Resources

Finance

Overview

Enhancing your financial management skills can improve your organisation’s ability to deliver services, budget accurately, apply for grants and produce financial reports.

This section describes some of the legal and financial obligations of community organisations and their management committees. The issues covered are taxation, fundraising and consumer rights.

Caxton Legal Centre has helpful resources on its Law Handbook online on Contracts, money and property.

 

Accountability

Being accountable means being responsible to someone else for what you and your organisation do. This includes how your organisation behaves (service accountability) and what your organisation spends (financial accountability). Most organisations are accountable to a range of individuals and groups who may each have their own particular ways of expecting (or even demanding) that the organisation demonstrates accountability, e.g. workers are accountable to their employers and people on management committees are accountable to the group that elected them.

It is possible, and often appropriate, to delegate responsibility for tasks to others, but it is not possible to delegate the accountability for ensuring that these tasks are done accurately and completely. For example, if the Treasurer uses a bookkeeper to keep the daily finances of the organisation, the Treasurer remains accountable for the finances although the bookkeeper may have day to day responsibility for the funds. In general, organisations are accountable to:

  • Clients who use the organisation (consumers)
  • The community they aim to serve
  • Ordinary members of the organisation who elected the committee
  • Funding bodies who contribute financial resources
  • The licensing body which licenses services under legislation
  • Employees who work for that organisation

An organisation needs to adopt reasonable and appropriate methods of showing accountability to each of these different individuals or bodies. For example, you may need to report regularly to a funding body.

Evidence of accountability

Some forms of accountability are fixed by the funding or licensing body as a condition of the grant or service agreement, whereas other forms of accountability may be decided by the organisation itself. Evidence of an organisation’s efforts in any particular role should be demonstrated in a way which suits the needs of that person or group. The Associations Incorporation Act applies to many organisations which are incorporated. The legislation requires:

  • Provision of all accountability documents relating to the Annual General Meeting
  • Any alteration of the rules of the organisation to be made by special resolution (i.e. passed by three quarters of the members present and entitled to vote at a general meeting) and then be submitted to the Office of Fair Trading for registration
  • Any changes to holders of the offices of President, Secretary or Treasurer through resignation, death, etc, to be advised to the Office of  Fair Trading within one month
  • Numerous other requirements in relation to financial records, accounting and auditing, and business registrations of various types.

Accountability to your consumers

An organisation is accountable to its consumers if it is open about providing information, seeks feedback and involves users of the service in decision-making. Consumers should be encouraged to attend open review and planning meetings so they can understand what is happening in an organisation, and records of decisions made at meetings can be provided to consumers as required. It is also important to develop clear policies and mechanisms to deal with complaints from consumers.

Accountability to the community and members of the organisation

Some of your obligations to the general community and the members of your organisation might be to hold annual general meetings, to publish annual reports and audited accounts, and to hold some open meetings or open days so ordinary members of your organisation and the public can attend. Also develop clear policies to deal with complaints from the public, members or consumers, objectives by which the performance of the organisation can be measured and a regular evaluation process. You might also want to consider how you can demonstrate accountability by providing information and news releases to the media, so the community or target group knows what the organisation is doing.

Accountability to funding bodies

Some of the main ways for organisations to demonstrate accountability to funding bodies are:

  • Completing a Service Agreement
  • Providing annual reports
  • Providing annual audited accounts
  • Providing quarterly financial reports of income and expenditure
  • Providing data returns (details of the service provision)
  • Participating in the monitoring and evaluation of your services when required
  • Meeting the requirements of funding program guidelines

Each particular grant you receive will specify its own accountability requirements.

Accountability of management committee to employees and of employees to management committees

Some of the things to consider in relation to accountability between employees and their management committees are:

  • Accepting responsibility for negotiating acceptable work conditions, including job descriptions, job contracts, good worker selection processes, grievance procedures and methods of dealing with complaints and disputes
  • Committees developing clear written policies, sound staff management practices and being supportive and accessible to staff – staff should be prepared to contribute to this process both initially and then in an ongoing developmental way to ensure that good practices continue
  • Employees are accountable to the organisation to perform the job they were employed to do and stay accountable by providing regular worker’s reports, participating in workers’ assessments and regular whole-of-service evaluations

 

Developing a basic budget

Budgets are an essential part of good financial management and are used to estimate your income and expenses over a certain amount of time. Developing accurate budgets will help your organisation to provide better services, successfully apply for grants and meet your financial reporting obligations.

