Finance Policy

Preamble

A finance policy document provides the employees with a uniform set of guidelines to be followed in

all the financial operations of the organization. It illustrates the various processes and procedures

involved in each job to assist staff to carry out their tasks effectively and efficiently. Payana depends

on public funds (grants, donations, project funds) for all its operations and activities. Therefore, it is

imperative that all expenses are made in a transparent manner while ensuring accountability, value

for money and fiscal responsibility.

Through this policy Payana shall make responsible and accountable use of public funds, maintain

trust and credibility with stakeholders, and achieve our programmatic objectives towards our

primary beneficiary communities viz., sexuality minorities, sex workers and people living with HIV.

All donor requirements for incurring expenditures, reporting compliances, documentation and

finance management will be followed as per the agreement with the donor insofar as they do not

contravene with the statutory laws, guidelines, and rules for Indian organizations.

Aim/ Purpose

This document shall serve as a guide for the systems and procedures to be followed by employees.

Most importantly, it aims to achieve the following objectives:

 Establish satisfactory internal controls to ensure that the policies and procedures on various

operational aspects outlined in this manual are adhered to.

 Assist Payana’s governance structure in the effective planning and management of finances.

 Encourage transparency and accountability in all financial and accounting related matters of

the organization.

 Help the finance personnel in making informed decisions

Applicability

This financial policy document shall apply to the management, all full time and part time employees,

consultants, interns, volunteers, donors and beneficiaries of Payana. Compliance with this manual is

mandatory.

 Compliance with the manual shall be verified by the internal and external auditors

periodically and exceptions shall be reported to the Executive Director and Treasurer of

Payana.

Objectives

 To enhance transparency and promote accountability at different levels

 To have proper accounting and reporting structures

 Saving and controlling costs on sustained basis

 Effective utilization of grants

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 To achieve better program management by providing timely information on financial aspects

and on key performance indicators to the Management/ Governance of Payana

 To track fund utilization for each program and meet the financial reporting requirements of

various stakeholders

 To establish requisite internal controls to ensure that policies and procedures outlined by

the Management on various operational aspects are adhered to

Income

Payana obtains grants from various sources such as, grants from governments, foundations and

philanthropic organizations, individual donations, corporate partnerships and sponsorships,

international development agencies, crowd-funding and online fundraising platforms, earned

income and social enterprises and lastly, government contracts and fee-for-service agreements. All

receipts of funds are considered as income of the organization and categorized as follows:

1. Project Grants (specific to fixed duration projects)

2. Non-Project Grants (Unrestricted core grants but with fixed duration)

3. Capital Grants (from individual donors or charities without fixed duration)

4. Endowments/Annuity

Wherever required Payana shall open a separate bank account for each project and funds received

will be deposited into such account to ensure better control and accountability. Further, unless

specified, the mode of operation of each of these bank accounts shall be as clearly indicated in the

bye-laws of Payana. Any deviation to this shall be based on ad hoc resolutions passed to this effect

at a meeting of the Board of Directors.

Other Income

Other Income includes Interest income earned against the fixed deposits & savings bank account in

Bank.

Accounting Policies and Frame-work

This part describes the accounting and financial procedures that should be followed by various

accounting centres for accounting of program transactions:

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Method and Concepts of Accounting:

a) a. Book-keeping shall be computerized, no manual entry of accounting shall be followed

b. All accounts shall be maintained through Tally accounting package

c. Double entry principle/ system of maintaining accounts shall be followed

d. Maintenance of books of accounts / Accounting shall be on accrual basis1

f. Separate records for different projects shall be maintained

g. Project wise financials will be prepared and consolidated at the closure of the financial

year for statutory purposes.

b) All units / branch offices will also maintain financial subsidiary books.

c) Each transaction shall not only be carried out transparently but shall also be recorded in the

respective books of accounts and vouchers / receipts or records stipulated for that purpose.

d) Guidelines given by the ICAI for Non-Profit Organizations (NPOs) shall be adopted to the extent

that they are directly applicable, in preparation of financial statements.

Foreign Currency Transactions

The rate of conversion in case of foreign transaction will be accounted based on the date of debit by

the Bank.

Basis of Fund Release

All funds released to projects will be in accordance with Project Grant Agreement and accounted as

expenditures under various heads in the books of accounts. Such fund released will be based on

achievement of certain defined milestones.

Contingent Liabilities

Payana recognizes situations where there is a present obligation as a result of a past event which

probably requires out flow of resources, which may or may not be reliably estimated. However,

wherever there is a possible contingent liability or obligation it shall be disclosed in full to the

Statutory Auditors. The responsibility of provisioning for such contingent liabilities lies with the

Board of Directors during whose tenure the reported past event causing the liability is said to have

arisen.

