REPORT BY: FEDDE RENKEMA, SEPTEMBER 1999
NGORONGORO MILLS
CONSULTANCY REPORT ON FINANCIAL MANAGEMENT AND ACCOUNTANCY SYSTEM

Tilbage

CONTENTS
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1. INTRODUCTION
2. PERFORMANCE OF EACH OF THE MILL PROJECTS
3. THE ACCOUNTING WORKSHOP
4. ACHIEVEMENT OF PROJECT GOALS
5. RECOMMENDATIONS FOR ENHANCING FINANCIAL MANAGEMENT
6. CONCLUSION

In May 1999 a 4-day course in accountancy and bookkeeping was conducted for the NGO treasurers and fee collectors of the 11 mill projects under the NAME (Ngorongoro Mills Association). The Development Consultant Fedde Renkema was asked by Utamaduni Cultural Association (UCA) to carry out a follow-up mission in order to assess the effects of the training and to offer advice and guidance.

The output of the consultancy would be a report which "…should contain practical recommendations for enhancing efficient finance management and economic procedures in the operations of the NAME mills" and "… should describe the financial operations of the 11 NAME mills, indicate an assessment of the performance of the individual mill projects and outline an analysis of the financial institutions of the NAME for reaching the goals set in the project ‘Institutional Development for Food Security in the Ngorongoro district of Tanzania’…"

The mission was carried out from 23 August till 3 September 1999. All 11 mills except Piyaya (due to lack of time) were visited by the Consultant together with the NAME Co-ordinator, the NAME Treasurer, the NAME Mills Mechanic and the NAME Driver. The cooperation of all these team members was excellent (my sincere thanks to the NAME people involved!!). In spite of some delays due to late arrival of the Consultant and breakdowns of the aged NAME vehicle the mission was successfully completed (except of the visit to Piyaya).

This report starts with my main findings and observations made during the visits to each of the projects. In the following chapter a link is made with the accounting workshop as conducted in Loliondo. After that, I give my assessment as regards the achievement of the formulated project goals. This is followed by recommendations for improving the financial administration and the financial management.

            2.1 LADO

• The mill has produced very little this year. Since February till May it was out of order and then there were no customers till 9th July. From 1-25 August it only operated 7 days due to various reasons (no customers, lack of fuel, absence of operator).
• The total revenues (mapato) during the past 7 months are very low, about TSh 60,000 only.

• The operator, who also collects the fees, keeps an informal cash sale record and also a daily income book. Since the breakdown of the mill in February, he did not keep the official cash sale book as this book stayed in the NGO office until the day of our visit.
• Some payment vouchers for expenses are available but filling in needs improvement (e.g. he just writes himself as the receiver of the money for diesel while there are no receipts for the diesel purchases).
• The daily income book, kept since 7^th July, has not been seen by anybody else than the operator himself. There is not a functioning mill committee, while the LADO Treasurer has neither received the income nor checked the books. The operator, who does not receive a salary, himself decided to spend the little Faida (in July TSh 22,000) for maize etcetera.
• The operator attended the Loliondo course and feels capable to keep the books, but he mentions problems with completing monthly economic reports.
• My overall assessment is that both the financial administration and the financial management are of very poor standards.

• The mill is operational, but needs an overhaul soon, which if properly done could cost even TSh 700,000.

• The management of this project is very poor, both at the local level as well as at LADO level.

• While the production during the first months of this year was at a reasonable level (see mid-term assessment), it dropped rapidly after March due to decreasing demand. In May and June there were no customers. The mapato in July were TSh 22,000, with very small amounts per customer being milled, and on 6th August the machine broke down until the day of our visit. Total mapato from January till August comes close to TSh 300,000 (there is some unclear conflicting information).
• In the July monthly report, the operator / fee collector has correctly calculated the productivity at Tsh 315 faida per liter diesel (as taught during the Loliondo course). The number of debe milled per liter had never been measured, but according to my crude estimate could have been as low as below 3 debe per liter diesel.

