FinMAT. Assessment Tool

Transcription

1 FinMAT the Financial Management Assessment Tool

2 Other Publications by Management Sciences for Health Cost Revenue Analysis Plus (CORE Plus), a Tool for Cost and Revenue Analysis: User s Guide Cost-Estimate Strategy for Reproductive Health Commodity Management: User s Guide Guide to Using the Primary Health Care Costing Tool Health Systems in Action: An ehandbook for Leaders and Managers HOSPICAL, a Tool for Allocating Hospital Costs: User s Guide Human Resource Management (HRM) Rapid Assessment Tool for Public and Private Sector Health Organizations: A Guide for Strengthening HRM Systems Management and Organizational Sustainability Tool for National TB Control Programs (MOST for TB) Management and Organizational Sustainability Tool (MOST): A Guide for Users and Facilitators, 2nd edition, revised and expanded The Manager. Assessing Your Organization s Capacity to Manage Finances The Manager. Understanding and Using Financial Management Systems to Make Decisions The Manager. Using Cost and Revenue Analysis Tools

3 FinMAT the Financial Management Assessment Tool

4 Management Sciences for Health Tel: Memorial Drive Fax: Cambridge, MA USA Website: by Management Sciences for Health All rights reserved. Published Users may photocopy the FinMAT assessment guide and forms without prior permission, for noncommercial use only. Any translations or adaptations of this guide or of the FinMAT forms require prior written permission from the publisher. The trademarks or service marks used in this guide, including Microsoft, Excel, and Word, are the exclusive property of Microsoft Corporation. FinMAT is not a product of, nor is it endorsed by, Microsoft Corporation ISBN: Funding for the predecessor of this publication was provided by the Office of Population and Reproductive Health, Bureau for Global Health, US Agency for International Development, under the terms of the Management and Leadership Program, award number HRN-A The opinions expressed herein are those of the authors and do not necessarily reflect the views of USAID.

5 Contents Acknowledgments Preface How This Guide Is Organized vi vii vii Introduction to the Financial Management Assessment Tool 1 Who Can Use This Tool 1 What Is the Financial Management Assessment Tool? 1 Determining Your Initial Financial Management Goal 2 How The Financial Management Assessment Tool Is Organized 2 FinMAT Assessment Form 3 Determining Your Goal 6 Option 1 6 Pre-award Auditing 6 Option 2 7 Applying FinMAT in the Public, Private, or NGO Sectors 8 Using The Financial Management Assessment Tool Instrument 10 Step 1: Determine your end goal 10 Step 2: Form the Core Team and the Data Collection Team (Option 2 only) 10 Step 3: Plan the assessment (Option 2 only) 11 Step 4: Hold an initial meeting and develop a schedule 12 Step 5: Review the Financial Management Assessment Tool instrument 13 Step 6: Carry out the assessment and complete the Assessment Form 13 Step 7: Review and complete the summary for each component 15 Step 8: Develop an Action Plan 16 Step 9: Reach consensus on priority actions at a meeting (Option 2 only) 18 Step 10: Link the Action Plan to annual operational planning, budgeting, and monitoring 19 Step 11: Follow-up 19 FinMAT Glossary 20 FinMAT Assessment Forms 23 v

6 Acknowledgments The original Financial Management Assessment Tool was developed by the Management and Leadership Program (M&L) and the earlier Family Planning Management Development Project (FPMD II) of Management Sciences for Health. The original guide was written by Paul Fishstein and edited by Claire Bahamon, and the original QuickStart guide was developed by Natalie Gaul. In late 2009, those tools and guides were assessed for similarities and differences and overhauled to create the current iteration of the Financial Management Assessment Tool. This revision was carried out by Betsy Sylvester and Sara Weinstein, with technical assistance from Melissa Martin and Marisol Mercado. The newly combined tool was field-tested in the Leadership, Management and Sustainability Program in Ethiopia, which is funded by the US Agency for International Development. The FinMAT management team would like to specifically thank Jemal Mohammed, Assefa Gebeyehu, Berhane Kidanemariam, Abraham Yimenu, Jemal Ibrahim, Adanu Zewdu, Sisay Tessema, and Tsegaye Nigussie of the LMS Ethiopia team for contributing to the newly combined tool. The authors and editors would also like to thank Natalie Merlini Gaul, Gerhard Combrink, Liz McLean, and Judith Seltzer for their technical reviews. vi

