Leading For Improved Financial Management and Financial Sustainability PDF

Leading for improved
financial management
and
financial sustainability
13 hints to
Leaders of Civil Society Organisations
in Tanzania
Paul Bottelberge
TR
CE
OD Training and Facilitation Centre
TRACE Publications
ii
Leading for Improved Financial Management

and Financial Sustainability
13 Hints to Leaders of Civil Society Organisations
in Tanzania
Paul Bottelberge
for
TRACE - OD Training and Facilitation Centre
2006
Civil Society Organisations wishing to copy sections of this book for training purposes may do so on condition that they acknowledge the source of the material.
The following statement applies to any other organizations or individuals.
All rights reserved. No part of this publication may be reproduced, stored in a retrival system or transmitted in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise without prior permission of the copyright
owner.
P.O Box 105110
Dar es Salaam
Tanzania
E-mail trace@cats-net.com
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FINANCIAL MANAGEMENT
AND
FINANCIAL SUSTAINABILITY
iii
Contents
Abbreviations iv
Background and Introduction v
Acknowledgements viii
1. Understand financial sustainability
(and define your unique financial sustainability strategy) 1
2. Cure the addiction to donor money and diversify sources of income
(and be ready for more complicated management demands) 4
3. Appreciate Financial Management as a key leadership skill
(and learn to see an exciting side of accounts) 8
4. Appreciate the importance of Financial Management skill and
the value of financial staff
(and consider a salary increase) 15
5. Plan for financial sustainability in balance sheet projections
(if you know what I mean) 20
6. Make income generating activities profitable businesses
(and stop fooling yourself) 25
7. Tap the potential of philanthropy
(and proof, beyond any doubt, the legitimacy of your CSO) 29
8. Avoid conflict of interest
(and enjoy being a role model) 37
9. Enhance cost consciousness
(and feel light and fit) 40
10. Be transparent
(and sleep tight as you have nothing to hide) 45
11. Question and clarify the Identity and Legitimacy of your organization
(and be accountable to the ones who really count) 50
12. Seek partners / donors who are willing to develop mature partnerships
and support your efforts to build financial sustainability
(and start educating them) 54
13. Make a financial strategic plan
(and feel in control of things) 58
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List of Abbreviations
Alterfin
BP
CORDAID
CS
CSO
CSR
FM
FS
I/C consult
IGA
INTRAC
L&A
LRM
NBC
NGO
OD
PME
PO
SME
SP
SWOT
TRACE
Alternative Finance Organisation in Belgium

British Petroleum
(Dutch) Catholic Organisation for Relief and Development Aid
Civil Society
Civil Society Organisation
Corporate Social Responsibility
Financial Management
Financial Sustainability
Joint Advisory Unit of CORDAID and ICCO (The Netherlands)
Ujamaa na Kujitegemea
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Income Generating Activity

International NGO Training and Research Centre, UK
Lobbying and Advocacy
Local Resource Mobilisation
National Bank of Commerce
Non Governmental Organisation
Organisation Development
Planning, Monitoring and Evaluation
Partner Organisation
Small and Medium scale Enterprises
Strategic Plan
Strengths, Weaknesses, Opportunities and Threats
OD Training and Facilitation Centre
African Socialism and Self Reliance (J. Nyerere)
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Background and Introduction

Why this handbook
uring the last 7 years, TRACE has facilitated Strategic Planning and Reflection sessions with close to a hundred Tanzanian CSOs. In these sessions it was striking to note
that almost every CSO had financial sustainability (FS) as one of the strategic issues. We
have also learned a lot from the capacity building services we have provided to health institutions. Strictly speaking, many of these health institutions belong to the Civil Society
Sector, and they do have some typical approaches to resource mobilization that can be
inspiring to other CSOs.
TRACE itself, since its creation, has pursued a FS strategy that aimed at reducing donor
dependence and diversifying resources by subjecting itself to the market. TRACE has
thus life experience on the joys and challenges of becoming a more autonomous and
hybrid organization. In our quest for FS we have often called on external assistance,
from which we have drawn a lot of insights on financial management (FM) of TRACE
and of CSOs in general, particularly from the work we did with I/C Consult.
Additionally, this handbook is inspired by the involvement of TRACE in three workshops and trainings on the Promotion of Philanthropy and of FS. Two of these workshops were targeted at CORDAID partners in Tanzania and are part of a larger CORDAID project that aims at capacitating partner organizations to access local fundraising.
For these workshops, TRACE collaborated with Dr. Hugo Couder, who is a financial
consultant and managing director of an organization (Alterfin) that is investing in micro
and rural finance organizations in developing countries.
All these experiences demonstrated at least one thing: FS is a top agenda in Tanzanian
Civil Society. It remains an unresolved issue, however. Most CSOs in the country recognize the risk and dangers of being largely dependent on foreign donors but they have little
idea on how to deal with the challenge.
That is why we have written this handbook. Based on the work mentioned above, the
many discussions and reflections on the issue and extensive reading on the subject, we
thought we could make some suggestions to CSOs to start addressing the challenge.
We are aware that writers like Alan Fowler and Richard Holloway, in the books mentioned in the bibliography, offer brilliant observations and advice on this subject. Unfortunately, few CSO leaders seem to read these valuable sources of knowledge and inspiration. Thus, so we thought, we could use some of their material, mix it with our own experience and practice of working with CSO s and of managing our own organization
TRACE, and produce something which is hopefully a little bit more appealing, directly
relevant and accessible. But how ever appealing this handbook might be, we would still
advise interested CSO leaders to read these books.
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The aim of this handbook therefore is:
To share the TRACE experience and reflection on FS

To sensitize on the importance of leadership to also lead on FM
To contribute to sharpen basic FM skills of CSO leaders
To contribute to more efficient management of scarce resources
To contribute to improved transparency, accountability and legitimacy of civil society in
Tanzania, with the hope this can raise the confidence and support of donors, the government, beneficiaries and the general public
To contribute to enhanced sustainability of legitimate CSOs and a more vibrant, trusted
and powerful Civil Society in the country.
Use of this handbook

We trust this handbook can be a useful resource to facilitators and consultants working
with CSOs. We also hope CS leaders themselves will find their way to reading and using the
publication.
Knowing that finance is not a very appealing subject to some, sometimes even threatening,
we have attempted to make the handbook a bit more practical and relevant and therefore,
hopefully, more manageable:
We share what we have found in many of the CSOs we worked with, and based on that
we try to suggest principles of good practice and give some practical hints.
We avoid the use of financial jargon, or at least, we assemble the jargon in separate
chapters (definitions and concepts), which we think can be skipped in a fast or first
reading.
We illustrate each chapter with exercises; not handbook exercises that seek to prove
whether or not you have understood the lecture, but ideas for facilitators and leaders to
conduct strategic reflections, retreats and learning sessions.
For each chapter we use artistic drawings to help relax the readers mind and capture
well the main message of the chapter.
Underlying Assumptions
We believe there is sufficient literature in the market on general FM and accounts, and on
fundraising from donors. This handbook therefore, does not intend to duplicate books
and writings on accounts, FM or fundraising skills. However, it is hoped that this
handbook might encourage some readers to go back to consult the more standard publications available in the market in order to refresh their minds.
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Notwithstanding its focus on FM, this handbook is written in a perspective of Organisation
Development (OD), TRACEs main orientation and field of expertise. This means there
are some other assumptions underpinning this writing:
In an organisation, finance is both a resource and a reason for the development of systems and structures; it is not the most important element of an organisations capacity.
Clear purpose, values, leadership, attitudes, learning capacity and impact, are much more
important (and more complex) to an organisations survival and development.
TRACE believes that an organization needs to be strong on these aspects, otherwise
resource mobilization and FM is not likely to make any significant impact on sustainability and development of the organization. Yet, no organization can survive and
grow without resources. And resources are essentially scarce, face fierce competition
and therefore need to be managed well.
The focus of this publication is on the strategic dimension of FM; how finance and its
management can play a role in enduring the impact of an organization, how risky dependence, on foreign donors for instance, can be reduced, and how the potential of alternative, particularly domestic, resources can be mobilized and exploited.
As this publication is targeting at CSO leaders, it has been written with 3 important assumptions that TRACE has on leadership.
Healthy leadership is shared between the board (legal custodian and ultimately
responsible for accountability) and the chief executive (delegated responsible for
the day to day running of the organization)
Healthy leadership is shared among staff. Leadership is a possible attribute of

any staff, not of the chief executive only.
Leadership competence involves attitudes and behavior as much as, if not more
than knowledge and skills.
Focus of the publication

We do not pretend to cover the whole area of FM and of FS in this handbook. Our selection of issues is motivated by a) our understanding of the main current challenges of CSOs
in the country, b) a focus on the strategic dimension of finance and c) an intention to draw
attention for the most potential domestic sources of finance. The focus of this publication
is translated in 13 hints to CSO leaders. The 13 hints are not written in a particular or logical sequence. You can therefore start with the most appealing title, and take other chapters
as you wish. You can choose to read a chapter per day and complete the handbook in a
fortnight.
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Acknowledgements
am pleased to acknowledge the help and support of:
My TRACE colleagues, particularly Mr. Mlele, Ms Changa, Mr. Biria, leaders of TRACE client organizations, and participants to the TRACE workshops on financial sustainability.
My children Anne and Ben and another colleague Mr. Kweba for the
original ideas and Mr Noah Yongolo for the drawings.
Mr. Rogers Cidosa for the layout.
Dr. Hugo Couder, Gotfried Mwamanga and Dan Kob, for proofreading
the draft manuscript.
CORDAID, for the financial and moral support and for spearheading the
promotion of philanthropy and financial sustainability.
To all of them, I sincerely offer my gratitude. But I take personal responsibility

for possible remaining errors or possible subjective interpretations.
Paul Bottelberge
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1. Understand financial sustainability

(and define your unique financial sustainability strategy)
any CSO leaders we worked with are very vague in what financial sustainability
(FS) means for their organization. To some, FS was a matter of selling as many project
proposals as possible. In such an opportunistic approach, short term project management
takes over from long term leadership of the organization.
To others, FS is translated as a little bit of effort to establish Income Generating Activities

(IGA), or mobilizing small contributions from beneficiaries.
Again, others translate FS as the absence of donors.
Another misconception is to treat FS as a very well defined financial status that is the
same for each organization.
When an organization is ignorant of what FS is, obviously, it will be very difficult to translate it into objectives and to improve its FS. If you do not know where you are going,
any road will take you there.
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Definitions and concepts

Definition of FS1
FS is the ability to secure sufficient funds to ensure that the organization can achieve its
objectives. It means a continuous balance between costs and income of the organisation.
It implies that costs need to be controlled and income needs to be assured.
Financial sustainability is one aspect of organizational (or institutional) sustainability
Organisational sustainability is the ability of an organization to achieve its objectives or to sustain the delivery of
goods and services to its target group and thus sustain its existence and functioning over a longer period of time.
Apart from finance, sustainability of an organisation also depends on vision, leadership, impact and capacity to
learn and adapt.2
Good Principles and suggestions for action

While there are general definitions of Sustainability, one can not talk of it as an absolute or
positive scientific concept. One can not qualify organization X as perfectly sustainable and
organization Y as not at all sustainable. Organisations rather strengthen their FS, or move
towards improved FS. Some people 3 therefore use the word Financial Stability rather
than Financial Sustainability.
What is a good position of one organization in terms of FS, may well be catastrophic for
another organization. For example, overdependence on government funding may be quite
OK for an organization delivering health services, but very risky for a militant Lobbying
and Advocacy (L & A) organization. Taking into account the socio-cultural context, for a
CSO with a social mission not to mobilize money from Philanthropy may be OK in Tanzania of today, but not any more for a CSO in South Africa, or in Tanzania in 5 years time.
A general principle is that subsidies are a conventional and an acceptable way of financing
social services or services directed to the poor. The market price, or user charges, is a
conventional way for financing economic, commercial services and products.4
Whether or not an organization has a strong or weak position in terms of FS all depends on
a) the kind of organization, b) the stage of development of the organization, c) the sector of
the organization, the kind of product or service it provides, d) the target group or clientele
base of the organization, e) the socio-political-cultural context, f) the values of the organisation.
Each individual organization thus needs its unique definition of FS, and a unique translation of this in FS objectives and strategies (cfr Chapter 13).
1.
2.
3.
4.
TRACE, 2004, 2006

