Real Medicine Foundation's

Policies

Accounting and Expenses

(I) Petty Cash Fund Policy (PCF)
Policy statement

PCF is established for the purpose of petty expenditures which are incurred on daily basis to run the office/project operations.

Responsibility/Definition/Characteristics

Maintenance of PCF in line with the policy statement is the responsibility of the PCF Custodian and Lead(s) of the financial department(s)/operations.

Obligations and limitations
  1. PCF should be used to pay bills of small amounts and reimbursements to staff/employees for authorized expenditures up 10% of the upper limit of PCF.
  2. The upper limit for PCF is 30 days expenses subject to an upper ceiling of _____________ (Country specific)
  3. Any amount not meeting criteria no. 1 above should be submitted separately to finance department for processing and payment through check
  4. PCF payment should be opened only during office hours.
  5. PCF disbursements will only be made against the approved bills or invoices.
Procedures

Establishment /Security of fund

a) PCF Custodian should be solely responsible for maintaining it in respective office and Head of Finance is responsible for proper accounting.
b) PCF is kept in locked place with proper lock and keys which are kept separately by PCF Custodian and Head of Finance. However, in cases where this is not practical written approval of Country Director is required with recommendation of Head of Finance.
c) Appropriate insurance coverage for PCF should be provided in compliance with Insurance Policies after determining the overall need to cover any loss against theft and other incidents.
d) Any other type of cash should not be mixed up with PCF

Reimbursements of fund

a) In order to ensure smooth operations reimbursement should be presented for payment on 50% to 60% utilization of the funds limit.
b) “Reimbursement Statement” has to be checked by Head of Finance and approved by COUNTRY DIRECTOR.
c) The PCF custodian should prepare “Reimbursement Statement” in the prescribed format (Annex 1).
d) All expenses reflected in the Reimbursement Statement should be supported by bills or invoices. However, in cases where bill or invoice collection is not possible than approval from COUNTRY DIRECTOR through Head of Finance in the approved “Reimbursement Form” (Annex 2) which should form integral part of the Reimbursement Statement.

Altering/Establishment of fund

Establishment or altering PCF should follow the following statements by requesting department;

a) Purpose of establishing or altering PCF
b) Safety and security of PCF
c) Impact on insurance coverage, if any.

Justifications from point a to c must be prepared by the relevant office or department and forwarded to Head of Finance for recommendation and further sharing with COUNTRY DIRECTOR for approval.

Further, PCF (s) should be regularly reviewed and recommended by Head of Finance for modification keeping in view changing needs and scenarios.

Petty Cash Payment

PCF payment should follow the following documentation;

a) PCF Custodian should properly prepare PCF Payment Voucher (Annex 3).
b) PCF Payment Voucher should be checked by Head of Finance.
c) PCF Payment Voucher should be approved by COUNTRY DIRECTOR.
d) Proper acknowledgement of receipt should be taken at the time of making the payment.

I Owe You (I.O.U)

In case of emergency requirement of cash by staff/employee I.O.U (Annex 4) can be given from PCF with approval from Head of Finance or COUNTRY DIRECTOR, however, after completion of the activity staff/employee will be required to submit complete bills or invoices. A staff/employee can have only one I.O.U at one time.

Check and Balance

In order to ensure proper control over use and implementation of policies of PCF surprise cash count should be carried out at least once in every month by Head of Finance in the approved format (Annex 5) followed by reporting the observations to COUNTRY DIRECTOR.

Related records:

a) Annexure 1: PCF Reimbursement Statement
b) Annexure 2: PCF Reimbursement Form
c) Annexure 3: PCF Payment Voucher
d) Annexure 4: I.O.U Form
e) Annexure 5: PCF Surprise Cash Count Form

(II) Acceptable Accounting Policies and Practices
Policy statement

Real Medicine Foundation computerized accounting package for each program/project. This policy ensures that books of accounts maintained for each program/project are based on uniform acceptable accounting policies and practices.