7 Preface Strong financial management is one of the supporting pillars of organizational sustainability. Specifically, efficient and effective financial management requires clear, well-understood policies and procedures that well-trained staff can follow in a timely manner to not only accurately record and report all financial transactions but also make sound decisions about the use of resources. FinMAT is based on these beliefs. It is designed to help managers assess the current financial management competence of their organizations and identify the steps they can take to improve their organizations financial management capacity. How This Guide Is Organized This guide describes how to use FinMAT and gives the step-by-step instructions you can take to assess your financial management systems. It outlines two ways of using the Financial Management Assessment Tool; which option you choose will depend upon the goal of your organization. Use Option 1 if your organization is preparing either for an internal audit or to receive new external funds. Use Option 2 if your organization has already decided to strengthen its financial management systems and you need a tool to help you decide which component (e.g., Component 5, Payroll) you would like to improve. The assessment instrument itself is the separate electronic spreadsheet file that houses the Assessment and Summary analysis forms for each of ten components as well as a Detailed Summary and Action Plan form. (See the spreadsheets in printed form starting on page 23 of this guide.) The accompanying CD-ROM includes the entire Financial Management Assessment Tool (the guide and the instrument) and two issues of MSH s quarterly publication, The Manager. Assessing Your Organization s Capacity to Manage Finances can help you decide if your organization should assess its financial systems. Understanding and Using Financial Management Systems to Make Decisions suggests ways you could improve your organization s financial management competences and, hence, capacity. vii

8

9 finmat Introduction to the Financial Management Assessment Tool Strong financial management can help strengthen service delivery by allowing the program staff in your health organization to focus on their programmatic responsibilities. It also shows donors that your organization can successfully manage external funds and comply with imposed cost principles and reporting requirements. Many health care managers in the public and private sectors would like to improve the financial management competences and capacities of their organizations, but do not know where to start. This guide introduces an easy-to-use tool that you could use as is, or adapt to particular circumstances. Who Can Use This Tool FinMAT is designed for health care managers in any kind of organization or office that performs financial transactions, such as: nongovernmental organizations (NGOs) or private-sector institutions such as laboratories; ministries or other public-sector institutions; central offices or headquarters; subunits, branch offices, or decentralized organizational units at the regional, provincial, or district levels; health service delivery points, such as hospitals or large clinics. This guide and the spreadsheet instrument may be used by either your organization s staff or external consultants to assess your organization s financial management systems and to plan improvements, i.e., build on your competences. While the instrument will be most useful to the individuals collecting the data, senior managers and other stakeholders should read the Preface and Introduction sections of this guide to understand the process of assessing and improving the financial management competencies that they are committing to. What Is the Financial Management Assessment Tool? FinMAT is an instrument that managers and their staff can use to see how competent they are in managing their organization s finances. The instrument can also help them decide which components and subcomponents to work on next. If you are a manager in a health organization, FinMAT can help you: assess which stages of development (levels of competence) your organization has reached in managing its finances; identify changes that you can make to manage your finances more effectively; make a specific Action Plan to implement these changes; monitor resulting improvements. FinMAT, the Financial Management Assessment Tool 1

10 finmat Determining Your Initial Financial Management Goal As described above, FinMAT consists of a spreadsheet instrument and a guide to its use. The spreadsheet instrument stores and summarizes the technical information that you collect about the financial management competence of your organization. The first step is to recognize what your goal is, and that goal will determine which option you use, Option 1 or Option 2: Option Why use the tool? Who applies the tool? 1 Your organization is starting up a new project or preparing for an external audit, and you want to assess how developed your organization or unit s financial management competence is. 2 To reach a consensus about the strengths and weaknesses of your organization or unit s financial management competence and develop an Action Plan that will address the weaknesses that your organization/unit has prioritized. One member of the organization or unit, or an external consultant. A Core Team of both program and finance staff, from junior employees to the directors. Please see the appropriate sections of this manual for further guidance on how to use the chosen option. How the Financial Management Assessment Tool Is Organized FinMAT helps users identify the characteristics and competence of their organization s financial management systems, processes, and procedures. As briefly mentioned earlier, the instrument comprises three types of forms: 1. Assessment Forms (one for each of 10 financial management components) which list the subcomponents within each component; provide (for each subcomponent) criteria that can be assessed and assigned a level of financial management competence Intermediate, Advanced); provide blank boxes for users responses to each criterion; provide blank boxes for users to describe the evidence justifying their responses; 2. Summary Forms, one for each of the ten components; 3. Action Plan form (to copy as many times as needed). Before applying FinMAT, facilitators may need to adapt the Assessment Form to the organization s situation. The form, which covers all ten components, is quite long and may appear intimidating at first. However, facilitators need to review the entire tool to understand each financial management component and subcomponent, and evaluate whether these are relevant and important to the organization s work. Not all components are relevant for all organizations, and some organizations may require additional criterion statements or subcomponents, such as references to government regulations or to specific donor requirements. Facilitators may want to add more space to the forms. Prior to modifying the forms, however, save them to a hard drive as read-only files, and then make your own working copies. Never work directly on original files; save the originals to refer to if necessary. For specific criteria that are not relevant, there is an N/A option that facilitators can select before applying the instrument. 2 FinMAT, the Financial Management Assessment Tool