Fowler, 2000
I/C Consult 2004
This is a general principle. In reality, it is not always easy to define a product or service as social or economic, and it
depends on ideology and policy. Refer to the discussion about the public or private character of products and services
like water and health services.
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Exercise
As financial sustainability is a top strategic issue for most organizations, it is useful
to deal with this challenge during a strategic reflection or planning exercise, the annual team building week or retreat or a special day during the home week. An external facilitator is often useful.
Individual Reflection
Is our CSO financially sustainable?
What are the main SWOTs of the FS of our CSO?
What can we do to enhance FS of our organization?
How do I define FS?
Group Work
Share the individual ideas and perspectives in group. Come up with the
groups conclusion on the definition of FS of your CSO, to share in plenary.
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2. Cure the addiction to donor money and

diversify sources of income
(and be ready for more complicated management demands)
lmost all CSOs in Tanzania are overly dependent on foreign donors. The situation
is commonly described as a dependency syndrome. Unfortunately, to many, the syndrome has developed into an addiction, and this is extremely difficult to cure. It will
take a lot of time and effort to heal.
Over 75 %, and often 100 %, of the income of the common CSO comes from foreign donors. Few CSOs access financial support from government and members. Those CSOs that
undertake IGA, most often the IGA do not generate any profit. Philanthropy as a source of
income is almost unexploited.
The underlying reasons for this overdependence are the history of colonialism, the policies
of ujamaa na kujitegemea pursued since independence until the late eighties, and state
domination. Tanzanian socialism aimed at providing free services but, unfortunately, it also
seems to have created a mindset of dependence and stifled self confidence, initiative and
entrepreneurship. Donors too, have reinforced the dependency syndrome by generously
offering financial support to Tanzania. Most CSO leaders have little experience and skill in
mobilizing finance from sources other than foreign donors.
5. This was the trend in the late eighties and early nineties, propagated in Vincent and Cambells book: Towards greater financial autonomy, 1989. The book revolutionized the thinking on CSO FS and it continues to be a highly recommended reading.
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Funding from foreign donors and development partners can be very helpful, but too high
dependency is very risky, makes you politically vulnerable, jeopardizes local imbedding and
betrays the basic CS principle of self-reliance which we preach to others. Often times, foreign donor funds are unreliable.
On the other hand, the earlier thinking that FS can only be achieved through complete self
financing5 is, for CSOs with a social and transformational mission, no longer considered
realistic or desirable.
Definitions and concepts

Framework for Sources of Finance 6
In literature, a distinction is often made between two broad categories of funding mechanisms; on the one
hand; accessing existing funds, and, on the other hand, generating new funds. All possible resources available to the average Tanzanian CSO can be captured in a simple framework.7
Non-financial Resources
Volunteers
In kind Community Contributions
Financial Resources
Access Existing Funds
International Aid
Government Subsidies
Members and Beneficiaries contributions
Philanthropy 8
Corporate Sector
Foundations, Trust Funds, Clubs
Individuals
Generate New Funds

Separate Business
Commercialise Facilities
Investments (capitalisation)
6.
7.
8.
TRACE, 2004, 2006

Slightly different frameworks can be found in Alan Fowler, 2000, p. 63. and R, Holloway, 2001. Holloway considers the
following categories of sources of finance: Existing Wealth: Indigenous Foundations, Individual Philanthropy, Grassroots organizations, Government, Foreign Development Agencies, Endowments, Corporate Sector. New Wealth: Earned
Income from production and trade, Debt Conversion, Micro credit, Social Investment, Building Reserve Funds and Endowments and Use of Internet. Capitalizing on Non financial resources: Volunteer time, labour, experience, goods and
materials, access to services, champions,.
Some people prefer to use the term local philanthropy, to indicate that a large part of International Aid is in fact also
(international) philanthropy. Another conceptual discussion concerns the difference between philanthropy and
solidarity.
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A blue print plan to FS does not exist. To decide whether or not a certain source of finance
is appropriate depends on;
a) the kind of organization,
b) the stage of development of the organization,
c) the sector of the organization, the kind of product or service it provides,
d) the target group or clientele base of the organization,
e) the socio-political-cultural context,
f) the values of the organization.
Still, some general principles apply to most CSOs:
Complete self-financing of CSOs is often not realistic nor desirable.
Any organization needs a reasonable level of autonomy. Autonomy secures the

ability to say no, the freedom to choose and to protect an organizations identity.
An organization requires a reasonable diversification of sources of funds. Smart

leadership constantly explores all possible funding sources with the main aim to diversify and reduce dependency on a single source. In general, CSO leaders should
reduce the reliance on foreign grants and expand access to local financial resources.
For the delivery of social services, a good mix of beneficiaries contributions, local
fundraising, government subsidies, income from IGA, and international aid is recommended.
Mobilization of non financial resources (volunteers and in kind contributions)

deserves priority attention of CSO leadership as it reduces costs, reflects social embedding and enhances credibility. However, non financial resources alone cannot
sustain a CSO, apart perhaps from the pioneering phase.
CSO leaders should be aware that the more diversified the sources of funds are the
more challenging and complex it becomes to lead and manage the organization.
Budgeting income is equally or even more important than budgeting expenditure!!
Whether or not you are successful in fundraising, most important is that you spend
carefully and control costs (cfr. Chapter 9).
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Exercise
For budgeting income
Based on this framework, an organization can analyze the current and expected
(say, in 5 years time) funding mix. The analysis should involve an assessment of
positive and negative aspects of each source which can help to establish which
sources you can, need and want to pursue.
SOURCES
This year
EXPECTED
In 5 years
time
ADVANTAGE
DISADVANTAGE
1. International Aid
2. Government
3. Beneficiaries
4. Philanthropy
5. Generate new funds
Possible advantages or positive sides include: reliability, contributes to variety, under the control of the organization (unrestricted), proves local embedding, long
term prospect, low cost to access,
Possible disadvantages or negative aspects include: high cost to access, reduces
variety, danger to distort the organisations mission, creates dependence and addiction; unhelpful conditions and restrictions,
What is the financial strategy of your organisation and its objective with regards to
sources?
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3. Appreciate Financial Management as a key

leadership skill
(and learn to see an exciting side of accounts)
inance, financial management, business plan,.. are not very popular words in civil
society, and many CSO leaders relate to FM as they relate to their mother (or father) in law.
To be frank, competence in the field of finance is not a guarantee for a successful career in
the sector. Management and financial talent is much more appreciated in the commercial
sector. And this is a global phenomenon; all over the world, CS values content, intelligence,
philosophy and politics, much more than management and finance. Finance remains
a dirty word, associated with wild capitalism, greed and evil, the enemy of CS. And this is a
contradiction, as finance is in fact what most CSO do. Many CSOs for instance access
surplus financial resources often generated with lots of sweat and blood elsewhere, and they
claim to have the ability to put them into effective and efficient use.
Financial management (FM) is also often viewed as a technical and boring discipline. A discipline on which educated and intelligent people of the CS family would not want to spend
too much of their precious time and energy. And this is an unfortunate misconception.
FM is both interesting and important. It is challenging and exciting, a should be attraction of any well meaning leader.
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FM basically is about planning and control of activities by financial means. It is not, at all,
about accounts only. A leader with a sound sense for FM enjoys using economic theory and
insight, mathematics, systems analysis, law, taxation and behavioral science.
Understanding and sensitivity for economics is required to realize the scarcity and thus cost of
resources, and to be able to calculate cost and price. It is equally crucial to study the demand and
real needs of the target group. The latter brings us to behavioral science in that FM needs to
reflect on what the target group (clientele) really requires and how non financial colleagues at the
workplace can be sensitized about the financial realities and how they can be motivated to behave
appropriately within these realities. The financial manager uses mathematics and quantitative
techniques to examine, plan and project probability and to manage risk, the other side of uncertainty about the future.
They will measure performance using financial ratios and compare with the plan by calculating
variances. Systems theory applies when we look at the plan and control function of FM as a
feedback loop, and even as an Action Learning Cycle; the control function shows the variance
between the actual performance and the plan, and gives us an opportunity to reflect and learn and
to make a better plan. Apart from legislation governing NGO operations in Tanzania, a very
important area of law in FM concerns the law of contract, including contracts with clients/target
group, donors, employees, .
In contrast, many CSO leaders understand FM as keeping books of accounts and actually
delegate FM to a bookkeeper or accountant. In many CSOs, there is a sharp division between, on the one hand, a bookkeeper or accountant who keeps the books of accounts
and, on the other hand, leadership which runs the organization in pursuance of its objectives. Usually, bookkeepers are very technical and busy people with limited time, interest
and concern for the actual work the organization is doing with the target group (clients).
In turn, too often, CSO leaders have limited time, interest and concern for the financial position of the organization, as this is the area of the bookkeeper.
This division (for a good understanding, not at all unique to Tanzania, nor to the CS sector), has very deep historical roots. One of the roots that is particularly relevant to Tanzania
is the common and long time division between accountants and economists. For long, the
first were expected to keep financial records of an organization, the latter were almost
obliged to behave as political philosophers who study the scarce means and the ends of
organizations. In countries with a long socio political ideology of dominance of the state,
such as Tanzania, economists tend to focus on the ends and means of governments, of the
world, of the macro level. This is often accompanied with limited attention for the development of private enterprise. A countrys ideology obviously also effects on the training of
economists. And that is why, Tanzanian universities produce a good number of brilliant
political economists, more than entrepreneurial economists and managers.
Whatever the causes, many CSOs do manage to have nicely kept books and they also have
charismatic leadership. The problem is that, too often, CSO leaders find it difficult to work
with the books, as they tend to focus on other areas that are more intellectual, more political and often also more macro and global in nature.
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While, obviously, global and macro level issues pose serious challenges to all of us, and we
all would do well to be concerned, many CSO leaders could use their talents much better
and more immediately if they would develop themselves into better financial managers.
An opportunity to think globally and act locally?
From our work with CSOs, we have noted common FM weaknesses as follows:
i) Civil Society culture and resistance to money issues
Many CS staff and leaders have a social value base and are motivated by a dislike for a
profit making culture. In extension, many CSO personnel resist careful FM, as illustrated
by some of the following quotes9:
Money does not solve development problems people do!

We are not business, so why should we make a business plan
We did not get into development work to make profit
We spend too much time to generating income, and not enough to the real work
of the CSO
This is not my job, this is the job of the bookkeeper/financial manager
ii) Weaknesses in accounting, financial and administrative procedures.

Sometimes, typical in the pioneer organization, there are few or no procedures. In larger bureaucratic organizations, on the other hand, accounting systems (inclusive of the
chart of accounts) and procedures (and the popular manuals) are borrowed from
other, often much bigger organizations, including the civil service and large commercial
enterprises, and are therefore not appropriate. This is often coupled with a bureaucratic
mindset of many former government- staff; if there is no rule or procedure, you can
not do anything or, on the contrary, you can do just anything. Each organization is challenged to develop financial procedures suited to its uniqueness and to combine a healthy
balance of procedures on the one hand and flexibility and wisdom and common sense
on the other hand. Many organizations are yet to see the advantage of modern technology and they urgently need to computerize the accounts.
iii) Weaknesses in skill and competence (and integrity).
Many CSOs do not have sufficient competent staff and many CSO leaders do not have
sufficient feeling and attention for FM. The resulting inaccurate, complicated, delayed,
obscured . financial data, unfortunately, sometimes indicate some very serious underlying leadership issues; there is limited sense of ownership, there are issues of integrity,
ethics and values, there is a possibility of abuse of power. The subject will be covered in
Chapter 4
iv) Weaknesses in cost accounting
In many CSOs there is a very low awareness of costs, knowledge on different types of
costs and poor or incorrect cost calculation. Depreciation costs, for instance, are most
often not considered. There are significant problems in allocating the costs. This issue
will be discussed further in Chapter 9.
9.
Cfr also CIVICUS, 2003

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v) Weaknesses in balance sheets
Some CSO leaders do not have the ability to read a balance sheet, to calculate and use
ratios, to translate financial objectives into balance sheet projections. This issue will be
discussed in some detail in chapter 5.
vi) Poor quality of reports and poor external audit
Reports are often not well structured, are poor in analysis and are not very readable
(particularly if written in English). They are often completed too late. Reports are written
for donors, more than for internal use and learning. Sometimes (if there are many donors), organizations are overburdened by the variety of and changing requirements of
different donors.
Still too many organizations, either do not have external audits or the audit does not
really allow for adjustments and learning. This subject will be referred to in Chapter 10.
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Definitions and Concepts

Accounting 10
Accounting is the system and process of recording all financial transactions to keep track of
expenses (e.g salaries) , income (e.g. beneficiaries contributions), assets (e.g. debtors) and
liabilities (e.g. remaining balance of donor funds).
For very small organisations with few activities and without much fixed assets, a simple receipts and payments account
based on a cash book may suffice. For larger and more complex organisations full income and expenditure accounts and
balance sheets are necessary and books should be kept using the double-entry system.
Financial Management 11
There exists a broad variety of definitions of FM. We selected some of them:
1) Financial Management is the planning and control of activities by financial means.