Most organisations develop a budget that covers all of their income and expenditure for the financial year. This budget will be based on your organisations planned activities for the year developed by the management committee and staff. The budget for the organisation will need to be approved by the management committee and should be developed by someone with a good understanding of book-keeping.

Although the budget for the organisation will include projects that you want to run, you might also need to develop a budget for each project. This will be essential if you are applying for funding but it is also useful if you want to compare the budget with the actual income and expenditure for the project. You may also decide to develop budgets for different parts of your organisation. If you have paid staff, they may develop these budgets before they are approved by the organisation.

Estimating income and expenditure

Whether you are developing a budget for your organisation or a project, you will need to identify the probable sources of your income, where your expenditure is most likely to occur and an estimate for each of these amounts. It is also a good idea to estimate when you will receive income and when you will have expenses to ensure that you will be able to make payments when they are needed.

For the organisation as a whole, income might include membership fees, payments for services, bank interest, grants, donations and other types of fundraising. For individual projects, you might be relying on one or more grants and/or sponsorship from other people or organisations.

One way of estimating your organisations income for next year is to look at what was received in the previous year and decide if this is likely to increase or decrease and by what amount.

You will also need to determine the areas where the organisation will have expenses. The larger items will usually include salaries and wages, rent, phone, electricity/gas, stationery, postage, insurance, photocopying and other expenses. Your organisation may also need to include amounts for items that might be needed, such as staff payments including long service leave.

There are particular rules about how organisations budget for more expensive items such as computers and if you are unsure about this, you should seek professional advice.

The amounts that were spent in the previous year can help you to determine your organisation’s budget expenditure for the next year. You will then need to decide if these amounts need to be adjusted for increases in costs or additional expenses. Wherever possible, you should also ask for one or more quotes for budget items.

Individual projects may have expenses across some or all of the same areas as your organisation. When you are developing a budget for a project, some of your costs will involve staff time and a proportion of the organisations costs such as electricity and rent. You will probably also have other costs such as paying other people to work on the project, catering, travel, venue or equipment hire and other items.

If you are applying for funding from a funding body, you may only able to include certain expenses, so you will need to check before completing your application.

Unless the budgeted income for your organisation and projects equals or is greater than your budgeted expenditure, you will have financial problems and should not approve the budget.

Monitoring the budget

After you have developed your budget and it has been approved, you will need to ensure that your income does not exceed your expenditure. Even if your budget was realistic, you might have unexpected costs or earn less income than planned. To avoid serious financial difficulties, it is important to monitor your budget regularly to make sure that it is still accurate.

The management committee is responsible for monitoring the organisations finances by checking the financial reports provided by the Treasurer. These reports should show the monthly income and expenditure as well as amounts for the year to date. You will also have responsibilities under the Associations Incorporation Act to provide certain financial information at the end of each financial year.

Project income and expenditure will be included as part of the organisations financial reports but will also need to be monitored separately. Financial reports for the project may be prepared by staff but will need to be checked by a manager or the management committee. If the project is being funded by another organisation, they will usually expect financial reports during or at the end of the project.

If there are differences between the organisations budget and actual amounts, you will need to understand the reason why this has occurred and look at ways to either cut down on your expenses or earn more income. If there are changes to your project budget, you will probably be expected to let the funding body know as soon as possible and it might affect the conditions of your grant.

Developing realistic budgets can help your organisation to run effective short-term projects and continue to deliver services into the long-term future.

Further information:

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Banking

The following provides you with some general information to assist you in making banking decisions for your organisation. In addition, suggestions regarding preparations for approaching banking organisations on various services relevant to the community sector are also included.

Corporate Social Responsibility

If values matter to your organisation, ask your bank, credit union or building society the following questions:

  • How they invest your money?
  • Do they have a responsible investment policy?
  • Is your money used to finance businesses or projects that conflict with your own personal or organisation’s values?
  • Do they invest your money responsibly, securely and in ways that build stronger communities, help protect the environment and at the same time provide a competitive rate of return on your investment?
  • Do they produce a Sustainability Report?
  • Are they signatories to the United Nation’s Global Compact on corporate social responsibility, Principles for Responsible Investment and Environmental Program for financial institutions on sustainable development?

Whether your money is in an everyday transaction account, savings account or term deposit, you and your organisation will want to feel assured it is invested safely, responsibly, for performance and in ways that also help protect our planet as well as the people who depend on it. Investing your organisation’s money responsibly is the right thing to do.

