Financial Management Guide For Community Legal Centres Book

Financial Management Guide For Community Legal Centres Book
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    AcknowledgementsPublished by the National Association of Community Legal CentresPO Box A2245Sydney South NSW 1235Tel: 02 9264 9595Fax: 02 9264 9594Email: naclc@clc.net.auWeb: www.naclc.org.auProduced with funding from theCommonwealth Attorney General’sDepartment, Indigenous Justice and Legal Ai...

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    IntroductionThe National Financial Management Guide for Community Legal Centres has beenproduced to assist staff at CLCs meet the financial accountability requirements totheir funders. It is also designed to assist staff to better provide centre managementcommittees with the information that the ...

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    Table of ContentsOrganisational StructureSection 1 Reporting Requirements of Incorporated AssociationsSection 2The Role of Financial AdministratorsSection 3Accounting StandardsSection 4BudgetingSection 5Record-KeepingSection 6Cash ManagementSection 7PayrollSection 8Accrual AccountingSection 9Prov...

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    N AT IONALF I NANC IALM ANA GEMENTG UID E F O RC OM M U N I T YL EG ALC ENT R ESContentsNon-profit Organisations5Incorporated Organisations5Unincorporated Associations6Constitution7Register of Members7The Minute Book7Management Committees8Treasurer9Financial Sub-committee10Public Benevolent Insti...

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    5SECTION 1Organisational Structure1. Organisational StructureNon-profit OrganisationsDefinitionA non-profit organisation is an organisation that is not operating for the profit orgain of its individual members. The gains or profits cannot be distributed to theindividual members directly or indire...

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    6SECTION 1Organisational Structure• An Association has perpetual succession. This means that propertyacquired by the Association remains with the Association regardless of changes in its membership.LegislationThe relevant Associations legislation for the states and territories follows.What does...

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    7SECTION 1Organisational StructureDisadvantages of remaining unincorporated• The liability of members is unlimited.• There is no perpetual succession. All property acquired by theassociation belongs to the individual members.• Similarly, gifts or trusts in Wills cannot generally be made to ...

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    8SECTION 1Organisational StructureIn camera meeting notes should be kept in safe custody with a designated memberof the Management Committee.Management CommitteesDefinitionA Board or Management Committee is a group of people with varied areas ofexpertise from within the community, who volunteer t...

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    9SECTION 1Organisational StructureTreasurerFor the Financial Administrator, the most important person within the ManagementCommittee is the Treasurer. Taking on the role of Treasurer of an organisation is ahuge responsibility and one not to be taken hastily.Criteria for Treasurer• A qualified a...

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    10SECTION 1Organisational StructureFinancial Sub-committeeStructureA financial sub-committee can be a great asset to an organisation. The sub-committee should be made up of two or three members of the ManagementCommittee (including the Treasurer), as well as the Centre Coordinator and theFinancia...

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    11SECTION 1Organisational Structure• Trust account reconciliation — audited;• Bank reconciliations for all bank accounts;• Aging accounts receivable (debtors) — including assessmentof collectibility;• Assets register;• Depreciation rates, including assessment of fixed-asset useful l...

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    12SECTION 1Organisational Structure• It is non-profit. A PBI operates on a non-profit basis. That is, its assets or profits are not distributed to members, owners or particularpersons, except as reimbursement of out-of-pocket expenses incurredon behalf of the organisation or as proper remunerat...

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    13SECTION 1Organisational StructureTax Exempt / Charitable StatusCertain types of non-profit organisations are exempt from paying income tax.However, an organisation’s non-profit status does not automatically entitle it to thisexemption. Organisations that are charities must meet special requir...

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    14SECTION 1Organisational StructureNon-profit RequirementsAn organisation is regarded as non-profit if it is not carried on for the profit or gainof its individual members.Centres can satisfy the non-profit requirement if their Constitution prevents themfrom distributing surplus funds or assets f...

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    15SECTION 1Organisational StructureTaxationDGRs are not automatically exempt from income tax.All DGRs must provide specific information to the donor when they issue receiptsfor tax-deductible gifts. Receipts must state:• the name of the fund, authority or institution to which the gift has been ...

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    16SECTION 1Organisational StructureFunding / Service AgreementsThe income of most Centres is comprised of a number of funding sources and eachfunder has own its financial requirements. It is important to read, be familiar withand have a copy on hand of each funding/service agreement between your ...

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    N AT IONALF I NANC IALM ANA GEMENTG UID E F O RC OM M U N I T YL EG ALC ENT R ESContentsIntroduction17Sources of authority17Reporting Entities17Reporting Requirements17Financial report format and content19Certificate of Compliance19Mandatory audit20Timing of AGM23Model Reports for a Non-Reporting...

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    172. Reporting Requirements of Incorporated AssociationsIntroductionMost community legal centres (CLCs) are incorporated associations. There are a number of reporting documents that each CLC must prepare to ensure thatcompliance requirements are met.In this section:• information is provided abo...

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    18SECTION 2Reporting Requirements of Incorporated AssociationsThe following information is taken from the CLSP Service Agreement1 October 2005 – 30 June 2008.Audited Financial StatementsAn organisation’s financial statements prepared and certified by a registered auditor including:(a) A State...

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    19Financial report format and contentIt is important that each centre follows the relevant state Incorporated Actsrequirements format.See Section 1: Incorporated Organisations for a state-by-state listing.The CLSP Service Agreement 1 October 2005 – 30 June 2008 requires thata Certificate of Com...

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    20SECTION 2Reporting Requirements of Incorporated AssociationsMandatory auditInformation from the CLSP Service Agreement 1 October 2005 – 30 June 2008 state that:9.2 Financial Audits9.2.1At its discretion, a Funding Body may appoint an Approved Auditor to conduct specific financial audits of th...

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    21SECTION 2Reporting Requirements of Incorporated Associationss AUDITOR’S CERTIFICATIONName of Organisation:Financial Year Period:_____ /_____ /_____to _____ /_____ /_____I hereby certify that:(a)I am not a principal, member, shareholder, officer, employee or accountant ofthe Organisation or ...

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    22SECTION 2Reporting Requirements of Incorporated Associationss AUDITOR DETAILSFull Name:Name of Company (if applicable):ACN or ABN Number:Registered Company Auditor:ss Yes ss NoIf Yes: Registration No.: _________________If not a Registered Company Auditor,state if a member of CPA Australia:...