2) Financial Management is the use of (or the synthesis of ) accounting knowledge, economic theory, mathematics, law, systems analysis and behavioral science for the specific purpose of financial planning and control. Financial Management is meant to
help the organization to achieve its mission in an efficient and effective way.
3) Financial management involves Planning, Organizing, Financing, Controlling and Reporting on the organisations resources to achieve set goals.
4) Financial Management concerns:
Planning
Budget of income and expenditure, financing plan, business plan, also: market and needs analysis
and forecasting Sustainability planning.
Accounting and Administration

Records (and classifies and summarizes) activities of the organization in objective financial terms
Is oriented towards the past (books of accounts and procedures).
Management Accounting
Involves measurement, analysis and interpretation and allows for decision making for the future
(variance analysis, financial ratios, design / review suitable chart of accounts, projections for the
future).
Cost apportioning
Calculates and apportions direct and indirect costs
Funds and Assets Management

Cash flow projection and management, insurance, protection against misuse or loss
Reporting
Balance sheet, Income and expenditure (or profit and loss) statements, Audit report and donor
reports
Control and Audit

Inventory, separation of tasks, integrity of financial documentation, external audit
10. Couder, 2003
11. Pitt, Brockington, Lucey, I/C consult
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Good principles and suggestions for action

CSO leaders should appreciate FM as a key leadership skill. For a start, higher awareness of
what is involved in FM beyond accounts, can help: use financial processes as a fantastic
learning opportunity, use financial concerns to better understand target group needs, know
what financial resources are available on the market, feel confident that your entrepreneurial spirit enhances FS of the organization, reduces wastage and improves distribution of
scarce resources and thus contributes to a more efficient and fairer planet, .
CSO leaders would do well to apply the FM insight and skill they use at home and in their
possible successful taxi or chicken businesses (or other private economic enterprises) also
in their CSO. The principles are the same.
Any CSO leader is advised to ensure (s) he has basic knowledge of accounts and of FM.
Regular question sessions with the accountant is one option, to attend a course on FM for
non finance personnel, is another one.
As a minimum, the CSO leader must ensure that the bookkeeping and FM system act as an
early warning system12 that tells you that:
You are not meeting your income targets,
You are spending too much/too little,
A cash flow problem is imminent,
Someone is misusing or abusing money or assets.
12. CIVICUS, 2003, p. 14
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Exercise
Exercise 1: To sensitise, enhance awareness on your involvement in FM.

Using some of the frameworks offered in this chapter: assess where you are most and least involved and plan for better
performance in the future
My involvement
Assessment
(Weaknesses, Strengths)
My plan for the future
Accounting
Reading Balance Sheet and
Calculating Financial Ratios
Economics
Systems Analysis (Use accounts for control, learning and
improved planning ( feedback)
Law (contracts)
Taxation
Behavior Science (reading
needs of target group, communication, motivation,)
My involvement
Assessment
(Weaknesses, Strengths)
My plan for the future
Planning
Accounting and Administration
Management Accounting s
Cost Allocation
Funds and Assets Management
Reporting
Control and Audit
Exercise 2: SWOT analysis of FM in your organisation

A useful exercise is to reflect on strengths and weaknesses of the different components of financial management in your
organization. Or SWOT .
The exercise can be done by the individual manager and leader (to rate your literacy and competence in financial management), the accountant, office manager or systems developer. It can also serve as a framework for discussion in the
management team and the board.
The exercise can help to identify areas that need improvement and actions to be taken. If the problems are many, a
prioritization exercise may be helpful. The planning matrix can be developed further and specify responsible person,
deadline and resources needed.
Strength
Weakness
1. Planning
2. Accounting and Administration / Bookkeeping
and Procedures
3. Management Accounting
4. Cost Apportioning
5. Funds and Assets Management
6. Reporting
7. Control and Audit
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4. Appreciate the importance of Financial

Management skill and the value of Financial staff
(and consider a salary increase)
any CSO leaders, apart from being poor financial managers themselves, they do not
sufficiently appreciate the importance of FM skill and of financial staff. This is often demonstrated by some or all of the following organizational features:
Financial staff are either not employed or employed in few numbers. Often they are underpaid in comparison with programme staff. They often receive poor attention when it
comes to allocation of office space, equipments and development opportunities. They
are accorded little influence and power in decision making.
Financial staff are (expected or encouraged to be) pre-occupied with pure bookkeeping
activities and salary, tax and insurance administration. Their involvement in overall organization activities and in programme activities is limited. They are not involved in
planning and budgeting of programme activities. They engage in little FM activity beyond bookkeeping. At most they are considered as bureaucrats who value rules and
regulations, almost as a necessary evil. Their important contribution to smooth functioning of programmes often times goes unnoticed.
Especially in smaller and younger CSOs, job descriptions and expectations of leaders
attach little attention to FM functions. Consequently, leaders sometimes have insufficient competence to translate the organisations mission, objectives and strategies in appropriate financial benchmarks, particularly with respect to income, cost apportioning
and balance sheet projections (cfr chapter 5) This considerably jeopardizes transparency
and accountability.
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CSO leaders often compensate their own limited capacity in FM with relying too much
on the report and opinion of external auditors. One thereby disregards that an external
audit report is there in first instance to satisfy external stakeholders and can never be a
substitute for the required internal, much more regular and substantial reporting and
generation of financial information.
Most CSO Boards include few or no members with FM expertise.
There is little cross fertilization, team work, cooperation or even communication between -programme staff and financial / administrative staff.
Attempts to enhance participation of programme staff in FM tend to be limited to expenditure budgeting. Without sufficient understanding of and participation in income
budgeting and other financial functions, this can easily lead to conspicuous consumption, deficits and subsequent further stretching of the relationship between programme
and financial staff.
Attempts to improve the relationships between programme and finance departments

sometimes focus on enhancing participation of programme staff in financial decision
making and neglect enhanced involvement of finance staff in programme activities.
Efforts to improve FM competence of programme staff are often superficial and have
limited success. Yet, they justify increased participation and influence on financial decision making, especially in relation to expenditure.
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Definitions and Concepts 13

Budgeting
Broadly speaking, budgeting consists of two parts
A plan for expected expenditure: planned activities translated into resources needed
A plan for expected income

As to the expenditure, activities need to be translated in needs for infrastructure, equipment and
personnel. This can be done in two ways:
traditional' or 'historical' budgeting; where the budget is an adaptation of the previous

year budget
'zero-base-budgeting': activities and resource need are looked at completely afresh
Financial reporting
Financial reporting is required for the control , and feedback function of financial management .
While it is in the first place meant to serve the organisation itself, usually also donors and government
authorities are a demanding party.
The most important financial reports are the annual Balance Sheet, the Cash Flow statement and the
Income and Expenditure Statement (Profit and Loss account). A balance sheet gives a snap shot at a
certain point in time of the assets and the liabilities of the organisation. A profit and loss account
shows the income and expenditure for the period and the influence of the balance (profit or loss) on
the assets and the liabilities of the organisation.
Other important reports are : audit report (containing among other audited balance sheet and profit
and loss account), budget control report (usually monthly or three monthly), bank reconciliation statement (monthly) and donor financial report.
13. Brockington, Lucey, Couder
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Good Principles and suggestions for Action

CSO leaders should appreciate much more the importance of finance and FM. While finance is not the only resource, and is not sufficient to successfully run an organization,
without finance and proper FM an organization cannot survive. FM is indeed the life
blood of an organization.
CSO leaders need to rediscover the importance of skills related to FM, budgeting, planning
and forecasting (both of expenditure and income), financial control and discipline, entrepreneurship,
CSO leaders, particularly of organizations that have grown beyond the pioneering stage of
development, need to employ more and better qualified financial staff and treat them better. Apart from a bookkeeper or accountant, mature organisations need a financial manager.
Leadership should appreciate more the importance of the knowledge and skill of financial
staff and also encourage them to sharpen their skills, and be creative and innovative in the
development of appropriate financial policies and systems.
CSO leaders should realize that cooperation and communication between programme and
finance departments is a common challenge to any organization. The challenge needs attention on a continuous basis. Staff of the two departments not only have different educational and professional backgrounds and interests, but also have different personalities,
temperaments and ways of working. To enhance teamwork among the two personalities is a
schoolbook example of the challenging leadership task to appreciate and manage diversity.
CSO leaders (both staff and board members) are challenged to constantly sharpen their
ability to scan the environment and think strategically.
Strategic sensitivity and skill should also cover finance. To many CSO leaders there is room
for enhanced knowledge and skill in Strategic FM, in first instance with regards to the ability to adequately respond to the changing financial environment. There is a formidable challenge for leaders to change from management of donor projects (or management on behalf
of donors) to FM of organisations. Only with enhanced FM skill can a CSO adequately
plan and budget and monitor efficiency and effectiveness of its programme (s) for purpose
of learning and subsequent improved performance, rather than for satisfying the donor
only.
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Exercise
In recognition of the natural tension between programme and finance departments of an
organization, it is often useful to deal with this challenge during the annual team building
week or retreat. An external facilitator is often useful.
Divide the group in two sub groups: basically programme staff and basically finance and
administrative staff. The exercise is presented as an exercise in giving and receiving feedback with an objective of improving communication and relationships. All are reminded
of the principles, dos and donts of such exercise and of the need to refrain from destructive, wild, malicious, ridiculing, rude or abusive language. Ask each group to assess the
performance of the other group, in terms of:
What do we appreciate in what the other group is doing. What would we like to
see continued and even amplified.
What do we find difficult, confusing, disturbing .. in what the other group is

doing. What would we like to see changed or discontinued.
Each group summarizes the assessment on a flipchart for presentation.

In plenary, the positives and the similarities in negatives are amplified and celebrated.
Conflicting negatives are carefully noted and solutions are negotiated. It may be difficult
to find a solution to all conflicting issues, but it is important to find consensus on at least
some issues. For issues that seem to create a lot of emotions and for which there are no
immediate and obvious solutions it is important to have consensus that there is indeed an
issue. Sometimes, it may be wise to temporarily leave it at this and take the issue forward
(with concrete agreement on timing and responsible person) for further analysis to the
leadership of the organization, a special task force or an external OD facilitator.
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5. Plan for financial sustainability in

balance sheet projections
(if you know what I mean)
SO leaders often find it difficult not only to define FS, but also to read accounts, and
specifically the snapshot of the financial position of the organization at the end of a financial period, the balance sheet. Consequently, it is extremely difficult to know or judge
whether or not the organisations financial position is sound and healthy. The majority of
CSO leaders do not have the ability to measure and judge on crucial financial performance
criteria, such as liquidity, solvency and productivity (in the case of IGA, cfr chapter 6). Unfortunately, external CSO auditors do very little to assist in improving this situation.
CSO balance sheets often are, at worst, incorrect, or, at best, not sufficiently informative14.
A case in point is the use of Accumulated Funds, unfortunately a very popular account
among CSO leaders and auditors alike. Under such account, one packs a mix of all kinds of
funds: remaining balances of donor funds for specific projects, funds generated by the organization itself, gifts, . At the end of the day, and particularly after a few years, it is no
longer clear if and what part of the funds / liabilities are designated to a particular purpose.
Balances which were supposed to be spent on particular projects and be accounted for to
the sponsor, are no longer recognizable and consequently not used for the intended purpose.
This is incorrect accounting. It is bound not only to cause trouble with the donor, but also
it fails to provide the correct information to the CSOs leadership.
Other common errors or weaknesses in balance sheets are:
incorrect or insufficient separation of short term assets (current assets) and long
term assets (fixed assets).
incorrect or insufficient clarity on what portion of the liabilities (funds) is short
term (current liabilities) and what is long term (long term liabilities).
no clear differentiation between liabilities to donors and other creditors.
Current Assets do not differentiate debtors from cash and bank. There is no aging
of debtors.
14. I/C Consult, 2004
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Many of the underlying reasons of this apparent lack of respect for basic financial management thinking and, indeed, common sense, have been explained elsewhere (e.g. the division between the financial department and the programme leadership, donor dependence,
). Excessive or full donor dependence, for instance, reduces the need for balance sheet
management and for monitoring liquidity and solvency. Particularly when the donor is well
behaved enough to release the funds in time and generous enough to continue funding the
replacement of fixed assets, the CSO will be able to survive without its leader(s) understanding balance sheet. But, as we all know, there are limits to donor generosity and good
behavior.
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Definitions and Concepts15

Balance Sheet
Is a snapshot of the financial position of the organization at the end of a financial period.
The balance sheet shows both the application (Assets) and source of funds (Liabilities)
Liquidity Ratio:
Current Assets
Current Liabilities
Solvency Ratio:
Capital
Liabilities
In a CSO context, it sometimes makes more sense to define solvency
as:
Permanent sources of funds
Liabilities
Return on Assets Ratio:
An indicator of efficiency
Profit / Loss
Total Assets
Cash Flow:
Reserve:
The total of money payments to or from an organization.