11 finmat Have the Assessment Form in hand as you interview relevant staff and/or inspect physical space for the YES or NO answers to the statements (criterion) in each subcomponent. (Do not fill out the Assessment Form after your interviews and inspections.) Ideally, during the interview you will use your laptop and the electronic version of the instrument to record responses; the electronic instrument includes programming that helps with the analysis. However, if you do not have a laptop, you can mark responses on a printout and then enter those answers into the electronic instrument later. Developing an Action Plan is a key part of the FinMAT process. For Option 1, one individual, the internal or external consultant, develops an Action Plan to address key issues, and then presents that plan to the organization. If you choose Option 2 and are using the tool at several branch offices or units of a larger office/organization, the Action Plan form is used at two different times. It is used once at the end of a unit assessment for a unit-level plan and then once during the final one-day Action Plan workshop at which the separate unit plans are integrated into one plan for the whole organization. FinMAT Assessment Form There are four key parts to the FinMAT Assessment Form: financial management components (including subcomponents) criteria with assigned levels of competence responses evidence Financial management components. The ten financial management components represent core functions of an effective financial management system, whether the system is in the public, NGO, or private sector. You can use FinMAT to first assess the stage of development your organization has reached in each of the ten components, and later identify steps to achieve greater accountability and transparency. Financial Management Components Assessed by FinMAT 1. Organization and personnel 6. Timely payment and invoicing of goods and services 2. Budgeting 7. Cash management 3. Accounting and record-keeping 8. Stock, inventory, and fixed assets 4. Purchasing and procurement 9. Audit 5. Payroll 10. Use of information Each component (e.g., Component 5, Payroll) is divided into subcomponents. (Payroll has twelve subcomponents.) Each subcomponent has a maximum of three criteria, one of which would categorize the development of its subcomponent as being at one of the four stages of competence that are described immediately below. FinMAT, the Financial Management Assessment Tool 3

12 finmat s of Competence. Applying a set of criteria for each subcomponent, assessors can categorize at one of four levels of competence, a site s ability to manage its finances at the subcomponent level: pre-basic (not meeting the basic stage fully, but still having specific strengths) basic intermediate advanced While some criterion descriptions (statements) within a subcomponent are similar, the intermediate and advanced level criteria meet a more demanding qualitative or quantitative standard of competence than the pre-basic and basic competences do. Starting at the basic stage of development, each successive competence represents all the criteria described at the preceding levels the intermediate competence includes the criteria described at the pre-basic and basic levels of competence, and the advanced competence includes all the criteria of the intermediate, basic, and pre-basic levels. For example, an organization at the basic level of competence might produce regular financial reports, but one at an advanced level of competence would use those financial reports to make decisions about spending. Similarly, an organization at a basic stage of competence might produce expenditure and inventory reports for donors, while one with advanced competence would make further use of those reports to make management decisions. For a number of subcomponents, the next higher criterion may not spell out (include the text of) the prior criterion, but its inclusion in the higher criterion can be assumed. For instance, basic budgeting competence is stated as a requirement at the basic level while it is implied at the intermediate and advanced levels. In the spreadsheet instrument, a subcomponent lists the highest-level criterion first. If you answer YES for this highest-level criterion, then you can skip any lower-level criteria and move on to the next subcomponent. As stated earlier, each subcomponent has a maximum of three criteria that represent four levels of functioning (competence). Some subcomponents may have only two or even one criterion because the highest criterion for that subcomponent is intermediate or basic. In these cases, the competence level for the subcomponent will be either intermediate or basic, but do not despair! The instrument is designed to highlight these cases, and the team or consultant analyzing the results will easily see that the organization meets the highest criteria for the given subcomponent. The Excel-based instrument includes a pie graph that shows how each subcomponent s results compare with the highest possible results for that subcomponent. Each criterion number indicates first, the number of the component (1 10); second, the sequential number of the criterion within each component (e.g., 3); and finally, the level of competence (A=Advanced, I=Intermediate, B=Basic). For example, criterion number 1.3A indicates that the third criterion under Component 1: Organization and Personnel reflects an advanced competence. s. The individual or team indicates YES or NO to whether the site/organization fulfills each stated criterion. The individual or team formulates a response based on their knowledge and understanding of the site/organization s situation. Most responses are objective. In some cases, if Option 2 is being used, and therefore the instrument is being administered by the FinMAT team, some team members and site staff may have differences in interpretation. Facilitated discussion can resolve these differences and enable the group to reach consensus. Note that for some subcomponents, the instrument criteria make a distinction between the existence of a certain set of policies and procedures and a manual that documents these policies and procedures. If an organization has established 4 FinMAT, the Financial Management Assessment Tool