• The fee collector / operator understood well what was taught in Loliondo. However, there were some differences between the cash sale book and the daily income book. The daily income book, kept since July, was not fully completed, as it had been away during some time.
• No salaries have been paid, no NAME fee calculated in the July monthly report, and it is unclear where the small cash surplus of July went.

• The engine is running but with problems (smoke, overheating, loss of power, starting problems). It needs an overhaul.
• The critical problem is that spares of this type of engine (SL 3) are not available in Tanzania (out of the 11 engines there are 4 of the SL type, all facing the same problem of unavailability of spare parts; I assume that this problem will get due attention during the coming evaluation).

• A project with various serious problems and with some improvement in bookkeeping, but still missing proper supervision and management.

LADO’s development capacity/potential is now much higher than that of the other member NGO’s and the NAME itself, facilitated by the recent arrival of substantial Dutch donor support from which salaries for several staff is paid. Accordingly, the management can become more professional than when run just on a voluntary basis. The following observations are presented in order to support this move towards more professionalism in the running of LADO:

• The Treasurer has made a financial report June-July 1999 on the basis of monthly reports of the 2 projects and following the NAME format. However, LADO does not yet keep a cash analysis book with detailed daily income and expenses of the mill projects. In fact during recent months, the Treasurer has exercised very little supervision and control over the projects ("we call them to the office and get their reports"). In the short Treasurer’s report, the cash in hand was recorded as zero, as he did not receive monies from the projects.
• This year only the monthly totals of income and expenditure of the 2 mill projects appear in the cash book of the Treasurer, although last year detailed expenses were recorded. As far as I could observe, the Balance B/F per 1/1/99 was not correctly filled in. By the end of April 1999, according to the Treasurer, the mills project had a Balance of TSh 123,000 which "was in the Bank". However, the total Balance on the general bank account of LADO was less than that amount.
• A good move was the opening of a separate bank account for the mills on 12/07/99. However, a transfer of the Balance of the mills projects (how much was the Balance?) was not effected and since the opening deposit of TSh 3,000 no monies have been entered on this account. In the period January to July 1999 the total recorded income of the 2 projects amounted to TSh 328,000 and the expenses to TSh 214,000. Therefore, one would expect that the surplus of TSh 114,000 would appear on the bank account, in addition to the Balance B/F of accumulated faida per 1/1/99.
• In my opinion there is a clear need for LADO to improve on the one hand its own financial administration (bookkeeping) of the mills projects, and on the other hand its management of these projects (planning, monitoring, supervision of personnel, and in particular the control of finances, etcetera).
• It is noted that in our meeting the Chairman of LADO fully agreed with the identified weaknesses. I also feel that LADO has sufficient capacity to run such projects properly. Therefore it is to be expected that already during the coming evaluation a substantially improved picture will emerge.

• The high turnover during the first 3 months of the year (see mid-term assessment) could not be maintained. This was mainly a result of extra customers from a nearby village where the mill was out of order in that period. During the past 3 months the mill had an average monthly mapato of about TSh 75,000.
• The operator could not calculate the productivity, as the consumption of diesel was not recorded. Asked, it was estimated that the productivity was between 4 and 6 debe per liter diesel, depending on dryness of the maize, while it would take perhaps 4 minutes to mill a debe of maize.

• The fee collector who had attended the Loliondo workshop left in July. The new fee collector keeps a cash sale book and a daily revenue book. The money is said to be handed over to the Treasurer by the end of the week, but receipts are not written and the signatures of the Treasurer in the daily income book are missing (this book needs checking and the Treasurer should certify correctness with his signature).
• Some customers pay in kind with maize or get credit, but these transactions are not systematically recorded.
• There is an analysis book, but it is not filled in daily (only monthly totals). For June and July monthly reports were made; these were not yet of an optimal quality.
• Salaries of TSh 15,000 per month are paid to the operator and fee collector.
• In March TSh 47,400 was paid as 3 months contribution to the NAME.

• The machine is working fine.

• A good project. The financial administration is getting more attention but still needs further improvements and more control by the Treasurer.

