FINANCIAL MANAGEMENT WORKSHOP

1. FINANCIAL MANAGEMENT WORKSHOP AH&MRC - Financial Management Workshop (funded by OATSIH)

2. Introduction & Welcome • OATSIH have funded a series of 4 regional workshops in NSW • Financial Management & Reporting Infrastructure Workshops • Targeted to Aboriginal Community Controlled Health Organisations AH&MRC - Financial Management Workshop (funded by OATSIH)

3. MAIN OBJECTIVES • To assist in the development of a financial management information and reporting system including useful and meaningful reporting formats • To educate on effective budgeting tools and processes • To provide professional development opportunities in other related topics AH&MRC - Financial Management Workshop (funded by OATSIH)

4. Workshop Program – Day 1 • Session One – International Financial Reporting Standards (IFRS) • Session Two – OATSIH & NSW Health Dept • Session Three – Financial Control & Budgeting • Session Four – Fringe Benefits Tax & Salary Packaging AH&MRC - Financial Management Workshop (funded by OATSIH)

5. Workshop Program – Day 2 • Session Five – WorkChoices – Industrial Law Reform • Session Six – Australian Taxation Office • Session Seven – Financial Reporting & Funding Obligations • Session Eight – Fundraising Applications & Strategies AH&MRC - Financial Management Workshop (funded by OATSIH)

6. AH&MRC - Financial Management Workshop (funded by OATSIH)

7. International Financial Reporting Standards (IFRS) OBJECTIVES: • To gain an understanding of the impact of IFRS on your organisation. • To understand and apply the “Reporting Entity” concept. • To be aware of the timeframe for compliance and implementation. • To be aware of the standards specific to Not For Profit entities. • Hear from other organisations how they have implemented IFRS and what challenges they experienced and what strategies worked best. AH&MRC - Financial Management Workshop (funded by OATSIH)

8. IFRS • Australian Equivalent to International Financial Reporting Standards (AIFRS) applicable to Financial Reporting periods beginning on or after 1 January 2005. • There are approx. 40 Standards. • Not all IFRS standards apply to all entities. • But all entities are affected by IFRS. AH&MRC - Financial Management Workshop (funded by OATSIH)

9. IFRS • The “Reporting Entity” definition is a key concept when determining the impact of IFRS. • “Reporting Entity” definition – “ An entity in respect of which it is reasonable to expect the existence of users who rely on the entity’s general purpose financial report for information that will be useful to them for making and evaluating decisions about the allocation of resources.” AH&MRC - Financial Management Workshop (funded by OATSIH)

10. IFRS • Every entity that satisfies the definition is required to prepare General Purpose financial statements in accordance with AIFRS. • Entities that are “NON REPORTING ENTITIES” will only be required to prepare Special Purpose financial statements. However, the recognition and measurement requirements of AIFRS are expected to be adopted. AH&MRC - Financial Management Workshop (funded by OATSIH)

11. IFRS • Determine whether your organisation is a Reporting Entity or a Non Reporting Entity. • Any company structure that has reporting obligations to ASIC and is bound to comply with the Corporations Act 2001 is automatically deemed a “Reporting Entity”. • Examples of Non-Company structures:- Aboriginal Corporations, Cooperatives, Incorporated Associations. • These may declare themselves as “Non Reporting Entities”. AH&MRC - Financial Management Workshop (funded by OATSIH)

12. IFRS • The key underlying driver of the move towards international harmonisation was consistency and comparability of accounting records across jurisdictions, both nationally and internationally. • Do you know how IFRS will affect your organisation? • To what extent have you implemented IFRS? AH&MRC - Financial Management Workshop (funded by OATSIH)

13. For a 31 December year end. Financial Statements ending 31 December 2005 need to be IFRS compliant including 2004 comparatives. For a 30 June year end. Financial Statements ending 30 June 2006 need to be IFRS compliant including 2005 comparatives. IFRS – Timeframes AH&MRC - Financial Management Workshop (funded by OATSIH)

14. IFRS – First Time Adoption The first step in the process of preparing IFRS financial statements is the preparation of an opening balance sheet at the transition date. This involves converting the balance sheet at transition date under previous GAAP to an IFRS compliant balance sheet. AH&MRC - Financial Management Workshop (funded by OATSIH)

15. IFRS – First Time Adoption The following tasks must therefore be completed:- • Recognise assets and liabilities permitted by IFRS. • Derecognise assets and liabilities not permitted by IFRS (e.g. goods subject to installation and contingent assets that are probable but not virtually certain). • Remeasure assets and liabilities in accordance with IFRS. • Reclassify assets and liabilities in accordance with IFRS. AH&MRC - Financial Management Workshop (funded by OATSIH)