Book Keeping and Accounting

Books of accounts are the basic records, which have to be maintained as part of the accounting

system. Books of accounts shall be updated and tallied regularly and the balances in the books of

accounts shall be taken to the Trial Balance. The Books of accounts shall be maintained in all projects

using the computerized accounting package.

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For instance provision of donor receipts cannot be made.

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The principal books of accounts and records maintained at Payana shall be as follows:

i. Cash and Bank Book

ii. Journal register

iii. General Ledger

iv. Bank Reconciliation Statement.

v. Trial Balance.

vi. Register of advances.

vii. Cheque issue register

viii. Establishment Register like Salary Register, Attendance Register etc.

ix. Stock Register

x. Fixed Assets Register

xi. Inward/ outward register

Fixed Assets/ Asset Register

The Institute of Chartered Accountants of India (ICAI) provides guidelines for accounting practices for

non-profit organizations (NPOs) through its Accounting Standard (AS) 10 - Accounting for Fixed

Assets. According to AS 10 and other relevant guidelines, assets should be capitalized at their

historical cost, which includes all costs necessary to bring the asset to its intended condition and

location for its intended use.

The Fixed assets will be capitalized at acquisition cost with the identifiable expenditure incurred to

bring the asset into present condition. Fixed assets are stated at cost of acquisition less depreciation.

Fixed assets pertaining to the projects are accounted as a separate block. All capital items of

expenditure incurred on acquisition of equipment and other related items relating to various

projects have been charged to Income and Expenditure account. The same are again reflected in the

Balance Sheet.

 Excluding consumables, all individual assets costing above Rs.10,000 shall be capitalized

 An asset register shall be maintained digitally for all capital assets and updated by the

Accountant within 2 working days of the receipt and/or successful installation and

commissioning of the item at the specified location

 The asset register shall be scrutinized by an internal auditor once in every 6 months (if no

internal auditor is available, it shall be physically verified by the Accountant or Administrator

every year)

 All capital assets shall be insured for theft and fire through an agency registered with the

IRDAI

 Payana statutory auditor shall examine the asset register annually and calculate the

depreciation on Fixed Assets

The fixed asset register shall give details as regards:

 The nature of asset

 Date of purchase

 Location / Project

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 Cost

 Asset code (shall be affixed prominently on each asset)

 Voucher reference of purchase

Responsibility of the Accounts Department:

The accounts department is responsible for:

 Updating of cash and bank books on daily basis for all receipts and transfers from/to the

project fund account.

 Bank collections, cash / bank payments and withdrawal / deposit of cash must be accounted

in the cash and bank book daily.

 The cash payment voucher, bank payment voucher, cash receipt voucher (80G receipts),

bank receipt voucher, transfer voucher must be the basis for recording transactions in the

Books of Accounts.

Procedures for Payments

 All staff payments, including utilities (such as rent, water, power, phone, etc.), shall be made

only by the Accountant or Administrator or other persons authorized for this purpose

 Whenever possible, payments exceeding Rs. 2,000 shall be made through cheque or other

online methods. Exceptions to this rule shall only be at events conducted in non-office

districts or states

 All vouchers and supporting documents must be authorized, attested by the approving

authority, and appropriately stamped. All documents shall be maintained for a period not

exceeding 8 years from the date of the expenditure booking.

 A cheque register shall be maintained for all issued cheques, and it shall accompany the

cheque book/leaf for signatures

 Second advance payments shall not be issued if the first remains unsettled or open

 Partial settlements shall be allowed only at the discretion of the Executive Director

 All project advances shall be settled within 10 working days from the date of completion of

the event and receipt of the final invoice towards the same whichever is later

 All advances shall receive the approval of the President, ED, or Project In Charge and

subsequently be scrutinized by the Accountant prior to payment

 Settlements for incurred expenses shall adhere to specific proforma formats designed for

the purpose (e.g., travel, food, lodging, etc.) and shall be approved by the President, ED, or

Project In Charge

 Bank Reconciliation Statements for all accounts of Payana shall be prepared on a monthly

basis. For this purpose, the accounting staff shall match and compare the bank statement

and bankbook and will generate a list of unmatched transactions. The same shall be

reported to the Treasurer through the Executive Director.

Receipt Accounting of Income

 Payana shall receive grants into its bank accounts only through electronic fund transfers /

Cheque / DD. These funds shall be received at periodic intervals based upon terms of the

grant agreement.

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 Amounts in donations not exceeding Rs.10,000 only may be received in the form of cash.

 On receipt of funds, a bank / cash receipt voucher shall be prepared. The bank / cash receipt

vouchers shall be allotted a serial number and will be filed sequentially.

 The vouchers after being approved by the competent authority shall be posted in cash/bank

books.