13 finmat its policies and procedures but has not documented those in a manual that staff could be trained on and refer to regularly, that subcomponent would likely be at the basic level. For an example, please look at criterion 2.3B in the Policies and Procedures subcomponent of Component 2: Budgeting. Evidence. The Data Collection Team or the internal or external consultant documents the evidence that justifies all YES responses. Examples of evidence include: verification of documents and records, such as annual and long-term plans, personnel records, job descriptions, organizational charts, financial reports, financial statements, and bank statements; examination of system tools and manuals, such as registers, vouchers, receipt books, purchase requests, inventory forms, policies and procedures manuals, and supporting forms; physical examination of facilities, such as storerooms, warehouses, and other facilities that maintain inventory. Where actual physical evidence is not available, responses need to be substantiated by interviews with staff. FinMAT, the Financial Management Assessment Tool 5

14 finmat Determining Your Goal As noted, FinMAT can be applied in two ways. Option 1 is for organizations that are preparing either for an internal audit or to receive new external funds. Option 2 is for organizations that have already identified financial management as a function to strengthen, and need a tool to help them identify specific competences to improve, i.e., to build their financial management capacity. This section goes into more detail about each option. Option 1 Option 1 is meant to be a rapid assessment of an organization s financial management competence. This option can be implemented in several hours or several days, depending on the size of the organization being assessed, the number of finance staff and departments, the purpose of the assessment, and the possible financial risks. For example, the assessment of your organization s financial management systems for a potential award of $25,000 would likely require less time and in-depth analysis than an assessment required for a potential award of $3,000,000. The implementer(s) should have a background in finance, accounting, and business management, since it will take this expertise to assess the evidence presented. FinMAT Option 1 is not intended as an audit tool and may be used with clients who are already anxious about upcoming audits or donor pre-award surveys. Best results are often achieved by keeping the tone conversational and educational. Rather than focusing on deficiencies, it is wise to focus on easily achieved small steps to improve the financial health of the organization. The criteria statements and answers on the assessment tool can and should be shared with the organization being assessed. FinMAT Option 1 has many uses: Pre-award Auditing International donors are a major source of funds for nongovernmental organizations (NGOs) doing humanitarian aid and development work. Increasingly, donors are focusing on using local organizations to implement their programs, through direct funding or through grants and partnerships from international NGOs. If the donor intends to directly fund an organization, it will likely conduct a pre-award survey or audit, to ensure that the organization has the capacity to adequately manage the funds and comply with imposed cost principles and reporting requirements. FinMAT Option 1 can provide an organization with an overview of the stage of development it will be assessed at (the capacity it will show) during such an audit, as well as point out areas that can be quickly addressed and improved before auditors arrive. If the results of the survey are largely positive, it can also boost confidence and alleviate anxiety. 1) Assessing the financial management competence of new local partners An international NGO could use FinMAT Option 1 to assess local organizations that might become subrecipients of donor funds. The results of such surveys would identify weaknesses in an organization s financial and operational systems that might require additional capacity building, oversight, or imposed controls. 6 FinMAT, the Financial Management Assessment Tool

15 finmat 2) Assessing needs for technical assistance FinMAT Option 1 can also provide a quick baseline for determining the technical assistance and capacity-building needs of client or partner organizations, in the areas of finance and business operations. 3) Assessing financial management and business operations Organizations may elect to use FinMAT Option 1 to do an internal assessment of their financial management and business operations in preparation for audits or as part of an improvement, or competence-enhancing, initiative. Option 1 uses the standard FinMAT forms, i.e., YES or NO statements about subcomponent criteria. These provide a script for reviewing systems in a logical, orderly framework and may be easily modified to eliminate sections or questions that don t apply to your situation. However, always be careful when eliminating criteria; make sure those are truly inapplicable, i.e., N/A. To the greatest extent possible, attempt to schedule the assessments for periods when the finance and operations staff can take the time to answer questions fully and honestly. Avoid month-end and year-end periods, when finance staff members are often busiest. Holiday periods are also difficult; an office may be short-staffed or its personnel preoccupied. When possible, ask diverse people within the organization to reply YES or NO to the same statements (criteria). Perceptions across the organization often differ, and seeking a range of responses often gets at the truth. Once the assessment is completed, the implementer(s) should prepare a findings report that includes an overall assessment of the financial systems and internal controls, as well as proposes (including illustrative time frames and budgets) changes and improvements. The report can become the basis for a technical assistance and capacity-building work plan, if appropriate. If the organization is an intended grant recipient, the report should feed into the plan for overseeing and managing the grant. Option 2 FinMAT Option 2 builds on the Management and Organizational Sustainability Tool (MOST), a process that Management Sciences for Health (MSH) developed so that managers could assess their organization s management capabilities and make concrete plans for improvement. A MOST assessment often leads to more detailed assessments of particular management components, such as financial management, so MSH developed supplementary assessment and planning tools to guide these processes. The Financial Management Assessment Tool helps managers explore their organizations financial management competences and overall capacity in depth and focus on priority management areas that need improvements. The financial management assessment process assumes that the most effective way to initiate organizational change in the medium and long term is to involve staff members and other important stakeholders in an open assessment and consensual planning. Option 1 can quickly identify areas that can be improved prior to a specific event (i.e., a new project start-up or an external audit by a donor). The organization or unit that has recognized its financial management weaknesses uses Option 2 to ask its entire organization to identify and prioritize these weaknesses and then address these in a sustainable way. FinMAT, the Financial Management Assessment Tool 7

