Implementing rigorous financial management

Implementing rigorous financial

management

April 2015

Authors: David Siregar; Felicia Gunadi; Ghufron Mustaqim

Proprietary of Forum for Indonesia. All rights reserved. No part of this document may be

reproduced in any format without specific writing permission from Forum for Indonesia

Forum for Indonesia 2

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David Parlindungan Siregar Biography

Selected organizational experience :

• Badan Perwakilan Mahasiswa FE UI, Vice Chairman

– Badan Perwakilan Mahasiswa is the highest organization in FEUI’s hierarchy

– Successfully establish new constitution & develop integrated e-Vote format to be used in election

– Supervised 34 staffs overall & responsible for coordinating the organizations in FEUI, monitoring

the performance of BEM FEUI and developing a set of student governance regulations

Selected project experience

• Yayasan Gerakan Indonesia Mengajar, Pro Bono Financial Auditor & Consultant

– Support the foundation in assuring the objectivity of financial statement given to the donaturs and

sponsors

• PT Kereta Api Indonesia (Persero) , Business Process & Organization Consultant

– Successfully develop Safety & Security Business Process Framework and Organization

• PT Pertamina (Persero), Joint Venture PMO Consultant

– Manage a JV plant establishment between Pertamina and a Thailand Oil & Gas Company

Selected work experience:

• XL Axiata, Corporate Strategy Specialist

– Strategy & Business Plan Development, Value-Added Project Analysis

• Arghajata Consulting, Consultant

– Corporate Transformation & Organization Enhancement, Business Process Reengineering,

Project Management, Corporate Governance

– Various Industry Exposure: Property, Oil & Gas, Banking, Transportation, Autofinance

• PricewaterhouseCoopers (PwC) , Auditor

– Financial Statement Review & Audit

Education :

• Bachelor of Economics – Accounting, Universitas Indonesia (2008 – 2012)

David is a profesional

specializing in strategy,

governance and

transformation

He has worked and led several

projects, both social and

commercial to achieve their

objectives

He has an ideal of developing

an effective & efficient

entrepreneurship that is

impactful for the society

AUTHOR


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Felicia Gunadi Biography

Selected organizational experiences :

• Sekolah Non Formal, Editor-in-chief for yearbook & Volunteer Teacher

– Develop yearbook concept, initiate fundraising, and distribute the yearbook to 5 alumni, 38

members, and 32 students. Voluntarily teach Bahasa Indonesia and English to underprivileged

children .

• AIESEC, Non-corporate team, Organizing Committee of Finance in Environment Project

– Establish partnership with NGOs as Learning Partner and collaborate with exchange

participants from China and Tokyo to run environment project.

• Liga Fotografi, Treasurer

– Manage budget, monthly report, cash flow, and financial activities of 43 members in the

organization.

Selected project experiences :

• PT Telekomunikasi Selular, Internal Control over Financial Reporting (ICOFR) Consultant

– Optimise up to 65% of the existing key control design under Sarbanes-Oxley (SOX)

requirement.

• PT Unilever Indonesia Tbk, Integrated Audit team for 2012 and 2013

– Ensure adherence of its consolidated financial statements, including assess the sales of its

subsidiary (PT Technopia Lever), under IFRS and PSAK.

Selected working experiences :

• PricewaterhouseCoopers (PwC) , Senior Associate

– Provide assurance over the quality of financial information in various industries :

telecommunication, automotive, advertising, transportation, technology, retail and consumer.

• Citibank N.A., Summer Intern

– Ensure the compliance of BAPEPAM Aria Requirements from 17 Selling Agents and 8 Fund

Managers.

Education :

• Bachelor of Economics – Accounting, Universitas Indonesia (2007– 2012)

• Bridging Programme 2008, Singapore Management University

Felicia is organized

professional responsible for

evaluating business process,

control activities, and financial

reporting for public and private

corporations.

She aspires to drive business

process improvement and

enhance performance of small

and medium business sector in

Indonesia.

