Finance Committees – adding value to your organisation

The end of a financial year is always a stressful time for staff, especially those involved in completing a number of financial compliance activities, including:

• finalising year-end accounts;
• completing taxation returns – including GST and income tax;
• compiling budgets for the next financial year;
• preparing for and participating in the external audit;
• compiling statutory accounts; and
• completing regulatory and statutory returns - including WorkCover, payroll tax, group certificates etc.

All of these activities are time-consuming and unfortunately have similar deadlines for completion, thus adding to the hours worked and the related stress created for finance and management staff. So what, if anything, can the Board and individual Directors do to ease the burden on staff during this challenging time? One way is for the Finance, or equivalent, Committee to take an active role on a number of key governance matters including:

External audits – the Finance Committee can take the lead in relation to scoping and setting the terms of reference for the external audit. This can be done by direct communication with the auditors and also allows the auditors to be able to report back directly to the Finance Committee, by way of the management letters. This takes the pressure off both the external auditors and the staff in relation to any contentious issues that may be encountered during the course of the audit. It also enables the Board, by way of the Finance Committee, to take appropriate action on any control weakness that may be identified by the external auditors.

Budgets – whilst it is important for staff to have a detailed breakdown of costs for each project, it is more important for the Board to have an understanding of the key financial targets that are aligned to the strategic and operational plans of the organisation. The Finance Committee can play a role in tailoring the budget forecasts into a format that facilitates strategic decision-making by the Board. This may include:

• Revenue: identifying key revenue sources, including costs for generating each revenue stream;
• Costs: identifying key costs by type – for example, salaries, operating costs, depreciation etc. and division, - for example, core activities, business support, marketing etc.;
• Liquidity: calculating high-level cash flow forecasts to determine the amount of "free cash" at any point in time;
• Investment strategy: calculating surplus targets and recommending strategy for how the monies are to be utilised - including income generation, risk management, program development and capital expenditure.

Systems and processes – the Finance Committee has a role to play in ensuring the systems and processes in place are the most efficient and appropriate for the organisation. This will include reviewing where time taken to complete tasks may be reduced through automation, training or use of appropriate external experts;

Controls and risks – another important role of the Finance Committee is to review the policies and practices currently in place and to make recommendations to the Board and management where it is felt risks could be reduced or controls strengthened in order to safeguard the organisation’s assets. Such assets include the intellectual property of its core services and the knowledge and experience of key staff; and

Compliance – the Finance Committee can work with senior management and finance staff in ensuring that all statutory and regulatory compliance matters are dealt with appropriately and in a timely manner.

A proactive and responsive Finance Committee can play an important role by ensuring all of the above are in place in advance of the year-end deadlines. This helps to ease some of the pressure on finance staff, in particular, in what can otherwise be a stressful time for those involved.

Should you require further information on how to implement an effective Financial Management framework for your organisation please contact Mark Rudd on ruddm@enterprisecare.com.au