization in terms of total income from sales or expenditure to various
financial activities service. Ratio analysis is the themes. Their key method for
key method to measure their measuring financial
financial performance. performance is analysis of
income and percentage of
costs by themes.
Accountability Accountable to the customer, Accountable to the donor,
stakeholders and partner and Government.
Government.
Responsibilities of financial Forecasting and planning for Forecasting and planning for
manager sales, income, and income and expenditure,
expenditure investment and coordination and control,
financial decisions, dealing with financial
coordination and control, activities.

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dealing with financial


activities.
Sections under finance Many sections are needed to Comparatively the area of
department carry out the activities of work is narrow because
finance and a large number activities related to revenue
of employees are involved to accounting are not involved
perform the jobs. there. Each project has
separate finance manager.
Budgeting Sales budget is needed along Budget is needed mainly for
with budget of expenditure. income and expenditure.

As the motive of the business is different in profit and non profit oriented organizations,
many distinctions can be found and this list will get longer if we further proceed. The core
aspect is same, but it differs in practice. Organizations design their financial management
practice according to the needs of the organization.

2.9 CHAPTER NINE: Recommendations and Conclusion

This chapter will tell the recommendations based on findings of the researcher and also the
conclusion of the report.

2.9.1 Recommendations
1. In case of disbursing expenditure AAB follows specific codes. These are helpful to
track the expenditure with its budgeted range. The whole AAB employees have to be
much concerned about mentioning the codes at the time of submitting the bill.
Finance unit may provide to all sector the table of code of various expenditures. So
the employees can write the code at the time of submitting the bill.

2. The suppliers of AAB sometimes complained about the payable amount fixed by the
finance department. They are not concerned about the tax, vat amount which are
deducted at source. For clear understanding of this finance section may deliver the
printed copy of calculation of tax to the suppliers.

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3. The staff members of AAB who are working in thematic unit, have no clear
understanding of AAB’s Financial and Accounting policies and practices. AAB has
to organize more regular training to enhance their capacity. It is important to have
some understanding of finance to them because financial activities deal with all
sections. AAB has to organize more regular training to enhance their capacity.

4. For evaluation of projects there is no any standard format in AAB. They may follow a
standard format for performance measurement prepared by an expert in that field.

5. Cost benefit analysis of programs for internal benchmarking needed to be established


in AAB. It would be helpful to establish baseline performance and monitor favorable
and unfavorable results.

6. AAB may use financial models for managing programs. Financial models can
streamline the administration and monitoring of programs, standardize the
procedures, and customize how performance should be evaluated.

7. AAB has rich resources of publications, but those are not organized. A library may
form where both interested parties and staff members can access to those.

2.9.2 Conclusion

The NGO sector in Bangladesh is one of the most active in the world. Successive
governments have developed effective partnership with them to improve services – such as
microcredit/microfinance, non formal education, quality education campaign, health,
nutrition, disaster management, social mobilization etc. More than 25000 national and local
NGOs and 150 international NGOs are contributing to different sector, especially, livelihood,
education, housing, etc.

ActionAid Bangladesh is an open, flexible & innovative organization for the healthy
growth of its program & activities. AAB has widely experimented & used a wide variety
of participatory tools like report card methodology, participatory budget analysis, public
hearing / citizen jury, popular theatre, opinion poll, participatory video, reflect etc.
Additionally, child space, cooperative marketing, pot song, adolescence program, TV
program & anti trafficking video film made AAB a distinct one.

According to the recent Country Strategy Paper (CSP III) ActionAid Bangladesh is going to

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measure the performance of its objectives. It is promising the AAB plans to develop and
introduce systems to register changes in the lives of the poor and marginalized people. If they
are able to measure the performance successfully, then it will lead ActionAid Bangladesh to
an ongoing process of success.

The conclusion drawn from the findings becomes very precise and obvious. The collected
information about the financial management of ActionAid Bangladesh indicates few
parameters on which deliberation of judgment can be done. NGO sector is recently criticized
fin the question of accountability to the governments and civil society. From the financial
point of view, it is very difficult to be hundred percent efficient in the execution of the
projects. But auditors have a significant role for judging the accountability of the
development works operated by NGOs.

Whether profit or non profit oriented, both the organizations have to be accountable to their
stakeholders and governments. NGOs can take the glory of transparency by straightforward
sharing of financial information to the interested parties.

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