16. IFRS - Impact The move to IFRS may have some of the following effects on your entity: • Reported results • Recognition and measurement of assets and liabilities • Reporting systems • Budgets and funding • Performance measures AH&MRC - Financial Management Workshop (funded by OATSIH)

17. IFRS – Suggested Strategy STRATEGY • Where necessary create a detailed project plan to help implement the change to IFRS • Make the decision whether to convert existing information to IFRS as part of year end adjustments or implement IFRS across the whole accounting process AH&MRC - Financial Management Workshop (funded by OATSIH)

18. IFRS – Suggested Strategy LEADERSHIP • If IFRS implementation is managed as a major project – Nominate a strong project manager COMMUNICATION • Decision to convert, needs to be communicated to ALL employees within the entity who will be affected by IFRS AH&MRC - Financial Management Workshop (funded by OATSIH)

19. IFRS –Suggested Strategy RESOURCES • Identify people internal and/or external to the entity with the appropriate expertise and skill set to assist with the project. (E.g. Auditors) KNOWLEDGE • Identify prime information sources (i.e. CPA Australia and the AASB) AH&MRC - Financial Management Workshop (funded by OATSIH)

20. IFRS – Income Statement The key standards for Not For Profit entities in relation to the income statement are:- • AASB 101 – Presentation of Financial Statements. • AASB 118 – Revenue. • AASB 1004 – Contributions. • AASB 119 – Employee Benefits. AH&MRC - Financial Management Workshop (funded by OATSIH)

21. IFRS – Balance Sheet The Key standards for Not For Profit entities in relation to the balance sheet are:- • AASB 101 – Presentation of Financial Statements. • AASB 102 – Inventories. • AASB 116 – Property, Plant & Equipment. • AASB 136 – Impairment of Assets. • AASB 137 – Provisions, Contingent Liabilities and Contingent Assets. AH&MRC - Financial Management Workshop (funded by OATSIH)

22. IFRS – Balance Sheet • AASB 138 – Intangible Assets. • AASB 139 – Financial Instruments: Recognition and Measurement. • AASB 140 – Investment Property. • AASB 5 – Non-Current Assets Held for Sale and Discontinued Operations. AH&MRC - Financial Management Workshop (funded by OATSIH)

23. IFRS – Impairment of Assets The area likely to have the most impact or be the most time consuming is impairment testing. • Impairment occurs when an asset’s recoverable amount falls below its carrying value. Assets must be tested whenever an impairment indicator exists. • Impairment indicators are provided in the standard and should be considered on at least an annual basis. • An impairment loss should be recognised in the profit and loss account for assets carried at cost and treated as a revaluation decrease for assets carried at fair value. AH&MRC - Financial Management Workshop (funded by OATSIH)

24. External Indicators The asset has experienced significant market value decline. The entity has experienced negative change in technology, markets, economic conditions or laws. Market interest rates have increased. The company’s share price is trading below the carrying amount of net assets. Internal Indicators The asset is obsolete or has been subjected to physical damage. The asset is the focus of a plan to discontinue or restructure units or is held for disposal. The economic performance of the asset was worse than expected. IFRS – Impairment Indicators AH&MRC - Financial Management Workshop (funded by OATSIH)

25. IFRS – Impairment Indicators The crucial issue facing entities is that they select impairment indicators carefully, being mindful that the standard requires the Recoverable Amount test to be applied only to assets whose indicator has been triggered. Entities need to take care in selecting indicators that do not give rise to unreasonable requirements to conduct recoverable amount tests. AH&MRC - Financial Management Workshop (funded by OATSIH)

26. IFRS – Recoverable Amount RECOVERABLE AMOUNT = the higher of:- • FAIR VALUE less selling costs – the price in an arms length transaction less the costs of disposal. OR • VALUE IN USE – present value of the estimated future cash flows from continuing use of the asset and the disposal at the end of the useful economic life. AH&MRC - Financial Management Workshop (funded by OATSIH)

27. IFRS – AASB 1: Disclosures • Reconciliation of Equity reported under current AGAAP to Equity under IFRS – at date of opening IFRS balance sheet and end of the last annual period reported under AGAAP. (i.e. 30 June 2006 financial statements reconciliation required at 1 July 2004 and 30 June 2005). • Reconciliations of profit or loss for the last annual period reported under AGAAP to profit or loss with IFRS. AH&MRC - Financial Management Workshop (funded by OATSIH)

