Financial Controls

Financial controls focus on accounting. They provide an insight into project's performance during implementation. They can be of following types:

1. Cash Flow Statement: It is a statement of sources and uses of cash funds. It shows where cash came from and where cash was used during the given period.
2. Ratio Analysis: Ratios are used for efficiently and profitability control. They show relationships between figures for evaluating financial performance. They can be based on balance sheet or income statement. The popularly used ratios are:
• Liquidity Ratios: They measure ability to pay back short term debts. Current Ratio (current assets : current liabilities) is a good indicator of liquidity.
• Debt Ratios: They measure ability to meet long term financial obligations (Total debts to Total assets). They are also known as Solvency Ratios.
• Operating Ratios: They measure the efficiency of operations. Inventory turnover ratio is an example.
3. Auditing: It is a comprehensive, systematic, independent and periodic examination or truth and fairness of financial statements. It examines propriety (compliance), efficiency and performance. It can be internal or external.
• Internal Audit: It is carried out by members of the project organization. It examines accuracy and reliability of financial transactions. It evaluates operational efficiency and control system. It is a continuing activity for internal control by project management.
• External Audit: It is independent examination of financial accounts and statements by legally authorized auditors. It takes place after the end of financial year. It is done to safeguard the interests of the project.