The financial management system produces accurate, timely information
Financial management refers to managing an organization or program’s resources to meet goals and objectives as effectively as possible by using those resources to carry out planned activities. A financial management system is composed of a series of tools and processes that permit the control, conservation, allocation and investment of an organization’s or program’s resources.
The system for scoring this indicator and assessing the effectiveness of a financial management system and its ability to generate accurate and useful information is as follows:
|Expenditures are tracked by budget-line items (e.g., inputs, salaries, utilities, materials) and are recorded as they occur. However, financial reports cannot be generated effectively.||1|
|Expenditures are not only tracked by inputs, but are also linked to services and materials purchased, and to the activities they support. Financial reports exist but are not used to analyze costs.||2|
|The financial system produces income/ revenue data and case flow analyses; costs are allocated by cost centers (e.g., products/outputs, service units, sets of services). Financial reports, which compare actual expenditures to budget, are sometimes used to analyze costs.||3|
|High-quality financial reports are linked to budgets and consistently used for management decisions, including allocation of resources.||4|
The underlying assumption in levels 2 through 4 is that reports are accurate and timely.
Information on planned and budgeted activities; expenditure information; evidence that financial reports are used for decision-making.
Document review of budgets, case flow statements, income statements, balance sheets, and interviews with managers.
Managers must understand their current financial situation (liquidity) and their long-term position (solvency) if they are to lead towards effective performance. Evaluators can use a suggested scoring system to measure this indicator. The system combines elements of how expenditures are recorded and tracked and of how financial information is used to make decisions. These essential functions enable programs/organizations to understand their current and long-term liabilities.11
Because measurement of this indicator requires performing a valid document review, evaluators must fully understand locally accepted accounting principles and reporting requirements. Ascertaining how management makes decisions will require not only review of documents such as operational plans, but also interviews with key decision-makers in the program or organization (MSH, 1999a).
11 Embedded in levels 2 through 4 is the assumption that reports are accurate and timely.