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    23SECTION 2Reporting Requirements of Incorporated AssociationsTiming of AGMThis information is provided in the Constitution or the Rules of reportingrequirements for incorporated associations.In most cases, the AGM is held:• within three to six months after financial year end; and• the first ...

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    24SECTION 2Reporting Requirements of Incorporated AssociationsModel Reports for a Non-Reporting EntityThe following pages show model reports for non-reporting entities, as required ofincorporated associations._____________________ LEGAL CENTRE (non-reporting) INC.s INCOME AND EXPENDITURE STATEMEN...

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    25SECTION 2Reporting Requirements of Incorporated Associations_____________________ LEGAL CENTRE (non-reporting) INC.s BALANCE SHEETAS AT 30 JUNE 2006Note20062005$$CURRENT ASSETSCash1,000500Receivables21,000500Prepayments1,000500TOTAL CURRENT ASSETS3,0001,500NON-CURRENT ASSETSInvestments310,000 5...

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    26SECTION 2Reporting Requirements of Incorporated AssociationsEXAMPLE FROM NSW:_____________________ LEGAL CENTRE (non-reporting) INC.s NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2006Note 1: Statement of Significant Accounting PoliciesThis financial report is a special purpose fi...

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    27SECTION 2Reporting Requirements of Incorporated Associationsc) Leases (AAS 17)Leases of fixed assets, where substantially all the risks and benefits incidentalto the ownership of the asset, but not the legal ownership, are transferred tothe association, are classified as finance leases. Finance...

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    28SECTION 2Reporting Requirements of Incorporated Associations_____________________ LEGAL CENTRE (non-reporting) INC.s STATEMENT BY MEMBER OF THE COMMITTEEThe Committee has determined that the association is not a reporting entity andthat this special purpose financial report should be prepared i...

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    29SECTION 2Reporting Requirements of Incorporated Associations_____________________ LEGAL CENTRE (non-reporting) INC.s INDEPENDENT AUDIT REPORT TO THE MEMBERS OF LEGAL CENTRE INC.ScopeWe have audited the financial reports, which consist of the Balance sheet and Income andExpenditure Statement and...

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    30SECTION 2Reporting Requirements of Incorporated Associations_____________________ LEGAL CENTRE (non-reporting) INC.s CERTIFICATE BY MEMBER OF THE COMMITTEEI, ________________________________ of _______________________ , NSW and I, ________________________________ of ____________________________...

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    31SECTION 2Reporting Requirements of Incorporated AssociationsEXAMPLE FROM VICTORIA:INC. ________________________ABN: ________________________ Reg no. ________________________ s NOTES TO AND FORMING PART OF THE SPECIAL PURPOSEFINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2005 Note 1. Statement ...

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    32SECTION 2Reporting Requirements of Incorporated Associations(c) Property, Plant and EquipmentEach class of property, plant and equipment are carried at cost or fair value less,where applicable, any accumulated depreciation.Plant and EquipmentPlant and equipment are measured on the cost basis. T...

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    33SECTION 2Reporting Requirements of Incorporated Associations(g) LeasesLease payments under operating leases, where substantially all the risks and benefitsremain with the lessor, are charged as expenses in the period in which they areincurred.(h) Goods and Services TaxRevenues, expenses and ass...

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    34SECTION 2Reporting Requirements of Incorporated AssociationsNote 3: Financial Instruments(a) Interest Rate RiskThe Association has no material exposure to interest rate risk on its financialinstruments.(b) Credit RiskThe maximum exposure to credit risk, excluding the value of any collateral or ...

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    N AT IONALF I NANC IALM ANA GEMENTG UID E F O RC OM M U N I T YL EG ALC ENT R ESContentsPosition’s Objective35Roles and Responsibilities35Selection criteria for the position36The Role of FinancialAdministratorsSECTION 3NACLC_Financial_TEXT_DIVIDE.qxd 27/7/06 9:21 AM Page 7

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    35SECTION 3The Role of Financial Administrators3. The Role of Financial AdministratorsPosition’s Objective The Finance Administrator has the responsibility of ensuring that the organisation’sfinancial obligations are met, which includes upkeep of the financial records andother accounting requ...

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    36SECTION 3The Role of Financial Administrators• Manage cash flow, including transferring funds between investmentand cheque accounts, scheduling payments to creditors and managingdebtors;• Ensure compliance with all Australian Tax Office requirements,including preparation of pay-as-you-go (P...

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    N AT IONALF I NANC IALM ANA GEMENTG UID E F O RC OM M U N I T YL EG ALC ENT R ESContentsAustralian Accounting Standards (AAS)37Statement of Accounting Concepts (SACs)38International Accounting Standards (IAS)39Accounting StandardsSECTION4NACLC_Financial_TEXT_DIVIDE.qxd 27/7/06 9:21 AM Page 9

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    37SECTION 4Accounting Standards4. Accounting StandardsAustralian Accounting Standards (AAS)When preparing financial reports, it may be useful to refer to the Statements ofAccounting Concepts and the various Accounting Standards set by the AustralianAccounting Standards Board (AASB).Australian Acc...

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    38SECTION 4Accounting StandardsStatement of Accounting Concepts (SACs)Since 1990 there have been four Statements of Accounting Concepts (SACs) preparedby the Public Sector Accounting Standards Board of the Australian AccountingResearch Foundation and the Accounting Standards Review Board, and iss...

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    39SECTION 4Accounting StandardsExpenses are consumptions or losses of service potential or future economic benefitsin the form of reductions in assets or increases in liabilities of the entity.Further information on accounting standards can be obtained from various professional accounting bodies ...

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    N AT IONALF I NANC IALM ANA GEMENTG UID E F O RC OM M U N I T YL EG ALC ENT R ESContentsOverview41A Guide for Budget Preparation43Key Factors to Consider45Budgeting Checklist46Important Information from Service Agreement47BudgetingSECTION5NACLC_Financial_TEXT_DIVIDE.qxd 27/7/06 9:21 AM Page 11

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    41SECTION 5Budgeting5. BudgetingOverviewA budget is a way of thinking ahead financially. Accounting looks backward, at whatincome you have received and the amount you have actually spent. Budgeting looksforward. It predicts the expenses you expect to incur and the income you hope tobring in. It i...