Petty Cash/ Imprest Fund

Petty cash, also known as an imprest fund, is a small amount of cash reserved for making small,

routine, and miscellaneous payments. It is intended to facilitate the timely settlement of minor

expenses without the need to go through the formal process of preparing individual cash payment

vouchers.

To expedite the process and avoid the preparation of cash payment vouchers for petty expenses, a

cash advance of not more than Rs.10,000 shall be provided to the Administrator or Project Manager

or any other person so authorized for the purpose. The designated official or project head shall be

responsible for utilizing the petty cash advance solely for meeting office expenses within the

designated scope. At regular intervals, the official or project head shall submit a statement of

expenditure incurred, detailing the nature of expenses and classifying them according to the general

ledger classifications specified by the organization. The imprest amount shall be automatically

replenished on settlement of this advance.

Financial Disciplines to be followed by Payana

Payana shall invoke several financial disciplines to ensure quality of the finance and accounting

records to generate timely, accurate and reliable financial statements. It recommends that:

a) Update books on daily basis

b) Record transactions legibly

c) Provide full and complete description of the transaction as narration in the “Vouchers” and

books of account

d) Provide cross reference such as bill no., invoice no., Goods Receipt Note (GRN), cheque no.,

purchase order no., etc., in the vouchers and books of account and enable audit trial

e) Check opening and closing balances of cash, bank and other ledgers accounts

f) Surprise physical verification of cash balance by senior officers

g) Authenticate and mark details of payments on bills and avoid duplicate payments- stamping

of bills immediately after payment

h) Prepare monthly summary of transactions as needed and get it certified by Finance Officer

i) Ensure serial numbering of all voucher type- Payment Vouchers, Bill Payables, Journal etc

j) Receipt books to be pre-numbered with duplicate / carbon copy retained

k) Timely issue of receipt for amount received

l) Timely Deposit of cheques/ Demand Drafts / excess cash into bank preferably on same day

or next day

m) Maintain vouchers and supporting documents of transactions in a separate file

n) Maintain consistency in classification of expenditure

o) Posting transactions to ledgers/sub ledgers regularly

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p) Obtain and update the minutes or proceedings of the meetings or committees of its

approvals for any activities and adhere to its decision in relation to finance activities.

Internal Audit

Internal audits are vital to the functioning of any organization as they provide independent and

objective assurance on the effectiveness of risk management, internal controls, and governance

processes, thus helping to enhance operations, mitigate risks, and ensure compliance with policies

and regulations. Payana shall arrange for an internal audit to be performed every quarter or at least

on a half yearly basis.

The accounts of Payana shall be subjected to periodic internal audit. Firms of Chartered Accountants

shall be engaged by the Organisation to conduct a quarterly audit (or at least half yearly) and submit

compliance or non-compliance letters to the Management. The Board of Directors shall insist on

budgeting for this activity in each of its projects and impress upon the funding agency to make a

special provision financially towards the same which shall be independent of the Management Cost.

The Key Internal Audit Functions are:

a) Ascertain whether the systems of internal checks and controls operating are effective.

b) Ascertain reliability of accounting financial reports.

c) Ascertain the extent to which the systems in place prevent misuse of project assets.

d) Ascertain whether the financial rules and procedures as laid down in the Manuals are

followed.

e) Sample verification of transactions.

Interim Audits by Donors

In addition to internal and statutory audit, the books of accounts of Payana are open for audit by the

representatives of the donors with respect to their grants. This audit will be conducted in

accordance with the terms & conditions of the project agreements.

Deposits: Fixed Deposit Accounts

Payana shall deposit its income into short-term or long-term fixed deposit accounts to maximize its

income and monetary resources, in accordance with the provisions of donor agencies that permit

this. If donor agencies do not allow the grant amount to be deposited into fixed deposit accounts,

then Payana shall comply and refrain from doing so. Furthermore, whenever project income is

placed into fixed deposit accounts, the organisation will ensure that the project does not experience

any negative setbacks due to funds being unavailable on time.

Similarly, Payana shall deposit its society funds (core funds) into fixed deposit accounts to optimize

scarce monetary resources. The income earned from the interest on these fixed accounts shall be

recorded as "income" under the appropriate category.

Scrapping of Assets/ E-Waste Disposal

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E-waste shall be disposed off through reputed e-waste re-cycling agencies.

Replacement of equipment / office furniture: Hardware Refresh (for IT assets) is done as a standard

practice once an Asset becomes unserviceable and is no longer under AMC or warranty. Such assets

(and discard furniture) shall have to be disposed regularly. The Administrator/ Accountant, following

a physical verification of Payana’s moveable assets shall identify and list such assets once in a year

with information provided by the Projects. The Executive Committee shall evaluate and fix minimum

auction bids by collating information from invoices, insurance values and book values. These items

shall than be disposed in the following manner:

a. through an internal auction by giving preference to employees

b. through donation to other NGOs for a small amount or free of cost as decided by the EC

c. any remaining items will be sold through online classifieds marketplaces.

