By: Geronimo D. Sta. Ana

1. CACCI Chamber Operations CourseAugust 25-30, 2008, Taipei, TaiwanFinancial Management for Chambers By: Geronimo D. Sta. Ana

2. PRESENTATION OUTLINE • Definition of Financial Management • Why should a CCI be concerned with Financial Management? • Basic Requirements for Good Financial Management • Accounting System • Basic Internal Control • Cash Handling – Best Practices • Budget • Financial Statements

3. Definition of Financial Management • Some definitions • Harnessing and allocation of resources of an entity to achieve its goals and objective; • Raising of capital to finance an entity’s operations and its prudent use.

4. Why should a CCI be concernedwith Financial Management? • Financial resources are critical to the growth and sustainability of an organization • Generation of funds (resources) and their effective use is vital to the attainment of the organization’s objectives.

5. Why should a CCI be concerned with Financial Management? • The funds of a CCI are entrusted to it by its members and donors/grantors. It is then incumbent for a CCI to act as good stewards for these funds.

6. Basic Requirements for Good Financial Management • Competent and adequate accounting staff • Adequate accounting system • Adequate internal control • Good practices in cash handling • Budget System • Monthly/Periodic Financial Statements • Internal audit (in big CCIs when necessary) • Annual independent audit

7. Accounting System • Chart of Accounts • Books of Accounts • General Ledger • Cash Receipts Book • Cash Disbursements Book • General Journal • Subsidiary Ledgers

8. Accounting System (continued) • Accounting Procedures • Duties and Responsibilities of accounting staff • Basic Internal Control Features, especially on Cash Handling • Periodic Financial Statements • Accounting and Business Forms

9. Basic Internal Control • Internal Control - a process effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: • Effectiveness and Efficiency of operations • Reliability of financial reporting • Compliance with applicable laws and regulations

10. Cardinal Principles of Internal Control • Responsibility for the performance of each duty must be fixed; • Accounting and financial operations must be separated; • Proofs of accuracy should be utilized in order to ensure correctness of operation accounting; • No one person shall be in complete charge of a business transaction;

11. Cardinal Principles of Internal Control • Employees must be carefully selected and trained; • Employees should be rotated on a job. If possible, vacations for those in position of trust should be enforced; • Employees occupying positions oftrust should be bonded;

12. Cardinal Principles of Internal Control • Operating instructions for each position should be reduced to writing; • The protectiveadvantages of double entry system of accounting should not be exaggerated; • Controlling accounts should be used extensively as possible. Mechanical and/or electronic equipment should be used if feasible.

13. Principles of Internal Control (Summary) • Establish responsibilities • Maintain adequate records • Insure assets and bond employees • Separate record keeping and custody of assets • Divide responsibility for related transactions • Apply technological controls • Perform regular and independent reviews

14. CASH HANDLING Best Practices in Cash Handling • Cash Management – the need to have cash come in --- flow in --- at the right times, so that it is available to flow out as needed. • General • Adequately train employees who handle cash, then continually enforce the who, what, where, when, why, and how of cash handling in a never-ending cycle;

15. Best Practices in Cash Handling • General • Maintain good records. This creates a paper trail for each transaction and deters unauthorized transactions, including theft; • Make sure that two people are involved in preparing, posting and delivering the deposit; • Deposit cash receipts on a daily basis. Do not leave bank deposit/cash remittance unattended once it has been prepared. Lock it in a safe until it is time to take it to the bank/cash office. • Documents should be initialed by the preparer in order to maintain a paper trail for each transaction. • Stamp “For Deposit Only into Account # ________” on all incoming checks.

16. Best Practices in Cash Handling • Instruct bank never to cash checks made out to the company, but to only deposit them. • Require ID access to cash registers and computer systems so that transactions can be traced to individual employees. • Require supervisory approval of all write-offs or write-downs and scan accounts for any unexplained discounts. • Do not make payments from funds collected. Separate these transactions.

17. Best Practices in Cash Handling • Perform criminal record and background checks when hiring employees who will handle cash, especially temporary staff. • Take out bond insurance on all employees handling bank deposits.

18. Best Practices in Cash Handling • Allow as few people as possible into the area where cash is stored and handled. Keep a log of anyone issued a key or given knowledge of a combination for a safe or room where cash is stored or handled. • Enforce mandatory vacations and rotate duties of preparing and making deposits. • Maintain a “trust but verify” attitude.

