Accounting, cash management and budget control

1Supporting documents first and foremost

Every expense must be backed by original supporting documents: approved request, purchase order, goods received note, invoice, proof of payment. No document, no eligible expense.

• Documents are numbered and stamped “paid” with the project reference to prevent double funding.
• Each entry carries a budget code (budget line) and a cost code (project, donor, location): this is what makes it possible to produce reports by donor.
• Entries are recorded in accounting software or a structured spreadsheet (cash book, bank book), as transactions occur.

2Cash and bank

• Cash ceiling: a maximum amount of cash held in the office, set by the policy and the insurance; above that, payments are made by bank or mobile money.
• Regular cash counts (for example every week and at each month end) by two people, with a signed cash count report.
• Monthly bank reconciliation: the bank statement balance compared with the book balance, with every difference explained.
• Dual signatures on bank payments above a threshold.
• Advances (to staff or for field trips): authorised, recorded and justified within a set deadline.
• Cash flow forecast: anticipate needs so as to request donor instalments on time.

3Budget monitoring

Every month, a budget versus actual report (BvA) compares, line by line, the budget, the month's expenditure, the cumulative total, the burn rate and the balance.

• Compare the burn rate with the time elapsed: in month 6 of 12, a line at 90% or 10% warrants analysis.
• Discuss the report with the project manager: activity delays, changing prices, reallocation needs.
• Respect the flexibility provided for in the contract (for example a percentage between lines); beyond that, request the donor's written approval.
• Check eligibility: the expense is budgeted, necessary, reasonable, within the project period, justified and compliant with the donor's rules.

4The expenditure cycle step by step: from expressed need to filed voucher

Most costs disallowed at audit do not stem from fraud but from a poorly managed expenditure cycle: a request approved after the purchase, a missing goods received note, an invoice charged to the wrong budget line, a payment made before the contract start date. The expenditure cycle (procure-to-pay) is the backbone of compliance. Each step has an owner, a document and a control. If a step is missing, the expenditure becomes vulnerable, even if it is genuine and useful.

The eight steps of the standard cycle

Three-way matching (order, receipt, invoice) is the most effective and least costly control against overbilling and fictitious deliveries. If any one of the three documents is missing, verification is suspended, whatever urgency is claimed.

Coding: what makes the accounts readable by donor

A properly coded entry answers four questions: what type of expenditure (general ledger account), for which project and which donor (project code), against which line of the donor budget (budget code), and where (location or base code). An NGO managing three donors without reliable cost-centre coding cannot produce a defensible financial report, and ends up "reconstructing" charges at reporting time, something auditors spot immediately.

The correspondence table between the organisation's chart of accounts and each donor's budget lines (mapping) is prepared at the start of every contract, validated by the finance manager and shared with the staff who enter transactions. It prevents the same fuel purchase from being charged to "transport" by one base and to "running costs" by another.

Supporting documents required by type of expenditure

Deadlines and rhythm

• Recording of entries: no later than five working days after payment; for cash, the same day.
• Clearance of staff advances: seven to fourteen days after return from mission, depending on the policy; no new advance until the previous one is cleared.
• Sending supporting documents from bases to the country office: weekly in a stable context, at least monthly where access is difficult, with a transmittal slip and a scanned copy kept on site.
• Retention: according to the most demanding contract. As an indication, the EU Financial Regulation generally requires five years after payment of the balance (three years for low-value grants), and the US federal regulations (2 CFR 200) three years from submission of the final financial report, extended where an audit or litigation is ongoing.

5Month-end closing: timetable, reconciliations and consistency checks

Month-end closing is the point at which accounting becomes reliable management information. A closing done late or without controls produces an incorrect budget versus actuals (BvA) report, and decisions taken on that basis are wrong too. In a well-run mission, the month's accounts are closed and sent to headquarters between the fifth and tenth working day of the following month.

Typical closing timetable

The bank reconciliation, full method

The reconciliation explains the difference between the bank statement balance and the cash book (bank ledger) balance on the same date. Legitimate differences are of four types: cheques issued but not yet debited, deposits or transfers recorded in the accounts but not yet credited by the bank, bank charges and interest not yet recorded in the accounts, and transfers received by the bank but not yet recorded. Anything else is an error or an anomaly to be explained.

The reconciliation is prepared by the accountant, reviewed and signed by someone who has no access to payments, and accompanied by the original bank statement. Reconciling items must be followed up: a cheque outstanding for more than three months must be investigated (lost cheque, non-existent supplier, cheque to be cancelled and reissued), because this is a classic avenue for misappropriation.