Cash inflows (grants received, earnings, fees received) minus cash
outflows (payments). Cash flow does not include depreciation cost
(as this does not involve an actual payment).
The Cash Flow Statement is an element of the organisations
financial statement, and it explains all cash receipts and disbursements over a particular period of time,
Cash Flow Projection is an essential tool for financial and liquidity
planning. It is recommended to be prepared on a monthly, quarterly and annual basis.
Money saved and set aside to ensure ability to finance future expected or unexpected expenditure. A reserve fund can only be
made up from untied funds, or from explicit donations for that purpose. Reserves are not spent, not committed and not designated.
Sustainability Reserve: Reserve established to ensure the sustainability of the organization. The required level of the reserve depends on the type of organization, but is often put in terms of the money needed to be
able to pay for the overheads for a number of months.
15. Lucey, Brockington
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Good Principles and Suggestions for Action

The use of Accumulated Funds should be discontinued. There should be separate accounts for Own Funds and for Liabilities. The own funds should further be divided into
appropriate categories (e.g. equity, accumulated reserve, sustainability fund, fixed assets
fund). The liabilities should be differentiated in the appropriate sub categories of long term
and current liabilities.
The balance sheet serves as an indicator of the financial objectives of your organization.
Translate the definition and interpretation of FS of your organization, the subsequent objectives and strategies, in an ideal balance sheet, comprising of, among other, the desired
composition and levels of funds / liabilities (equity, sustainability reserve, long term liabilities, ..). Chart the way forward of your strategy towards enhanced FS in balance sheet
projections for the years to come.
Common and recommended elements of the balance sheet of an organization with enhanced FS16 are:
A sustainability reserve fund. A fund that will help temporary problems of

solvency.
A fixed assets replacement fund. A fund that allows an organization to replace

fixed assets at its own strength. This requires a proper understanding and charging of depreciation costs and reserving the income thus generated. Inflation usually demands to consider replacement cost, rather than historical cost.
Financial Policies of an organization should include a sustainability policy (including a reserves policy).
Many CSO leaders need to acknowledge their weakness in FM and in their ability to read a
balance sheet. Again, for improving your knowledge and skill there are numerous options:
talk to your accountant, buy yourself a book with the basics of FM, attend a short course
on FM for non financial staff,.
A recommended first step is, for the CSO leader, to look again at the financial statements
of your organization and see whether you can comment on the financial health of the organization.
Get yourself an auditor or an accountant with a thorough understanding of a balance sheet
and exceptional sensitivity for FM.
Put FM on the routine agenda of management team meetings.
Talk to your donors, and request them if they can support your quest for FS, in terms of
building a healthier balance sheet (cfr chapter 10).
16. I/C Consult
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Exercise
Take the audited accounts for the last 2 to 5 years.
Copy , some of, the main figures, as follows:
2002
2003
2004
2005
2006
Total Income
Different Sources
Total Expenditure
Surplus / Deficit
Own funds
Equity
Others
Calculate liquidity and solvency ratios for each year

Note the most important evolutions in terms of:
Income and Income Sources
Expenditure
Surplus / Deficit
Own Funds
Liquidity
Solvency
Attempt to project a balance sheet for the coming years that is both realistic and desirable
(showing improved financial health and financial sustainability).
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6.Turn income generating activities into

profitable businesses
(and stop fooling yourself)
eeking improved FS, most CSO leaders engage in Income Generating Activities
(IGAs). IGAs are a very attractive option as they bear a promise of untied funds that can
be controlled by the CSO itself. They also invite for leaders to combine their social concerns with entrepreneurial talent (social entrepreneurship). Popular IGA with Tanzanian CSOs are: consultancy services, secretarial services, training /conference centres, canteens, milling machines, transport business, office or house rent, publications, etc. Notwithstanding the attraction of IGA, unfortunately, in reality, to many CSOs they cause more
problems than anything else.
Often, the IGA do not seem to produce any profit, thus defeating the whole purpose for
which they were started; building FS. Main underlying reasons for this are weaknesses in
business management skill, poor recording, difficulty in calculating real costs (e.g. ignoring
depreciation costs, underestimating staff time, ..), and consequently failure to determine
the exact profit.
One wonders if there are deeper causes to this apparent skills gap. Maybe, sometimes IGA
are established not really with an aim to create additional and untied funding to the organization. But, they are rather established either to disguise as another social service, or ,at
worst, to create an opportunity for personal gain. Normally, the latter is possible if the accounts are indeed incorrect and confusing and profit calculation is done late or not at all.
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Is it not a disturbing observation that some CSO leaders find it more important to keep books of accounts
and produce reliable reports to donors, rather than cherishing, valuing and correctly managing the IGA,
which often requires a lot of effort and sweat and offers great opportunities for higher autonomy and enhanced FS?
There seems to be a parallel in the behavior of CSOs with that of governments. Often, governments are very
pre- occupied with accountability to donors, but they are much less concerned about explaining and justifying
the use of citizens money collected in the form of taxes. There is therefore a need to build a tax effectiveness agenda, parallel to the aid effectiveness agenda (cfr. Chapter 12).
In our work with client CSOs, we, TRACE, always encounter the following common issues
and challenges. The issues/challenges are rather similar to what has been described in literature 17. The challenges are:
Conflict between the dominant social orientation of the CSO and the required business culture
Lack of business management skills and experience. Insufficient capacity to calculate and
apportion real costs (especially depreciation) and determine profit.
Overall poor recording and accounts.

Sometimes, conscious obscuring of figures and profit, for personal gain
Poor planning, inappropriate (often deflated) allocation of human and financial resources
Limited access to capital
Donors often do not support IGAs

Problems with the public perception (Mission Creep)
Confused legal and tax status
Unfair competition with the business sector
17. Holloway, 2001
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Profitability
Gross profit rate:
Gross profit * 100 %

Sales
Mission Creep (or Goal Displacement)19
An organization changes its actual mission and /or target group because of conditions of
resource mobilisation. The profile of resources employed co-determines organizational
identity. The phenomenon illustrates the vulnerability of CSOs to donor (including government) conditions.
A CSO s capacity to avoid Mission Creep depends on its Consistency, the ability to alter
the resource mix, without compromising mission and identity and its Autonomy, the CSO
s ability to say no to undesirable conditions of donors.
Fixed and Variable Costs
For cost and profit calculation in IGA, another distinction of costs is necessary (cfr Chapter
12) Fixed costs are those costs that do not change with output, that do not vary with the
quantity of products /services delivered, e.g. office rent.
Variable cost, as the name suggests, vary with the level of output, e.g. quantity of diesel used
for a transport service.
Note that in reality, costs are not always easily categorized and that fixed costs are really
only fixed within a certain productive capacity. With the expansion of an organization,
e.g. at some stage a new, more expensive office may be required.

Notwithstanding all these issues and disappointing experience, we would still argue in favour of IGA as they remain a powerful option for CSOs to diversify sources of income and
to build financial autonomy. IGA also encourage entrepreneurial skills, which not only
ensure more careful use of scarce resources, but these are the skills on which the CSO clients, the poor and disadvantaged individuals, families and communities, depend for their
survival.
However, CSO leaders need to clarify and decide on the actual purpose of these IGA; are
they meant to generate additional funding to the organization (and not to some individuals).
Once a CSO has decided that running a profitable business is really an element of its strategy for resource diversification, enhancing autonomy and long term FS, CSO leaders
should create the necessary conditions that will allow and encourage professional management of the business. This often includes; separate, autonomous legal status, qualified business trained staff (with ability to calculate accurately and timely costs, income and profits).
18. Brockington, Couder
19. Alan Fowler, 2000, 225 p.
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To avoid problems with public perceptions, CSO leaders are advised to either choose IGA
that are in line with the organisations mission, or/and make sure there is a different,
autonomous structure to manage the business. Usually, involvement in IGA requires additional attention for protecting the image and reputation of a CSO.
CSO leaders should ensure that performance and profitability of IGA is measured on a
regular basis. Special attention is required to ensure that depreciation costs are considered!
IGA that do not generate profit should be abandoned.
Exercise
Individual reflection:
What are the reasons our IGA are not making any or reasonable profit?
What needs to be done to improve profitability?
Or should we close down the IGA?
Group Work
Divide all participants in groups with a different perspective: actual managers and
personnel involved in the IGA, people involved in recording and accounts, other
staff, not very much involved in the IGA.
Same questions
In plenary
Share all different perspectives and analysis and, in case the potential profitability
has been confirmed, draw up an action plan to develop and enhance the profitability of the IGA.
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7.Tap the potential of philanthropy

(and prove, beyond any doubt, the legitimacy of your CSO)
ompared to CSOs in other countries, CSOs in Tanzania do not generate any significant
amount of money from gifts from fellow individuals or from the corporate sector. In other
words, in Tanzania there is not much of a culture of giving, or a culture of
Philanthropy.
There are many underlying reasons for this. On the side of the giver, there is the actual (or
perceived) low level of income and the unfamiliarity with CSO work. On the side of the
CSO, there is limited awareness and understanding on the potential of philanthropy. CSO
leaders often feel a little bit embarrassed to ask for funds from friends and people they
know. They feel like beggars, not realizing that they offer a chance to philanthropist to
support what they actually want to support, but did not know how to do it.
A quick look at the history of giving in Tanzania and at the enormous contribution of philanthropy in some other countries, offers room to believe that philanthropy has great prospects to CSOs to strengthen their financial base and to reduce dependence on foreign donors. If fellow Tanzanians and members of the community agree to donate to your CSO,
you have the best proof that the work of your organization is appreciated and legitimate,
and that your organization is genuinely rooted and embedded in the community.
History
Considering the long history of mutual assistance and ujamaa solidarity, combined with
the growing irrelevance of old forms of reciprocity, there is good reason to believe that
modern channels of philanthropy (and numerous philanthropists) will develop. It can also
be expected that formal ways of corporate social responsibility (CSR) will grow.
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A brief history of philanthropy in Tanzania

In many traditional societies of old Tanzania (and largely persisting in many rural and
isolated societies of today) the dominant economy is a moral economy, founded on
communalism and based on a system of reciprocity, whereby there is little social stratification, little exploitative social relations, almost equal access to sources of production and
equal distribution. The traditional family, the kin, caste, tribe or clan looks after its own
people as a natural duty. If there would be people socially or economically disadvantaged
or less fortunate, then a richer person, a chief or a wealthy trader provides protection and
material assistance to them. In return, the less fortunate person will compensate with labor and loyalty. Such patterns of exchange are important for social stability, leadership
and building wealth (including bride-wealth).
Whereas this system undoubtedly means support to the poor and disadvantaged members
of the group, and it reinforces solidarity and a sense of interdependence, a closer analysis
suggests that the motive of the giver is not a moral obligation, asceticism or religious
merit (as it will develop in modern economies ).. Giving in the moral framework of
traditional reciprocity is often motivated by something the giver expects in return: prestige and social standing, loyalty, cheap labor, legitimacy of leadership, power and domination. Giving thus often creates incorporation and dependence of the weaker members
of the group. (An almost ironic illustration of this is the confusion of some early human
rights campaigners and missionaries who thought they were freeing slaves, only to find
those seeking refuge understanding themselves to be taking on new masters.)20
The independent government of Tanzania pursued a socialist vision of national welfare
and was hoping that the state would satisfy the needs of every Tanzanian, including the
poor and disadvantaged. Again, ironically, in pursuing the dream of an egalitarian society
without poverty, an emerging voluntary and philanthropic sector was discouraged and
forced to hide in informal and old patterns of reciprocity in increasingly economically impoverished rural and urban societies and groups.
Obviously, Tanzania has been learning from past experience and, in recent years, in an
ever globalizing world, it sees the modern part of its dual economy developing and producing an increasing number of employees who are bound to exit from the old forms of
the moral and reciprocal economy.
While Tanzania of today features persistent, or even increasing, levels of poverty, there is
also a growing middle class of people who are part of a modern, monetary economy and
who are able to earn a surplus. Considering the long history of mutual assistance and ujamaa solidarity, combined with the growing irrelevance of old forms of reciprocity, there is
good reason to believe that the development of modern channels of philanthropy could
provide significant resources to those organizations and charities that can earn the trust
of numerous potential philanthropists in the country. It can also be expected that formal
ways of corporate social responsibility, now still largely monopolized by foreign companies (albeit in very modest figures), is to be taken on board by many local businesses
sooner rather than later.
20. Adapted from, a.o., Moyo Bhekinkosi, Feierman Steven
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Philanthropy in other countries

