4. Basic Financial Management Principles

Federal Financial Management Requirements: Financial Systems

Effective and efficient financial management systems are required by Federal regulations (45 CFR 92.20). All Federal grantees are required to have financial management systems that provide for timely, accurate, current, and complete disclosure of financial information while providing for oversight and protection of Federal funds.

A financial management system is comprised of accounting records (checkbooks, journals, ledgers, etc.) and a series of processes and procedures assigned to staff, volunteers, and/or outside professionals. The goals of the system are to ensure that financial data and economic transactions are properly entered into the accounting records and that financial reports necessary for management are prepared accurately and in a timely fashion.

All agencies have common requirements to fulfill when administering Federal programs. For example:

• Contract and compliance requirements must be fulfilled and grant and contract funds must be expended appropriately.
• Accounting records must be maintained.
• Assets must be safeguarded.
• Internal control systems must be adequate.
• Internal policies and procedures must be developed and implemented.
• Costs must be allocated to the correct program based upon a cost allocation plan in cases where costs are shared by programs.
• Grantees must have an annual audit.

Often, agencies are administering numerous grants and contracts with differing requirements. Communication between program staff and accounting staff is a key factor to ensuring successful operations.

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