A reconciliation "balanced" with a line labelled "difference to be analysed" or "miscellaneous" is not a reconciliation. A difference, even of 10 dollars, signals either a data entry error that will recur or a manipulation that will grow.

The cash count report

The count is done denomination by denomination, in the presence of the cashier, by an independent person. The report records: date and time, denominations and quantities, physical total, theoretical cash book balance, difference, explanation, and the signatures of both people. IOUs (outstanding advances backed by a signed document) are listed separately: they are not cash on hand, and their cumulative amount must be capped by the policy. A cash box that permanently holds IOUs for 40% of its balance is a cash box being used to lend money to staff.

Month-end consistency checks

• Suspense accounts: unallocated amounts must be cleared at each closing or, failing that, justified line by line with a regularisation date.
• Staff advances: ageing analysis (under 15 days, 15 to 30 days, over 30 days). Beyond 30 days, escalation to the director and, depending on the policy, deduction from salary after written agreement.
• Salaries: the month's payroll agrees with the staff list validated by human resources; starters and leavers are documented.
• Coding: review of a sample of entries (for example ten entries per project, selected among the largest plus a few at random) to check supporting documents, codes and dates.
• Shared costs: the month's allocation key is calculated and applied according to the documented method.
• Exchange: the rate applied is the one set by the policy and by each contract; exchange differences are recorded separately.

6Eligibility, direct costs and shared costs: applying donor rules

An expenditure can be genuine, documented and useful, and still ineligible. Eligibility is assessed against the signed contract and the donor's general rules, which take precedence over the organisation's internal policy where they are stricter. The basic principle is that the organisation always applies the more demanding rule of its own policy and the donor's.

Common eligibility criteria

Despite different wording, the major donors share a common set of criteria. The US federal regulations (2 CFR 200, Subpart E, "Cost Principles") refer to costs that are allowable (section 200.403), allocable (section 200.405) and reasonable (section 200.404). The European Union rules for humanitarian aid (ECHO's Framework Partnership Agreement and its annexes) require costs that are necessary for the action, provided for in the budget, incurred during the implementation period, identifiable and verifiable, recorded in the accounts, compliant with applicable tax and social legislation, reasonable and justified, and consistent with the principle of sound financial management.

Direct costs, shared costs and indirect costs

• Direct costs: they relate unambiguously to one project (distributed inputs, staff at 100%, dedicated vehicle).
• Shared costs (or direct support costs): they benefit several projects in the same country (country office rent, electricity, country logistician, security). They can be charged directly to projects if an objective, documented, consistently applied and verifiable allocation method is used.
• Indirect costs: headquarters overheads that cannot be attributed to a specific project. They are covered by a flat-rate percentage or a negotiated rate. For example, ECHO generally caps indirect costs at 7% of eligible direct costs; the US federal regulations allow a negotiated rate (NICRA) or, failing that, a de minimis rate (raised to 15% of modified total direct costs in the 2024 revision); several United Nations agencies and pooled funds apply a 7% rate for implementing partners. These rates must always be checked in the contract.

Methods for allocating shared costs

What the auditor checks in an allocation: a written method, approved before it is applied, applied every month in the same way to all projects, and whose percentages never add up to more than 100%. An allocation decided according to the budget remaining on each project is an opportunistic allocation and will be disallowed.

Staff and timesheets

Salaries are often the largest budget line and the leading source of disallowed costs. For any position charged to several projects, most donors expect a timesheet that reflects the time actually worked, signed by the employee and their supervisor, completed at least monthly. A fixed budget percentage applied for twelve months without timesheets is an estimate, not evidence. The US federal regulations (2 CFR 200.430) require charges for personnel to be based on records that accurately reflect the work performed; budget estimates are accepted only if they are adjusted after the fact to actuals.

Budget flexibility and amendments

Each contract sets a margin for transfers between lines or headings without prior approval. The US federal regulations (2 CFR 200.308), for example, require prior approval when cumulative transfers among direct cost categories exceed 10% of the total budget, above a certain award amount. ECHO contracts and those of United Nations agencies provide for their own margins, to be read in the special conditions. Three practical rules: calculate flexibility cumulatively over the life of the project, not month by month; never use flexibility to create a new line or an unbudgeted piece of equipment; request an amendment at least 30 to 60 days before it is needed, and never in the last month of the project.