28. IFRS – AASB 1: Disclosures • Explanations of material adjustments that were made to the balance sheet, income statement and cash flow statement in adopting IFRS for the first time. • Appropriate explanations if the entity has used any of the specific recognition and measurement exemptions permitted under AASB 1. • Any impairment losses recognised or reversed for the first time in preparing the opening balance sheet. AH&MRC - Financial Management Workshop (funded by OATSIH)

29. IFRS – AASB 1: Disclosures • Material adjustments to the cash flow statement. • The fair value of any financial asset or financial liability classified as fair value through profit and loss or available for sale. • The uses of fair value in the opening balance sheet as deemed cost for an item of property, plant and equipment, an investment property or an intangible asset. AH&MRC - Financial Management Workshop (funded by OATSIH)

30. IFRS – Further Research & Contacts • Internal Accountants • Company Auditors • CPA and ICAA – Professional Development and Fact Sheets (available on their website www.cpaaustralia.com.au/links/ifrs). AH&MRC - Financial Management Workshop (funded by OATSIH)

31. Financial Control & Budgeting OBJECTIVES: • Understand the Budget as a tool for Financial Control. • Understand the keys and techniques of an effective budget. • Understand the importance of the internal control framework. • Identify internal financial controls within your organisation. AH&MRC - Financial Management Workshop (funded by OATSIH)

32. Financial Control & Budgeting Financial Control is about controlling an organisations financial resources by using various tools and methods. Managing “cash in flows” and “cash out flows” by ensuring that there is sufficient cash in flows to allocate to the activities of the organisation. AH&MRC - Financial Management Workshop (funded by OATSIH)

33. Financial Control & Budgeting What is a Budget? A budget is a management tool used to provide guidance as to how funds may be expended during some future period. The budget provides a benchmark of which to measure actual performance against. AH&MRC - Financial Management Workshop (funded by OATSIH)

34. Financial Control & Budgeting There are several purposes of a budget:- • Acts as an internal guide for management to control spending, • Provides a benchmark of which to measure actual performance against, • Assists with the control of cash flow, • Assists in determining financial viability of a project, product or organisation, • Assists in obtaining finance and/or grant monies. AH&MRC - Financial Management Workshop (funded by OATSIH)

35. Financial Control & Budgeting There are many factors which affect the type of budget an organisation will adopt, these include:- • The size of the organisation, • The industry in which the organisation operates, • The structure of the organisation, • Financial reporting formats, • Financial reporting requirements placed on the organisation by management, funding agencies, financial institutions and other users of the financial statements • The skills, knowledge and abilities of Accountant and finance staff. AH&MRC - Financial Management Workshop (funded by OATSIH)

36. Financial Control & Budgeting Budgets are generally derived from two sources:- • Income Driven – Where the total allocated income is known, the budgeted expenditure is allocated within the allotted income. • Expenditure Driven – Where the budgeted expenditure is allocated on estimated actual costs associated with the delivery of the goods or services of the project. These budgeted costs will then help determine the price of these goods and/or services. AH&MRC - Financial Management Workshop (funded by OATSIH)

37. Financial Control & Budgeting Who are the users of a Budget? There are many users of a budget both internally and externally and it is important to know who these users are and what they require. Typical users include:- • Board or Committee Members. • Upper Management – includes CEO and Deputy CEO. • Middle management – includes Administrators, Coordinators and Project Managers. • Auditors. • Funding Agencies – e.g. OATSIH, NSW Dept of Health. • Employees at all levels – indirectly. AH&MRC - Financial Management Workshop (funded by OATSIH)

38. Financial Control & Budgeting What are the keys to an effective budget? A budget is a statement of management’s expectations for the performance of the organisation in the forthcoming year. It is imperative that a detailed budget ties to the financial analysis prepared in conjunction with the business and strategic plans. It establishes the agreed allocation of resources and can be an effective tool to determine financial viability and cash flow health. AH&MRC - Financial Management Workshop (funded by OATSIH)

39. Financial Control & Budgeting Some techniques of deriving an effective budget for your organisation include:- • Ensure that the person who is charged with the responsibility of drafting and coordinating the budget process has the necessary skills and experience. • Use the financial statements of the organisation as templates for your draft budget. This ensures that your budget will match your financial reporting formats. • Set a time line for the budget process, starting at the drafting stage and ending at the final budget document for Board approval. This process should be finished at the very latest at least one month prior to the commencement of the financial year that is being budgeted for. • Start a “Budget Work Papers File”. Commence collecting all relevant information and data to support your budget assumptions throughout the previous year. AH&MRC - Financial Management Workshop (funded by OATSIH)

