Financial Policies

Financial policy setting

Financial policy setting should incorporate internal controls that will guide the use of your project’s financial resources. For this reason, your financial regulations should, at a bare minimum, contemplate the monitoring of the following activities.


Policy Setting Direction and Organization

Policy Setting Direction and Organization


Liquidity policy

  • Policies for controlling your financial assets and managing their risk: this relates to regulations to control your bank accounts, access to those accounts and the deposits and expenditures of monies from those accounts. Included in these policies are the processes and the internal controls necessary to detect and prevent fraud.
  • Policies that would allow for controlling liquidity: although related to assets, you should give consideration to this liquidity specifically.
  • Management of resources: this includes the funds you are receiving, will receive, and other assets.

 Liquidity: the ability to convert an asset into cash quickly. Also known as ‘marketability.’

Reserve policy

  • Begin by defining the purpose of the reserve policy: background information on how the account is funded, and on the asset account where the funds will be maintained.
  • Elaborate on the internal control of the reserve policy: this should include precise objectives, the beginning balance of operating reserves, how the policy will be implemented, a formula for calculating the minimum adequate ratio, the circumstances under which the reserve funds can be used, and the procedures for approving the use of reserve funds.


Accounting policies

  • Management and revision of policies: this requires regularly updating the regulations first instituted in your project.
  • Policies for accounting your resources: this includes the regulations and training needed for your financial system.
  • Policies for Reporting: this covers a standardized system of financial reporting to your stakeholders.

Your financial policies should emphasize roles, authority, and responsibilities for essential financial management and decisions. Without financial policies in place, your stakeholders are likely to operate under a set of assumptions that may or may not be accurate or ethical. The proper adoption of financial policies will protect the integrity of the staff member(s) responsible for controlling and monitoring the organization’s assets, and eliminate temptations for anyone involved in financial activities and operations.

Sound financial policies lay out fair and sensible ways of dealing with financial and operational issues. Ideally, they are intended to guide the long term financial goals of your project. They ensure the maintenance of accurate records of financial activities, and  compliance with governmental and private donor reporting requirements. Once your policies become organizational practice, they are binding on everyone in the organization. Make sure that everyone in your project has access to these policies.