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    42SECTION 5BudgetingWithout supporting documentation to back the figures, the values may bemeaningless. For example, if budgeting for wages, a figure of $100,000 has littlerelevance without explanation of the number of employees, estimated overtime, oncosts, wages increases expected.In practice, ...

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    43SECTION 5BudgetingA Guide for Budget PreparationThe budget is usually prepared by the Financial Administrator in conjunction with the Centre Coordinator/Executive Officer and other employees. In smallerorganisations, the Treasurer supports the staff to prepare the budget.EquipmentBudgeting is b...

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    44SECTION 5BudgetingLaying out the budgetPlease read the information from the Service Agreement related to preparing budget.(More information is at the end of this section.)When designing your budget framework you need to ask:1. What are the things you spend your money on? (Expenditure) The stand...

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    45SECTION 5Budgetingheadings like the ones given above, or you can have separate budgets for eachsection or each project and a combined budget to sum them up. Combined budgetsare simpler to run, but you can overlook trouble developing in a particular area if theoutcomes are spread across the whol...

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    46SECTION 5BudgetingIt is very important for centres to budget projects and other program funds andexpenditures separately from the CLSP funding.Budget revisionsA budget should be a live document and therefore should be updated based uponany fundamental change to circumstance and decisions.Revisi...

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    47SECTION 5BudgetingImportant Information from CLSP Service Agreement 1 October – 30 June 2008DEFINITIONSCLSP Fundsmeans:(a)the funds specified in Schedule 1;(b)any Allowable Surplus, Future ContingencyAmount and Excess Surplus approved for carryover and use;(c)Service Generated Income; and(d)R...

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    48SECTION 5BudgetingClausesClauses from Service Agreement that need special attention when preparing the budget.6. Carry Over of Funds6.1The Organisation may only carry over and use Funds from one Financial Yearto another in accordance with subclauses 6.2, 6.3, 6.4 and 7.3.6.2Surplus — Any unsp...

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    N AT IONALF I NANC IALM ANA GEMENTG UID E F O RC OM M U N I T YL EG ALC ENT R ESContentsOverview49Accounting Records49Filing System52Important Information from Service Agreement54RecordKeepingSECTION6NACLC_Financial_TEXT_DIVIDE.qxd 27/7/06 9:21 AM Page 13

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    49SECTION 6Record Keeping6. Record KeepingOverviewSuccessful organisations use reliable record-keeping systems. These systems rely onstandard source documents and established routines that help them to record theinformation going into their reports.Good controls for record keeping include:• usi...

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    50SECTION 6Record Keeping• Register of Members — to maintain a record of names, addresses andother information about members of the association. This is a legalrequirement and is usually the responsibility of the Public Officer.• Petty cash book — petty cash allows you to make small purch...

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    51SECTION 6Record Keeping• Cheque books — used to make most payments for the organisation.Although internet banking is becoming more popular and BPay is anoption, most often Centres use cheque forms.No unauthorised person should have access to chequebooks. All chequesshould be marked ‘not n...

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    52SECTION 6Record KeepingFiling SystemIt is recommended that the following information be retained in a hard copy filingsystem (either in suspension folders or ring binders):•Cheque requisitions — in cheque number order. It is recommended that thefront of the folder have sections where all co...

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    53SECTION 6Record Keeping•Cheque books and deposit books — should always be kept in safe custody.Policies should be determined about cheque signatories. No signed blankcheques should be found in cheque books at any time.•Annual reports — information of the Centre’s activities and financ...

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    54SECTION 6Record KeepingImportant Information from the CLSP Service Agreement 1 October 2005 – 30 June 2008DEFINITIONSAssethas the same meaning as given to it by the AustralianAccounting Standards but is limited to those purchased with CLSP Funds.Audited Financial Statementsmeans an Organisati...

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    55SECTION 6Record KeepingClauses 13.Access to Premises and Records13.1For the purposes of any financial audit or investigation conducted pursuantto subclauses 9.2.1 and 12.5, the Organisation will give ‘those permitted’:(a) access to premises at which Material associated with this Agreement i...

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    N AT IONALF I NANC IALM ANA GEMENTG UID E F O RC OM M U N I T YL EG ALC ENT R ESContentsInternal Control Structure57Investments57Bank Accounts58Banking59Electronic Banking59Bank Reconciliations59Receipt Books59Cheque Payments60Capital Expenditure61Remittance Advice Slips61Board or Committee Appro...

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    57SECTION 7Cash Management7. Cash ManagementInternal Control StructureThe Australian Accounting Research Foundation provides the following statementregarding a recommended internal control structure:The internal control structure is the plan of the organisation and all the methods andprocedures a...

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    58SECTION 7Cash ManagementBank AccountsCentres usually require some, or all, of the following accounts:• Main operating account — most transactions occur through thisaccount. Payments are made, and the account is ‘topped up’ by thetransfer of funds from cash management accounts as require...

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    59SECTION 7Cash ManagementBankingCash and cheques should be deposited as soon as possible after collection. Cash andcheques should be kept securely until banked. Make frequent trips to the bank ratherthan waiting until large amounts have accumulated. Standard safety precautionsshould be applied b...

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    60SECTION 7Cash ManagementCheque PaymentsMost transactions involve cheques for the payment of goods and services. It isimportant to have sound internal control procedures in place. Ideally a clearseparation of duties should be in place, meaning that no one person deals with animportant financial ...

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    61SECTION 7Cash Management• date the payment is requested; and• an account code for costing purposes.Sometimes payments need to be made for which there is little or no documentaryevidence (such as transferring funds between accounts). Cheque requisitions shouldstill be prepared for these paym...

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    62SECTION 7Cash ManagementPayments to Members of Management CommitteePayments for travel and accommodation for Board/Committee members shouldalways be approved by the Committee before the expenditure is incurred, to ensurethere is no conflict of interest. A fundamental rule of internal control is...

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    N AT IONALF I NANC IALM ANA GEMENTG UID E F O RC OM M U N I T YL EG ALC ENT R ESContentsEmployment Records63Paying Wages63Tax File Number Declarations64Flexi-time (Time-in-Lieu)65Salary Sacrifice65Time Sheets70Superannuation Guarantee71Voluntary Superannuation Contributions72Workers Compensation7...

