Leadership and ledgers A future leaders guide to financial - PowerPoint PPT Presentation

Leadership and ledgers A future leader’s guide to financial management 14 th November 2013 Melbourne MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 1

Morri Young Matrix on Board Since 1997 ... now across Australia Mission: Financial Intelligence to Nonprofit Decision-makers We produce beautiful financial reports to our clients and teach Boards and CEOs how to read them MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 2

Financial Confidence Check In MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 3

Getting By 4 Faking it 3 5 2 6 1 7 No idea Awesome Financial Confidence Meter MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 4

Getting By 4 Faking it 3 5 2 6 1 7 No idea Awesome Financial Confidence Meter MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 5

Getting By 4 Faking it 3 5 2 6 1 7 No idea Awesome Financial Confidence Meter MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 6

Getting By 4 Faking it 3 5 2 6 1 7 No idea Awesome Financial Confidence Meter MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 7

Getting By 4 Faking it 3 5 2 6 1 7 No idea Awesome Financial Confidence Meter MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 8

Getting By 4 Faking it 3 5 2 6 1 7 No idea Awesome Financial Confidence Meter MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 9

Getting By 4 Faking it 3 5 2 6 1 7 No idea Awesome Financial Confidence Meter MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 10

Why should you bother? 88% of Nonprofit CEOs and Board Members have no financial management training Changes over the past 20 years Sector growth technology ‘corporatisation’ Legal obligations MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 11

Governance The word derives from the Greek verb κυβερνάω [kubernáo] which means to steer. The responsibility of the Board is to look over the horizon and plan a path for an organisation. The responsibility of management and sta ff is to operationalise the plan. MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 12

Legal Responsibilities of the Board and the CEO Not allow trading, if insolvent Confidentiality Fiduciary duty Abide by the Constitution Ask questions and know what’s going on Disclose any conflict of interest Not use position or information for a dishonest purpose. MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 13

Lifecycle of the healthy Nonprofit Organisation Members, Community, Mission Shareholders, Strategy? The Plan Cost to implement? The Budget How to fund? Fundraising Review performance? Financial Reports MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 14

Reports are based on data MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 15

Data is not information There is a BIG di ff erence between data and information As you become more responsible for strategy and management, you need to gain more about financial intelligence and less about financial processing... Bookkeepers deal with processing; Boards and CEOs deal with decision-making MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 16

The History of Accounting Luca Bartolomeo de Pacioli wrote the textbook in 1494 He described the use of journals and ledgers He warned that a person should not go to sleep at night until the debits equalled the credits! His ledger had accounts for assets (including receivables and inventories), liabilities, capital, income, and expenses ... MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 17

Christmas Gift Suggestion time MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 18

The value of Financial Reports Solvency Fraud Strategy MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 19

Solvency MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 20

Solvency 1. s588G of the Companies Act imposes one of the most stringent duties on directors. 2. It requires a director to ‘prevent’ the company trading while it is insolvent or becoming insolvent. 3. The duty requires directors to avoid incurring further debts when the company is insolvent. MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 21

Fraud The key factors organisations say* that they rely on strong internal controls and an ethical organisational culture to reduce the risk of fraud. *BDO Fraud Survey for 2011 INCENTIVE RATIONALISE OPPORTUNITY MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 22

Fraud Prevention Detection Response MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 23

Strategy The Board sets the plan, and asks the question: Where do we want to go, how much will it cost, and where will the money come from? Maximising income Manage the risk Measuring performance over time Managing the Members’ assets MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 24

Lifecycle of the healthy Nonprofit Organisation Members, Community, Mission Shareholders, Strategy? The Plan Cost to implement? The Budget How to fund? Fundraising Review performance? Financial Reports Financial Reports MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 25

Documents to inform the Strategy Where do we want to go? The Strategic Plan How much will it cost? The Budget How much will we need? Funding Plan Balance Sheet & Do we have enough resources? Cashflow Are we on track? Profit & Loss to Budget If we don’t what will we do? Board Discussion MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 26

Financials can be fun.. MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 27

The Chart of Accounts A classification system for the accounts Relevant to the industry and the organisation Account names mean something to the organisation Avoid “Miscellaneous” and “Sundries” Not too many, not too few Simple to code “Input is Coding, Output is Reporting” MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 28

The Chart of Accounts Assets We 1-1000 Cheque Account Income Own 1-2000 Petty Cash We 4-2100 Grants Earn 1-3000 Computers 4-3000 Donations 1-4000 Motor Vehicles 4-4000 Membership Fees 1-5000 Debtors 4-5000 Bank Interest 4-6000 Client Fees Liabilities We 2-1040 Credit Cards Owe 2-2000 Creditors Expenditure 2-3000 Grants in Advance We Spend 6-1000 Bank Fees 2-4300 Payroll Accruals 6-1200 Postage 2-6500 Loans 6-2000 Telephones 6-3010 Stationery 6-5000 Salaries Equity Value 3-1000 Retained Earnings MATRIX 3-1200 Current Earning ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 29

Income and Expenditure Report Statement of Financial Performance Profit and Loss Statement Movement over time For a period of time in the life of the organisation Value of what the organisation earns and spends MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 30

Income and Expenditure Report Statement of Financial Performance Profit and Loss Statement MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 31

Income ¡and ¡Expenditure ¡Repo Report ¡for ¡Far ¡Away Away ¡Inc For ¡the ¡month ¡of ¡March ¡2013 013 Income March Government ¡Grants $25,000 Dona2ons $3,202 Interest $432 Total ¡Income $28,634 Expenditure Wages $28,329 Rent $1,800 Telephone $1,201 Deprecia2on $91 Mee2ng ¡Expenses $901 Total ¡Expenditure $32,322 Surplus/Deficit ($3,688) MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 32

Income ¡and ¡Expenditure ¡Repo Report ¡for ¡Far ¡Away Away ¡Inc For ¡the ¡month ¡of ¡March ¡2013 013 Income March Year ¡to ¡Date ¡YTD Government ¡Grants $25,000 $225,000 Dona2ons $3,202 $43,921 Interest $432 $3,431 Total ¡Income $28,634 $272,352 Expenditure Wages $28,329 $189,202 Rent $1,800 $16,200 Telephone $1,201 $10,232 Deprecia2on $91 $820 Mee2ng ¡Expenses $901 $1,010 Total ¡Expenditure $32,322 $217,464 Surplus/Deficit ($3,688) $54,888 MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 33

Income and Expenditure Report to Budget MATRIX ASSOCIATIONS FORUM: FUTURE LEADERS CONFERENCE 2013 on BOARD 34