Know the financials

All board members have legal responsibilities and need to be familiar with all aspects of the financials for their organisation. Don’t just rely on the treasurer.

All board members have legal responsibilities

As a board member you can be liable for your organisation’s success and failures. You are accountable to your members (if a member organisation), your stakeholders, and funders. How you manage your funds is your individual responsibility.

As a board member your legal responsibilities are to have a good understanding of:

  • your organisation’s constitutional document and its legal structure
  • laws that may apply to your organisation such as health and safety, tax, contract and labour laws.

Some boards operate under limited personal liability. This means that the individual board members are not financially responsible for the organisation’s debts if it fails.

A good rule of thumb

Put these topics on your agenda and keep track of important policies.

If your organisation is an unincorporated group, you may be personally liable for any obligations the group takes on and for any judgments made against the group by the courts.

If you are an incorporated society or a charitable trust, in general there is limited personal liability, provided decision-makers act honestly, prudently, within the group’s charitable purposes and not for personal gain.

You can make more informed decisions about the financial sustainability of your organisation if you read and understand the:

  • Financial report or statement.
  • Balance sheet.
  • Annual report.
  • Funding contracts.
Do your own due diligence - ask the board about your financial responsibilities.

Every board should regularly review their financial reports

Financial reports should be on the agenda at every board meeting. The board should regularly review the organisation’s:

  • income statement showing income and expenses for the period compared to budget.
  • balance sheet showing assets and liabilities.
  • budget, which should be approved annually.

In addition, once a year the board should:

  • review the annual financial report.
  • seek out an audit report/accountant to review the finances (see tier 3/tier 4 legal responsibilities for an audit/Charities Services).

Develop a sustainable financial plan

While a budget serves a short-term (12-month) function, a financial plan is designed to allow boards to plan for the future. Boards use financial plans to anticipate spending and income for the next three to five years and make sure the organisation can operate within good and uncertain economic climates.

Like a budget, an organisation’s financial plan is an invaluable tool for board members in carrying out their duty of financial oversight. Develop a sustainable financial plan as part of your strategy sessions.

Find out how indicators of financial performance can help manage risks

The board can keep track of the financial risks to the organisation using indicators or ratios that demonstrate financial performance. There are several options to suit different kinds of organisations.

By following performance trends over time, the board can quickly uncover and question significant changes in your organisation’s circumstances.

For more information about specific indicators and ratios, click here to visit a helpful resource from Institute of Community Directors Australia.

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