Building Capacity Through Financial Management, John Cammack, 2007
John Cammack was previously the head of international finance for Oxfam GB. He has been a financial consultant and trainer for many years. This is probably his most important book regarding financial management of NGOs. John Cammack describes the book’s purpose in the introduction:
This book presents practical ways to financial management capacity in an international development context (although much of it applies to any non-profit organisation.) It describes best practice in the specific tasks of financial management – for example, planning and budgeting and financial controls. It gives examples of how groups and organisations build their own capacity. It also considers what leadership teams can do to guide their organisation’s long-term direction (an activity sometimes called ‘governance’) and it describes other financial management aspects that can be built into an organisation’s structure (page ix).
John Cammack defines capacity building as, “A systematic strengthening of the capabilities of an organization to perform its mission more effectively” (p. 3). Unfortunately, I find this to be an insufficient definition. In order to define capacity building, we have to understand what ‘capacity’ is. Capacity is made up of three major components: knowledge, capability and a willingness to use one’s capability and resources (skills, knowledge, understanding and contacts) to do your job well. Cammack’s definition only addresses the capability aspect and does not include the attitude aspect of capacity.
I like this definition from the UN’s Food and Agriculture Organisation (FAO); capacity building “focuses on a series of actions directed at helping participants in the development process to increase their knowledge, skills and understandings and to develop the attitudes needed to bring about the desired developmental change.” We see here the three components of knowledge, technical skills and the willingness to do the right thing to achieve the organisation’s mission, thus building the strength of the organisation.
However, all this is a bit of an aside, because in the very next section, Cammack lists 9 principles for capacity building and Principle No. 3 is “An organization must be ready for capacity building”, which includes being “open to change and willing to question itself.” I would like to emphasis this point, because when I arrived at Across in 2011 I found an organisation that needed to change but was not ready for it.
For completeness, here are all 9 principles of capacity development:
| 1 | Every organisation is capable of building its own capacity |
| 2 | Trust between the capacity builders and the organization is essential |
| 3 | An organization must be ready for capacity building
a) Open to change and willing to question itself b) Able to describe its mission clearly c) Willing to believe that capacity building will further its mission d) Prepared to commit time and resources |
| 4 | On-going questioning means better answers |
| 5 | Team and peer learning are effective capacity-building tools |
| 6 | Capacity building should allow for different learning styles |
| 7 | Every organization has its own history and culture |
| 8 | All the people and parts of an organization are linked together |
| 9 | Capacity-building takes time |
Having set the context, the central part of the book contains chapters on the 4 central features of strong financial management capacity, plus two more features contained in the diagram below:
- Planning and Budget
- Accounts record-keeping
- Financial Reporting
- Financial Controls
- External Audit
- Organisational aspects of financial management
These chapters are the meat of the book and are filled with practical advice, checklists of what should be included in a good financial system, examples of organisations that have done things to get it right, and important tips about where to look if things are not running as they should be. For example, here’s a very pertinent tip for Across:
If information is always out of date, it is worth looking at other factors. For example, are there enough staff to provide the level of service you need? Or is there a ‘blockage’ that prevents inputting of information? (p.69)
Here are some more quotes from this section of the book that I marked:
On record keeping: What would you expect to see?
- A cash/bank book for each currency. This give a daily listing for money coming in and money going out, for cash and bank separately.
- Bank records (e.g. bank statements)
- Bank reconciliations; a record agreeing differences between the bank statements and your bank book.
- Payroll details
- Cash advances and loan registers. These show details of sums advanced, repaid, accounted for and still outstanding.
- Records of funds given for each project, including how much has been spent and what is left
- Invoices and receipts that explain expenditure in the cash book and bank book.
- Details of money owing to you (debtors or receivabes) and what you owe to others (creditors or payables)
- A ledger. This shows expenditure by type
- A journal. This records adjustments in the accounts, for example because of errors. It is part of the ledger accounting system.
On Financial Controls: Key financial control include:
- Cash controls systems for managing cash amounts
- Bank controls for making sure that the bank accounts cannot be mis-used
- Budgeting and accounting controls that provide sufficient information to manage the activities of the organization
- Purchase and authorization controls making sure that different people are involved at each stage
- Management controls, which are extra checks made by management
- Physical controls: keeping property and equipment in good order and secure, plus guidance on the personal use of items owned by the organization.
On Financial Controls: Knowing when things are going wrong:
- Accounting records are inaccurate, corrected and/or out of date
- Bank statements and bank reconciliations are missing
- Invoices, receipts, bank statements and other documents are often missing
- Financial and asset (including stock) records contain many errors
On the possibility of fraud:
“Prepare your organization as if fraud is going to happen”
On the role of the leadership team:
The leadership team and especially the leader need to give a consistent message that finance is important. The message must be supported by good financial behavior from the leader, for example by completing an expenses form as soon as they return from a trip.
Part 3 of the book discusses financial sustainability of an organization. The topics considered are financial reserves and core costs. A financial reserves policy is important to provide guidance to the staff on what level of reserves to maintain. It also provides a justification to donors for the size and purpose of the reserves. Many organisations maintain between 4-6 months of operating expenditure as reserves. A reserves policy should be written by the Board of Governors and periodically reviewed to ensure it remains up to date and relevant.
Budgeting for core costs can be challenging, especially if you expect project donors to contribute the full cost of maintaining the organisation’s overheads. This book contains a number of suggestions for covering core costs, including a brief discussion of ‘full cost recovery’, or ‘activity based recovery’ of core costs.
The book finishes with a section providing a number of tools and ideas for implementing a capacity-building programme in financial matters. Cammack has two important recommendations before starting such a programme. First, find people’s strength and tell them how much you appreciate the good work they are doing. Having done this, identifying the areas where they need improvement is more likely to be positively received. Second, the best questions lead people to build their own capacity, without needing external support. (My reaction to this second point is that this does not apply in an organization where there is no accountability and they are free to do whatever they like). Here, then, is Cammack’s toolkit for building capacity.
There’s a tonne of good things in this book, more than I can cover. Thankfully, this book is available free as a pdf from Oxfam GB. So, if you are involved in a NGO that is struggling with financial management matters, download the book at this link:
the art of constructing 