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    63SECTION 8Payroll8. PayrollEmployment RecordsThe Centre should ensure that all employees have a written contract explaining the terms of the employment, specifying the award, conditions and date ofcommencement. This document should be kept in the personal folder for theemployee and all the infor...

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    64SECTION 8Payroll• rate at which employee is being paid;• the gross and net amounts of payments, including any withholdings;• superannuation contributions made;• details of leave granted or taken and current balance of leave; and• salary sacrifice details and balance of salary sacrific...

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    65SECTION 8PayrollFlexi-time (Time-in-Lieu)Most Centres operate on a flexi-time credits and debits system. Each Centre has its own policies and procedures for the system.Flexi-time is essentially an accumulation of hours worked over the required hours(seven hours a day for full-time employees, ex...

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    66SECTION 8Payroll• Exempt benefits — there are a number of exempt benefits such as alaptop or notebook computer, and a mobile phone that is primarilyused for business.PAYG tax withheld should be based on the gross salary after the adjustment forsalary sacrifice. The employee’s PAYG payment...

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    67SECTION 8PayrollGrossing upType 1 Fringe BenefitThis is used when the employer is entitled to claim an input tax credit in relation to a purchase.The figure is calculated by:FBT rate + GST rateXFringe Benefit Amount(1 – FBT rate) x (1 + GST rate) x (FBT rate)Substituting the rates, this equal...

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    68SECTION 8PayrollSalary Sacrifice AgreementThe employee or employer should not be compelled to enter into a sacrificearrangement. The arrangement must not be less favourable to the employee thanotherwise available under the award.The employer should ensure that:• the structure of the agreement...

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    69SECTION 8PayrollOther IssuesPayments of leave loading, superannuation and workers compensation are affectedby salary sacrificing. Calculations of these figures should be based on the pre-salarypackaged total salary so as not to disadvantage employees in any way. This isreferred to in the Social...

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    70SECTION 8Payrollregular details of a cheque requisition; however, it should also contain a section that requires signature if the payment is to a credit card. This section requires theemployee to verify that they owe money on the card and this payment will not putthe card into credit (owing the...

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    71SECTION 8PayrollSuperannuation GuaranteeThe Superannuation Guarantee (Administration) Act 1992 applies from 1 July 1992. Itwas introduced to ensure that most employees receive superannuation support.Employers must provide a minimum amount of superannuation support into acomplying superannuation...

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    72SECTION 8PayrollThe following dates apply to quarterly superannuation guarantee payments:Superannuation Cut-off date for Due date for lodgmentguarantee superannuationof superannuation quarterguaranteeguarantee statementcontributionsand payment of the superannuation guarantee charge if contribut...

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    73SECTION 8PayrollWorkers CompensationIf an organisation pays salary and wages to any person, it must have a WorkersCompensation insurance policy. Generally, if contractors are employed, theorganisation is required to cover those contractors for workers compensation.A contractor is deemed to be a...

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    74SECTION 8PayrollCentre’s relevant policy. It is recommended that this policy be based onthe ‘reasonable limit’ set by the ATO.The allowance is intended to compensate for the cost of meals not alreadyprovided. It is not intended to completely pay for a meal, but to pay thedifference betwee...

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    N AT IONALF I NANC IALM ANA GEMENTG UID E F O RC OM M U N I T YL EG ALC ENT R ESContentsDefinition75Accrued Expenses75Prepaid Expenses76Accrued Income76Income in Advance76Reversals of End-of-period Adjustments77Standing Journals77Accrual AccountingSECTION9NACLC_Financial_TEXT_DIVIDE.qxd 27/7/06 ...

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    75SECTION 9Accrual Accounting9. Accrual AccountingDefinitionAccounting is how an organisation ‘accounts’ for its financial operations andperformance. There are two systems of accounting — cash and accrual. The twosystems are based on different doctrines and principles.Accrual accounting sim...

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    76SECTION 9Accrual AccountingPrepaid ExpensesA payment made in the current accounting period that extends benefit into the nextaccounting period, (e.g. insurance) is a prepaid expense. The amount of theprepayment is of value to the organisation because it will not have to make a furtherpayment un...

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    77SECTION 9Accrual AccountingReversals of End-of-period AdjustmentsReversals are required, as in the next accounting period the unpaid expense mayhave been paid, or income may have been received, and the prepaid expense willhave been consumed further, or income in advance will have actually been ...

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    N AT IONALF I NANC IALM ANA GEMENTG UID E F O RC OM M U N I T YL EG ALC ENT R ESContentsDefinition79Adjustments79Carry Over of Funds80ProvisionsSECTION10NACLC_Financial_TEXT_DIVIDE.qxd 27/7/06 9:21 AM Page 21

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    79SECTION 10Provisions10. ProvisionsDefinitionA provision is an amount expensed in the current accounting period, which ismatched against the income for that year. The provision is set aside until the actual event or expenditure occurs at a future date; when it does occur, theexpenditure can then...

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    80SECTION 10ProvisionsCarry Over of FundsProvisions in accounting are very different from carry over funds. It is important tounderstand ‘carry over of funds’ clauses from the CLSP Service Agreement 1 October2005 to 30 June 2008.Carry over of funds6.1The Organisation may only carry over and u...

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    N AT IONALF I NANC IALM ANA GEMENTG UID E F O RC OM M U N I T YL EG ALC ENT R ESContentsReconciliation Work Papers81Accounts Payable81Accounts Receivable81Assets81Bank Accounts81Accruals81Prepayments82Payroll Clearing82Deductions Clearing Accounts82Leave Entitlements82ReconciliationsSECTION11NACL...

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    81SECTION 11Reconciliations11. ReconciliationsReconciliation Work PapersIt is important to perform reconciliations on all balance sheet figures. Reconciliationwork papers should form part of the financial records attached to the financialstatements for the accounting period, and be available for ...

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    82SECTION 11ReconciliationsPrepayments A work paper should be prepared showing the compilation of each item of prepaidexpenditure or income. The totals should balance to the amount on the balancesheet for prepaid income and prepaid expenditure.Payroll ClearingThe payroll clearing account should b...

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    N AT IONALF I NANC IALM ANA GEMENTG UID E F O RC OM M U N I T YL EG ALC ENT R ESContentsAustralian Business Number (ABN)83Fringe Benefits Tax (FBT)83Goods and Services Tax (GST)86Business Activity Statement (BAS)88Pay-As-You-Go (PAYG) Withholding System88Sample of Salary Packaging Policy92Taxatio...