Responsibility/Definition/Characteristics

Maintenance of acceptable accounting policies and practices in line with the policy statement is the responsibility of the Head of Finance.

Acceptable Accounting Policies and Practices

1. Accrual (Matching) Concept

Revenues and costs are accrued when they are incurred and not paid or received in line with the matching concept in order to reflect revenues and expenses in the same period to which they relate.

2. Going Concern

All records should be updated with the concept that the Company shall continue existing for an unforeseeable period and financial statements make no assumption or intention of liquidation or significant reduction in activities.

3. Prudence

All expenses known and can be reasonably estimated shall be included in the books of accounts before closure at the end of the period.

4. Consistency

Policies followed in the previous years should be consistently applied each year. In case of an utmost need to modify the same it should be done after proper approvals from Country Director followed by clear disclosure with impacts on financials as compared to previous policies and practices.

5. Grants and Donations

Based on accrual concept any grant or donor funding not yet received but the respective expenditure for which the relevant grant or donor funding was allocated has already been incurred shall be recorded as grant or funding receivable in the same accounting period. Similarly and grant received in advance, which has not been expensed in the same period shall be treated as deferred income in the balance sheet.

6. Tangible Fixed Assets

The capitalized cost shall be in line with the Fixed Assets Policy but generally consisting of;

a) Purchase price over __________ (Country Specific)
b) Cost of construction,
c) Import duties (if any)
d) Site preparation (excluding cost of demolishing existing asset)
e) Inward transport and handling
f) Installation and
g) Professional fees

7. Tangible Fixed Assets

A contingent liability is defined as either;

  • A possible obligation arising from past events whose existence will be confirmed on the occurrence of one or more uncertain future events not wholly within the entity’s control or
  • A present obligation that arises from past events but is not recognized because it is not probable that a transfer of economic benefits will be required to settle the obligation or because the amount of the obligation can not be measured with sufficient reliability.
    Examples of contingent liability are pending lawsuits. Such liability shall not be recorded in books but a disclosure is made in financial statements.

8. Stock

The stock maintained should be based on average monthly consumption; time consumed in its replenishment, seasonal variations in business, weather/ climate conditions etc.

9. Bad and Doubtful Debt

Both specific and general provisions for doubtful debts be made at the year end based on specific debts considered doubtful or based on historical data a general provision is made as a percentage of overdue debtors or credit sale etc. The write offs should be done as per authority matrix policy.

The provision for doubtful debts is deducted from Debtors in the balance sheet and net amount is reported.

Note: Above acceptable accounting policies and practices are the minimum standards that should be followed during routing accounting operations by finance department. However, all applicable International Accounting Standards/International Financial Reporting Standards should be applied as and when required basis.

(III) Bank Account and Banking Policy
Policy statement

All transactions through bank must be carried out following approved authority limits as per Authority Matrix Policy after proper documentation with each transaction.

Responsibility/Definition/Characteristics

Head of Finance is responsible to ensure implementation of Bank Account and Banking Policy in the following activities;

  1. All transactions through bank
  2. Opening of a new bank account and amendment in existing bank account, and;
  3. Closing of an existing bank account
Obligations and limitation
  1. All those transactions which cannot be carried out through petty cash (refer to Petty Cash Fund Policy) must be through bank account
  2. All transactions through bank must reflect business transactions only and must follow effective and complete documentations
  3. Payments from company bank account should be through signatures of two individuals (joint signatories) as nominated by COUNTRY DIRECTOR/Board only following authority matrix
  4. Transactions through bank account should be in a way that they are carried out keeping in mind Safety and Insurance Policy.
Procedure for opening of a new bank account and amendment in existing bank account

e) Head of Finance will be responsible to justify the need of opening of a new bank account and amendment in existing bank account to COUNTRY DIRECTOR

f) COUNTRY DIRECTOR has the authority to accept/reject proposal of opening of a new bank account and amendment in existing bank account

g) Opening of a new bank account and amendment in existing bank account will only be through resolution passed by Board upon recommendation of COUNTRY DIRECTOR