AUTHOR


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Muhammad Ghufron Mustaqim Biography

Selected organizational experience :

• Forum for Indonesia, Co-Founder, Co-Chair, and Executive Director

‒ Develop five year transformation blueprint, design operating model and delivery strategy,

and lead the development of intersector collaboration and social innovation knowledge

‒ Oversee program development and implementation in organzation’s regional chapters

• Rotaract Club in Yogyakarta, Charter Member and President

– Led the implementation of community service, mentored volunteers, and maintaned

professional network with other clubs from inside or outside Indonesia

Selected project experience

• FFI’s Obrolan Sabtu, Founder and Advisor

– Initiated sharing platform that connects students with inspiring professionals or young

leaders to discuss about social innovation. After two years, Obrolan Sabtu has been

delivered 25+ times in 6 different cities—inviting 35+ speakers and attended by 800+

audiences

• Rotaract’s community service in Elementary School in Yogyakarta, Project Manager

– Supported school’s facility and conducted trauma healing for students in local elementary

school impacted by Mount Merapi eruption. This project was delivered in cooperation with

United World College of Italy & Netherland

Selected work experience:

• McKinsey & Company, Consulting Analyst

– Driven mega infrastructure project worth USD 100 million in capex to be completed on

schedule. Analaysed the hydrocarbon maturation of client’s oil and gas field in South

China Sea and forecasted its 10 year production profile

Education :

• Bachelor of Arts – International relations, Universitas Gadjah Mada (2009-2013)

Ghufron is a young leader

committed to improving the

state of Indonesia

His core interests are on

issues related to social

innovation, intersector

collaboration, and political

affairs

AUTHOR


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Executive Summary (1/2)

A rigorous implementation of financial management in social projects are very important for

the project’s financial accountability & life-long sustainability

Accountable system and its execution assures the usage of funds coming from the sponsors and

donors

Trustworthy reports coming from accountable system is more likely to enable us gaining funds

from public

Strong financial system prevents any fraudulent actions in all operational level and minimize

operational risk

For one social project to execute a rigorous accountable system, budgeting and accounting

process needs to be done with high discipline

Budgeting process is very crucial in the organization as it will determine resources needed in the

entire year

The budgeting process overall starts with defining the objective and timeline for the budget and

ends with budget controlling

After budgeted, the organization needs to record every financial transaction to ensure

accountability

At the end of accounting cycle, financial statements needs to be released to provide information of

financial position and performance

Financial department needs to analyze the released statements to check the organization’s

healthiness and sustainability going forward


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Executive Summary (2/2)

A robust finance organization structure needs to be in place for control and monitoring

purposes

A financial organization structure needs to be in place to support the right governance of the

social project

A simple financial organization structure at least needs to do minimal segregation of duties to

keep the reliability of governance

If multiple location social projects exist, the interaction between each internal finance organization

need to be regulated

After designing simple organization structure, manpower planning needs to be done in order to

execute effectively and efficiently

Monitoring process is one crucial thing to implement an accountable system

Financial processes needs to be controlled & monitored to ensure reliability, efficiency and

effectiveness

To gain a strong financial control, 5 elements need to be implemented following general control

principles

By designing and implementing the financial system described in this document, it is

expected that the organization will become a responsible and professional organization so

that it can focus mainly to deliver its goals efficiently.


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Table of contents

Background

Financial Management Processes

Finance Organization Structure & Interaction

Finance Control Mechanism

Conclusion


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Table of contents

Background




Conclusion


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Accountable system and its execution assures the usage of funds

coming from the sponsors and donors

Wit

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Improper Acct. Record

Proper Acct. Record

Total

Spending

Spending 1

Spending 2

Spending 3

Total

Spending

Spending 1

Spending 2

Spending 3

Inaccurate Consolidation

Accurate Consolidation

Statement

of Financial

Position

Statement

of Activities

Inappropriate Reporting

Appropriate Reporting

Statement

of Financial

Position

Statement

of Activities X X Unreliable Cash Flow

Reliable Cash Flow

Non-auditable High Probability of Fraud

Auditable High Protection against Fraud Fit for Purpose Spending

Impact

Impact


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Trustworthy reports coming from accountable system is more likely to

enable us gaining funds from public

Clear

Mission

& Goals

Share

Similar

Goals

Trust-

worthy

Visible

Impacts

Well

Exposed

Drivers for Public Donation / Sponsorship

Financial System

& Reports

• Vision & Mission Statement

• Short Term & Long Term Plans

Operational & Activity

Reports Activity Reports by Media

• Vision & Mission Statement

• Short Term & Long Term Plans

Rigorous system and frequent reports

shows positive connection with total

numbers of funds sponsored


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Strong financial system prevents any fraudulent actions in all

operational level and minimize operational risk

Unguarded by system

Guarded by system

VS

Fraudulent Actions Illustration Risk Exposure Illustration

Protected by system

Financial system creates hurdles for anyone who is willing to

do fraudulent actions.