7Worked example: the month 7 budget versus actuals and the reallocation request

Fictional context: the national NGO "Entraide Rive Sud" is implementing a 12-month project assisting displaced households in the fictional district of Malanga, funded by an institutional donor. The total budget is 419,440 dollars, of which 392,000 are direct costs and 27,440 indirect costs (7% of direct costs). The contract allows transfers between headings without an amendment up to 15% of the initial amount of the receiving heading, on simple written notification; beyond that, an amendment is required. We are at the month 7 closing, i.e. 58% of the time elapsed.

Step 1: the budget versus actuals table

First reading: the overall burn rate (54.2%) is close to the time elapsed, which could be falsely reassuring. The line-by-line analysis shows two opposite movements that offset each other. The burn rate compared with time elapsed is only a signal: it must always be checked against the activity schedule. Equipment is normally spent at the start of the project; distributions follow a schedule of cycles.

Step 2: understanding each variance with the project manager

• Transport: the fuel price rose by 28% in month 3 (regional shortage), and the main road to two sites has been cut since month 5, forcing a 140-kilometre detour. Monthly average: 31,200 / 7 = 4,457 dollars. At the same rate, the end-of-project forecast is 4,457 × 12 = 53,486 dollars, an overspend of 15,486 dollars (40.8%).
• Distributions: the second cycle was postponed by six weeks because of insecurity. Commitments for months 8 to 10 (signed orders and validated lists) amount to 90,000 dollars. Forecast: 62,400 + 90,000 = 152,400, a saving of 7,600 dollars, due to a lower kit price obtained through a framework agreement. The targets (2,400 households) remain achievable.
• Staff: 12,000 dollars per month on average; a field assistant position remained vacant for two months. Forecast: 144,000, a saving of 6,000.
• Office: 15,600 / 7 = 2,229 per month; forecast 26,743, an overspend of 2,743 due to the rent increase when the lease was renewed.
• Equipment: balance of 600 dollars not needed.

Step 3: act before reallocating

Reallocation is not the first response. The team first decides on cost-control measures: grouping deliveries into monthly convoys instead of twice-monthly ones, and renegotiating the truck rental contract on a lump-sum basis. The logistician estimates the saving at 4,000 dollars over the remaining five months. The residual need for transport is therefore 15,486 - 4,000 = 11,486, rounded to 11,500 dollars.

Step 4: check contractual flexibility

Step 5: the reallocation proposal

The amendment request is sent to the donor in month 8, accompanied by: a two-page note explaining the causes with evidence (fuel price monitoring from the Logistics Working Group, OCHA access report on the road closure), the table above, confirmation that the targets do not change, and the cost-saving measures already taken. The notification for the office heading can be included in the same request to avoid two separate exchanges.

The reasoning the donor expects: a quantified finding, a documented external cause, cost-control measures already taken, a solution that is neutral for the total budget and has no negative effect on results. A request that only says "transport is overspent, please accept the transfer" will be sent back or refused.

Step 6: allocating the shared rent

The rent for the Malanga office, 3,000 dollars per month, is shared among three projects according to the documented method, pro rata to the month's full-time equivalents. In March: project A (this project) 9 FTE, project B 6 FTE, project C 5 FTE, i.e. 20 FTE. Allocation: A 45% (1,350 dollars), B 30% (900 dollars), C 25% (750 dollars). The calculation is kept with the month's staff list, signed by human resources. If one donor has already funded the rent at 100% in its budget, the other two projects cannot charge any share of it: this is the double funding check.

Step 7: follow-up

Once approved, the revised budget is entered in the accounting system as the new baseline, with the initial version kept for traceability. The final report will show both columns, initial budget and revised budget, with the amendment reference.

8Common mistakes, auditor expectations and adapting to context

The most costly mistakes

What auditors and donors look at

• The audit trail: start from a line in the financial report, go down to the general ledger, then to the entry, then to the voucher, and back up. Every level must agree.
• Samples: the auditor selects entries according to a method (high amounts, random selection, end-of-period entries, manual entries, adjustments). An NGO cannot predict the sample: everything must be ready.
• End-of-project entries: expenditure in the final month, transfers between projects, reclassifications. These are the most scrutinised.
• Consistency with the narrative: a narrative report announcing 2,400 households served alongside distribution spending at 60% raises questions.
• Suspense accounts and reconciliation differences: their prolonged existence is an indicator of weak control.