16 finmat Use FinMAT in preparing for the assessment, conducting the assessment at sites, and integrating the results into organizational activities. Within these phases, follow the ten steps detailed in the next section (Using the Financial Management Assessment Tool Instrument). A Core Team plans the assessment, monitors its progress, leads the development of an organizationwide action plan to make improvements, and advocates for institutionalizing the plan within the organization s planning and monitoring systems. The Core Team should contain a cross-section of program and finance staff. If the Core Team is large and FinMAT is being used to assess a large organization or office, a Data Collection Team may be formed. This Data Collection Team is a subgroup of the Core Team plus one or two staff members from the site being assessed (but includes the extra one or two staff only if that site is a branch office or subunit of a central unit). The Data Collection Team moves around the site, engaging staff and reviewing documents to determine which subcomponent criteria the financial management systems meet. Together with the organization s staff, they summarize the data for each component. To be manageable, the Data Collection Team should be limited to 5 7 people. If the organization s key decision-makers are not on the Core Team, it may be a good idea to form a group of key Stakeholders to attend both an initial meeting and a final workshop led by the Core Team. These Stakeholders should review the summarized findings, the contributing causes, and the proposed actions. They can help develop an organization-wide integrated Action Plan to make improvements in areas that are assessed as weak, i.e., good targets for capacity-building. Option 2 is particularly useful for organizations or programs that have branch offices or subunits and are interested in building the capacity of their decentralized units. Implementers should spend some time discussing with the Core Team what the mandate of the decentralized units is, and how much control the decentralized unit has over certain financial management practices. Organizations may especially want to consider using FinMAT Option 2 when they are: receiving increased funding from donors or other sources, including an increased emphasis on funds flowing to subsidiary levels; decentralizing management functions to subsidiary levels; undertaking initiatives to strengthen overall management. To effectively use FinMAT, managers throughout an organization need to: commit to the assessment and to the process of strengthening financial management capacity at different levels, including dedicating sufficient human and financial resources to carry out the assessment and the follow-up plan, as appropriate; distinguish those areas of financial management that are within their scope to change and improve, and those that will require, at a future time, wider or more senior-level commitment to change. Applying FinMAT in the Public, Private, or NGO Sectors While NGOs and public-sector institutions vary in their specific practices and organization, most are responsible for carrying out similar financial management functions. This guide was written for managers in both types of institutions. Even if the position titles referred to in the guide are different from those in your institution, those managers generally perform similar functions to staff in your organization or program. Some differences between the NGOs and the public sector should be kept in mind when using this 8 FinMAT, the Financial Management Assessment Tool

17 finmat tool. Where and how specific functions are carried out will vary. For instance, in a centralized system, the payroll function is often carried out by a central body, and subunit managers may not have much control over staffing levels. Perhaps the biggest difference lies in the steps that institutions can take to improve their capacity. In part because they are smaller institutions, NGOs often have more options for action and can act more quickly. For example, many ministry subunits are still governed by government-wide regulations; in such cases, the national civil service commission or even the national parliament may have to act to effect certain changes. This guide offers alternatives when these differences affect the use of FinMAT, especially at the stage of taking action for improvement. FinMAT, the Financial Management Assessment Tool 9