• The project started afresh in July, when BUDEA took over the running of the mill from the local committee. BUDEA is now clearly the owner, and it paid in June over TSh 300,000 for the needed overhaul of the engine.
• The mapato in July –with no operations during half of the month- were only TSh 30,000 and in August about TSh 60,000.
• The operator estimates that it takes about 5 minutes to grind a debe of maize, but he has no idea of diesel consumption ("perhaps 2 bags per 10 liter diesel"!).

• There is no cash sale book, only informal records with cash sales and daily totals.
• Salaries were not paid. In July the books showed a negative faida which was mainly due to high diesel purchases which were probably still in stock by the end of the month (this illustrates a weakness of the simple accounting system which calculates a "faida" without taking into consideration variations in stocks and depreciation).

• After the overhaul in June, there were still minor problems (mixing of fuel with oil), but this was rectified during our visit and the mill is now okay.

• After the management problems in the past, prospects are better now, but BUDEA needs to increase its efforts to establish a proper financial administration and management of the project.

• From 12 June till 19 July the mill did not work due to lack of diesel (although the place is remote, it is unclear why it takes 5 weeks to solve this problem, or even why diesel was not obtained before running out). In the meantime customers could go to the other 2 mills in the village. The mapato were TSh 68,000 in June and TSh 64,000 in July. In August the mill did not function due to a breakdown.

• The problem of ownership has been solved: in June the Women’s Group handed over the ownership to BUDEA. However, the matter of loans is still unclear.
• There are informal cash sale records and there is a daily income book. However, the entries in the daily income book are sometimes lower and sometimes higher than what can be counted from the cash sale records.
• Salaries are set at TSh 15,000 but not yet received by the operator and fee collector, as the faida was insufficient.

• The machine is operational, but needs spares soon (about TSh 100,000).

• The project management needs considerable improvement.

• Although the production this year has not reached the very high levels of 1998 (mapato 3,2 million), the first 7 months still reached total mapato of TSh 1 million (very low figures in April and May).
• We carried out several productivity checks, with the results varying between 4.6 and 5.7 debe milled per liter of diesel. It took between 1.5 and 2 minutes to mill one debe.
• The mill is clearly productive and profitable.

• The female operator + fee collector fills in receipts without names, sometimes after having milled for several customers. The tasks for one person (including crowd control) are a bit much when there are many customers. This could affect accuracy of the books. She explained that it is not easy to get the names of customers, as there is a cultural taboo on people calling their own name.
• Since June it was agreed that she would not receive a fixed salary but a 10% commission of the turnover (ref. recommendation in chapter 5).
• The financial administration looks good, including the keeping of the analysis book.
• The financial management can be further improved: there is not yet an NGO bank account; cash balances are not recorded daily and cash checks / reconciliation's are not done. A major mistake last year was that the significant cash surpluses were given out as "loans to poor village people". There is no debtors registration and no sign in the books this year that any of these "loans" were repaid. Apparently the NGO leaders considered the cash surpluses as usable profit (ref. recommendation in chapter 5). The consequence of this "policy" is that the proper building up of the reserve fund for depreciation of equipment has not been sufficient.
• NAME fees have been paid.

• The machine is working well, although due to vibration it sometimes needs welding of some breaking parts.

• A good project.

The planned visit to this remote project could not take place due to delays. The project is well known to the NAME Treasurer, who provided the following information:

• As in the period Nov98 – March99 the mapato were high in June (TSh 165,000) and July (TSh 310,000), and during these 2 months a total faida of TSh 207,000 was made (inclusive of NAME fee of TSh 25,000).
• In June and July the productivity was about 6.0 debe per liter diesel.

• An analysis book is kept since June99. NAME fees were calculated, to be paid at the end of August. Monthly economic reports have been received by the NAME Treasurer.
• The cash in hand should be about TSH 400,000 and "the money is there" but a physical check has not been carried out.

• The machine is in good condition

• The production has been low in the last 3 months (total mapato about TSH 140,000), while the machine was half of the time not operating (first as it lacked a business license and later due to a breakdown).
• People have fortunately alternatives, as there are 3 other mills in the area.

