What Is Financial Monitoring & Evaluation Of CSR Projects?

Fin M & E stands for ‘Financial Monitoring and Evaluation’. The activity of ‘Monitoring’ occurs as the project is being implemented while the activity of ‘Evaluation’ occurs either after the completion of the entire project or after completion of relevant components of the projects.

Typically the activity of “Financial Monitoring” has the following features:

1) The activity is not a one-time activity but a recurring and ongoing activity occurring periodically during the lifetime of the project execution. It involves monitoring the periodic financial inflow into the project and its application towards the programmatic executions.

2) The findings and conclusions from financial monitoring are immediately communicated to relevant executors and should facilitate in the process of course corrections, especially where instances of impropriety or absence of prudence in spendings is noticed.

The activity of “Evaluation” involves an assessment of cash flow movement in the project. Typically it involves:

1) Assessment of the monetary conversion of cash inflow into the project deliverables,

2) Mapping of the cost of the programme against the social value creation,

3) Assessment of financial sustainability in the case of intermittent evaluations,

4) Assessment of scalability and replicability of the model in case of evaluations done at project conclusions.

Why Financial Monitoring & Evaluation Is Needed:

In Corporate funded social projects and especially in CSR projects, a high degree of accountability is bestowed on the CSR Committee and the participating directors. It is increasingly noticed that directors have a fiduciary role and accountability towards the interest of those stakeholders which are other than investors or shareholders. Further, today’s technologically evolved world demand that stakeholders get a real-time communication on the measured outcomes of the programmes executed. Thus the only way to ensure stakeholders engagement is by establishing a rational model of sustainability reporting. Financial M & E is one such tool of sustainability reporting by which periodic reports on governance and socioeconomic performance are channelised to project executors and management of the funding agencies and foundations of large organisations.

Programme specific and tailored Financial M & E has the following advantages explicitly:

1) Measure financial sustainability,

2) Timely flagging of the financial delinquencies in the project execution and at times timely blacklisting of fraudulent implementation partners,

3) Monetary demonstration of the effect of the social project on societal well-being,

4) Facilitate improvement in social returns on investments.

4 Pillars Of Financial Monitoring & Evaluation

Agreement: The agreement or the MOU entered into between the funding agency, and the implementing partner is the most critical document which lays down the contours for timing and amount of the financial inputs and the corresponding expected deliverance/value creation.

Value Creation: Regularity in capturing the project expenses and mapping them against the expected value creations in the project ensures the building of the financial discipline.

Regulatory Compliance: Regulatory compliance is the foundation for ensuring smooth and successful execution of the project. Serious regulatory breaches can bring the organisation to a standstill position and thereby jeopardize the entire project.

Budget: Breaking the year-long project into Quarterly buckets of budgets and actuals helps steer the financial aspects of the project and provides leverage in decision making where there are overruns or deficits.

The Process of Financial Monitoring & Evaluation

The entire Fin M & E involves the execution of 7 steps and further in each of the seven steps, the constituent ingredients of the four pillars remain pervasive.

1. The first steps involve understanding the project and formulation of an M & E Programme. Assessing the baseline assessment and donors expectation of the value creation is foundational for evolving the M & E Programme.

2. The Fin M & E executor is invariably bombarded with a plethora of information. This information could be the background study of the project, the background of the implementation agency, the geopolitical situation where the project is implemented and so on. Thus identifying the exact informational need becomes the formative need for building the further blocks of Fin M & E process.

3. Once the informational needs are identified the next step is to identify the mechanism by which the needed source data can be collected and ascertaining how will the data be converted into information.

4. The fourth step deals with the setting of the parameters to identify “Flags” and “Indicators”. These flags and indicators are nothing but the informational elements which need to be highlighted in periodic and final reports. A typical example could be regulatory penalties faced, extraordinary accomplishments in the project, key project personnel leaving the organisation etc. The role of such indicators is to preempt the potential change or digression in the expected results from the programme.

5. No quality suggestions and conclusions could be made without meaningful analysis of the collected information. Therefore it is essential to standardise upon the assumptions and the mechanism to be adopted while analysing the data.

6. The analysed information is finally to be corroborated and correlated culminating into the making of conclusive assertions.

7. The conclusions so made are finally presented to the stakeholders, and this marks the end entire activity of Fin M & E.

Real Life Examples of Financial Monitoring & Evaluation

We now delve into a few examples where value creation by the Fin M & E could become more evident.