In South Africa, a massive 93 % of the population give, in one way or another (money,
food/goods, volunteer time).21 Giving is done by people of all walks of life and is definitely
not the monopoly of the rich. On average, South Africans give the equivalent of Tsh
10,000/= per month to a charity, and Tsh 2,500/= per month directly to the poor. There is
indeed a preference to give to an organisation (a formal structure like a CSO or charity )
over giving directly to the poor.
In Peru, more than half of the population give. In Asia almost all households from the middle and upper class give. In Asia, 40 % of the gifts go directly to individuals, poor people,
beggars, etc , 35 % go to churches and religious organizations, and 25 % go to CSOs.22
In Western Europe, people give to a variety of good courses, mainly through organised intermediaries. If we look at financial giving to NGOs involved in development work, it is
reported that more than half of the population contributes something. In Belgium the percentage is 65, in Holland 83. Per average, per year, givers release 16.8 Euro in Holland, 7
Euro in Belgium, 5 Euro in Germany, 1.8 Euro in Spain, 0.6 Euro in France, 0.3 Euro in
Italy.23
So there is a trend, worldwide, as countries develop the culture of giving grows. And as
CSOs become more credible, professional and trustworthy, they tend to become preferred
recipients over giving directly to the poor and victims.
And in Tanzania
To our knowledge, there is little or no recent research done in Tanzania on the reality of
philanthropy. But from our own experience and exercises during training sessions24 it appears that in Tanzania many individuals, groups, organisations, companies, financial institutions, government and government leaders are giving in one way or another. It can be
money, materials, time, expertise or service. They give to the needy, disabled, churches,
schools, poor families, both directly to individuals and to religious and other intermediary
organisations. They are motivated by concern or sympathy, religious belief or solidarity,
sometimes also for self promotion, recognition and prestige. The corporate sector also
gives to build a social image, goodwill, reputation and business promotion. To both categories of givers, the credibility of the recipient organization is very important.
Out of the many TRACE clients and partner CSOs, the Amani Centre from Morogoro
stands out as the most successful organisation in terms of local fundraising. Amani Centre
is the living proof of the potential of philanthropy in Tanzania. The Philanthropy fact sheet
below shows that Amani generates a thrilling 80 % of its total income from philanthropy.25
21. Strategy and Tactics, A nation of givers? Social giving among South Africans, 2004.
22. A venture for Fund Raising Series: Investing in ourselves: Giving and Fundraising in Bangladesh, India, Indonesia, Nepal,
Pakistan, Philippines, Thailland. March 2004. Quoted in CORDAID, 2005.
23. Figures from Develtere Patrick
24. TRACE, 2004 and 2006
25. TRACE, 2006
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Amani Centre: Philanthropy fact sheet:
From
What
How
% of total income
Recommendations
Companies:
Financial institutions,
Religious institutions
Individuals: Tanzania, Abroad (Friends of Amani)
Cash
Materials
Expertise
Fliers
Visitors
Hospitality
Letters
Cards
Media
Newsletters
Calendars
2000: 20%
2005: 80%
Keep on trying
Raise Awareness
Attend international workshops
Build a culture of commitment
Giving by commercial firms, inspired by corporate social responsibility (CSR), is currently

still modest and largely monopolized by foreign companies. But it can be expected that
the funds available will increase significantly in the near future and that philanthropy will
also increasingly be pursued by local businesses.
We noted for instance that, over the last 5 years, CSR has become one of the most important criteria in the annual East Africas Most Respected Company survey (organized
jointly by the Nation Media Group and PricewaterhouseCoopers) and the Company of the
Year Award (organized by the Kenya Institute of Management).26
It is also important to note that early philanthropist tend to give directly to unfortunate
people as they are motivated to alleviate immediate and tangible manifestations of social
injustice, such as hunger, disability and disaster. However, as levels of social and political
awareness develop, and civil society organizations mature, there is often a shift from giving
directly to the affected victims to giving to professional and trustworthy intermediary organizations and charities, and later on from giving to social emergency charities to giving to organizations that work on the structural causes of poverty and under development.27
26. The East African newspaper, Special Supplement on Corporate Social Responsibility, May 29th 2006
27. It remains extremely difficult however to sell intelligent analysis of social injustice. Many fundraisers therefore continue
to attract philanthropists with tangible and striking pictures of poverty and social injustice, like photographs of malnourished children or abused women.
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Definition and Concepts

Philanthropy
The term philanthropy refers to an act of showing generosity towards other people and a
sincere wish to help them, especially by giving to poor people. 28
Etymologically it means Caring or love for humanity.
Facilitators of TRACE workshops developed the following definition: 29
Giving to people in need or to organizations that work for or represent these people,
From your own means
No obligation (not enforceable)
No direct benefit.
Different kinds of philanthropists 30
Individuals
Specialised organizations
Companies (CSR)
International
Concerned individuals, the

rich and the famous,
( Internet !)
International Donors
CORDAID
OXFAM
International companies
BP
Pepsi..
National
Concerned communities
Other specific target
groups
General public
National
Religious organization
Trust funds.
National companies & SME

NBC
TBL
TCC
IPP
CRDB
Hotels
Local businessmen
.
Corporate philanthropy or Corporate Social Responsibility (CSR) has been in existence for
a very long time, as the desire of the rich to engage in charity is of all times. Many large
corporations have created intermediary Foundations (e.g. the Ford Foundation) to allow some distance from the business itself.
The recent rise and formalisation of CSR has to be seen in the context of corporations
evolving from serving and being accountable to shareholders to serving and being accountable to stakeholders (comprising of, apart from the shareholders, consumers, suppliers, the employees, the neigbouring community, .) This is in response to consumers and
the public increasingly expecting more socially responsible behavior from companies.
Society is slowly developing hostility towards excessive greed, blind pursuit of profit and
the culture of quick and sometimes corrupt deals. Friedmans saying the business of
business is business no longer holds.
28. Cambridge international Dictionary of English

29. TRACE, 2006
30. TRACE, 2004 and 2006
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Good Principles and Suggestions for action

We believe there is an urgent task for CS as a whole in Tanzania, to conduct research into
current patterns of giving (who, to whom, for what, how much,) and examine potential for growth in general and of giving to CSOs in particular. There is a need also to examine possible ways to further encourage giving to organizations, like for instance tax exemption on gifts, which is common in many parts of the world, but not in Tanzania.
To individual organizations and CSO leaders, we suggest the following:
Believe in the potential of philanthropy, in the sense of solidarity and social concern at
the side of individuals and companies
Assess the hindrances and possible supporting factors to giving to your organization
(Understand political, economic, historical, social, cultural, religious, legal conditions
that determine this.)
Sensitize and raise awareness on the need for giving
Realize that philanthropy proves credibility of your organization and promotes true and
lasting local ownership
Demonstrate capability, impact and legitimacy of your organization to potential philanthropists. Prove that your organization is credible.
Build your organisations capacity to communicate with potential philanthropist, to

lobby and advocate, to build a lasting relationship, to brand its identity. Say what you
do and do what you say. Have a simple and understandable message.31
Learn from other organizations that are successful in attracting philanthropic resources.
Contact large numbers of potential philanthropists and learn the most appropriate techniques. Do not be too critical (selective?) in the support you accept; materials, volunteer
time, good advice can be more helpful than money. Know that generally speaking, 80
% of your individual philanthropists will contribute only 20 % of the funds raised, while
20% richer and/or more convinced givers will raise 80 % of the funds. (The donor
pyramid 32 )
Recruit volunteers to help you access philanthropy. Encourage creativity and boost energy.
Keep costs under control and increase investment in fundraising gradually as you become more experienced and successful.
Say thank you to your supporters and encourage them to give again. Make them feel
partners and friends.
31. CORDAID, 2005

32. Roth, 2001, CIVICUS 2003
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Exercise:
Exercise : Enhance awareness on the existence and potential of philanthropy
Individually,
Reflect on you personal giving behaviour over the past year.
Did you give away anything during the past year?
What. How much ?
To Whom ?
What for ?
Why ?
Reflect on who approached you and asked for assistance over the past year.
Does it concern individuals or organizations ?
To whom did you give and why (in terms of the approach / technique of persuasion used)
Individually (and then in groups) analyse the giving behavior of Tanzanians in general:
1. Do you think people in Tanzania are giving?
2. Who ?
3. What. How much ?
4. To Whom ?
5. What for ?
6. Why ?
In plenary:
Can our organization attract resources from philanthropists. From whom, for
what, which resources and how much, why?
Which techniques of persuasion are most successful?
What should be our target in terms of percentage of our total income, next
year, in 5 years time?
What should we do to attract philanthropic funding?
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Extract from the East African newspaper on Philanthropy

Schoolkids Can Help More Than Bill Gates
By Charles Onyango-Obbo,
Its there is no- crisis anywhere else- in- the - world time. That means its time to pay attention to Africa.
Britains finance minister, Gordon Brown, visited a few weeks ago. Microsoft chief Bill Gates, the world richest man,
has been moved enough to fork out $ 750m to fund vaccines for children in the poorest countries, the largest donation in history by an individual to a single cause in history.
Not even the fact that Gates is worth $ 46 billion, which would make him the eighth largest state in Africa, as Londons Sunday Observer noted, can diminish the scale of his philanthropy. The Norwegian government also threw $
290 million into the vaccine fund.
Brown was back a few days later, pledging $ 1 billion, and last Friday he was cajoling G7 finance ministers at their
meeting in London for extra aid and debt relief for Africa.
His Prime Minister, Tony Blair, had also announced a plan to save Africa at Davos. Rock star Bono was in the
house, pushing for debt relief. And Frances President Jacques Chirac proposed a global tax on air tickets to help
fight poverty in Africa.
The list of those pitching into the effort to end global poverty in the past two weeks is so long, by the time we get
half way we shall not have mentioned that Africas and indeed the worlds icon extraordinaire, Nelson Mandela,
brave the winter cold to address the rally against poverty in Trafalgar Square.
On other continents, the billions of dollars that have been poured into Africa in the past 30 years, would have created a paradise of sorts. However, Africa has only got poorer. Nor is the latest bout of offerings likely to change
conditions much on the continent.
Among the reasons that many parts of Africa have regressed is that civil wars, cruel and corrupt governments, and
the idiocy of some of the donors, have conspired to ensure that the benefits dont reach the poor. Nor, indeed, the
middle classes.
Sometimes, though, I think misery persists in Africa for more basic reasons. Late last year, I visited the University
of Tennessee for a speaking engagement. At the lecture, I met an activist from DATA, the organisation founded by
BONO to help fight Africas debt, increase funding for Aids, and improve the continents international trade terms.
He had travelled from out of Knoxville, and had laid out campaign leaflets at the entrance of the hall. A table had
also been set up to recruit volunteers for DATA.
More than anything, what is most absent in Africa are these kinds of channels to tap from the rich and deliver to the
poor; a mechanism not only to take the hard goods to the disadvantaged, but most importantly to build a network
out of a good idea.
Its understandable that the corrupt should have the organisation and power to cream off a huge chunk of
aid and donations to Africa, but its more striking how much the poor are unable to get even the crumbs
from the rich mans table or drain the dregs of his wine.
For all the savvy of organisations like DATA, theres no movement that ever changed the world based on a structure manned solely by salaried employees, and working off a plan developed by the board of directors sitting at
headquarters. Thats partly because no organisation has the sophistication to pull off something like that.
Without a volunteer tradition and network, the poor in Africa will languish for a long time. Until theres a critical
mass of schoolchildren who are sensitive enough to give up their football game and endure the humiliation of standing at street corners with tins to raise money to clear contaminated wells; office workers giving up their day off to distribute rehydration salts; and middle class mothers baking cookies to raise
money for the blind, very few foreign goods will get to Africas poor.
Neither Gates, nor the largest sum of aid can buy a volunteer spirit. It can only grow from deep inside the
soul of a society.
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8. Avoid conflict of interest

