Understanding_Financial_Reports

- Union Governance Training -

Session 3

Financial Management

Understanding Financial Reports

Session 3.1

Financial Management

Definition of financial management

Efficient and effective financial management ensures that the members’ funds and resources are used only to advance the interests of members and are protected from misuse

UNION GOVERNANCE TRAINING

Session Three: Financial Management and Financial Reports

Key elements of financial management

• Qualified and experienced staff

• Appropriate systems and technology

• Clear financial policies

• Clear procedures to implement policies

• Good planning and budgeting process

• Regular and readable financial reports



Clear financial policies

• Section 553A: The organisation must have a policy, complying with requirements prescribed by regulation, on the range of financial matters listed

(see session 1).

• Policies must be written and available to relevant officers.

• Policies should be consistent across the organisation.



Authorised expenditure

• All expenditure must be authorised and recorded by authorised officers or others delegated by them

• Clear descriptions of officers with authority to authorise expenditure, and of delegated authorisation at different levels.



Examples of expenditure policies

• Cash Management: receipts and banking, signatories, payment authority

• Purchasing: goods, tendering and leases

• Fixed assets/vehicles: purchasing, controlling, disposing

• Expenses: payment authority, credit card controls

• Salary structures and employee entitlements

• Creditors, debtors: payment and debt collection policy



Clear financial procedures to implement policies

• How a financial transaction is to be dealt with, including relevant forms

• Who has the authority to approve the transaction

• What records are to be kept of a transaction, and to which account it should be recorded in the budget and financial report



Cash and accrual accounting

• Cash accounting: transactions only recorded when payments are made or income received

• Accrual accounting: income and payments recorded when the transaction occurs, regardless of when the actual payment is made or received.



Advantages of accrual accounting

• Income and spending are recorded when the transaction occurs, not when actual payment is made or received

• Matches revenue and expenditure in the correct accounting period

• More accurate because it ensures that obligations to creditors and expected income from debtors are visible at the time incurred



Role of expenditure policies and budgets

• Expenditure policies and budgets allow planning and cost control of particular items in advance

• A budget of expected costs at the beginning of the financial year can be monitored monthly to control expenditure

• Items such as staff salaries and on-costs, expenses including credit cards, rent, travel, motor vehicles, publications and campaign expenses should be authorised by senior officials who can check against the budget allocation

• These records form the basis of the annual financial report



Obligation to keep accounting records

Section 554 Obligation to keep accounting records

• An organisation must keep accounting records for its transactions for at least 7 years after the end of the transactions they are about.

• accounting records of an organisation means financial documents that explain the methods and calculations about how its accounts are made up and correctly record and explain the organisation’s transactions and financial position.

• Accounting records must be prepared in accordance with

Australian Accounting Standards



Obligation to prepare accounts

Section 555 Obligation to prepare accounts

• An organisation must prepare the accounts and other statements (accounts) prescribed under a regulation for each financial year as soon as practicable after the year ends.

Required are:

– Statement of income and expenditure (also known as a profit and loss statement)

– Balance sheet (assets and liabilities)

– Notes to explain the methods by which the accounts have been prepared

• The Regulation requires specific details to be included in each.




Accounting officer’s certificate

• An organisation’s accounts must contain a certificate from the officer responsible for keeping its accounting records attesting to certain matters, including:

– the number of financial and unfinancial members

– whether the officer considers the accounts show a true and fair view of the organisation’s financial affairs

– whether the officer considers amounts collected from members have been properly handled

– whether the officer considers each expenditure was approved in accordance with the organisation’s rules.




Management committee certificate

• The accounts must also include a certificate from the management committee attesting to:

– Whether the management committee considers the accounts show a true and fair view of the organisation’s financial affairs at the end of the year

– Whether the committee considers the organisation was solvent during the whole or part of the year

– Whether the committee considers the management committee’s meetings were held under the organisation’s rules




– Whether a committee member knows if any of the organisation’s records or rules have not been given to members as required by law or the organisation’s rules

– Whether the audit report and relevant accounts for the financial year immediately previous have been presented to a meeting as required by the Act and given to members as required by the

Act.

• A management committee member, if making a comment about something dealt with in the audit report or financial disclosure statement (which includes the accounts) must not state anything in the comment the member knows is false or misleading in a material particular.



Requests for information

Section 556 Member may apply for prescribed information

• A member of an organisation may apply to the organisation for information that it must, under a regulation, give its members. This includes:

– Details of donations or grants given to or by the organisation

– Remuneration paid to an officer of the organisation

– Profit or loss on sale or revalue of an asset

– Loans by or to the organisation

– Non-public investments

– Contingent liabilities



Requests for information

• The registrar may make an application for a member, in which case the registrar must then give the information to the member.