18 finmat Using The Financial Management Assessment Tool Instrument Whether you have chosen Option 1 or Option 2, you will answer YES or NO to the criterion statements in each of the instrument s ten components. The instrument itself is an electronic Excel spreadsheet that has an introduction tab and then two tabs for each of the ten components. One tab lists a component s subcomponents and its criterion statements (with boxes for responding YES or NO). The other tab summarizes the YES and NO answers of each subcomponent s criteria, indicating the subcomponent s stage of development, i.e., Advanced, Intermediate, Basic, or Pre-Basic. This section of the guide provides detailed instructions for using both options of the Financial Management Assessment Tool instrument. Step 1: Determine your end goal Use the previous section of this guide to determine whether you are using Option 1 or Option 2 of FinMAT. If you choose Option 1, skip to Step 4 below. Step 2: Form the Core Team and the Data Collection Team (Option 2 only) Before getting started, you will need to assemble a Core Team to plan and lead the FinMAT assessment. It is essential that you include some staff with technical knowledge in financial management. However, because both program and finance staff are needed to support and build strong financial management capacity, the Core Team must also have one or more nonfinancial program staff; be sure to consider persons who are interested in the performance of the financial management system. They will be particularly important if you feel that there may be bias, conflict of interest, or a commitment to a highly optimistic (or pessimistic) outcome without them. A team that is objective in its assessment will be more credible to staff and donors. The Core Team should all be from the same unit or office, so that there is no confusion as to what financial processes are being analyzed. Whether you are assessing your head office or your subunit, a typical core team for the FinMAT assessment would consist of the following staff members: executive director, minister, or deputy minister for finance and administration to set overall direction, allocate staff and other resources, provide leadership and moral support, review results, and monitor the implementation of improvements; finance manager to provide technical input, ensure consistency throughout the organization, review results, and monitor the implementation of improvements; accountant from the head office to help modify the FinMAT Assessment Form and provide technical input during data collection and discussions; accountant from a subunit to provide technical input and a second perspective during data collection and discussions; program staff (one or two) to provide the perspective of programs and finance data users; consultant (optional) to facilitate and provide technical expertise and overall guidance during data collection and discussions. Not all Core Team members will participate in all assessment activities, but the entire team should plan the assessment, receive updates as the assessment progresses, and help develop and implement an integrated Action Plan for the organization. 10 FinMAT, the Financial Management Assessment Tool

19 finmat The Data Collection Team is a subgroup of the Core Team, and should be limited to 5 7 people. This team will be responsible for and complete the assessment, reach consensus on each response, indicate evidence for all YES responses, and analyze results. It is up to you whether you want the full Core Team or just the Data Collection Team to develop the Action Plan. Step 3: Plan the assessment (Option 2 only) While institutions should review their entire financial management systems, some may want to first focus on any components that need immediate attention, such as budgeting or procurement. You also need to decide whether you will concentrate on the head office or also assess the subunits. Documenting your decisions about the components and sites you wish to assess helps clarify your thinking and communicate your decision to others. Beginning Your Assessment in the Head Office The head office is a good place to begin your financial management assessment. Scheduling your first assessment there can help you take advantage of the head office s: Comprehensive oversight. Since head office managers are responsible for overseeing the subunits, they need to understand the central-level s strengths and weaknesses before reviewing the subunits. Experienced staff. Generally, the head office will have the more experienced staff and technical resources. Once familiar with the methodology and process, these staff members can better support and guide the subunits. Broad scope of financial activities. The scope of financial management activities at the head office is usually broader and more complex. Starting in the head office will cover most aspects of the organization s financial system. Visibility. An assessment at the head office would be more visible, which could encourage participation at other levels and a broader commitment to change. Organizational example. An initial assessment at the subunit level could be perceived as a punitive audit. Starting at the head office sends the message that what is healthy for the head office is healthy for the whole organization. It is useful to have a formal scope of work that specifies the Core Team s work in detail. The Core Team generally consults with key finance staff and senior managers who develop a scope of work that can be used to communicate to stakeholders especially staff directly affected by the assessment the team s purpose, schedule, and intended outcomes. The Core Team s scope of work should include: the rationale for the assessment; the anticipated outcomes, including deliverables and recommended improvements; a budget; a timeline; the anticipated in-house and external human resources needed to carry out the assessment. FinMAT, the Financial Management Assessment Tool 11