Project specific assets which may need to be returned to the funding organisation at the end of the

project are exempted from this process.

Additional Reading

 In accounting, consumables refer to items that are expected to be used up or consumed

within a relatively short period, typically within one year or within the project period of

duration less than a year. These items are not intended to be held for long-term use or

investment purposes but are instead consumed in the normal course of operations.

Consumables are also sometimes referred to as supplies or expendables.

Examples of consumables include:

 1. Office Supplies: Items such as paper, pens, pencils, printer ink, cartridges, envelopes, and

staples that are used in office operations on a regular basis.

 2. Cleaning Supplies: Products like soap, detergent, disinfectants, and paper towels that are

used for cleaning and maintaining facilities.

 3. Maintenance Supplies: Materials such as light bulbs, filters, lubricants, and cleaning

agents used for equipment maintenance and repairs.

 4. Operating Supplies: Items needed for day-to-day operations, such as fuel, lubricants, and

chemicals used in manufacturing processes.

 5. Inventory for Resale: Goods held for sale in a retail or wholesale business, including

perishable items like food and beverages.

 Consumables are typically expensed as incurred on the income statement rather than being

capitalized as assets. This means that their cost is recorded as an expense in the period in

which they are consumed, contributing to the cost of goods sold or operating expenses.

However, in some cases, consumables may be capitalized if they meet certain criteria, such

as being part of the cost of producing inventory or if they have a significant value and a

longer useful life.

Definition of “process” and “procedures”

While the terms "process" and "procedure" are often used interchangeably, they have distinct

meanings in many contexts:

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1. Process:

- A process is a series of steps or actions that are taken to achieve a particular outcome or goal. It is

a broader concept that encompasses the overall flow of activities involved in completing a task or

producing a product.

- Processes are often depicted as flowcharts or diagrams to illustrate the sequence of steps

involved and the interactions between different stages.

- Examples of processes include manufacturing processes, project management processes, and

business processes like sales or customer service.

2. Procedure:

- A procedure is a specific set of instructions or steps that need to be followed in a particular order

to accomplish a task within a larger process.

- Procedures are more detailed and specific than processes, focusing on the precise actions that

individuals need to take to carry out a task effectively and efficiently.

- They are often documented in manuals, standard operating procedures (SOPs), or work

instructions to ensure consistency and accuracy in performing tasks.

- Examples of procedures include a step-by-step guide for assembling a product, a protocol for

conducting an experiment, or a checklist for handling customer inquiries.

In summary, while a process outlines the overall sequence of activities to achieve a goal, a procedure

provides detailed instructions for carrying out specific tasks within that process. Processes are like

the big picture, while procedures are the smaller, detailed steps within that picture.

Example of process and procedures involved in the payment of an electricity bill:

Process:

The process represents the overall flow of activities involved in paying the electricity bill. It

encompasses all the steps from receiving the bill to making the payment. Here's an example of the

process:

1. Receive the electricity bill from BESCOM

2. Review the bill for accuracy (is it Payana’s meter, is the amount within budget)

3. Prepare the payment list viz., electricity, telephone, internet, rent, utilities, water etc

4. Take approval

5. Initiate the payment through the organization's financial system (cheque, online, UPI etc)

6. Record the transaction in Tally software

7. File the bill

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Procedure:

The procedure provides detailed instructions to carry out specific tasks (step-by-step actions) within

this process which need to be taken to ensure the payment is processed accurately and efficiently:

1. Administrator reviews the electricity bill:

- Check the billing period, verify meter reading- previous and current, and total amount due.

- Verify that the charges are accurate based on previous bills and consumption patterns.

- Highlight any discrepancies or unusual charges for further investigation. Inform management.

2. Obtaining Approvals (if necessary) from Management:

- If the total amount due exceeds the budget, obtain approval from the designated authority

(PM/ED).

- Submit the bill along with the justification for approval.

3. Preparing the Payment (Accountant):

- Enter the total amount due and other relevant details into the organization's financial system.

- Select the appropriate account or budget code for the payment.

- Double-check the entered information for accuracy.

4. Initiating the Payment:

- Authorize and payment through the organization's financial system (cheque, online, UPI, cash

etc).

5. Recording the Transaction:

- Once the payment is made, file the receipt or record the transaction in the financial records.

- Update the ledger with the payment amount, date, and reference number.

- Ensure the transaction is properly categorized and reconciled with the organization's accounts.

By following this process and procedure, the organization ensures that the electricity bill is paid

accurately, on time, and in compliance with internal financial policies and procedures.

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