• Several people are more or less involved with the financial administration: The "fee collector" who attended the Loliondo workshop; he is usually not around but went to the workshop instead of the actual fee collector / cash keeper who cannot read and write. She is entrusted by the women’s group to keep the monies and since June she is helped by the mill operator who keeps an informal book with the daily mapato. The quality of keeping this book is very poor and there is no cash sale book and no monthly reports. The local co-ordinator of NGOPADEO projects keeps a daily mapato book, but it is not signed for by anybody and not totaled per month.
• There is little information about expenses, the cash keeper estimates the cash in hand at about TSh 30,000.
• The salaries are TSh 15,000 for the operator and the fee collector, but most of it was unpaid due to lack of money.
• Lack of supervision of NGOPADEO Treasurer.

• The machine has continuous problems. Part of this (the belts breaking or running off) is due to wrong installation (clearly visible misalignment of the engine and the grinder). More serious: the machine is of the SL type, for which spares are not easily available in Tanzania.

• For various reasons this is a very poorly managed project.

• The mapato in June were low due to lack of maize. The total mapato recorded in June till August was TSh 271,000 (exclusive of grain milled on credit).
• Since 1996 the very well constructed mill has been working very efficiently with the highest faida of all the NAME mills. It was alleged that it even could grind 9 debe per liter. A crude estimate from figures made available to us showed a productivity of over 7 debe per liter. However, the mapato recorded in the books in July would correspond with about only 5 debe per liter.

• The ownership problems described in the mid-term assessment unfortunately still remain. It appears that Village Chairman and Treasurer remain reluctant to be accountable for the monies of the project, neither to NGOPADEO nor to the NAME.
• Since 16^th July the fee collector keeps a cash sale book and a daily income book. The money goes to the Treasurer who does not sign for it. In July the mapato did not tally with the cash receipts, but in August it did. The fee collector himself feels that he needs more practice in making financial reports.
• During our visit the project leaders were not available. It appears to be time for the NGOPADEO and NAME leaders to determine an appropriate course of action.

• Some days before our visit the machine stopped working. After 3 years of operations this strong and well installed engine, located in a nicely designed mill house, now needs spare parts costing about TSh 200,000. The project has undoubtedly produced enough faida for such normal repairs, hence this situation forms a good test for the leadership to show that the project is sustainable and soon is in full operation again.

• Technically an excellent project, but sustainability threatened by poor accountability of local leaders.

Ndiyan

Production:

• Very low mapato in June and July, better in August, total TSh 145,000 in the last 3 months.
• There is a stiff competition, as Endulen has even 9 mills.
• Instead of the usual cleaning table for maize, there is just a piece of netting wire hanging loose on some stones and pieces of wood. It is unclear why a simple but proper cleaning table has not been made, as it is not unlikely that customers opt to go to a mill that provides a more caring service.

Accounting standards and Management:

• Cash sale book, daily income book and payment vouchers are filled in, but the fee collector is not yet confident ("time of the course was too short"). No monthly reports.
• During the past 5 weeks there were several differences between the recorded daily income and the cash sale book. It was explained that the fee collector had been absent and that the operator filled in the books.
• The NGO Treasurer, who had not attended the Loliondo workshop, signed for receiving the monies but not for checking and certifying the books.
• Salaries had not yet been paid, only some payments for food, which seems to be NGOPADEO policy during the first months of employment.

Technical status:

• The engine is working, but it has problems (smoke and leaking oil). It needs an overhaul, but it is unfortunately of the SL type (lack of pares in Tanzania).

Overall impression:

• There is a low level of activity in this project, reflecting both the management capacity as well as the low need for a mill at this location at the outskirts of Endulen.

Production:

• During the 3 months June – August 99 the total mapato were about TSh 220,000. This was low, due to the machine being out of order for 5 weeks.
• The operator estimated that the productivity now is between 5 and 6 debe per liter. It was much lower before June, when according to him it could even take up to 20 minutes to grind a debe of maize. But after successful repairs by the NAME mechanic the grinding time improved to around 6 minutes per debe. During our visit a debe was grinded in just below 6 minutes.

