How do you account for expenses? I don’t mean, how do you book them. I mean, what documentation do you collect and keep, to make sure (and be able to show) that the expenses are real? In other words, what is your proof of delivery?
In one of my previous blogs I mentioned the concept of proof of delivery (and promised to write more about it later, so here goes). This is something that at the same time is very intuitive and natural, and in daily practice not that easy at all, as I have observed in quite a few organisations. And, obviously, experienced myself as well.
The intuitive part is that before you pay someone for something, you usually have a very clear idea of what you expect to get from them. And you usually do not pay a final installment without being sure that your expectations have been met. For instance, for a project workshop you need ten hotel rooms for two nights including breakfast plus a conference hall, four coffee breaks and two group lunches. You expect to get all these very tangible things and will pay the final installment only once you (or your team on site) have enjoyed these services.
The difficulty is, to keep a paper trail that can corroborate that these services were delivered as agreed. An invoice from the hotel might not be sufficient. (especially if the hotel is in a country that is known for corrupt practices, an auditor may need extra assurances to be satisfied that the invoice is not fabricated or doctored). Do you have a list of participants, with signatures confirming their presence? Do you have pictures of the workshop, showing the conference hall and the ten people for whose hotel rooms you paid?
But maybe your workshop involves people who do sensitive work and whose identities need to be protected. So maybe you cannot take pictures of the people. And maybe you cannot have a list of real names and signatures because your participants use nicknames or false names. So how can you prove that you were there, and that the hotel delivered what you paid for?
You might have a trainer or expert, who writes a report about the workshop, mentioning the location. You might take pictures of the lunches and breakfasts. You might find ways to take pictures that do not have recognizable people in them. You might have some kind of list of people present with signatures. You might also, depending on the location, find further proof the hotel is genuine and applies the price levels of the invoice for instance through a screenshot of the website.
In all, this whole thing could be much less easy than it seems at first sight.
At the same time, it is important. Because in order to be eligible, costs need to be verifiable, reasonable and justifiable. In another post I will write more on allocation of percentages and other elements of reasonable, and on linking the costs and the project to justify the costs as part of the project. For now, let’s look a bit more at verifiable.
What is the full paper trail you need to verify an invoice? If we look at the example of a trainer you hire for a workshop, the documents you need include:
- A terms of reference document in which you have described the need, and possibly an ad for the vacancy or a message in which you invite trainers to respond. It is important to make a clear link to the approved project plan and budget here.
- A quote from the trainer in which he or she responds to the terms of reference with their approach, plan and budget outline
- Depending on your internal policy and/or requirements of the project funder: quotes from at least three trainers plus a document on the decision making to select one trainer including signatures of the team members involved in selecting
- A signed contract, referring to the terms of reference and the quote and any other issues agreed upon, where possible with a clear link to the project plan
- The agreed outputs as per contract, for instance a narrative report, recommendations, photos, a time sheet, participants’ evaluation forms, etc. from the trainer to prove the service was delivered as agreed
- The invoice with a clear reference to the contract and agreed outputs and outcomes, and underlying documentation as above signed by the person or persons authorised to sign off, preferably accompanied by a message from the project team member who hired the trainer that the service delivery has been verified and approved
(In a later blog I will explain how the wording of the terms of reference and the contract is quite crucial to make a clear link to the project plan and budget as approved by the donor, which is needed to be able to justify the expense as part of the project cost.)
Once you have all of the above, finance can book the invoice (assuming the project manager has added on the invoice any relevant coding information needed for the booking such as project code, budget line, ledger, etc.) and can proceed with the payment procedure.
Let me emphasise that this whole exercise of collecting and checking all documentation is something you do not do for the funder, or for the auditor. Yes, they may require you to keep all these documents and they may request to see and check them. And yes, it is important to comply. But in essence you do this for yourself. You do it to be sure that everything you have in your bookkeeping and everything you report, is in fact real. And most importantly. you do this for yourself to be certain that all moneys are used toward achieving your mission in the best, most effective and most efficient way.
After all, the reason you raise funds and manage money is to be successful in your mission. All the things I write about are merely to help you do that better, more professionally, more easily, more effectively, more confidently and with more enjoyment. So please do not hesitate to let me know how I can serve you best!