5.1 Making decisions about money and how to manage it
- What decisions have to be made?
- How to make the decisions about money
- Financial standards
- Financial reporting
The governing body is responsible for managing the funds and assets of the organisation. This is one of the most complex and difficult aspects of their work.
What decisions have to be made?
Governing bodies have to make financial decisions about:
Many organisations fail because their governing bodies do not understand the money side of their operations, and so do not make good decisions.
An organisation will quickly have financial problems and get a bad reputation if:
- the governing body does not make sure that money is used properly
- Family and friends of governing body members receive money or assets from the organisation without legitimate reasons
- The CEO or manager makes decisions about how money is spent rather than the governing body.
- There is a lack of accountability and transparency around decisions about money and how the organisation spends it.
How to make decisions about money
The governing body and the CEO or manager need to work together closely on the governing body understanding an organisation’s finances and the decisions they make about money. For some organisations, especially where the governing body is financially literate, this can be straightforward. In other organisations, such as those where the governing body may comprise members not literate and non-English speaking – this can present more of a challenge.
While it’s the governing body’s job to make decisions, it’s the CEO’s role to brief them thoroughly about the ‘money business’ of the organisation.
A good governing body should:
- ask their CEO about money issues
- make an effort to understand the way the ‘money business’ of the organisation works.
- get answers from the CEO
- make good decisions on the basis of what the CEO tells them
If the governing body is not doing these things, they are failing to look after the organisation and its members. They have a legal duty of care to do so.
An organisation’s resources are its human, financial, cultural, intellectual, technical, and information resources.
The governing body has to look after all of them.
Often these resources are scarce—and one of the biggest causes of conflict is about access to resources and how they are used. These conflicts often spread out into the whole community.
Develop good practices for managing money, including proper planning and approving budgets, getting an outside auditor, and using resources in the best way.
See: Resource 5.1 Tips—Good practices for managing money
See: Resource 5.2 What can we do?—Good practices for governing bodies
Financial standards
Organisations have ‘financial management standards’. These are very important and should include:
Financial reporting
The main purpose of financial reporting is to lay out clearly the money that has come into the organisation and what it has been spent on. The reports are mainly for the governing body and the funding body but are usually made public and are accessible to members and communities too.
Why does the governing body need the information? Well, it helps them to:
The information must be given in a way that is easily understood.
Good reporting should help a governing body to:
- understand the information in the report—and be able to ask the right questions in order to know the true state of the organisation
- understand any differences between the actual and budgeted expenditure and income, so that they can work out if the organisation or project is viable
- make independent decisions about whether they are happy to sign off on the reports; directors should not have to rely on managers telling them the reports are OK
If you are a corporation registered with ORIC under the Corporations (Aboriginal and Torres Strait Islander) Act 2006, then the way you need to report is set out here:
See: Resource 5.3 Snapshot—Developing a visual language for the money story
Read next: 5.2 Accountability: what is it, to whom and how?
Read previous: 5. The business of governing organisations