Procedure for opening of a new bank account and amendment in existing bank account
  1. Head of Finance will be responsible to justify the need of closing an existing bank account to COUNTRY DIRECTOR
  2. COUNTRY DIRECTOR has the authority to accept/reject proposal of closing of an existing bank account
  3. Closing of an existing bank account will only be through resolution passed by Board in recommendation of COUNTRY DIRECTOR
Control of bank account and transactions

Head of Finance will ensure that bank ledgers are updated with receipts and payments on timely basis to avoid overdraft balance as RMF does not avail overdraft facility from bank principally.

  1. Head of Finance will ensure that all payments prepared by finance department should be given to the party at earliest. Keeping cheques and cash without any reason must be discouraged.
  2. Head of Finance must ensure that all receipts are officially acknowledged.
  3. Head of Finance should ensure that bank reconciliation statements (Annex 6) are prepared on monthly basis and are reported to COUNTRY DIRECTOR on every 5th day of the month. In case of 5th day being a holiday than the same must be reported in the next following working day.
  4. Head of Finance should resolve issues with banks on timely manner and all such issues must be reported to COUNTRY DIRECTOR.
  5. Head of Finance should ensure compliance with the singing limits as per approved authority matrix.
  6. Head of Finance should ensure that all revenue collection should be deposited in bank at earliest i.e. in the same day or immediate next working day. Revenue should not be collected in form of cash, however, if the same happens than Head of Finance must intimate COUNTRY DIRECTOR with complete justification. Revenue cash collection must never be used for payment of expenses. No person other than finance department staff is authorized to deal in official cash.
  7. Head of Finance should ensure that all canceled cheques are kept safe with proper documentation.
  8. Head of Finance should ensure smooth working capital management.
  9. Head of Finance must ensure that cheque books of bank accounts are in custody of finance department and are kept in safe with proper lock and key system.

Related records:

f) Annexure 6: Bank Reconciliation Statement

(IV) Purchase Policy
Scope

Purchase Policy is applicable to all RMF programs and projects and covers all purchases and their management.

Policy Statement

All purchases/procurements in the scope of this policy should be made at best rates, through a transparent process, through selecting best possible quality, in a timely manner and covering all aspects of losses to the organization.

Responsibility/Definition/Characteristics

Head of Administration and Finance are responsible to ensure implementation of Purchase Policy in all relevant matters.

Purchase Procedures and Documentation Guidelines

10. All purchases over and above__________ shall be processed through Purchase Order (Annex 6) duly signed as per approved Authority Matrix Policy. However, all purchases up to ___________________ can be purchased through duly approved Purchase Request (Annex 7) as per Authority Matrix Policy with proper supporting document from the requesting department.

11. Purchase Order must clearly be filled for the information/particulars as per Annex 6.

12. Purchase Order should be raised in quadruplicate with copies distributed to supplier, finance department and purchase/administration department.

13. Purchase Order must be pre-numbered

14. Purchase Order when cancelled should follow proper documentation mentioning clear reason(s)

15. A Purchase Order should not be signed in absence of at least three quotations and a comparison statement properly mentioning reason for selection of any one supplier.

16. A Purchase Order must never be split down to avoid Authority Matrix Policy.

17. Finance department should release supplier’s payment on the basis of Purchase Order (finance copy), Original Invoice, Good Receiving Note and Satisfactory Note from Administration Department or concerned department.

Additions in case of purchase of Capital Items

  1. Fixed Asset Card must be prepared as per standards set in Fixed Asset Policy.
  2. Finance department should release vendor’s payment on the basis of Purchase Order (finance copy), Original Invoice, Good Receiving Note, Fixed Asset Card and Satisfactory Note from Administration Department or concerned department
(V) Fixed Assets Policy
Policy Statement

Fixed Assets Policy aims to ensure safe guard, movement with proper documentation and recording of depreciation on periodic basis.