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    83SECTION 12Taxation12. TaxationAustralian Business Number (ABN)The ABN is a single identifier for use in business dealings with the ATO and futuredealings with other government agencies. It was introduced to simplify the wayorganisations deal with government.The ABN forms an essential part of th...

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    84SECTION 12TaxationSome employers, including charities, will need to distinguish between employees and volunteers. For the purposes of FBT, an employee is a person who receives (or is entitled to receive) salary or wages, or a benefit that has been provided inrespect of their employment. A volun...

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    85SECTION 12TaxationReportable fringe benefitsYou must keep records that show the taxable value of certain fringe benefitsprovided to your organisation’s employees, regardless of your organisation type.If the total taxable value of reportable fringe benefits provided to your employee inan FBT y...

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    86SECTION 12TaxationGoods and Services Tax (GST)The GST is a broad-based tax of 10% on the sale of most goods, services and otherthings in Australia. GST is charged at each step in the supply chain, with registeredbusinesses including GST in the price of goods and services they sell. These are ca...

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    87SECTION 12Taxation• giving charities (and certain non-profit entities) greater flexibility with regard to their structure for GST purposes, creating significantcompliance savings. That is, they may treat separately identifiable unitsof their organisations as separate entities (non-profit sub ...

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    88SECTION 12TaxationReimbursement of volunteer expensesWhere a charitable institution, charitable fund, gift deductible entity or governmentschool reimburses an individual person for an expense they have incurred that isdirectly related to their activities as a volunteer of that charity, gift ded...

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    89SECTION 12TaxationThe organisation is also required to provide each employee with an annual paymentsummary of the amount withheld from them during the year, and to provide anannual report to the ATO on withheld amounts.Charities and other non-profit organisations must comply with the PAYG withh...

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    90SECTION 12TaxationAnnual reportingThe organisation must provide a report to the ATO for each financial year ending30 June containing all withholding payments made, and amounts withheld for allpayees. This report is due by 14 August. A paper form can be lodged with the originalpayment summaries....

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    91SECTION 12TaxationLabour hire arrangementsLabour hire arrangements commonly involve at least two contracts. An organisationcontracts with the labour hire firm to supply specified labour. The labour hire firmdoes not contract to perform the work; it instead contracts to provide labour to workund...

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    92SECTION 12Taxations Sample of Salary Packaging Policy Flexible Remuneration Package (Salary Packaging Scheme)______________________ is an approved public benevolent institution for income tax,fringe benefits tax. Accordingly, benefits provided to employees will be exempt tothe ‘grossed-up’...

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    93SECTION 12TaxationFringe Benefits, GST and Grossing UpThe dollar limit for salary packaging is to ensure that __________________ does nothave to pay any fringe benefits tax. Each person is allowed by the Tax Office to haveup to $30,000 ‘grossed up’ per year in fringe benefits before _______...

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    94SECTION 12TaxationFurther InformationEmployees should check with their independent professional financial adviser to see how salary packaging affects them personally __________________ are not able togive taxation advice or financial planning advice. Everyone is recommended to seektheir own ind...

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    95SECTION 12TaxationMethod of PaymentPayments will only be made when __________________ has received adequatedocumentary substantiation such as a tax invoice, credit card statement, ormortgage agreement. Employees’ core salary will be paid on a fortnightly basis with the fringe benefit componen...

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    N AT IONALF I NANC IALM ANA GEMENTG UID E F O RC OM M U N I T YL EG ALC ENT R ESContentsAsset Register97Depreciation98Asset ManagementSECTION13NACLC_Financial_TEXT_DIVIDE.qxd 27/7/06 9:21 AM Page 27

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    97SECTION 13Asset Management13. Asset ManagementAsset RegisterAn asset register is a collection of details of all non-current assets. (‘register’, inaccounting, is a formal or official recording of items within a book or register,e.g. a Fixed Asset Register or Invoice Register). For each non-...

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    98SECTION 13Asset ManagementDepreciation‘Depreciation’ is the amount of expense charged against costs by a Centre to writeoff the equipment over its useful life, giving consideration to wear and tear,obsolescence, and salvage value.If the expense is assumed to be incurred in equal amounts in ...

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    99SECTION 13Asset ManagementMethodsAs mentioned above, the two methods of depreciation are:Straight Line DepreciationStraight Line Depreciation, also known as Prime Cost or Fixed Instalment, writes offas an expense a constant amount over the useful life of the asset.Reducing Balance DepreciationR...

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    N AT IONALF I NANC IALM ANA GEMENTG UID E F O RC OM M U N I T YL EG ALC ENT R ESContentsCentre-owned Vehicles101Employees’ Private Vehicles101Motor VehicleExpensesSECTION14NACLC_Financial_TEXT_DIVIDE.qxd 27/7/06 9:21 AM Page 29

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    101SECTION 14Motor Vehicle Expenses14. Motor Vehicle ExpensesCentre-owned VehiclesCentres can claim deductions for actual expenditure on vehicles owned or leased bythe Centre. Records must be kept for expenditure on such things as registration,insurance, repairs, fuel, oil, interest and lease fee...

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    N AT IONALF I NANC IALM ANA GEMENTG UID E F O RC OM M U N I T YL EG ALC ENT R ESContentsRole of the Management Committee103Role of the Finance Sub-Committee103Treasurer’s Role106Important Information from the Service Agreement107ManagementCommitteesSECTION15NACLC_Financial_TEXT_DIVIDE.qxd 27/7...

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    103SECTION 15Management Committees15. Management CommitteesRole of the Management CommitteeWhen you join a Board or Management Committee you accept the obligation to look after your organisation’s finances. In some cases, a Board or ManagementCommittee’s financial responsibilities may be quit...

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    104SECTION 15Management CommitteesThe Finance committee receives the following items for approval:• Statement of Financial Position (Balance Sheet);• Statement of Financial Performance (Profit and Loss statements);• accounts payables reconciliation;• accounts receivable reconciliation;•...

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    105SECTION 15Management Committees• predict financial outcomes to year-end;• recommend any action that should be taken in operations, in light ofthe results to date;• provide information on bank accounts and cash flows to year-end(While the Income and Expenditure Statement might show that t...

