Holmes

Holmes Logo Holmes

FINANCIAL MANAGEMENT OVERVIEW

ISSUES

This competency will examine the purposes, tools, problems, and benefits of financial management in human service agencies. It will describe its purposes and how one can work toward achieving them. It will present tools for financial management and illustrate how they are used. We will discuss problems in financial management systems and how they are addressed. Lastly, we will discuss benefits of a financial management system and how they can be achieved.

PURPOSES

Financial management systems allow one to allocate resources to achieve organizational goals. It provides tools to assess whether the allocation is appropriate for a given activity. It provides accountability for the resources used. It helps to document benefits of agency programs and promotes agency efficiency and effectiveness. It also allows programs to provide information to funding sources that are typically required by funders.

TOOLS

The basic tools of financial management are budget development, budget review, balance sheets, cash flow analysis, accountability documentation, auditing capacity, and financial statements. Budget development assures that resources will be needed for expenditure categories when they arise. Budget review allows examining the amounts of resources allocated to budget categories, judging appropriateness of the allocation, and making decisions about reallocation. Balance sheets specify all the sources of resources available to an agency and how they are allocated. They allow identifying whether some sources of resources might be overlooked and assessing whether additional resources might be available from them. In addition, it reviews the expenditures to track the use of resources and allows asking questions about how agency resources are used. Cash flow analysis looks at streams of expenditures and compares them with expected or alternative patterns of expenditures. Accountability documentation derives from having a financial system that can account for the expenditures and verify that they are being used according to budgetary plans or contract requirements. Auditing capacity provides the tools track resource use and verify the accuracy and reliability of the information. Financial statements provide a summary of where an agency or program is financially at a given point in time. It also allows comparisons with where it has been and allows discussion about where the agency or program might be going.

PROBLEMS

Several problems arise with financial management. Poor systems waste resources on activities or objects unnecessary for achieving program goals. They provide opportunities for resources to be siphoned off on personal projects or to be stolen for personal use. In developing budgets, there may be disagreements about to what the resources should be allocated and how much each category gets. Changes in the environment or within the program may create inconsistency between the budget and what various categories need. The failure to provide full accountability may lead to controversy about a program or investigations by funding sources. Auditing difficulties may leave questions about how reliable and valid is the information used in documenting expenditures and planning for the future.

BENEFITS

A variety of benefits result from adequate financial management. It creates hope that the agency or program knows what it is doing and how it is going to achieve its goals. It provides assurance that when expenditures arise there will be funds available to meet them. It provides accurate and reliable information for making management decisions about resource allocation and reallocation. It allows focused discussions on how resources will be used. It provides safety checks to prevent wasting or misusing agency resources. In addition, it provides information that can be used by agency or program administrators in meeting contract requirements and in advocating for resources in the future.