Responsibilities

Implementation of Fixed Assets Policy is the responsibility of Head of Finance and the Head of Administration.

Definition

Fixed Assets are those assets which are generally not held for the purpose of resale and they directly or indirectly support in revenue generation. They are also called as long life assets and are expected to be used in more than one year.

Characteristics

Any asset can be called as Fixed Asset if and only if all the three characteristics mentioned below are fulfilled;

1- Useful life should be more that one year. The purpose of purchasing such an asset to benefit the current and future period(s).
2- Value of the asset should be at least Rs. 5,000/- (Rupees five thousand only). This value includes all costs incurred in order to bring the asset in to use including the purchase cost.

Note: The criteria of Rs. 5,000/- (Rupees five thousand only) is for individual assets, however, this does not applies for costs of refurbishment where individual cost of items may be less but still the total amount should be capitalized or recorded under fixed assets.

3- Asset must have sufficient physical substance and individuality

Capital/Fixed Assets and Revenue Expenditures

Expenditures incur either to purchase an asset or for the purpose of improvement or maintenance.

All expenditures are Capital/Fixed Asset Expenditures which are incurred in order to make the asset operational including cost or purchase. Additional expenditures that incur over the useful life of an existing fixed asset are considered as fixed asset expenditure if and only if it extends the life or other characteristics like capacity and efficiency.

All expenditures incurred that do not qualify as fixed asset expenditures are categorized as Revenue Expenditures. These are consumables and are used within a year or accounting period. Such expenditures are expensed out in the same period. Maintenance expenses incurred on fixed assets over the useful life which does not result in extension of life or other characteristics will be part of revenue expenditures.

Recording/Accounting and Specific Responsibilities

Recording/accounting of fixed assets should not be done by the custodian of the asset. Segregation of duties must be reflected within the organization through proper documentation of processes separately.

Specific Responsibilities

a) Head of Finance is responsible to ensure accurate and timely recording/accounting of fixed assets.
b) Head of Administration is responsible to maintain proper fixed asset register.
c) Annual physical verification is joint responsibility of Head of Finance and Administration; however, Head of Administration is responsible to ensure physical verification of fixed assets on quarterly basis with complete reporting of all the observations/findings.
d) All movements of the fixed assets should be carried out through proper documentation. These movements can be in and out, disposal, write off, donation, inter-office/project/unit transfers etc. Each activity should be carried out with clear justification and prior approval of Country Director in the designated form.

Note: Designated forms are attached as annexure with this policy.

e) Head of Administration is responsible to ensure that all fixed assets are properly tagged identifying/reflecting the following specific information;

  1. Project/Program
  2. Department Name
  3. Asset Category
  4. Serial Number

f) Tag of any specific fixed asset transferred should not be changed; however, Head of Administration is required to ensure that fixed asset register is updated. Head of Administration should intimate Head of Finance on monthly basis (5th day of each of month) regarding all such movements.
g) Head of Administration is responsible to ensure desired security of all the fixed assets and all incidents of damages, theft, and loss should be documented and informed to the Head of Finance and Country Director immediately

Accounting for Depreciation

Depreciation is a systematic method that allocates the cost of tangible fixed assets less salvage value over estimated useful life of the asset. This allocation is carried out for both tax and accounting purposes.

There are different types/methods for calculating depreciation; however, the method/formula to be used for calculation of depreciation is “Straight Line Method” as per formula below;

Annual Depreciation Charge = Cost of asset – Salvage value / Estimated useful life of asset

Depreciation of fixed asset continues till the value reaches Rs. 1, or, the time it is disposed off, if disposal is made earlier. In case of disposal the gain/loss should be recorded and accounted for.

Full month depreciation should be charged in the month of disposal and no disposal is charged for the month of purchase.