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    106SECTION 15Management Committees• Print another Profit and Loss report and analyse to check for any majorvariances to income or expenditure;• Print this report as an Excel spreadsheet and format to the same asprevious quarters.• Make relevant comments on any variance to the budget of over...

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    107SECTION 15Management Committeesthe Treasurer should endeavour to draw up a table showing budgeted expenditureand income under each heading for the year-to-date, the actual expenditure undereach heading, and the difference between the two. This will flag many approachingproblems.Further informa...

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    108SECTION 15Management Committees10.2The Organisation will provide to the Funding Bodies through the SPM thefollowing Reports for each Financial Year:(a)an Annual Accrual Budget;(b)quarterly Income and Expenditure Reports;(c)six monthly Progress Reports (12 monthly for centres receiving up to $1...

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    N AT IONALF I NANC IALM ANA GEMENTG UID E F O RC OM M U N I T YL EG ALC ENT R ESContentsFunding Agreements109MYOB Set-up for Reports109Important Information from the Service Agreement110Reporting to FundersSECTION16NACLC_Financial_TEXT_DIVIDE.qxd 27/7/06 9:21 AM Page 33

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    109SECTION 16 Reporting to Funders16. Reporting to FundersFunding AgreementsA funding body service agreement includes a financial section that sets out thefunding body’s requirements for:• timing of financial reporting against budgets (e.g. quarterly or bi-annually);• the layout of the rep...

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    110SECTION 16 Reporting to FundersImportant Information from the Service AgreementThe CLSP Service Agreement 1 October 2005 – 30 June 2008 provides the followinginformation.DEFINITIONReportmeans any of the Services Material referred to in clause 10 thatis provided to the Funding Bodies or the ...

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    111SECTION 16 Reporting to FundersSchedules as per the Funding and Service AgreementSCHEDULE 5USE OF FUNDS AND ASSETS AND SPECIFIC FINANCIAL REPORTING REQUIREMENTS(1)The Organisation must:(a)ensure that a minimum of two signatories are required to operate anyaccount in which the Organisation dep...

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    112SECTION 16 Reporting to Funders(2)The Organisation must not, without prior written approval of the SPM:(a)transfer funds between Funding Categories;(b)spend in excess of 5% or $5,000 of Funds (whichever is the lesser),to defend itself against any litigation in accordance with subclause 8.1;(c...

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    113SECTION 16 Reporting to Funderss AUDITOR DETAILSFull Name:Name of Company (if applicable):ACN or ABN Number:Registered Auditor:ss Yes ss NoIf Yes: Registration No.: _________________Signature:Date:______ / ______ / ______NACLC_Financial_TEXT_FIN_A2.qxd 27/7/06 1:23 PM Page 113

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    114SECTION 16 Reporting to FundersSCHEDULE 6PROPOSAL TO RETAIN EXCESS SURPLUS FUNDS Pursuant to Clause 7 of the Agreement, the Organisation may submit a proposal to therelevant Funding Body through the SPM to spend or retain its Excess Surplus in the FinancialYear following that in which the Exc...

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    115SECTION 16 Reporting to Funders(3) Identification of the Excess Surplus Funds.Proposals should identify the amounts of the Allowable Surplus and the FutureContingency separately from the amount of Excess Surplus Funds for which approvalto carry over is being sought.(4)Commitment of the Allowa...

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    N AT IONALF I NANC IALM ANA GEMENTG UID E F O RC OM M U N I T YL EG ALC ENT R ESContentsCentres with Trust Accounts117Types of Money117Keeping Records118The Accountant’s Report119Trust AccountsSECTION17NACLC_Financial_TEXT_DIVIDE.qxd 27/7/06 9:21 AM Page 35

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    117SECTION 17Trust Accounts17. Trust AccountsCentres with Trust AccountsIt is very important for centres to ensure that trust account management complieswith the relevant legislation act of each state.State Legal Profession Acts define the types of money received by a solicitor, and howthe solici...

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    118SECTION 17Trust AccountsControlled moneyControlled money is money received in the course of practice as a solicitor that inaccordance with the instructions received from the person on whose behalf themoney is held, is deposited to an account, (other then the general trust account),over which t...

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    119SECTION 17Trust AccountsTrial balance The trial balance is used by the accounting system to ensure that the principle of double-entry accounting has been followed correctly (i.e. that the system is inbalance). The trial balance is designed to highlight any errors with the Centre’sinternal re...

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    120SECTION 17Trust AccountsProcedural mattersMajor areas to note:• The Reporting Accountant’s Checklist is to be left in the custody of the solicitor and retained by the solicitor with the trust account andcontrolled money records. The Checklist may be inspected by a TrustAccount Inspector....

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    N AT IONALF I NANC IALM ANA GEMENTG UID E F O RC OM M U N I T YL EG ALC ENT R ESContentsExternal Audits121Important Information from the Service Agreement122AuditsSECTION18NACLC_Financial_TEXT_DIVIDE.qxd 27/7/06 9:21 AM Page 37

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    121SECTION 18Audits18. AuditsExternal AuditsAn external audit is required by most Centres. To ensure that an independent body is auditing the income and expenditure of the organisation, compliance issues arebeing addressed and internal control process monitored, an external audit is highlyrecomme...

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    122SECTION 18AuditsImportant Information from the Service AgreementThe following Information is taken from CLSP Service Agreement1 October 2005 – 30 June 2008.DEFINITIONAudited FinancialAn organisation’s financial statements prepared and certifiedStatementsby a registered auditor including:(a...

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    123SECTION 18AuditsFinancial audits9.2.1At its discretion, the Commonwealth may appoint an Approved Auditor toconduct specific financial audits of the Organisation in relation to thisAgreement.9.2.2The Commonwealth will consult with the Organisation on arrangements for conduct of the audit.9.2.3T...

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    124SECTION 18AuditsATTACHMENT A s AUDITOR’S CERTIFICATIONName of Organisation:Financial Year Period:_____ /_____ /_____to _____ /_____ /_____I hereby certify that:(a)I am not a principal, member, shareholder, officer, employee or accountant ofthe Organisation or of a related body corporate as...