  • Use of CSR funds for implementation of a comprehensive sustainable programme for renewable energy systems like Photovoltaic Solar Systems require an assessment of the investment in the solar installations, and after that, the measurement of units of electrical energy that the facility generates. Fin M & E provides an analysis of the societal impact in term of measurable cash savings due to electrical energy generation. Further measured outcomes are presented in terms of the monetary implications of employment generation due to the use of electrical energy for the development of local businesses.
  • Periodic Fin M & E flag unexpected debits put on the project like large financial penalties levied on the organisation for the regulatory breach. Such non-project related expenses if debited to the project gets promptly reported and sets the tone to the implementation partner on the non-admissibility of certain types of costs.
  • Irregularity in updating of the expenses incurred for the programmatic execution gets timely surfaced in quarterly Fin M & E programmes. Such flagging is particularly of great significance in the case of capital-intensive projects.
  • Inability to measure the economic value created in developing “Entrepreneurial Skill” in case of Skill Generating CSR Project gets surfaced in Fin M & E activity. This challenge when timely surfaced to core committee help facilitate initiating measures by which more tangible ways get evolved to assess the value creation out of the funds deployed in the social cause.
  • In-depth analysis of cost sheets for per patient surgery cost in case of “Eye Surgery CSR Funding Programmes” revealed high administrative overheads loaded to arrive at the cost per surgery.

Absence of corroborative evidence from “Programmatic Execution Team” revealed instances of double funding of the same programme.

Who Can Be Benefited By Financial Monitoring & Evaluation

The activity of Financial M & E shall add value to all those organisations who are working in the arena of social value creation, and this includes “Funding Agency” on one end of the spectrum and the “Implementation Partner” on the other end.

The form of the organisation which could reap the benefits of Fin M& E could be the Corporate (making the funds available) or The Society or The Charitable Trust or The Section 8 company.

Further, the findings of the Fin M & E could lead the organisation to understand the root cause of the hurdles that it could be facing. These findings could culminate into assessing the need to modify its CSR policy or formulate tax efficient mechanisms in executing the projects or plug processes which exposes the organisation to regulatory breaches.

Also, the funding agency, be it the organisation itself or the corporate foundation could reap the benefits by making informed decisions and by exercising needed diligence before investing their funds for social value creation.

Other incidental benefits are that the process facilitates maintaining regulatory hygiene in the entire process of funding for social cause and indirectly addresses the issue of money laundering and problems emanating out of politicising the fund utilisation.

Tailoring a purpose-specific Fin M & E program has the benefit of addressing identified issue that too without disturbing the ongoing programmatic execution. For example, organisations which are availing “Foreign Contributions” can carve out a Fin M & E programme for addressing the challenge of tracking the fund utilisation and at the same time ensure quality accountability towards the donor’s funds. Similarly,  an organisation executing multiple programmes and intending to migrate from “Traditional Accounting” to “Fund Based Accounting” can take the recourse to Fin M&E  for dissecting its activity into constituent programmes and accounting the same based on the fund sources. Similarly, Fin M & E can aid in the verification of the end use of earmarked or restricted funds.

The Fin M & E executor gains excellent insight into the working of committees of the implementation partner. Consequently, the Fin M & E executor serves as an essential resource for the CSR committee and Board Of Directors of the corporate donor, in understanding the insights about the successes and failures of the project. Such constructive interactions between the Fin M & E partner, the CSR committee and the implementation agency foster the atmosphere of mutual and collaborative value creation.

Conclusion: I conclude this long article with one sentence which is “Evaluate What You Want – Because What Gets Measured Gets Produced.” Thus if we think social projects are lacking value creation, evaluate the cause and check whether “Fin M & E” could add value.

Disclaimer : Opinions expressed are current opinions only as of the date indicated. The Author does not accept any responsibility to update any opinions or other information contained in this material. This material should not form the primary basis for any decision that you make in relation to matters referred to herein. Review carefully the material and perform such due diligence as you deem fit, including consulting your own independent legal, tax, accountancy and other professional or specialist advisors, as necessary or appropriate. Neither the Author, nor any of his officers, directors, agents or employees, makes any warranty, express or implied, of any kind whatsoever, or assumes any responsibility for any losses, damages, costs or expenses, of any kind or description, relating to the adequacy, accuracy or completeness of this material or its use including, but not limited to, information provided by third parties. You should not construe silence by the Author, or any of his officers, directors, agents or employees as approval or endorsement of any statements made by a third party.

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