(and enjoy being a role model)
ccasionally CSO leaders (both staff and board members) find themselves in a situation
where potential conflict of interest exist. Examples:
A CSO leader owns a house for rent and considers renting it out to the CSO.
As an individual, the owner of the house, (s)he has an interest in a rent as high as
possible, as chief executive of the CSO, (s)he has an interest in minimizing the
cost of the rent.
A relative of a CSO leader owns a printing company. The CSO needs to print
2000 copies of a brochure. The relative would benefit from a quick contract, not
soliciting bids from competitors.
A CSO leader is approached by another organization to facilitate a workshop during the same period that the CSO is conducting a very important annual evaluation. The payment for the facilitation job is very generous (as a matter of fact, in
one week (s) he could earn the equivalent of 2 months salary). The temptation not
to attend the annual evaluation and to earn a considerable extra is very high.
Social pressure creates expectations from the CSO leader to offer employment to
relatives and friends. If the person employed does not have the required profile, or
possesses informal power over the employer, a conflict of interest might occur.
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Definition and Concepts33

Conflict of interest
Conflict of interest exist when the personal or professional concerns of a board or staff
member affect his or her ability to put the welfare of the organization before personal
benefit. This concerns not only a legal issue, but it relates to overall ethical behavior
Conflict of Interest Policy:

A policy on conflict of interest has three essential elements:
1. Full disclosure.
Board members and staff members in decision-making roles should make known their
connections with groups doing business with the organization. This information should be
provided annually.
2. Board member abstention from discussion and voting.
Board members who have an actual or potential conflict of interest should not participate
in discussions or vote on matters affecting transactions between the organization and the
other group.
3. Staff member abstention from decision-making.
Staff members who have an actual or potential conflict should not be substantively involved in decision-making affecting such transactions.
For a sample conflict of interest policy and disclosure form, see the BoardSource booklet, Managing Conflicts of Interest
Good Principles and suggestions for action:

CSO leaders have to prevent and avoid conflict of interest as much as possible.
Self monitoring is the best preventative measure, but well defined operating policies on all
matters that might lead to conflict of interest are also important.
Draw a conflict of interest policy and develop a system for monitoring and sanctioning.
Review the policy from time to time
33. BoardSource, Washington, USA
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Exercise
Reflection on conflict of interest may have a role in a team building exercise or retreat
with the board
Explain the concept Conflict of Interest.
Individual Reflection
Is there something that can affect my ability to pursue organizational interest
above individual interest.
a) already effectively happened,
b) could potentially occur
Group work
Share individual experiences in groups and come up with suggestions on how the organization can avoid conflict of interest.
Organisation
Collect all suggestions as raw material for the development of a Conflict of Interest
policy.
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9. Enhance Cost Awareness

(and feel light and fit)
any CSO leaders do not know the cost of what the organization is doing, and very
often the organization is more expensive than what the leader thinks. At the extreme, some
CSO leaders expect the organization to provide a four wheel drive for both official and personal use and they feel naturally entitled to decorate their office with expensive furniture,
equipment, and carpets, . irrespective of the organizations financial ability. There is a
tendency for conspicuous consumption, and, if it involves comparing with other, more
established organizations, a kind of organizational keeping up with the Joneses syndrome.
There is nothing wrong in trying to be well equipped, comfortable and look good. But just
like an individual, over-spending on dress and material luxury risks to get hungry; so does
an organization risk insolvency. The issue is, one can only spend and dress up according to
what one can afford.
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Most CSO leaders find it difficult to respond to the following questions:
What does the organization cost in total (say per month)?
What is the gross (including fringe benefits, medical, NSFF contribution) cost of personnel, , .. (per annum or per month)?
What is the real total cost of the vehicle (depreciation, maintenance, insurance, fuel, ..)
(per km, per day, per month, per year)?
What is the real total cost of a particular project (apart from the direct costs, what percentage of overhead costs (office rent, electricity, personnel,.) do we need to allocate
to this particular project)?
Obviously people who have difficulty in knowing these, rather straightforward, costs, they would find it even
more difficult to measure the organizational cost of HIV/AIDS for instance, or the external costs
(environmental, social) caused by their activity.
We believe, weakness in the ability to know and measure costs, is not a matter of knowledge or technique, but essentially a matter of attitude and awareness. CSO leaders can really
not afford to think that resources are plentiful. Resources are scarce and require responsible
monitoring and management.
If a CSO leader does not know the cost of something, (s) he will also face difficulty in carrying out one of his/her major responsibilities, that is to control costs.
One of the most particular challenges of many CSOs is to control (and minimize) the overhead (or fixed) costs: rent, water, electricity, vehicle costs, core personnel, insurance,
equipment,.. One can compare it with the tendency of a non exercising and beer drinking human body, it grows fat and develops a belly. As much as a healthy person needs
to control weight to stay fit, alert and happy, so does an organization need to control costs
to remain lean, alert and effective. The more an organization minimizes its overheads, the
better it can face disruptions in the expected flow of income and liquidity. Just like individual happiness is served with regular removal of clutter 34, so is organizational effectiveness
served with removal of non essential expenditure.
Understanding costs, being aware of the costs and of the need to control them, these are
all pre requisites for the next step; the development of a cost control and allocation system.
Ensuring the establishment of cost centres and a system of cost allocation/ apportionment is one of the essential financial responsibilities of the CSO leader.
34. Marais, TRACE
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Definition and Concepts 35

Fixed and Variable Costs
Fixed costs (or overheads) are those costs that do not change with output, that do not vary with the
quantity of products / services delivered, e.g. office rent. These costs are borne even if no output is
produced (hence the name overheads).
Variable cost, as the name suggests, vary with the level of output, e.g. quantity of diesel used for a
transport service.
Note that in reality, costs are not always easily categorized and that fixed costs are really only fixed within a certain
productive capacity. With the expansion of an organization, e.g. at some stage a new, more expensive office may be
required. In other words, in the long run, by definition, there are no fixed costs.
Direct costs and indirect costs.

Indirect costs are costs that are not directly related to certain functions but they need to be attributed
to the different functions according to the importance of the function.
Cost calculation
Cost management involves distinguishing different kinds of costs and establishing cost-centres.
Usually budgets make a distinction between a) investment costs (development budget), b) functioning
and personnel costs (recurrent or core budget). One also needs to consider the distinction between
direct and indirect costs;
Costs need to be allocated over the different basic functions or cost-centres, so that costs can be calculated correctly and managed properly.
Example
Project function
Workshop
Input-provision
Extension
Administration and
co-ordination
Budget vote
1. investment
2. functioning
3. personnel
TOTAL
direct costs
Indirect costs
Cost Centre:
A location, function, item or equipment in respect of which costs may be

ascertained and related to cost units.
Cost Allocation:
The whole of a cost is attributed to a particular cost centre
Cost Apportionment: The splitting or sharing of a common cost over the receiving cost centres. Apportionment can be based on volume or space occupied, (staff)
time used, book value of equipment,
35. Bannock, Baxter & Rees
Couder
Lucey
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Make sure you sufficiently realize resources are scarce and may have better alternative use.
Remember; to many of our fellow Tanzanians, 1000 TSh really makes a difference.
Get your organization lean and fit, remove the fats. Therefore, regularly:
Determine (be reminded of) the cost of all your activities.
Know the composition and value of overheads
Abandon unnecessary expenditure, control all expenditure
Organize regular sessions with all staff to communicate and sensitize about costs
and the need to control them.
Sanction obvious misuse of resources and conspicuous consumption.
Recognize and reward cost conscious behaviors and cost saving ideas.
Develop or improve your cost control and allocation/apportionment system. Remember

this is one of the essential financial responsibilities of the CSO leader.
Ensure all cost items are correctly calculated.
Determine which costs are fixed and which ones are variable. Hammer the total
value of overheads in your brain, and feel a little bit uncomfortable and doubtful
whether it is really justified you spend that kind of money.
Determine/review the cost centres in your organization.
Develop/review the cost apportionment system.
This system should specify on what basis costs are apportioned; time used, office
space used, .
Make or keep the system as simple and transparent as possible. Make your staff
understand and apply the system.
Find an auditor who is capable to verify and sanction the system.
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Exercise
1. Look at the most recent expenditure statement (or expenditure budget) of your
organization
Which expenditure items are fixed costs or overheads?

Which of these expenditure items are rather clutter? Are unnecessary?
(the organization can do without)
Which of these expenditure items can be subjected to savings, to better
control?
2. If your organization has a four wheel drive vehicle
What is the real cost of your vehicle per km. (Consider depreciation,
maintenance, insurance, fuel, do not forget you need new tyres once
in a while, and maintenance costs increase with age)?
Compare the total cost of a trip to the bank in town with the cost of hiring a taxi.
Compare the total cost of a long trip (from Dar to Mbeya) with the price
of a comfortable bus.
3. If your organization is employing a number of watchmen
Calculate the total cost of your watchmen per month (consider salary plus
other incentives (medical, 13th month, severance,) (do not forget the
cost for replacement in case of absence, the uniform, canteen use, the
cost of supervision..)
Compare the total cost per month with the fixed price you would pay to a
security company. What about replacing one of your watchmen by a simple alarm system?.
4. What are the cost centres in your organization and how are costs apportioned?
Critically review the actual practice of cost calculation and apportionment, and
suggest improvements?
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10. Be transparent
C
(and sleep tight as you have nothing to hide)
ivil Society has a natural mandate to demand accountability from government and
therefore rightly insists on transparency of the governments income and expenditure, and
its FM. Yet many CSOs are not transparent themselves.
Weaknesses in transparency can have different causes; limited FM competence, attempts to

hide personal gain, arrogance, .. But it always has the same results: the CSO leader is
stressed and stakeholders are suspicious.
From our work with CSOs, we have noted common weaknesses in terms of transparency
as follows:
Financial reports are, at the worst, not produced at all; at the best, are not produced
regularly, and often the reports are inaccurate, complicated or obscured.
Though some CSOs have developed sufficiently in size to warrant this, balance
sheets are often not produced or not made informative enough. Specific weaknesses
common to CSOs financial reports are: the absence of debtors and creditors lists
and analysis, lack of differentiation between short term and long term liabilities, and
between untied and designated funds,.
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Financial reports are seen as a donor condition, and not an instrument for FM and
transparency towards staff and other stakeholders.
There is very little financial reporting to the most important stakeholders: the organisations target group or constituency. Possibly, the difference in wealth between
the organization and the target group is so huge that openness could indeed prove a
little embarrassing.
Financial staff tend to hide behind too much jargon and exploit the ignorance or
limited competence of non financial colleagues. Programme staff, on the other hand,
do little effort to listen, to read and to understand the figures and the reports (but,
irritatingly, continue to complain about lack of transparency). The relationship between the two camps is often strained by communication difficulties.
Some CSO leaders intentionally obscure or delay financial reports so as to get away
with personal gain. Unfortunately, in some CSOs there are serious issues of integrity,
ethics, values, abuse of power, .. Income from IGA, membership fees and philanthropy is often more prone to abuse than donor income.
Many CSOs do not pay sufficient attention to internal control mechanisms that are
suitable to the size (especially in terms of staff) of the organization. Financial regulations and manuals are sometimes copied from much larger organizations and thus
not workable.
In other incidences there is no sufficient separation between the person who authorizes payment, effects payment, records payment, and keeps the key to the safe.
Bank and cash reconciliations are not done, or not done monthly.
Sometimes, there are receipts and payments without proper documentation, supporting documents.
Small and young CSOs often do not have external audits. In many other CSOs, audits are carried out late and fail to cause adjustments and improvement in FM. Audit
firms sometimes use staff who have limited understanding of grant accounting, informative balance sheets, sustainability etc., and, therefore, do not actually realize a
competent, independent and reliable verification. Yet, many CSO leaders, with limited competence and interest in FM, rely very much on the opinion of external auditors. Many CSO boards do not have sufficient FM expertise to adequately assume
their responsibilities of appointing the auditor, discussing and adopting the audit report. The same sometimes counts for approving budgets, financial reports, financial
policies.
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Financial Control
Two main principles for effective financial control are:
Separation of duties. Different persons should be responsible for custody of cash, authorization and recording. E.g. request for payment and approval and payment must be done by
different persons. The one who is doing the bank reconciliations can not write out the
cheque.
All transactions have to be regulated by accounting procedures. E.g. all income or expenditure must be documented. Numbered receipts and payment vouchers have to be used. Bank
reconciliations are done monthly.
An independent verification that financial controls are operating effectively is absolutely essential.
This is usually done by the external auditor (in larger organizations, there is an internal auditor who
regularly checks the efficacy of control systems).
External Audit
Statutory requirements
Depending on their legal status, organisations have the obligation to submit audited accounts
to e.g. the Registrar of Societies or other legal bodies. Failure of which could lead to the deregistration of the organisation. Often, organisations that undertake IGAs must also submit
their annual (audited) accounts to the tax department.
Appointment of auditors
The appointment of auditors is done by the highest authority of the organisation e.g. general
assembly of members, the board . The auditors are accountable to the same authority.
Duty of the auditors
The duty of the auditors is to form an opinion of the financial situation of the organisation as
at a given date. They do so by test-checking the accounting system, books of accounts, accounting vouchers, correspondences, interviews with staff members, etc. It is a fallacy to believe that external auditors will discover all the short-comings of the organisation within the
short period of their checking.
Audit reports
There are usually two types of audit reports given by the external auditors: balance sheet report and management report.
Balance sheet report
The balance sheet report will form part and parcel of the final accounts and will be read by all
interested parties who are reading the accounts. There are two types of Balance sheet reports.
One is a clean report and the other a qualified report. A clean report does not carry any
reservations, but a qualified report does.
36. Couder, 2003