19. Best Practices in Cash Handling • Check and Balance Activities • On a daily basis, if possible, compare the cash register records (or cash receipts book) to the deposit slip (or cash remittance form). Ensure that the composition of cash remains consistent (i.e., amount of currency, checks, debit, credit).

20. Best Practices in Cash Handling • On a daily basis, if possible, compare the deposit slip (or cash remittance form) to the amount of cash actually deposited into the bank (deposit slips returned by the bank). Ensure that the composition of cash is the same. Explain and correct differences. • Conduct surprise cash counts during shifts and publicize that they will occur randomly.

21. Budget Budget - a pre-determined, detailed plan of action, expressed in units and pesos, developed and distributed as a guide to current operations and as a partial basis for the subsequent evaluation of performance. • Budget components in a manufacturing set-up: • Physical budget • Cost budget (manufacturing, selling, administrative, financing • Income budget (sales, cost of sales and expenses) • Finance budget (cash, capital budgets, financing, balance sheet)

22. Budget • Another classification of Budgets: • Operating cash budget • Capital expenditures budget • Purposes of Budgets • Planning • Controlling • Coordinating

23. Financial Statements • Definitions • Balance Sheet – Financial statement showing what the CCI owns, what it owes and the CCI’s equity at a certain definite date (usually end of the year); Assets, Liabilities & Equity or Fund Balance • Also known as Statement of Condition

24. Financial Statements • Definitions • Income Statement - Financial statement showing the CCI’s revenues, expenses and excess of revenues over expenses or net income (or excess of expenses over revenues or net loss) for a period of time (month, quarter, 6 months or one year)

25. Financial Statements • Definitions • Cash Flow Statement - Financial statement showing the CCI’s cash flows from operating activities, cash flows from investing activities, cash flows from financing activities -- for a period of time (month, quarter, 6 months, or one year) and the net increase/decrease in cash for the period.

26. Proforma Balance SheetDecember 31 ___ ASSETS Last Year Current Year • Current Assets - Cash - Receivables - Temporary Investments - Supplies • Total Current Assets • Property & Equipment • Investment in Stocks • Other Assets Total Assets

27. Balance Sheet (continued) LIABILITIES & FUND BALANCES Last Year Current Year • Current Liabilities - Accounts Payable and Accrued Expenses - Tenants deposits - Current portion of loans payable - Other current liabilities • Total current liabilities • Loans payable, net of current portion - Total Liabilities • Fund Balance - General Fund - Property & Building Fund - Total Fund Balance • Total Liabilities & Fund Balances

28. Proforma Income Statementfor Year ended _______ Last Year Current YearREVENUES - General membership fees & dues - Import Processing fees - Export documentation fees - Members services - Rental Income - Donations & subsidies - Seminar fees - Trade promotions - Interest income - Miscellaneous - Total Revenues

29. Income Statement Last Year Current Year • Expenses - Salaries, bonuses & allowances - Depreciation - Interest - Light & water - Communications - Security services - Repairs & maintenance - Bad debts - Taxes & Licenses - Advertisement & publications - SSS,Medicare & HDMF contributions - Advocacy - Office Supplies - Transportation & Travel - General membership expenses - Employees benefits

30. Income Statement Last Year Current Year Expenses (continued) Insurance Representation & Entertainment Professional fees Fuels & lubricants Miscellaneous Total expenses • Excess of Expenses over Revenues FUND BALANCE January 1 Transactions during the year, net FUND BALANCE, December 31

31. Statement of Cash FlowsYear ended December 31 ___ CASH FLOWS FROM OPERATING ACTIVITIES • Net loss for the year • Adjustments to reconcile net surplus to net cash (used in) provided by operating activities: - Bad debts - Depreciation - Funds transactions during the year - Increase in receivables • Increase (decrease) in operating liabilities - Accounts payable & accrued expenses - Tenants deposits - Members’ deposits - Income tax payable • Net Cash Provided by (Used in) Operating Activities

32. Statement of Cash Flows • CASH FLOWS FROM INVESTING ACTIVITIES • Acquisition of property & equipment • Increase in investment in stocks • (Increase) decrease in other assets • Net Cash Provided by (Used in) Investing Activities • CASH FLOWS FROM FINANCING ACTIVITIES • Acquisition (payment) of loans • NET INCREASE (DECREASE) IN CASH • CASH BALANCE, JANUARY 1 • CASH BALANCE, DECEMBER 31

33. C H E E R S ! ! !