Rigorous system will also enable us to track investigate any

inappropriate cash disbursement and mismanagement

Management can also mitigate risk

effectively by using strong financial

system, e.g. any liquidity risk will be

identified if right system is applied


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Table of contents

Background




Conclusion


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Budgeting

Process

Financial

Management

Process

Accounting

Process

Financial

Control Mechanism

(refer to last section)

Financial management consists of 3 major processes: budgeting,

accounting and controlling

1

2 3


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Budgeting process is very crucial in the organization as it will

determine resources needed in the entire year

1

BUDGET

Operating

budget

Capital

budget

Planning &

Decision Making

Monitoring

& Control

A budget is a quantitative expression of an

entire organization plan for a defined period

of time

Category

Purpose

Definition


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The budgeting process overall starts with defining the objective and

timeline for the budget and ends with budget controlling

6.

Final

Budget

7.

Budget

Approval

8.

Budget

Implementation

9.

Budget

Deviation

Analysis

10.

Monitoring

&

Controlling

1.

Budget

Objective

& Timeline

3. Anticipated

Income

4.

Incomes

&

Expenses

Alignment

5.

Cash

Flow

Planning

2.

Expense

Budget

Budgeting

Process

1

Start

To see the detail of budgeting

deliverables, kindly refer to

Appendix 1


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After budgeted, the organization needs to record every financial

transaction to ensure accountability…

Definition: Record of financial transactions and information to organization

Purpose of

Accounting

Ensure compliance with laws &

regulations

Anticipate financial issues

Accountability to donors and

sponsors

Manage the use of financial

resources

2

After transactions are accounted for, finance department need to reconcile and

close all the accounting records. Finally these 2 things needs to be done, i.e.

• Produce financial statement

• Conduct financial analysis


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…which can be done via 2 methods: direct and indirect

Cash basis

Accrual basis

Method

of accounting

Income is recorded when cash

is actually received

Expenses are recorded when

they are actually paid

Income is recorded when

earned

Expenses are recorded when

incurred

2


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At the end of accounting cycle, financial statements needs to be

released to provide information of financial position and performance

2

Financial

Statements

Statement of Financial Position

(“Laporan Posisi Keuangan”)

Statement of Activities

(“Laporan Aktivitas”)

Statement of Cash Flows

(“Laporan Arus Kas”)

Notes to Financial Statements

(“Catatan Atas Laporan Keuangan”)

This statement consists of:

Assets

Liabilities

Net assets

– Independent (Tidak Terikat)

– Dependent (Terikat)

– Temporary (Temporer)


Change in Independent Net Assets

– Revenues (Pendapatan)

– Expenses (Beban)

Change in Temporary Dependent Net

Assets

Change in Permanent Dependent Net

Assets

This statement can be produced using:

Direct Method

Indirect Method

The main difference of the 2 methods is on

the cash flow from activities


Mandatory disclosure (Notes A – C)

Recommended disclosure (Notes D – F)

To see the detail of financial

statements, kindly refer to

Appendix 2


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Financial department needs to analyze the released statements to

check the organization’s healthiness and sustainability going forward

2

Liquidity Ratios

Measure the organization’s

ability to pay for current

obligations or liabilities

Leverage Ratios

Measure the relative mix of

external and internal

provided capital

Coverage Ratios

Measure the ability of the organization’s cash flow to meet its fixed

payment and interest expense commitments

3 Important Financial Ratios to Support Analysis

To see the detail of financial

ratios, kindly refer to

Appendix 2E


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Table of contents

Background




Conclusion


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