Variations according to context

In an emergency, flexibility is allowed; the absence of a paper trail never is. A written waiver, signed and dated at the time of the decision, is worth more than an explanation drafted six months later for the auditor.

9Reusable toolkit: checklists and templates

Checklist for an expenditure voucher before payment

1. The request is approved by the right person, according to the delegation of authority, and dated before the commitment.
2. The budget sign-off shows the project code and budget line, and the balance is sufficient.
3. The procurement procedure matches the threshold (number of quotations, bid analysis signed by a committee where required).
4. The purchase order or contract is signed before delivery.
5. The goods received note is signed by a person other than the buyer and states quantities and condition.
6. The invoice is an original, in the organisation's name, with number, date, supplier details, breakdown of quantities and unit prices, and matches the order.
7. The supplier has been screened against the applicable sanctions lists and is on the supplier database.
8. The amounts are recalculated (quantity × price, totals, taxes).
9. The payment method complies with the policy (bank transfer or cheque above the cash payment threshold).
10. The voucher is stamped "paid", with date, project code and entry number.

Cash count report template

Month-end closing checklist

Variance commentary template for the budget versus actuals report

The "end-of-project forecast" column is the most useful and the most often forgotten: a burn rate says nothing without a forecast. The forecast combines actuals, signed commitments and the remainder to be committed according to the activity plan.

Simplified delegation of authority matrix

These thresholds are indicative: each organisation sets them according to its size, its risks and its donors' requirements, and reviews them at least once a year.

10Interview questions and key references

Interview questions

1. "The month-end bank reconciliation shows an unexplained difference of 1,200 dollars. What do you do?"

A strong answer describes an orderly approach: check that both balances are at the same date, tick off the statement and ledger transactions one by one, look for the classic errors (transposed digits, duplicate entry, wrong bank account, transaction recorded in the wrong month), and examine old outstanding cheques. The candidate specifies that they do not post an adjusting entry without an explanation, that they inform the finance manager if the difference persists, and that they would consider reporting the matter if the anomaly suggests manipulation.

2. "A project manager asks you to charge expenditure to a project that still has budget, although it relates to another project that has ended. How do you respond?"

The candidate refuses clearly and explains why: non-compliant charging, risk of double funding or ineligible costs, risk to the donor relationship. They propose legitimate solutions: check whether the expenditure can be covered by unrestricted funds, examine whether part of it genuinely relates to the new project using a documented method, or plan ahead for the closure of the next project. They mention escalation to the finance manager if the pressure continues.

3. "In month 9, the project's burn rate is 45%. What questions do you ask?"

The candidate asks for the end-of-project forecast, the signed commitments and the schedule of remaining activities, and distinguishes delay (activities postponed but feasible) from savings (lower prices) and under-implementation (activities dropped). They propose a no-cost extension request if activities have been postponed, or a reallocation towards useful activities, informing the donor early.

4. "How do you allocate the costs of an office shared between four donors?"

The candidate presents an objective method (headcount, actual usage), written and approved, applied consistently every month, with calculations kept on file. They check that each donor accepts this type of cost in its budget, that the total does not exceed 100%, and that no donor is already funding the same cost in full.

5. "What are your three priorities when you arrive in a mission whose accounting is six months behind?"

A convincing answer: first secure the cash and bank accounts (cash count, reconciliations, signatories), then catch up on data entry in order of donor reporting deadlines, and finally re-establish the month-end closing with a realistic timetable. The candidate mentions informing headquarters, assessing the risk of ineligible costs and a possible need for temporary surge support.

Key references

• Code of Federal Regulations, Title 2, Part 200 (Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards), in particular Subparts D and E, 2024 revision: United States Government.
• Humanitarian Framework Partnership Agreement and its annexes (general conditions, eligibility rules, procurement procedures): Directorate-General for European Civil Protection and Humanitarian Aid Operations (DG ECHO), European Commission.
• Financial Regulation applicable to the general budget of the Union: European Union.
• Country-Based Pooled Funds (CBPF) Operational Handbook: OCHA.
• Harmonized Approach to Cash Transfers (HACT) framework: UNDP, UNICEF, UNFPA and WFP.
• FCDO guidance on grant management and partner financial management.
• Practical Financial Management for NGOs and other Mango resources on NGO financial management (Mango has joined Humentum).
• Core Humanitarian Standard on Quality and Accountability (CHS), Commitment 9 on the responsible use of resources: CHS Alliance, Groupe URD and the Sphere Project.