• The information must be given within 28 days (or 6 weeks if certain criteria are met) and be given in a prescribed way.

• The Registrar also has powers to direct an officer of an organisation to give the Registrar information about the organisations funds, accounts or accounting records (see section 557).



Reporting requirements

Section 565 Obligation to present to general or committee meeting

An organisation must present its audit report and financial disclosure statement for each financial year to a general meeting or a meeting of the organisation’s management committee (a presentation meeting) within 5 months after the end of the financial year; or if the registrar has extended the time to hold the meeting—the extended time.

Section 566 Obligation to publish audit report and financial disclosure statement

An organisation must, at least 28 days before each presentation meeting, give its members, free of charge, a copy of the audit report and financial disclosure statement to be presented at the meeting or publish the report and statement in a journal or newsletter that it gives to its members free of charge.



Filing and publishing requirements

Section 570 Report and statement must be filed and published

Within 14 days after the report and statement are presented (or a longer time allowed by the registrar)an organisation must:

• File a copy of the audit report and financial disclosure statement for each of its financial years, and a certificate by its president or secretary stating the originals of the report and statement have been presented to a general meeting or management committee meeting of the organisation; and

• Publish a copy of the audit report and its financial disclosure statement. These must continue to be published for a period of 2 years.



Session 3.2

Understanding financial reports

Ignorance is not a defence

• All officers have the duties described in session 1, meaning they all need to:

– Be informed about the subject matter

– Exercise care and diligence

– Make judgements in good faith and for a proper purpose

– Not have a conflicting personal interest

– Exercise their judgement in the best interests of the organisation

• All members of management committees must know how to read and assess a financial report, because they are required to vote on a resolution in relation to the management committee certificate (see example).



Annual financial reports

• Financial reports tell members about the financial activity for the previous financial year. They must contain:

– Certificate from the management committee that the report is true and fair and debts can be paid when due

– Certificate from the accounting officer

– Income and expenditure statement

– Balance sheet or statement of financial position (profit and loss statement)

– Notes to these statements (which must be read because they contain essential information)

– Auditor’s report



Income/expenditure statement

• Shows the income and expenditure for the financial year by category, e.g. salaries, motor vehicles, campaigns, printing, etc.

• surplus (more income than expenditure) or

• deficit (more expenditure than income)

• A deficit over more than one year may indicate problems

• Check variations in expenditure on particular items

• Check notes for explanations, eg. moving membership income from cash to accrual basis can have a one-off impact if income moves from one financial year to another



Balance sheet

Shows what the union owns as assets, and what it owes as liabilities at the end of the financial year



Assets

• Includes cash, investments, property, equipment and money owed

• Assets that can be drawn on in the next financial year are called current assets.

• Assets that cannot be drawn on in the next financial year are called non-current assets

• Check notes to see that current and non-current assets are classified accurately



Liabilities

• Amounts owed to creditors, or loans used to finance operations

• Liabilities due within the next financial year are called current liabilities

• Liabilities due after the next financial year are called noncurrent liabilities

• Check notes to see that current and non-current liabilities are classified accurately.



Net worth or equity report

• Assets minus liabilities show the net worth of the union

• Shows whether the union is solvent, meaning whether it can pay its debts when due

• If liabilities are greater than assets, this indicates problems unless the union has a source to draw on to pay debts when due. For example, a branch may be subsidised by payments or guarantees from the other union structures

• Notes should contain a statement of solvency. Check notes for this and any reference to subsidies and guarantees.



Changes in equity report

• Total of assets minus liabilities, including the surplus or deficit from the income statement

• Accumulated surplus or deficit

• Note: if there is an accumulated deficit, does the union have a plan to reduce it?



Cash flow statement

• Shows the inflow and outflow of actual cash income and expenditure during the financial year, and the cash on hand at the end of the year

• Note: cash on hand should be able to meet immediate payments due



Auditor’s report

Usually a statement that:

• The financial report presents fairly the union's financial position

• Complies with Australian Accounting Standards.

• Complies with legislative requirements.

Audit report requirements in Queensland have been expanded to include:

• The financial disclosure statement and mid-year financial disclosure statement;

• The policies required under section 553A(1); and

• The organisation’s spending for political purposes under section

553D.



Understanding_Financial_Reports

- Union Governance Training -

Session 3

Financial Management