4. Basic Financial Management Principles

Federal Financial Management Requirements: Accounting Systems

The accounting department is responsible for the accounting records. Initial set up of the chart of accounts should be based on communication with program managers and, if necessary, the grantee agency's auditor or other financial consultant to determine necessary information to be tracked. It also should be based upon the terms and conditions and regulations applicable to the program. For example, Tribal Child Care and Tribal TANF programs must track administrative cost. Correct categorization of the chart of accounts will help meet these requirements.

The end products of the accounting process are the financial statements that summarize all of the financial transactions of the organization for the period. Because each organization faces different financial issues and has different resources to bring to financial functions, each organization will choose a different set of regular financial reports to prepare and analyze. At different times an organization will need different reports to provide information to support its decision-making.

It is critical that the financial statements meet the needs of the end user. For example, financial statements prepared for the Tribal Council may not contain the same level of detail, or be formatted the same way, as those produced for program managers. Regulations state that Federal grantees must produce a budget-to-actual expenditures report that is timely, current, and complete (45 CFR 92.20 (b)(1)). Other reports that may be produced include the balance sheet (showing the agency's assets and liabilities) and the cash flow statement (which provides an analysis of cash available for operations).

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