40. Financial Control & Budgeting Some techniques of deriving an effective budget for your organisation include:- • Have planned budget meetings with all relevant staff. This would include management, project managers and personnel, office managers, IT manager. By involving and encouraging staff in the budget process, they develop a better understanding and appreciation for the budget and will therefore be more prepared to implement and adhere to the budget. • List out all areas of the budget that require detailed assumptions and calculations. • Prepare a work paper for each assumption and calculation required. AH&MRC - Financial Management Workshop (funded by OATSIH)

41. Financial Control & Budgeting Some techniques of deriving an effective budget for your organisation include:- • Use previous years actual data and include any known forward data from reliable sources. • Check your formulae, figures and assumptions and ensure they are accurate, up to date and comply with any relevant legislation or schedules. • Present your first draft budget to management and relevant staff. Review and update if necessary. • Present final budget to the Board for approval and adoption. AH&MRC - Financial Management Workshop (funded by OATSIH)

42. Financial Control & Budgeting Some techniques of deriving an effective budget for your organisation include:- • Keep the Budget Work Papers File with all assumptions and working papers with a copy of the final budget in a current file for use the next year. • Implement the final budget and communicate the budget to all relevant staff. Hold a formal budget presentation if appropriate. • Be available to discuss the budget with any relevant staff ensuring they have an understanding of it and how it impacts upon them and how they can help achieve the targets set in the budget. AH&MRC - Financial Management Workshop (funded by OATSIH)

43. Financial Control & Budgeting Why is a three way budget so important? The income and expenditure statement (or Profit and Loss Statement) is only one aspect of the financial results of an organisation. A complete and comprehensive picture of the performance of any organisation can only be assessed in conjunction with the organisation’s balance sheet and the cash flow statement. AH&MRC - Financial Management Workshop (funded by OATSIH)

44. Financial Control & Budgeting In order to make an intelligent review, a budgeted profit and loss statement must, as a minimum:- • Be based on an opening Balance Sheet. • Define the assumptions on which it is based. • Include a monthly budgeted Balance Sheet and a budgeted Cash Flow Statement with supporting assumptions. AH&MRC - Financial Management Workshop (funded by OATSIH)

45. Financial Control & Budgeting What is the Board’s role? The Board plays a particularly crucial role at different stages of the budgeting process. The Board:- • Is involved in the planning stage by setting the financial parameters in the strategic and more detailed business plan. • Approves the final budget and ensures that it is consistent with the strategic and business plans. As part of this process the Board should challenge management on the budget assumptions. AH&MRC - Financial Management Workshop (funded by OATSIH)

46. Financial Control & Budgeting Refer to the Detailed Project Budget included in the workshop manual. AH&MRC - Financial Management Workshop (funded by OATSIH)

47. Financial Control & Budgeting The Financial Control Process • Although the Budget is a very important aspect of financial control, it is only part of the financial control process. Without a sound, reliable and accurate financial control framework the budget would be a useless tool without integrity. AH&MRC - Financial Management Workshop (funded by OATSIH)

48. Financial Control & Budgeting What is the internal control framework? A comprehensive, well designed, fully implemented and effective internal control framework provides the right environment for the efficient running of the organisation’s operations, provides comfort as to the organisation’s compliance with applicable laws and regulations and reduces the risk of financial statements being materially misstated. AH&MRC - Financial Management Workshop (funded by OATSIH)

49. Financial Control & Budgeting An organisation’s internal control framework is made up of the policies, procedures, monitoring and communication activities, standards of behaviour and other initiatives that, combined:- • Meet strategic objectives. • Allow the organisation to respond appropriately to significant business, operational, financial and compliance risk. • Safeguard assets from inappropriate use and loss from fraud or error. • Help ensure the quality of internal and external reporting, through the maintenance of proper records and information flows. • Facilitate compliance with applicable laws, regulations and internal policies. AH&MRC - Financial Management Workshop (funded by OATSIH)

50. Financial Control & Budgeting Who is responsible for the Financial Control of the organisation? • Ultimately the responsibility for the financial control of the organisation rests with the Directors and management of the company. In the case of an Aboriginal Medical Service this is the Committee or Board and the CEO. • The Principal Accounting Officer of the organisation is delegated the authority and duty to perform the financial control function. The principal accounting officer is usually the Finance Manager, Financial Controller, Accountant or Finance Officer, dependant upon the size and structure of the organisation. AH&MRC - Financial Management Workshop (funded by OATSIH)