Financial Management - LSV Club Support Manual

There are a number of references in various standards and legislations about the need for associations to keep proper accounting records. While legislation concentrates on the need to ‘correctly record and explain the transactions of the association and its financial position’ (Associations Incorporation Act 2009 Section 50. (1)(a)), an appropriate accounting and financial management system is also necessary to enable the governing body to effectively and efficiently discharge its responsibilities to its members in running the club.

In other words, systems should not only provide a mechanism to record historical transactions, but also enable informed decisions to be made about the future of the entity, both short-term and long-term. Without these systems it will be extremely difficult for an auditor to give an unqualified audit opinion on the financial state of the club.

a) Financial Management Responsibility

The treasurer/financial manager (see appendix for full job description) is responsible for the day-to-day management of the club’s financial resources. In this role, the treasurer/financial manager, perhaps with the help of paid staff or other volunteers, puts into place the procedures necessary to collect and record details of all financial transactions affecting the financial position and performance of the club. Financial transactions are documented and these records are kept by the treasurer/financial manager. The output of these procedures is regular financial reports, which are presented at the management or board meetings.

b) Accounting Systems

Clubs may operate either a computerised accounting system or a manual accounting system.

Either way, there are several minimum components required, not only to provide the executives, officers, and members of the organisation with adequate tools, but also to meet legal obligations.

An accounting system could include the following books of record and documentation:

Cash Book (maintained separately for each bank account operated by the entity)
Bank reconciliations (performed on each bank account)
General Ledger
A record of outstanding debtors (accounts receivable) and outstanding creditors (accounts payable)
Asset register
Petty cash book or records
Register of receipt books (to maintain proper control over the purchase, issue and custody of receipts)
Source documents i.e. bank statements, invoices and receipts

A computerised accounting system, such as MYOB, XERO or other, has the advantage of being able to efficiently provide more detailed reports, for example, income and expenditure grouped by various activities of the organisation. The system must be protected by a secure password.

c) General Ledger and Chart of Accounts

The Chart of Accounts (CoA) is the list of account codes, broadly divided into categories for income, expenditure, assets, liabilities, and equity, which make up the General Ledger (GL).

Transactions are recorded in source journals and documents, such as cash books and cheque books, which may be posted to the general ledger. By applying an account code to every transaction, the activities of the organisation can be properly reported on, both during the year and at year-end.

It is worthwhile to take time and care designing the structure of the Chart of Accounts for the following reasons:

GL account codes should be grouped together and organised for easy reference when selecting the correct code to apply to a transaction
Incorrect classification of an account or transaction (eg an expense item as an asset) can lead to misrepresentation and confusion during the year
Some accounting systems rely on the rigid structure of the Chart of Accounts to provide meaningful reports
In some systems, there are added features which allow for further analysis of transactions according to different parameters (eg in MYOB it is possible to use ‘Job Codes’ to group transactions according to events or programs)

d) Accounting Methods

Cash accounting recognises income in the period it has been physically received and expenses in the period when they are actually paid. It is often the simpler method to use as it provides a clear picture of how much cash is on hand at any point in time.

Accrual accounting is generally the preferred method of accounting as it allows income and expenditure to be recorded in the period in which they are incurred, regardless of when the cash transaction occurs.

Smaller clubs may find cash accounting adequate and may wish to switch to accrual accounting as they start to grow and require more meaningful information on the overall financial status of the organisation.

e) Some financial implications of Incorporation

Incorporated clubs have a legal existence in and of themselves. In financial terms this means that it can:

Sue and be sued in its own right
Own land and other property
Make contracts and enter into tenancy agreements in its own right
Receive a bequest or gift from a will
Borrow money
Perpetually exist, that is, remain in existence no matter who is a member until it is disbanded by direct operation of the law.

Further, the office bearers and members are not personally liable for the debts of the club, or the negligent acts or omissions of other office bearers and members, unless the rules specifically provide otherwise. Liability of members to contribute toward the payment of debts and liabilities of the organization or the costs and expenses of winding up the club is limited to a sum provided in the rules (usually $1.00). However, incorporation does not protect the individual from liability for their own negligence. Incorporated associations may not be formed for the purposes of trading or earning profit for members. If the organisation earns a profit from commercial activity, this profit may not be distributed among the members. It must be used for the objectives of the organisation as stated in its constitution.

f) Development resources

From SLS sponsors Westpac Davidson Institute, discover useful tools and resources designed to help meet the specific financial needs of running a not-for-profit organisation.