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    125SECTION 18Auditss AUDITOR DETAILSFull Name:Name of Company (if applicable):ACN or ABN Number:Registered Auditor:ss Yes ss NoIf Yes: Registration No.: _________________Signature:Date:______ / ______ / ______NACLC_Financial_TEXT_FIN_A2.qxd 27/7/06 1:24 PM Page 125

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    N AT IONALF I NANC IALM ANA GEMENTG UID E F O RC OM M U N I T YL EG ALC ENT R ESContentsMYOB Software127Backing up Data Files127Accounting SystemsSECTION19NACLC_Financial_TEXT_DIVIDE.qxd 27/7/06 9:21 AM Page 39

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    127SECTION 19Accounting Systems19. Accounting SystemsMYOB SoftwareMost community legal centres use MYOB accounting and payroll software. Thissoftware is extremely user friendly, and for an annual membership fee for ‘MYOBCover’, has a reliable back-up service to provide answers to any queries ...

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    128SECTION 19Accounting SystemsIf the accounting system data files are kept on a shared drive, they should be securedwithin a locked folder, with access only by the Financial Administrator. The accesscode should be recorded, sealed in an envelope and kept in a location known to theCoordinator or ...

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    N AT IONALF I NANC IALM ANA GEMENTG UID E F O RC OM M U N I T YL EG ALC ENT R ESContentsSecurity129Computer PasswordsSECTION20NACLC_Financial_TEXT_DIVIDE.qxd 27/7/06 9:21 AM Page 41

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    129SECTION 20Computer Passwords20. Computer PasswordsSecurityIt is good practice to have the Financial Administrator’s computer network folderlocked with a password that only the Financial Administrator and the Coordinatorknow, to ensure that payroll information and Centre financial records and...

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    N AT IONALF I NANC IALM ANA GEMENTG UID E F O RC OM M U N I T YL EG ALC ENT R ESContentsPractising Certificates131Conferences132Professional Indemnity Insurance132Community Legal Centre Specific IssuesSECTION21NACLC_Financial_TEXT_DIVIDE.qxd 27/7/06 9:21 AM Page 43

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    131SECTION 21Community Legal Centre Specific Issues21. Community Legal Centre Specific IssuesPractising CertificatesPractising certificates must be held so that Centre solicitors can provide the legalinformation and support to clients. Certificate renewals are due in May each year.Most Centres pa...

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    132SECTION 21Community Legal Centre Specific IssuesConferencesState conferences and national conferences are usually held annually. Many Centres send most of their employees to state conferences; however, as nationalconferences may pose increased travel costs (depending on which state is hosting ...

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    N AT IONALF I NANC IALM ANA GEMENTG UID E F O RC OM M U N I T YL EG ALC ENT R ESContentsPolicy Development and Review133Suggested List of Financial Policies134Examples of Policies135PoliciesSECTION22NACLC_Financial_TEXT_DIVIDE.qxd 27/7/06 9:21 AM Page 45

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    133SECTION 22Policies22. PoliciesPolicy Development and ReviewA ‘policy’ is a broad position, direction or general approach taken by an organisationin respect of its governing and operational activities. They aim to provide clear,unambiguous guidelines for implementing activities and provide ...

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    134SECTION 22PoliciesFinancial management• Financial managementpractices • Annual budget• Income generation• Financial reporting• Asset management• Investment• Record keeping• Accounting systemsBookkeeping• Quarterly reports• Audits• Banking• Cash management• Payments•...

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    135SECTION 22PoliciesExamples of PoliciesFinancial Management PolicyPolicy:The Financial Administrator (or Coordinator of some Centres) isresponsible for the day-to-day financial management of theCentre. This duty will be carried out in a way that is both ethicaland transparent and contributes to...

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    136SECTION 22PoliciesAnnual Budget PolicyPolicy:It is the responsibility of the Financial Administrator (orCoordinator /Executive Officer) in conjunction with the FinanceSub-committee to research and develop the organisation’soverall annual operating budget. The annual budget will besoundly pre...

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    137SECTION 22Policies•ensuring that any application to the ManagementCommittee/Board for expenditure that has not beenspecifically budgeted for is supported by precise costingsand a recommendation as to how the new expenditure can be funded; and•anticipating and making budgetary estimates for...

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    N AT IONALF I NANC IALM ANA GEMENTG UID E F O RC OM M U N I T YL EG ALC ENT R ESContentsAdministration Group Meetings139ATO Website139Australia Wide Taxation & Payroll Training139External Auditor139MYOB Customer Care139Bulletin Board Service (BBS)140Networking andSupport informationSECTION23N...

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    139SECTION 23Networking and Support Information23. Networking and Support InformationAdministration Group MeetingsIt is highly recommended that Financial Administrators attend the Administrators’meetings in their relevant state and at the National Conference.Coordinator/Executive Officer and Fi...

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    140SECTION 23Networking and Support InformationBulletin Board Service (BBS)The Bulletin Board Service (BBS) is the platform used by community legal centres foremail communications, both to other community legal centres and to external emailaddresses. Bulletin boards are set up within the BBS for ...

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    N AT IONALF I NANC IALM ANA GEMENTG UID E F O RC OM M U N I T YL EG ALC ENT R ESContentsSample Chart of Accounts for a community legal centre141Sample Chartof AccountsSECTION24NACLC_Financial_TEXT_DIVIDE.qxd 27/7/06 9:21 AM Page 49

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    141SECTION 24Sample Chart of Accounts24. Sample Chart of AccountsSample Chart of Accounts for a Community Legal CentreComment1-0000Assets1-1000Current Assets1-1100Cash On Hand1-1110General cheque accountOperating account1-1120Individual funder cheque accountFunds deposited then transferred to cas...

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    142SECTION 24Sample Chart of Accounts2-1599Salary Sacrifice Accounts2-1601S/sacrifice — A. StaffClearing accounts for salary sacrifice/wage pack balances2-1604S/sacrifice — B. Staff2-2000Employee Entitlements2-2100Provision holiday payAdjusted quarterly2-2200Provision long service leaveAdjust...

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    143SECTION 24Sample Chart of Accounts6-1320Superannuation6-1330Workers compensationPaid annually6-1340Annual leave accrualAdjusted quarterly6-1350Long service leave accrualAdjusted quarterly6-1360Parenting leave accrualAdjusted as needed6-2000 Premises6-2100Rent6-2110Rent6-2115Lease expenses6-220...

