M3: Learner Manual

9. Financial Policies and Procedures for Organisations

Financial management is not only about understanding the financial information in the organisation and using this information to improve organisational operations, it is also about ensuring that the right policies and procedures are in place to ensure that the financial information the organisation is using is accurate and can protect the investments within the organisation. For complete financial management of the organisation, good financial controls should be present.

A financial control is a procedure that is implemented to detect and prevent errors, theft or fraud, or policy non-compliance in a financial transaction process. Financial control procedures can be implemented by either an individual or as part of an automated process within a financial system.

Benefits of financial controls

By implementing good financial controls, the organisation will benefit by understanding the financial position of the organisation:

·       Providing accurate financial information that can be used by those responsible for the operations of the organisation (e.g. Sales numbers can be provided to sales representatives to monitor targets and budgets).

·       Enabling organisations to make informed decisions on budgets and spending.

·       Providing documentary proof for compliance requirements (e.g. GST calculations).

·       Setting standards and informing all persons within the organisation of these standards through reporting.

To support the preparation and reporting of financial information, financial controls that consist of policies and procedures that align with the objectives of the organisation are vital. The board or management committee also have a role in good financial management. They must know how to oversee the finances of the organisation. This means that they must understand the financial information that is prepared and presented. They are ultimately responsible for transparency, accountability and stewardship of all financial matters to ensure that the social objectives of their community organisation are met.[1]

A financial policy is a formal description of how your Board handles issues like paying down debts, rationing cash reserves, who can handle money and how you deposit and withdraw funds. The goal of financial policies is to protect donor funds, promote financial stability and hold the board and executives accountable for financial expenditures and oversight.

Financial policies are useful as a guideline for accepting gifts, dividing duties, authorising financial transactions, obtaining proper receipts and disbursing funds.

Your financial policies may be as broad or detailed as you think you need. It’s a good idea to review your financial policies (and all your policies) at least annually and revise them as you see fit. You can always revise your policies by a board vote if you run into a situation that prompts you to change the policy right away.

Who establishes your financial policies? Ultimately, your Board is responsible for developing, implementing and overseeing financial policies. It is common for Boards to take up the task, but your Board could just as easily delegate the task to a financial planning committee.

The individual or group that is developing your financial policies should keep the following key components of financial policies in mind:

• Assigning authority for financial actions and decisions.
• Delegation of authority for financial decisions and transactions to staff and volunteer leaders.
• Procedures for conflicts of interest and insider transactions.
• Procedures for authority to spend funds and write checks.
• Procedures for managing payroll.
• Assignment of authority to enter into contracts.
• How financial records are to be documented.

While financial policies are the “what” of financial management, financial procedures are the “how”. Financial procedures are a collection of statements that describe how to handle funds. Financial procedures outline how to handle financial practices for things like:

• Receiving and endorsing cheques.
• Documenting cash and preparing cash receipts.
• Storing deposit and withdrawal slips.
• Training staff and volunteers on following financial policies.
• Authorising people to open accounts, sign checks, etc.
• Borrowing funds and establishing lines of credit.
• Detailing prohibited financial practices.
• Handling online payments, petty cash, credit cards and debit cards.

Accounting and reporting are central to an organisation’s financial procedures. Your Board may require or at least, make it a practice to hear a reporting of the organisation’s financial position and statement of activities at every board meeting.

Financial procedures include statements for how to manage:

·       Cash flow statements.

·       Statement of activities.

·       Statement of financial position.

·       Reports of assets.[2]

 

In conclusion you are now introduced the core financial documents that every Board member must understand to effectively govern an Aboriginal or Torres Strait Islander organisation. We explored the structure and purpose of the Profit and Loss Statement, Balance Sheet and Cash Flow Statement -three essential tools that show how money moves through an organisation, how assets and liabilities are managed and whether the organisation is operating sustainably. Understanding these reports enables Board members to make informed decisions, identify risks early and ensure the organisation remains financially healthy.

You now have knowledge of the legal requirements for financial management across different organisational structures, including companies, co-operatives, associations and corporations incorporated under the CATSI Act. Each structure has specific reporting, record-keeping and auditing obligations that Board members must comply with to meet regulatory standards and maintain transparency. Being aware of the importance of financial policies, procedures and internal controls - these systems protect the organisation from errors, fraud and non-compliance, support accurate reporting and reinforce the Board’s responsibility for accountability and custodianship of community resources.

Together, these skills and knowledge areas equip you with the financial literacy and governance capability needed to contribute confidently and responsibly to