Accounting standards and Management:

• The fee collector who also is operator since the start of the project in 1998, did not go to the Loliondo workshop ("only the project treasurer was supposed to go"). However, as operator he went to the technical workshop in Malambo and learned from the fee collector in Malambo how to keep the books. And he keeps his books very well!!
• The end of July the books were checked and certified for correctness by the Secretary of NGOPADEO.
• Salary to the operator has not yet been paid, he is still waiting for a decision.

Technical status:

• The machine is working, but it is often breaking a screen which forms a serious problem (mechanic does not know how to repair it). The foundation is not good. The machine is of the SL type (no spares).

Overall impression:

• Taking into consideration the technical problems the project is doing well, receiving good attention of operator / fee collector and NGO leaders.

In this chapter I will give my observations on participation, methodology and contents, and on the impact of the workshop:

• The workshop was attended by most of the NGO treasurers and fee collectors, not many were missing. There was some confusion as to who should attend: some of the actual fee collectors did not attend as their place was taken by the local treasurer (bookkeeper).
• To combine fee collectors and NGO treasurers in one workshop has advantages of working together and improved communication. However both the average entry level as well as the training needs of these 2 groups are rather different. The consequence is that there was an emphasis on basic skills and not enough attention for the more difficult issues like writing a good monthly financial report.

• In line with the oral culture there was little prepared handout course materials for the participants with guidelines, examples and exercises. There were more discussions and explanations rather than written individual exercises and tests to verify whether the individuals could complete the books and make relevant calculations.
• The contents of the workshop programme were clearly relevant. The completion of the basic documents and records as described in the workshop report is a crucial straight forward task, and this fitted well in the needs of the participants. The preparation of the monthly financial report and activity report is much more difficult. In this respect I think that participants should have received more guidance and important issues -amongst others cash reconciliation and debtors monitoring- should have been given due attention (see recommendations in chapter 5).
• The grain storage management mentioned in earlier documents was not covered in the workshop as it was not yet seen as needed.

• There is a clear improvement in the basic financial administration in most of the projects since June or July 1999. In nearly all the projects the fee collectors have sufficient knowledge to complete the basic documents and records, while the majority of them actually complete the records in a reasonable or good way.
• At the level of the Treasurers and NGO financial management there remains much more to be desired. On the one hand this is due to low effectiveness of the workshop as regards the monthly financial reporting (see above). On the other hand this is due to factors beyond the workshop: even if the treasurers and leaders of the member NGO’s and the projects do have sufficient administrative skills, such skills are not always applied due to a variety of factors like lack of commitment or time, lack of accountability, the wish or pressure to hide irregularities, fear of exposure of theft, etcetera. In my opinion the coming evaluation should address this issue of low performance of treasurers and management of the NGO’s.

In this chapter my impressions are given as regards the achievement of the 3 formulated project goals:

1. "generate maximum benefits …for community development purposes"

Although in most projects now 20% of the faida is earmarked for development projects, there is in none of the projects clear information how much –if any- money has been used for development projects. The financial accounts or reports do not show the accumulated balance of this earmarked faida.

2. "reach sustainability of operation of the maize mills under the NAME service system"

The long-term indicator of success was described in the project design workshop as "how many of the provided engines and mills have earned their replacement after 16 years." And elsewhere in the document the annual necessary saving for reinvestment of an average mill was estimated at TSh 350,000.

Until now none of the projects have succeeded in making plus keeping such necessary savings. Most of the projects have a faida far below the required level, mainly due to

too low turnover. Only 4 of the 11 projects seem to have made a turnover high enough to be able to make the necessary savings (see next chapter). However, these 4 have not reserved enough for the depreciation fund but appear to have used most or all of the surplus money for other purposes (generally without proper documentation).

3. "operate efficient technical and financial business administration in the management of NAME"

Although there is some progress made, there is still a long way to go before this goal will be achieved.

In this chapter I will firstly deal with a number of economic issues which need more attention. This is followed by a focus on the need for more control of the assets, in particular cash control. Finally we look into possible improvements in the financial administration, especially the financial reporting.