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    144SECTION 24Sample Chart of Accounts6-7120UpdatesLooseleaf and internet updating services6-7130NACLC LevyNational Assoc Legal Centres annual fee6-7140LibrarySmall publications purchased6-7500Travel6-7510Travel — distanceProcessed through payroll — travel in own vehicle6-7520Travel expensesR...

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    N AT IONALF I NANC IALM ANA GEMENTG UID E F O RC OM M U N I T YL EG ALC ENT R ESContentsAnnual Timetable145Weekly Checklist147Monthly Checklist148Quarterly Checklist149Annual Checklist150Payroll Preparation Checklist151SCHEDULE 1 from Service Agreement152SCHEDULE 2 from Service Agreement153Checkl...

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    145SECTION 25ChecklistsMONTHJULYAUGSEPTOCTNOVFINANCIAL REPORTS• Monthly income & expenditurereport for Management/Boardmeeting• Last qtr year-to-date Centrereports for Management• Last qtr year-to-date grantreports• Second year-to-date bi-annualgrant reports • Final budget for the n...

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    146SECTION 25ChecklistsMONTHDECJANFEBMARCHAPRILMAY JUNEFINANCIAL REPORTS• Monthly income & expenditurereport for Management meeting • Annual return to Departmentof Fair Trading for IncorporatedAssociations• Monthly income & expenditurereport for Management/Boardmeeting • Second qt...

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    147SECTION 25ChecklistsNO.TASKCOMPLETE1Enter data to MYOB and process outstanding bills and salary sacrifice payments requested.2Bank incoming money.3Attend staff meetings.4Monitor balances in bank accounts and transfer required funds to cover operating expenses.5Back up MYOB.6Check BBS daily for...

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    148SECTION 25ChecklistsNO.TASKCOMPLETE1Pay PAYG tax:By 21st : Aug, Sep, Nov, Dec, Feb, Mar, May, Jun.By 28th: Jul, Oct, Jan, Apr.2Pay Superannuation:By 14th of each month.3Reconcile to bank statements.4Reconcile credit card statements.5Pay union fees payable.6Prepare monthly report on all expense...

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    149SECTION 25ChecklistsNO.TASKCOMPLETE1Prepare quarterly Centre financial reportsincluding accruals, prepayments update of assets register etc. for internal reporting.Make notes on variances from budget.2Prepare quarterly grant reports for all grants for internal reporting.3Prepare the relevant q...

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    150SECTION 25ChecklistsNO.TASKCOMPLETE1Arrange Annual General Meeting (if required to as part of the Financial Administrators role).2Annual Return to Department of Fair Trading for Incorporated Associations.3Prepare end-of-year financial reportsfor Centre — July.4Arrange for audit of financial ...

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    151SECTION 25ChecklistsNO.TASKCOMPLETE1Check time sheets. Do they add up correctly? Has leave been taken?2Add any new staff members to payroll records.3Commence new pay run, ensuring the date is correct.4Adjust each employee’s pay for leave, mileage and leave loading on annual leave.5Update eac...

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    152SECTION 25ChecklistsSCHEDULE 1 from CLSP Service AgreementPAYMENT OF FUNDINGThis Schedule is established in respect of the period 1 October 2005 to 30 June 2006Total Commonwealth and state funds payableFunding category:Commonwealth State Total $$$${insert 1st funding ${insert amount${insert a...

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    153SECTION 25ChecklistsSCHEDULE 2 from CLSP Service AgreementTIMETABLE FOR SUBMISSION OF REPORTSThis Schedule is established in respect of the 2005–06, 2006–07 and 2007–08 Financial Years.The following Reports are due for submission as follows:Reports2005–06 2006–072007–08Financial Ye...

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    N AT IONALF I NANC IALM ANA GEMENTG UID E F O RC OM M U N I T YL EG ALC ENT R ESContentsSalary Packaging155Timesheet157Bank Account Details for Payment of Salaries158Personnel Record159Leave Request Form160Travel Claims161Sample FormsSECTION26NACLC_Financial_TEXT_DIVIDE.qxd 27/7/06 9:21 AM Pag...

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    155SECTION 26Sample Forms26. Sample Formss Salary PackagingAcceptance of Salary Packaging OfferNAME: ____________________________________________________________________________I wish to join the Flexible Remuneration Package. I understand it is my responsibilityto allocate sufficient funds to me...

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    156SECTION 26Sample FormsCredit cardName of bank or agency: ____________________________________________________Address:______________________________________________________________________________________________________________________________________________________________Account number: ___...

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    157SECTION 26Sample Formss Timesheet[Name of the Organisation]From:TimesheetTo:Timesheets due to the Finance Officer by [insert date]Name ____________________________________________________________________________________DayDateStartFinishLunchHoursCommentThuFriSatSunMonTueWedThuFriSatSunMonTueW...

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    158SECTION 26Sample Formss Bank Account Details for Payment of SalariesPay Details Staff member’s name: ______________________________________________________________Account 1Name of Account (if different to staff member name): ___________________________________________________________________...

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    159SECTION 26Sample Formss Personnel RecordP E R S O N N E L RE C O RDNAME:ADDRESS:CONTACT PHONE:DATE OF BIRTH:SUPERANNUATION(FUND & NUMBER) COMMENCED:JOB TITLE:CLASSIFICATION:KEYS HELD:DETAILS OF PERSON/PEOPLE TO BE CONTACTED IN AN EMERGENCY:Name (1):Address:Phone:Name (2):Address:Phone:DO Y...

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    160SECTION 26Sample Formss Leave Request Form[Name of the Organisation]SICK LEAVE / ANNUAL LEAVE REQUEST FORMNAME: ____________________________________________________________________________Please complete this form, have it authorised and submitted to the bookkeeper on the Wednesday prior to pa...

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    161SECTION 26Sample Formss Travel Claims[Name of the Organisation]TRAVEL (MILEAGE) CLAIMEMPLOYEE: ________________________________________________________________________VEHICLE USED (Make/Model/Engine): ______________________________________________DATEFROMTOKMSPURPOSETOTAL KMS TRAVELLED:@ $ ...

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    163Your CommentsYour CommentsThe National Financial Management Guide will be revised in 2008.Your comments and suggestions will be used to do the update.Please fill in the form below and fax to NACLC on 02 9264 9594 or email your comments to naclc@clc.net.au 1. Do you use the Guide? Yes / No2....

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