How to ensure (as a director) that your organisation has good financial management

All directors are accountable for, and need to understand, the organisation’s financial position. This is not just the responsibility of the treasurer.

All directors share equal responsibility to ensure that the organisation has good financial management practices and is ‘trading solvent’ – which means that it has enough money to pay its debts when they are due.

Here are some steps to making sure you are meeting your responsibilities.

Use this checklist to see where your organisation sits in terms of financial management practices.

This checklist was developed for not-for-profits by CPA Australia.

Solvency – ensuring that the organisation:	Yes?
can pay bills when due
has adequate funds in the accounts for scheduled bills and expenses
can fund all its programs and other contractual obligations
regularly reviews its cash flow forecast, identifies any variances and notes their potential impact on solvency
Budgeting – ensuring that:	Yes?
all expected income and expenditure is included
all sources and amounts of income are identified
all expenditure included in the budget is approved
expenditure is not greater than income
the annual budget is approved
there is a regular review of budget to actual results (monthly, quarterly)
the impact of any variances from budget to actual are identified and explained
the budget is amended where ‘material’ changes have occurred that impact on the original budgeted income and expenditure.
Financial statements – ensuring that:	Yes?
appropriate records are kept
key financial accounts are regularly reconciled
there is regular reporting of income and expenditure, balance sheet, cash flow statement, budgets and forecasts
financial statements are audited annually
the balance sheet is reviewed for financial health of the organisation
appropriate financial controls are in place for accurate records
Preventing fraud and mismanagement – ensuring that:	Yes?
controls are in place to safeguard assets
money is used in line with approved budgets
controls are in place for approval of spending
controls are in place for banking transactions

Review your organisation regularly

Set a date each year for the board or finance sub-committee to review your organisation’s financial management against the above checklist. If you find that the answer to any of the questions is no, the board needs to act.

Create action plans

If you answered ‘no’ to any of the questions above you have probably identified a problem that that needs to be fixed

The board will instruct the treasurer and management to explain any problems or issues that have been identified and to develop the appropriate policies and procedures to ensure that they are addressed. If the treasurer or manager is unable to address any financial issue to the satisfaction of the board, a sub-committee of directors may take on the task or the board may decide to seek external professional advice.

Establish a finance sub-committee of the Board

The finance sub-committee is made up of directors and chaired by the treasurer. the role of the sub-committee is to help the treasurer fulfil their responsibility by sharing the workload, providing alternative views and perspectives, and by helping other directors to better understand the organisation’s finances. Sub-committee meetings provide the time and opportunity for directors to engage in detailed discussions about the financial management of the organisation.

Ask questions

The board should define the role of the treasurer and the finance sub-committee so that everyone understands their responsibilities. However, the board has ultimate responsibility for the organisation’s finances. It is the responsibility of all directors to ensure that the organisation’s finances are managed appropriately (in line with the organisation’s constitution) and legally, and that the organisation complies with the terms of funding contracts. As a director you should never be embarrassed to ask whatever questions you need to be satisfied that the finances are effectively and accountably managed.

Build the financial capacity and skills of your directors

The board or finance committee should actively seek opportunities to build the financial skills of directors. They might identify professional development and educational opportunities that directors can undertake or arrange a system of mentoring by a more financially literate director or mentor.

Resources

CPA Australia - Financial Management for Not-For-Profits