Major Categories of Fixed Assets and Depreciation Rates

Related Records:

a) Annex 9_Fixed Assets Write Off Form
b) Annex 10_Fixed Assets Dispose-Off Form
c) Annex 11_Fixed Assets Transfer Form

(VI) Travel Policy
Policy Statement

Travel policy aims to minimize the program expenditures incurred on travel and to have an effective system in place to prevent misuse of funds and authorities.

Responsibilities

Implementation of Travel Policy is the responsibility of Head of Administration and the Head of Finance.

Domestic Travel Guidelines

a) Air travel should be on economy class only.
b) Prior approval of Country Director should be obtained for all travel/tour schedules on Travel Authorization Form (Annex 12) before the commencement of the tour.
c) Availability of funds within the appropriate budget line must be ensured before approving the travel authorization from the Head of Finance.
d) Travel advance should be taken from the office up to three days before commencement of travel.
e) All travel expense claims should be made through a Advance Adjustment Form and submitted to Head of Finance and shall be supported by original receipts. In case of air travel boarding cards should be submitted along the ticket.
f) Advance account should be settled within seven working days of returning to the office. In case the accounts are not settled within the stipulated time then the advance will be settled against the salary of the employee for that month.

International Travel Guidelines

a) Travel authorization should be submitted to the Administration & Finance Section at least 14 days before actual travel dates, after obtaining approval of the Country Director.
b) Travel mode should be Economy Class. However, prior approval of Country Director should be obtained in a file note properly mentioning the reason of case where exception arises.
c) Head of Administration should explore that all possible routes available from destination to destination ensuring selection of best possible route.
d) All travel expense claims should be made through a Advance Adjustment Form and submitted to Head of Finance and shall be supported by original receipts. In case of air travel boarding cards should be submitted along the ticket.
e) Advance account should be settled within ten working days of returning to the office. In case the accounts are not settled within the stipulated time then the advance will be settled against the salary of the employee for that month.

Lodging Guidelines

a) All staffs are entitled for accommodation during travel as per their entitlement (Annex 13) in case the travel includes planned over night stay. However, employees (if want) can do arrangements for their lodging on their own and request for per diem as per entitlement (Annex 13)
b) Lodging reservations must be placed through the designated person in Admin Department through Lodging Reservation Form (Annex 14)
c) Per-diem is given exclusively to cover only accommodation, meal and laundry expenses. However, all other expenses claimed will only be paid after clearance from Head of Finance and all are subject to prior approval from Country Director.

Meals and Entertainment

a) All staffs are entitled for cost of meals as per their entitlement (Annex 13)
b) All mini bar items except water are inadmissible expenses during travel.

Laundry Service

Actual and reasonable laundry expenses will be reimbursed based on presentation of actual receipts. This applies only after the employee has been away from home for three consecutive days, or if the trip has been unexpectedly extended.

Note: In case of donor funded projects all donor requirements relating to international travel should be adhered to.

Related Records:

d) Annex 12_Travel Authorization Form
e) Annex 13_Staff Entitlements
f) Annex 14_Lodging Reservation Form

(VI) Authority Matrix Policy
Policy Statement

Authority Matrix Policy exists to establish financial discipline and controls through proper delegation of authority at various levels for approval of financial activities and signing of cheques.

Responsibility

Implementation of Authority Matrix Policy is the responsibility COUNTRY DIRECTOR, Head of Finance and Head of Administration.

Specific Objectives

a) Authorities must be vested high enough in the organization such that effective review takes place sothat inappropriate decisions are transactions are avoided.
b) Authorities must be vested in different levels such that no one at any level is able to act alone or materialize any transaction in business operations having financial implications.

Approval Authority Matrix
Cheque Singing Authority Matrix

All cheques must be signed jointly as per the limits authorized to signatories. No signatory is authorized to sign a cheque above his/her signing limit.

Cheque Signing Limits

Note: All transaction documents and other documents should be signed as defined by the authority matrix above.