Why Bad Financial Management Will Cost Charities

Financial Management

 Financial Management issues may force several non-profit organizations to adopt new ways of managing donated funds. These issues include but not limited to forgery, fraud, and embezzlement.

What’s worse, donors may also decide to withdraw funding altogether which will only leave charity dependents helpless.

On January, 5th, for instance,  Abila, the leading provider of software to nonprofits shared the following predictions:

  • Nonprofit organizations are likely to look for new ways of providing services as there are potential grant reductions for some programs.
  • There are impending structural staffing changes in the pipeline as a result of the American, Fair Labor Standards Act (FLSA). 
  • Organizations will have to consider sharing resources, overhead costs and even personnel to serve the same cause within the same area. This is because funding is likely to shrink by 50%.
  • Technology will continue to play a big role in keeping nonprofits’ finances in good shape. With the increase in complexity around purchasing processes, many nonprofits will turn to technology to increase automation of high-volume, repetitive tasks.
  • In addition, ongoing cloud adoption will increase accessibility for nonprofit staff members to work anytime from anywhere.

UNICEF‘s financial controller who is now using an electronic PO software had this to say: “Prior to using Procurementexpress.com we used a paper-based system, it was manual Excel documents that were printed and had to be brought from one department to another and often got lost.”

Your charity organization should minimize the following risks:

1. Fraud 

NGOs are expected to account for every financial decision made by its staff members. There should be transparency in decision-making and accounting processes. Good causes can be hampered by a corrupt person inside the organization through fraud.

Fraud risks are minimized when purchases, donations, and other payments can be tracked by more than one person. Catching wrongdoers before losses increase is key.

Reuters reports: “Most NGOs in many cases will not report fraud as a fraud because they will have a long paper trail coming after them,” said transparency and development researcher, Till Bruckner, author of the book “Aid Without Accountability”.

2. Forgery

There are reports that In Jerusalem, 36 defendants from different NGOs filed numerous false requests with the Education Ministry. It is reported that, the defendants submitted forged documents to make it appear as if they were educational institutions. The forged documents included Ministry ID cards, false representations, and fictitious student names.

Now, if fraudsters can forge ID cards, how easy would it be to forge a paper-based PO? It is important that your organization ditches paper trail this year and use an electronic PO system. An efficient system should allow COO’s to approve purchases wherever they are.

3.Embezzlement 

Converting donated property to personal use is the most commonly used way of stealing funds. This was the case with the Church of Greece, an NGO which its three executives stood trial for crimes ranging from embezzlement of funds to breach of trust. The case involved a whopping amount of 5.6 million euros given by foreign ministry to supply food.

According to the charge sheet, the charity only supplied 371,093 kilos of frozen poultry which was less than the promised supply. When the foreign ministry requested that the charity organization pay back 5.6 million euros, the NGO only returned 500,000 euros. The rest of money disappeared into dirty pockets. A problem which could have been easily avoided by using a transparent purchase order system.

One way to control financial management risks is adopting strict internal controls. These control measures have to be complied with when using financial resources. The techniques involve general accounting controls and purchasing controls.

Procurementexpress.com is a user-friendly and time-saving solution to manage purchase orders and put charity COOs in control of spend. Staff members can load POs and attach invoices from any device. Managers can approve, reject or comment on POs and get an instant view of budgets, even while on the road. Finance departments get an accurate and paperless PO tracking system. Procurementexpress.com also offers enhanced PO functionality with features like approval routing, custom fields, currencies and more.

By adopting an automated system, you can be rest assured that donated funds go towards paying for only NGO needs.

If you’d like more info about Procurementexpress.com (an automated purchase control system), please contact: mariska.pansegrauw@ProcurementExpress.com

Leave a comment.Procurementexpress.com

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.