For pricing comparisons, you can visit two sites that specialise in summarising product and price information across most financial institutions in Australia.

Security

Did you know that all Authorised Deposit-taking Institutions (ADIs) are regulated in the same way by the Australian Prudential Regulatory Authority? Authorised Deposit-taking Institutions (ADIs) are corporations which are authorised under the Banking Act 1959. ADIs include banks, building societies and credit unions. All ADIs are subject to the same Prudential Standards but the use of the names ‘bank’, ‘building society’ and ‘credit union’ is subject to corporations meeting certain criteria.

For more information about the way ADIs are regulated and a full list of Australian ADIs please visit the Australian Prudential Regulatory Authority website.

Day-to-day Transactional Banking

When considering where to bank you should think about all the activities you need to perform.

Basic facilities offered by your financial institution should include:

  • An high interest account tailored for community organisations
  • Interest rates calculated on daily balances
  • Online-dual signature access
  • Batch processing from MYOB and similar systems
  • Secure systems
  • Special consideration on exemption of fees
  • Merchant facilities so you can accept credit card or eftpos payments (online too)
  • Petty Cash availability
  • Deposit systems
  • Access to a personal banker or community banking manager

Growing your Asset Base

Commercial loans

Preparations prior to contacting your financial institution for most forms of borrowings are similar and include:

  • Provide the financial institution with a written request on Company letterhead and signed by two authorised parties
  • Provide the last two years’ financials statements
  • Provide a full 12 month cash flow forecasts detailing all prospective funds coming in and out
  • Provide evidence of supporting funds from Government agencies which are specific to this proposed project
  • Provide evidence of specific incomes that will be generated by this project
  • Understand what fees associated with obtaining a commercial loan, including ongoing fees.

Lines of Credit

  • Provide the financial institution with a written request on Company letterhead and signed by two authorised parties (usually Directors).
  • Provide the last two years’ financial statements
  • Provide a full 12 month cash flow forecasts detailing all prospective funds coming in and out
  • Provide evidence of supporting funds from Government agencies which are specific to this proposed project
  • Provide evidence of specific incomes that will be generated by this project

Opening Accounts

A business or association account is opened in a similar fashion to that of an individual.

The business account is registered in the name of the business and is verified by way of a Certificate of Incorporation or Articles of Association.

The following information may also be required in order to open a business or organisation account including:

  • The full name of the company as registered by ASIC
  • The full address of the company’s registered office
  • The full address of the company’s principal place of business, if any
  • The full name and address of each beneficial owner of a proprietary or private company
  • The ACN issued to the company
  • Whether the company is registered by ASIC as a proprietary or public company; and
  • If the company is registered as a proprietary company, the name of each Director of the company.

In addition, each signatory to the account must have their identity verified. As per a personal account, identification includes documents such as a passport, birth certificate, drivers licence, Medicare card and other bank/credit union/building society accounts.

The business or association can determine the appropriate operating method for the account e.g. two to sign or more (this means all cheque and withdrawals need to be signed by at least two parties).

Signatories can be updated if staff leave employment or are terminated. Generally, a change to signatory form is completed which includes the previous signatory and the new signatory’s details, include identification verification.

Some features to consider when weighing up banking facilities include:

  • Access to chequing accounts (with or without an Overdraft)
  • Monthly fees (sometimes fees charged on business accounts can be excessive)
  • Access to Internet Banking (including exporting to popular accounting software packages)
  • Provision for Corporate Cards
  • Access to investment accounts such as Term Deposits.

Value add from your Financial Institution

Are there any additional subtle benefits available through a connection with your banking organisation?

  • Will your senior executives receive the occasional invitation to events connected with professional development or business networking?
  • Are there professional information available regarding financial management responsibilities for your Board members?
  • Is there the possibility of other partnership/ event sharing/ or co-promotion which might be mutually advantageous?

Information provided is of a general nature. All organisations should consider their own particular situation before making any decisions including consideration of terms and conditions before deciding whether to apply for products from a financial institution.

 

Taxation and concessions

Incorporated organisations along with other nonprofit organisations are subject to state and federal taxation requirements including Income Tax, FBT, GST, Land Tax, Payroll Tax and Stamp Duty.

Find out more:

 

Financial Legislation and Standards

The Financial Reporting Council of Australia provides an overview of the Australian Accounting Standards.

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