20 finmat Before beginning, the Core Team should designate one of their members as their leader, who will manage the team s work, and from five to seven of their members as the Data Collection Team subgroup. Also, as noted above, you should give some thought to potential conflicts of interest. You may also need to educate nonfinance staff about the tool and some financial management concepts. Step 4: Hold an initial meeting and develop a schedule If applying Option 1, the consultant or the external staff person will hold an initial meeting with the organization to discuss and plan the assessment. For Option 2, the Core Team leader will call the Core Team together in advance of the actual assessment to discuss their roles and develop a schedule. Team members will negotiate any adjustments in their scope of work with senior management. You should also consider having an organizational workshop or holding a discussion at a regular staff meeting to explain the upcoming assessment process. At a minimum, staff should be well informed about the assessment and understand its purpose. If necessary, hold a meeting with Stakeholders to ensure that they understand the goal and process of applying the tool. In finalizing their assessment timeline, the Core Team will need to factor in the schedules of their team members and the schedules of interviewees at the sites being assessed. Usually, the team assesses the head office first, so the head office schedules will be considered first. If subunits are included, send them a letter fully explaining the assessment process and saying that the Data Collection Team is planning to visit their subunit. Follow up with a phone call to arrange a convenient date. A FinMAT assessment may require up to two and one-half days per site when all documents and respondents are available, but if you plan your time carefully or assess fewer than the ten components, it may take less time. Step-by-Step Instructions for Completing FinMAT s Excel Instrument 1. Save a read-only copy of the file to your computer. 2. Go to the Intro tab and fill in the organization and the date. This information will automatically copy to all worksheets. 3. Go to the first data entry tab, called Comp1 Qs. 4. Start answering the criterion statements. Answer YES or NO, and the appropriate competence level will automatically fill in. 5. Within each subcomponent that has at least two criterion statements, selecting YES for the first criterion statement will automatically gray out (skip) subsequent statements within that subcomponent, so you will move to the next subcomponent. If you select NO for a subcomponent s first criterion statement and YES for the second statement, the tool will automatically gray out any subsequent statements, and you will know to move to the next subcomponent. 6. Once you have said YES or NO to all the criterion statements within a component, go to its summary tab, e.g., Comp1 Summary, to see a summary of the component, including a pie chart that compares the completed assessment with the highest possible levels for the component. 7. Proceed to the next component. 12 FinMAT, the Financial Management Assessment Tool

21 finmat Step 5: Review the Financial Management Assessment Tool instrument The FinMAT instrument is an Excel-based tool that makes analyzing results easy. It is important to learn the Financial Management Assessment Tool Excel instrument well and understand how it works. See the box Step-by-Step Instructions for Completing FinMAT s Excel Instrument. Before you begin the assessment, practice using the tool; see how it fills in competence levels automatically, how different answers to the criterion statements change the results, etc. Before you interview the people within the organization being assessed, you should be very comfortable with the Excel instrument. The Data Collection Team or consultant s next task is to review the FinMAT instrument with the requirements of the organization being assessed in mind. If necessary, modify the Assessment Form to fit the organization. You will see that each component is divided into subcomponents. FinMAT will cover most situations, and criteria that are not relevant should be marked N/A (not applicable) so that they are not considered when analyzing the results of each component. It is important to be careful when choosing N/A as a response. Since the assessment is lengthy, it may be tempting to eliminate many criterion statements or entire subcomponents or components. However, remember that the tool is designed to help organizations identify their strengths and weaknesses and prioritize areas for improvement. Discarding criterion statements, subcomponents, or components should be done carefully. Designate criterion statements as inapplicable (N/A) only when those are not important to the organization s functions. For example, if the organization does not manage or store supplies, statements about warehouses can be marked as inapplicable. However, if an organization does not have a personnel policy manual, it is not appropriate to indicate N/A for statements about a personnel manual. In addition, some organizations may wish to add criteria that reflect specific concerns. Before making any changes to the forms answering YES or NO or adding your own criteria first save the FinMAT forms from the CD-ROM to your hard drive as a read-only file, then make a working copy that you can modify. Since FinMAT organizes assessment criteria into levels of financial competence Intermediate, or Advanced), you will need to assign a level for each new criterion statement you add, and program the Excel spreadsheet to accurately designate the correct level. You can safely assume that an addition is Basic if it represents an adequate level but leaves room for improvement. To modify the FinMAT Assessment Form, you may require input from experienced financial management staff or consultants. Depending on the number of units at which you plan to apply FinMAT, you may wish to field-test your modified instrument to be sure that you have covered all the important areas of your organization and that the criteria are clear within the context of your financial systems. Step 6: Carry out the assessment and complete the Assessment Form In beginning your assessment at the head office, notify in advance all staff members who need to participate in the assessment so that they can prepare for it and make time available. Depending on the components you will assess, you will typically include the Finance Manager, Administrative Manager, selected program staff, stock or inventory staff, the Human Resource Manager, and procurement staff as assessment participants. Small NGOs and some subunits of ministries of health may not have all of these positions, but someone is responsible for their functions. If a team is carrying out the assessment, some of these staff will already be on the Core Team. Staff at the assessment site will assist in data collection for the components about which they have knowledge. Some will also be participants in the meeting at the end of the site assessment so that they can contribute their perspectives in listing and prioritizing needed improvements at the site. FinMAT, the Financial Management Assessment Tool 13