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Management report
The management report does not have a very substantial bearing on the overall financial position of the organisation, but will point out the weaknesses and short-comings and give recommendations for improvement. This report is also submitted to the highest authorities but is
basically an internal report.
Responsibility of the organisation
The organisation is expected to discuss and adopt (or otherwise) the final accounts together
with the balance sheet report, and if adopted, distribute the audited accounts to the relevant
authorities.
The management report is also discussed by the organisation and the resolutions passed are
notified to the auditors.
Elements of control
Delays in finalising accounts: the financial report must be presented to the board of directors,
the general assembly, the authorities, etc within periods fixed by law and memorandum of articles.
Arithmetical accuracy: the auditor will not start his work if the trial balance is not balancing.
Adequacy of the accounting system: before starting to check the books and records, the
auditor usually looks into the efficiency of the accounting system i.e. establishing whether the
system provides for proper controls over cash, bank, purchases, sales, payments assets, etc.
Usually the auditor will spend more time in checking issues which indicate weaknesses in the
system.
Presentable books and records: besides accuracy, neat and tidy recordings create a good impression. Too many alterations in the books are a cause for suspicion. Correction of any
wrong posting should be done through the journal, with proper explanation.
Security: the auditor would like to establish that there is sufficient security for the organisations assets: ownership of property, insurance cover, safes,
Proper justifications: all expenditures should have proper justifications e.g. for purchases
Non-accounting records: the auditor has the right to check all correspondences, minutes of
management meetings, board meetings, etc.
Certificates: the auditor will require certificates from the relevant authorities, as at close of
business for the financial year under review for the following: cash balances, bank balances,
debtors and creditors
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CSO leaders are advised to make their CSO resemble a house made of glass. No secrets,
nothing to hide. Absolute transparency, a board carrying out adequate financial supervision
and particularly a competent, independent annual verification by an external auditor, endorsed by the board, is absolutely essential for a CSO leaders psychological and spiritual
health, his/her good reputation and subsequent chance for the organisations survival and
sustainability.
There is no excuse for a CSO, claiming to fight injustice and to represent the poor, not to
cherish integrity and to value honesty. CSO leaders therefore cannot escape their duty to
establish suitable internal control mechanisms and a transparent cost apportionment system
that can be verified by an external auditor. Obviously they also need to be tough on staff
who are abusing the systems.
Financial reports need to be produced and discussed regularly. For a reasonably sized CSO,
a monthly statement of income and expenditure and budget comparison is recommended.
Exercise
It is useful to discuss transparency during a retreat or home week. The main idea is to establish possible weaknesses and plan for improvements. It is recommended to first have
issues discussed in groups and then in plenary. The following could be some of the guiding questions:
Financial reports: are they produced regularly, accurate and clear ? Are they produced
for donors only, or also for internal management ? Do we report to our primary stakeholders ?
Balance Sheet: is it informative ? What important information is missing.
Is all the income (including the one from IGA and philanthropy) properly documented? ( Why not ? )
Internal control mechanisms: which ones do we have ? Do they work ? Are they suitable to the size of the organization?.
Is there separation of duties between the person who authorizes payment, effects payment, records payment, and keeps the key to the safe?. ( Why not ?)
Bank and cash reconciliations, debtors follow up: are they done monthly? (Why not ?)
Receipts and payments: are they all properly documented and have supporting documents?
External audit. Do we have them annually and soon after closing the financial year ?
Is our auditor competent also in terms of balance sheet management? Is our board
competent to really discuss and adopt the audit report?
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11. Question and clarify the Identity and

Legitimacy of your organization
(and be accountable to the ones who really count)
nfortunately, still too many CSOs do not have a legitimate and clear mission and are
not responding to a genuine need or problem. Such CSOs risk to undermine the credibility of the whole Civil Society Sector. Apart from the extreme pretenders (the brief
case NGOs, GONGOs (government organized NGOs) or DONGOS (Donor organized NGOs) to mention only a few), there are CSOs whose existence is too much inspired by opportunism or the need for alternative and comfortable employment. They do
not have a clear vision and mission, based on developmental values, they are rather empty
vessels.
It is sometimes difficult to distinguish the good (the well intentioned CSO leader) from the
bad (the pretender) because even the good leaders do not sufficiently question the unique
identity and legitimacy of their CSO. And that has a very serious bearing on FM in the organization, and particularly on the ability to mobilize the (most appropriate) resources.
The ability to mobilize financial resources is the key to FS. This ability is fundamentally determined by the organisations identity and legitimacy. Without a clear and relevant identity
and mission, financial resources are not likely to be forthcoming. And it is the CSO leader
who carries this identity with vision, commitment, humility and integrity and who understands that financial resources are a necessary, but not in any way, a sufficient condition for
sustainability. The financial strategy of an organization should help the organization to
achieve what it is set out to achieve. The mission should lead a CSO, not resource availability. A lack of funds is usually an indication of problems in deeper organizational issues; no
developmental values, lack of integrity, no commitment to target group needs, no internal
motivation, weak leadership, no genuine ownership, etc. These are the capacities that need
to be developed. Without them, resource mobilization is not likely to be successful, and
certainly not going to be sustainable.
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Identity
Is our Mission (role, target group, our service/product, our approach,..) unique, legitimate and clear.
Are we responding to a genuine need or problem?
Is it worth sustaining our organization ?
Who are our stakeholders? What is their stake? Are we accountable to them?
Legitimacy
Legitimacy is about responding to the following questions in the positive:
Is the existence of the organization justified?
Does the organization add value to society?
Does the organization do what it says it does and can it prove it?
A valid (based on fact) public perception that the CSO is a genuine agent of development.
Accountability 38
Whether or not an organization is relevant and legitimate is closely related to its accountability.
Most CSOs claim to work on behalf or for the poor and disadvantaged. That is where they
claim the right to intervene in development. They have to be accountable for what they do
if their claims to legitimacy are to hold.
Accountability is generally interpreted as the means by which individuals and organizations
report to a recognized authority, or authorities, and are held responsible for their actions.
Most NGOs are accountable to a multitude of actors or stakeholders: beneficiaries/
members, boards, government, donors,etc.
To be able to demand for accountability relevant stakeholders need to have at least 3 capacities:
The capacity to demand information and reports from the organization
The capacity to read, study and appraise these reports and information
The capacity to enforce sanctions.
37. TRACE, 2004 and 2006, Fowler 2000

38. Edwards and Hulme, 1994.
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CSO leaders need to regularly question and clarify the Identity, values and unique mission
of the CSO.
CSO leaders need to ensure that effective performance and achievements of the CSO are
demonstrated.
The CSO leader need to ensure that the organisation is clear on the change it is pursuing,
both at the level of the target group and at the level of the organisation. There needs to be
clarity on the added value of the organisation. Achievements have to be measured and communicated to stakeholders; the work of the organization has to be made visible to the public. This requires capacity to monitor, learn and improve performance. It also requires suitable staff and appropriate policies, systems and approaches.
The CSO leader needs to ensure that resources are mobilized in order to carry out the organisations mission. A CSO should not opportunistically change its mission because of the
availability of resources.
A CSO leader needs to be conscious of the stakeholders of the organization and accept the
duty to be accountable. Each CSO is challenged to improve accountability to its stakeholders, particularly the primary stakeholders and those stakeholders who can really judge?
Ideally, sources and levels of finance should reflect the composition of the stakeholders.
Accountability involves transparency and good FM.
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Exercise
An interesting exercise for an organization is to list all the stakeholders and first,
assess their right to accountability and second, their actual capacity to demand accountability. Assessment scores could be e.g. Nil (N), Low (L), Medium (M),
High (H)
Right to demand accountability
Stakeholder
Government (incl TRA)
Clients / Patients / Beneficiaries
Staff
Church
Donors
Board
Other NGOs
Actual Capacity to demand accountability

Stakeholder
Capacity to
Demand info / reports
Capacity to appraise
these
Capacity to sanction
M/H
Gov. (incl TRA)

Clients / Patients /
Beneficiaries
Staff
Church
Donors
Board
Other NGOs
The most likely lesson from this exercise is that there is a discrepancy between the
right for accountability (High for beneficiaries) and the capacity to demand accountability (Low for beneficiaries).
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12. Seek partners and donors who are willing

to develop mature partnerships and support
your efforts to build financial sustainability
(and start educating them)
s much as many CSOs are too dependent on foreign donors, few of these foreign
donors actually support efforts to enhance FS. Often they reject and ignore the whole issue,
or they (or at least the learned colleagues from the policy making department) show a certain academic interest but do not really help, or they just pay lip service by participating
and encouraging the fashionable debate but they do not offer actual financial or other support. Frankly speaking, still many donors have incredible difficulty in proving that they
genuinely contribute to the development of mature partner relationships. Most donors are
interested in supporting a particular activity and require proper justification of the use of
the funding provided. More often than not they are reluctant to finance (a fair part) of indirect costs.
Unfortunately, there is often limited room for discussion. Donors defend their position by
referring to their obligation to justify the use of the money to their back donors and the
taxpayers in countries of the North.
The problem is that the preference of donors to fund projects actually discourages the development of organizations, and inherently their FS. Funding of projects only, means there
is limited or no support to the indirect costs.But indirect costs often translate into the fundamentals of organization: leadership, ability to read the environment and needs of the target group, relationships, administrative and governance machinery, office and basic resources, to individual and organizational learning, to research and development activities, to
professionalization,
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in brief to the consolidation and the development of the organization itself. Too much reliance on project funding makes it very difficult for a CSO to plan for the longer term, to
develop the capacity of its staff, to strengthen the organization, . even to think
organization.
Many Northern donors to civil society in the South, do not yet seem to be affected by new
funding patterns that are developing in governmental bilateral and multilateral funding,
aiming at increasing both the effectiveness and volume of aid. Key words here are
harmonization, coordination alignment, ownership and leadership with the recipient. The newly favoured funding mechanisms are General Budget Support and Basket
Funding, which allow recipient governments (that is the ones that pass the exam of good
governance) to pursue their own priorities. Harmonisation considerably reduces transaction
costs, including the burden of a multitude of missions, meetings and reporting systems.
Unfortunately, this is still a dream for CSOs who also deal with a multitude of NGO donors. Most of them insist on their own unique entry and appraisal system, regular contacts, reporting system, special external auditor, unique external evaluation,.. Indeed,
CSO leaders have an enormous challenge to educate their donors. They need to explain
the challenges they face in building real sustainability. They need to encourage reflection
on donor behavior, always well intentioned, but ironically often also having a negative impact on sustainability.

