Sure, we are mid-January now, but if you are working in finance it is very likely that you are focused on the year end of the past year. Checking your expenses, your revenues, your balance accounts, your bank statements and so forth. And together with your project staff you are likely looking carefully at the projects you implemented last year.
Below I have outlined the checks you can do. Make sure you involve the project manager or project team in these checks. They may have information you need and at the same time, they need to understand the finances of their work in order to be able to successfully complete it. Please be aware that the below is not an overview of what you need to do to make a proper project report for a funder (even though the steps are roughly similar!).
Your first check focuses on making sure all expenses that should be allocated to the project are included in the project overview. They need to be booked and they need to be identifiable in your bookkeeping system as being part of the selected project. Two questions are key here: are the expenses correct and: are the expenses complete:
Are all expenses correct?
- Are all expenses booked on the project indeed incurred for the project (and can they be proven and justified, see also my post on how to account for costs)?
- Are all expenses related to the project eligible – in line with the funder’s requirements and conditions?
- Are all expenses booked in 2019 indeed related to 2019? (or are they related to 2020 and should they ‘land on’ 2020 instead?)
Are your expenses complete?
- Did all your service providers send their invoices yet?
- Did you get all the time sheets of the staff yet?
- Are there expenses booked on other projects that belong to this project?
- (if applicable) Have you allocated the agreed proportion of general costs to the project yet?
Check: budget versus expenses
Your next check focuses on the details of financial project implementation. Working from the approved project budget, make an overview of expenses incurred by budget line. Make sure the overview includes also costs incurred in previous years if the project started before 2019! Add a column with a calculation for the total remaining budget by budget line, and add another column calculating the % total spent versus budgeted.
- Are there any notable differences between what was budgeted and what was spent? (a difference of 10% overspending or underspending is something to look into further – and prepare measures for if needed)
- Is there underspending on staff time budget lines? (if staff has allocated fewer hours to the project than budgeted this can impact the financial health of your organization!)
- If the budget has a lump sum % for overhead or administrative costs, has this been calculated and booked correctly?
- Is the amount of budget left likely to be sufficient to complete the project successfully (overall and on the level of the individual budget lines)?
Check: spent versus paid
The next check is on open items for the project.
- What invoices have you booked in 2019 that have been paid in 2020? Are there invoices you still need to pay?
- What invoices have you paid in 2019 that refer to project costs in 2020?
Please note that the amount you calculate here will be part of your organisation’s balance sheet at year end as a liability (what you have booked as spent but not yet transferred to the vendor) or as an asset (what you have paid in 2019 for 2020).
Check: reported versus spent
The next check is to identify the difference between the final total costs as at 31 December 2019 compared to the most recent report submitted to the funder.
- Is the difference as to be expected, is it logical? (or have many corrections been made, leading to a very different picture of the project compared to what the funder has seen before?)
Check: received versus spent
The final check is to see how much has been received from the donor(s) compared to what was spent overall.
- What is the amount you have pre-financed and still need to receive from the donor? Is that reasonable? Can you continue pre-financing or do you urgently need a new installment from the funder? Has a request for a new installment been submitted already? How much time does it usually take to arrive?
- What is the amount you have received in advance (received from the donor but not yet spent)? Is that reasonable? Will that be enough to cover the coming period?
Please note that the amount you calculate here will be part of your organisation’s balance sheet at year end, either as an asset (what you have spent but not yet received from the funder) or as a liability (what the funder has transferred to you and you have not yet spent).
Alert: Currency exchange issues
In case the project budget, project report and advances transferred by the funder are in a different currency than your own, all your checks need to include a double-check on any currency exchange issues that might arise from fluctuations of the project currency compared to the currency you operate in. If you see that these fluctuations result in losses, you may need to make a reservation on your balance sheet at the year’s end to cover this loss (a so-called provision).