22 finmat The Data Collection Team may choose to conduct the assessment in a 2 3 day off-site meeting, going methodically through each component, responding to each criterion statement, and indicating evidence for each YES response. If this step is done off-site, the Data Collection Team then must go to the office, looking for evidence to substantiate the YES responses. If the Data Collection Team decides to conduct the assessment on-site, the team will sit with department staff and go through the criteria for all those components, asking whether the department meets the criteria and requesting evidence. You may choose to fill out the assessment either directly in the Excel instrument or on a printed copy that you take to the meetings with the organization s staff. The Excel instrument is programmed to skip questions as appropriate, so where possible, it may be easier to use the electronic instrument. If you are using a hard copy of the Assessment Forms, everyone involved should have a copy that they read and use to make notes, but one person from the Data Collection Team should be designated as the recorder. In cases where the response to a criterion is obvious, the recorder quickly marks the response. Where a criterion does not apply, the recorder chooses the N/A option. Again, be very sure that a particular criterion really does not apply. If there is disagreement, the group must discuss until they arrive at consensus. A critical aspect of the FinMAT assessment process is the reliance on evidence. The Financial Management Assessment Tool defines evidence as a fact or concrete document that supports the answer to a specific management criterion. Evidence is something that can be seen or known and that will ground the discussion in facts instead of perceptions. Whether using Option 1 or Option 2, it is very important that participants note the evidence that supports the answer for each subcomponent criterion. The evidence will also be the basis for determining future improvements. The following table illustrates typical recorded evidence for criteria in different components. Examples of Recorded Evidence Component Criterion Evidence Found Organization and Personnel 1.5B (ethical behavior standards) The written policies and procedures for ethical behavior are found in the files. Accounting and Record-Keeping 3.9I (chart of accounts) A written and approved chart of accounts with account codes for appropriate expenses. 3.19A (trial balance preparation) Trial balances prepared monthly are in the files. Purchasing and Procurement 4.11I (recording) All purchase orders are included in a register. 4.14B (separation) The purchasing function is separate from the payment function. Timely Payment and Invoicing of Goods and Services 6.3I (payments to vendors) Authorized payments to vendors are made within 60 days of receiving invoices. 14 FinMAT, the Financial Management Assessment Tool

23 finmat Stock, Inventory, and Fixed Assets Use of Information 8.12B (record-keeping) The stores have stock card records showing quantities of items, balances, amounts received, and amounts issued. Separate Stores, etc. 10.7B (donor reports) Donor reports are submitted on time with accurate information. Important information for Option 2: For some criteria, the group will have differing viewpoints. The role of the leader of the Data Collection Team is to facilitate discussion so that all staff can present their own perspectives, and no one, including senior staff, dominates the discussion. The leader should emphasize the importance of using evidence to reach consensus on whether each criterion is met. If the group cannot reach consensus, the recorder marks NO. The importance of reaching consensus is based on three assumptions: No single participant in the implementation possesses the complete truth about the organization and its financial management; instead, every person possesses some part of the truth. An accurate picture is best obtained by pooling these individual perceptions. Each participant s observations about his or her knowledge of a particular financial management component can broaden the perspective of all the participants. The evidence the participants offer to support their opinions helps the group come to agreement on what may initially seem to be incompatible viewpoints. Decisions that are reached by consensus are more likely to be implemented because a broad group of people participated in making those decisions. Step 7: Review and complete the summary for each component The Excel instrument automatically creates a Summary Form that lists the level of competence for each subcomponent of a component. Most subcomponents have at least three criterion statements that determine the subcomponent s level of competence; however as noted, some subcomponents have just one or two criteria. The tool is programmed so that if your organization answers YES to the highest criterion in a subcomponent, then that subcomponent is rated at the highest possible level for that subcomponent (could be Advanced, Intermediate or Basic). If an organization answers NO to the advanced criterion and YES to the intermediate criterion, then the subcomponent is rated as Intermediate. As noted, this rating of competence levels is programmed into the electronic Excel instrument, so there is no need for the assessor to fill in the levels by hand. Once all criterion statements in a given component have been assessed, go to the Summary Form for that component and you will see that the level of competence for each subcomponent has been automatically pulled to the form. If a particular subcomponent is not at the highest level of competence, its result will be highlighted in bold and the cell with the result will be outlined. Also, you will see a graphical representation of the results below the table. The pie chart on the left shows the results of your assessment, and the pie chart on the right shows the highest possible outcome. As you analyze these results, keep these two pie charts in mind. For example, if the pie chart on the right is approximately 75% green (indicating that the highest possible result for 75% of the subcomponents is Advanced), and your results show 25% green, then you know that you are not at the highest possible competence level for this subcomponent. Before you begin the assessment, you may want to experiment with the criterion statements, so that you fully understand how the instrument works, how the pie charts change with different answers. FinMAT, the Financial Management Assessment Tool 15