Aid Harmonisation:
Aid harmonistation calls for donors to coordinate their activities (including procedures for appraisal, approval, reporting and evaluation) and eliminate duplication. It seeks to reduce transaction costs for both the recipient and donor governments. Concrete issues concern a) the use of
common approaches (budget support, basket funding, Sector Wide Approaches) and b) the coordination of missions and analytical work.
Aid Alignment
Aid alignment calls for donors to focus their aid on partner country priorities and to ensure that
the recipient country has the strategic and financial capacity to implement them. Concrete issues
concern technical assistance for capacity building, avoiding parallel project implementation units,
predictability of aid, reduction of tied aid.
Local Ownership
The recipient organization, and not the donor, should be in charge of its development and should
be able to identify its goals and formulate its strategies. The recipient organization should prove it
has the interest and needs of its target group and the organization at heart and be firmly in the
drivers seat.
39. INTRAC 2006, United Republic of Tanzania 2005
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While there is a need for the staff of recipient CSOs to appreciate better the fact that
Northen donors have to justify how their money has been used in the South, many Northern CSO donors also need to learn more, particularly about finance and financial cooperation. We therefore recommend CSO leaders to be courageous enough to educate donors
and partners and encourage them to:
Generally;
Have a development theory and vision which includes capacity development of organizations. A vision on democracy that appreciates the need for a civil society developing into a strong institution.
Translate this vision into support methods that go beyond project funding, and that
invest in organization and institutional capacity.
Specifically:
Agree to consider total organization plans, reports, audits and evaluations. (This
practically assumes they are also ready to engage in a harmonization dialogue with
other donors).
Agree to invest in organization development and capacity building, learning and innovation.
Agree to pay a fair share of the indirect costs or overheads.
Allow and encourage the CSO to replace its fixed assets on their own strength. (If
they do, they should no longer fund replacement of fixed assets but rather agree to
pay a fair share of depreciation costs).40
Allow and encourage the CSO to diversify income sources and particularly to generate income from beneficiaries, philanthropy and IGAs. Allow the CSO to use these
funds to invest in capacity development of the organization, including building sustainability reserves. (In some cases this would mean that donors need to desist from
demanding the CSO brings in an own contribution to projects.)
Support CSOs in building capacity for local fundraising and for the promotion and
accessing of philanthropy. Invite Southern CSO leaders to experience and contribute to successful philanthropic campaigns in the North.
Allow and encourage the CSO to improve financial management and FS: recruitment of competent financial staff, development of equity and of a healthy balance
sheet in general.
40. I/C Consult, 2004
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Exercise 41
For each of your donor / development partner, assess the support you receive and the requirements / conditions you have to fulfill:
We take (the support)
We give (the requirement of the donor)
What Support
Reports
For what
M&E
Audit
Time for
visits
Material to
campaign
Money
Technical Assistance,
OA,OD
Other
Refer to your SP
indicate whether the support
concerns projects or programme
indicate whether the support
covers overheads, indirect costs
Explain in detail the conditions, also in terms of timing and formats.
How much time and energy do you spend to fulfill the donor requirements. Is it fair,
worth it. Are there ways you can minimize transaction costs. Are there ways to harmonize the requirements of different donors.
What do you want to suggest to your donors, and how will you justify your suggestion.
41. This exercise was developed by TRACE while facilitating the MVIWATA (Tanzanias small farmers network) partners
forum in 2006
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13. Make a financial strategic plan

F
(and feel in control of things)
M requires sensible leaders more than accounting wizards. The CSO leader should be
able to develop and communicate a financial vision that is inspired by the vision of the organization and embedded in the reality of supply and demand of resources. (s) He should
be able to translate the vision in long term financial objectives and strategies that are connected to the overall objectives and strategies of the organization. (s)He should have the
competence to develop indicators for the financial objectives, a.o. in terms of income and
expenditure and balance sheet projections (cfr. Chapter 5)
All this can be captured in a financial sustainability strategy. The drawing of which requires
the organization to engage in a strategic reflection. Ideally, this reflection is integrated in the
process of strategic planning or business planning. As in any other strategic reflection, one
basically has to look at three areas:
Identity
Internal Capacity
External Environment
The sequence and depth of analysis depends on the particular circumstances (and on what
analysis has already been done before). One can refer to all material and exercises described
earlier in this booklet. We recapitulate by suggesting the following steps:
1. Identity
First and foremost, we need to reflect on the identity and legitimacy of our organization.
Is our Mission legitimate and clear. Are we responding to a genuine need or problem?
Do we have the capacity to pursue our mission?
Is it worth sustaining our organization?
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Second, we need to appreciate fully the uniqueness of our organization.
What is our unique mission (role, target group, our service / product, our approach,..)
What is our size
What is our unique stage of development.
Now, we realize, we also need a unique Financial Sustainability Plan.
2. Stakeholders and their financial stake

We need to be clear on who our stakeholders are. And then we discuss and establish what
each stakeholder can or should contribute.
As the beneficiaries of our organization (and / or our constituency) have the highest moral
right to accountability, we need to pay particular attention to their possible financial contribution.
And finally, we think of other possible potential parties who could be interested in a financial stake in our organization.
3. External environment: Resource availability

As much as an assessment of the external environment is necessary in an overall strategic
process, so is the assessment of the external financial resources.
Which sources are available. Which are potential.

What are the trends. What are possible shifts.
Examples of recent shifts in Tanzania: some government sources are accessible to CSOs,
corporations (particularly the foreign ones) start showing corporate social responsibility,
cost sharing has become a more acceptable strategy, donors show interest in improving
smallholders access to markets, internet creates new possibilities..
4. Internal capacity
We need to know and be fully aware of the strengths and weaknesses of our capacity in relation to finance (financial planning, accounts, procedures, financial reporting, cost control,
internal control).
Some particular areas of attention:
Do we have qualified financial staff. Do they have the necessary authority.
Is our leadership (board and chief executives) sufficiently competent in FM.

And then our current financial position needs to be thoroughly analysed:
What is our total income and expenditure.
How is the balance sheet.
What is the evolution of the financial statements over the last few years.
What sustainability prospect does our financial position offer.
What is the real total cost of each of the service and product we offer.
In case our organization runs income generating activities, a similar analysis of each individual IGA is required. Of crucial importance is to establish if the IGA is profitable.
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5. Guiding principles of a financial sustainability strategy
We need to be clear on the values and principles that inform our financial strategy. While
each organization should decide on its own principles, it is recommended they include the
following:
Complete self-financing of CSOs is often not realistic nor desirable.

Funding from foreign donors and development partners can be very helpful, but too
high dependency is very risky.
Many of us are suffering of donor addiction. Addiction takes time and effort to
heal or cure.
Any organization needs a reasonable level of autonomy. Autonomy secures the
ability to say no, the freedom to choose and to protect its identity.
An organization requires a reasonable diversification of funds.
Apart from providing the general advise to reduce dependency on foreign aid by diversifying the resource base, Alan Fowler42 suggests a number of criteria that can guide CSOs in
making strategic choices in resource mobilization: autonomy, compatibility, consistency,
criticality, sensitivity and vulnerability. A healthy, capacitated and adaptive CSO would
have a high score on the first three conditions, and a low mark on the latter three.
6. Planning for Income and improved FM

After having gone through the above described strategic reflection, we now have to plan
for our income and improved financial management.
A useful tool for income planning is to use the (Sources of ) Funding Mix.
simple funding mix looks like this:
Source of funds
2005
Target 2010
Beneficiaries
2%
10 %
Government
3%
15 %
Donors
90 %
50 %
Philanthropy
0 %
5 %
IGA
5 %
20 %
A possible
As enhanced sustainability assumes that the organization is able to find resources to fund all
costs, including depreciation, and to build up reserves, it is recommended financial planning
includes balance sheet projections (indicating, among others: fixed assets replacement fund
and sustainability reserve) for the coming years.
42. Fowler 2000, p 61/62
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Particular points of attention for the CSO leader
Based on experience, CSO leaders are advised to watch and ensure that:
there is an ongoing reflection and debate on financial sustainability of the CSO.

The debate should encourage sensitivity for finance and sustainability, and enhance awareness of the issues involved. Ideally, the reflection should be shared
by all stakeholders, including donors interested in genuine partnership.
participation of staff and board in planning and budgeting is encouraged. This requires leadership that challenges both the possible lack of transparency at the side
of the finance people and the possible limited interest, combined with insufficient
skill at the side of programme people. The formation of a task force, with members of staff and of board, often proves to be effective.
the expected income, in the medium and long term, is planned for and budgeted
(cfr. Strategic plan and business plan).
the probability of uncertain incomes is wisely estimated.
all potential resources are examined and scanned.
realistic targets and indicators for improved cost-control and FM are set.
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Definitions and Concepts

Resource mobilisation and stages of development of organisations43
PIONEERING
Dependent
RATIONAL
Independent
INTEGRATED
Interdependent
THE FAMILY
HIERARCHY
TEAMS
Small to medium, few staff
Formal and strong on rules
Shallow and Flexible structure
More order: systems and

structures are set
More professionalism, clear
roles, job definitions, more
learning
User friendly: No rigid structures and systems

Flexible and effective
Few or no procedures (informal).
Leadership takes human needs

into account
Close relationships, open and

friendly. High tolerance.
Leadership is personal and direct
and decision-making is intuitive
Goals are implicit (carried out in the
minds of people)
And not written down.
Top-down decision making
Participative and respectful
Resolutions and policies are

developed
Less flexible and authoritative
Purpose driven
Staff is very committed
Management layers emerge

(organograms) to develop and
control key functions
Process horizontal thinking

rather than vertical or hierarchical
Decision-making is participative.
Functional specialisations
created and changes in leadership and management styles
Communication is on paper
or meetings
Higher overheads and
more resources needed
Limited Resources
Informal and highly personalized
Need to negotiate with
resource mobilisation
third parties for longer

term and more reliable
resources
Limited success in attracting do-
mestic financial resources

Volunteers / material support /
Even more pressure for

greater financial security
and long-term resource
strategies
Diversity of sources
High credibility and reputation
Mature relationships with

donors
Financial Sustainability
Professional Fundraising
Beneficiary contribution
Professional Financial and
Reporting Systems, Accounts
43. TRACE 2004, some ideas borrowed from Fowler 2000
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Leading for improved

OD Training and Facilitation Centre

Leading for Improved Financial Management

TRACE - OD Training and Facilitation Centre

Alternative Finance Organisation in Belgium

Income Generating Activity

Background and Introduction

To share the TRACE experience and reflection on FS

Use of this handbook

Healthy leadership is shared among staff. Leadership is a possible attribute of

Focus of the publication

am pleased to acknowledge the help and support of:

Mr. Rogers Cidosa for the layout.

To all of them, I sincerely offer my gratitude. But I take personal responsibility

1. Understand financial sustainability

To others, FS is translated as a little bit of effort to establish Income Generating Activities

Definitions and concepts

Good Principles and suggestions for action

TRACE, 2004, 2006

2. Cure the addiction to donor money and

Definitions and concepts

Generate New Funds

TRACE, 2004, 2006

Good Principles and suggestions for action

Complete self-financing of CSOs is often not realistic nor desirable.

Any organization needs a reasonable level of autonomy. Autonomy secures the

An organization requires a reasonable diversification of sources of funds. Smart

Mobilization of non financial resources (volunteers and in kind contributions)

Budgeting income is equally or even more important than budgeting expenditure!!

3. Appreciate Financial Management as a key

(and learn to see an exciting side of accounts)

Money does not solve development problems people do!

ii) Weaknesses in accounting, financial and administrative procedures.

Cfr also CIVICUS, 2003

Definitions and Concepts

1) Financial Management is the planning and control of activities by financial means.

Accounting and Administration

Funds and Assets Management

Control and Audit

Good principles and suggestions for action

You are not meeting your income targets,

You are spending too much/too little,

A cash flow problem is imminent,

Someone is misusing or abusing money or assets.

12. CIVICUS, 2003, p. 14

Exercise 1: To sensitise, enhance awareness on your involvement in FM.

My plan for the future

My plan for the future

Exercise 2: SWOT analysis of FM in your organisation

4. Appreciate the importance of Financial

(and consider a salary increase)

Most CSO Boards include few or no members with FM expertise.

Attempts to improve the relationships between programme and finance departments

Definitions and Concepts 13

A plan for expected income

traditional' or 'historical' budgeting; where the budget is an adaptation of the previous

'zero-base-budgeting': activities and resource need are looked at completely afresh

13. Brockington, Lucey, Couder

Good Principles and suggestions for Action

What do we find difficult, confusing, disturbing .. in what the other group is

Each group summarizes the assessment on a flipchart for presentation.

5. Plan for financial sustainability in

14. I/C Consult, 2004