From 1 July 2012 board and committee members of incorporated associations started facing penalties of up to $20,000 for breaches of new legal duties. This affects especially, Boards allowing their organisation to trade while insolvent. This has prompted changes to the reporting executive boards require from their treasurers and finance staff. In particular, the need for forecasts of future cashflow.
While a few organisations have been proactively using cashflow forecasts in the past, the practice hasn’t been widespread. So, there is a growing demand for change. Matthew Addison, Executive Director of the Institute of Certified Bookkeepers says:
“It now becomes more important than ever for board members of associations to think about their risks and how to manage them. A cashflow forecast should be an essential part of any board report.”
What are the New Duties
With the Associations Incorporation Amendment Act (2010) coming into force in Victoria from 1 July 2012 the key new duties of Committee or Board members have been clarified and added to.
- A duty to exercise powers and discharge duties with care and diligence
- A duty to act in good faith in the best interests of the association and for a proper purpose
- A duty to prevent the organisation from trading while it is insolvent
The new fines will apply for breaches of these duties. The main defences would be ‘business judgement’ (informed decisions were made in good faith in the interests of the association). Also ‘reliance on information’ (a decision relied on information provided by a competent person).
What is Insolvency
Insolvency is about not having enough funds to pay your debts as and when they fall due and is not directly connected to profitability. Therefore, timing is critically important to cashflow and board members need to ensure there are funds available when they are needed.
How can you Minimise Your Risk
The key to minimising risk for board or committee members is to be informed when making financial decisions. And being informed now goes beyond simply ticking off that projects are within budget. There is now an obligation to consider the future cashflow needs of the organisation. While historically many Not-for-Profits have considered cashflow forecasts a luxury – something desirable but far too hard to produce – this new legislation makes them essential.
Some Treasurers have already started producing cashflow forecasts. Jeff Little, Treasurer of Junction Support Services in north-eastern Victoria, says
“Our Committee of Management are regularly updated with cashflow forecasts from our Calxa Premier software to keep them abreast of the solvency of the organisation.”
Mr Little explained that the use of dedicated software made the task much simpler than the old way of producing forecasts from complex spreadsheets. Many grassroots associations will be eligible to receive the software through the donation program run by Connecting Up.
Mick Devine, CEO of Calxa Australia, says
“Our donation program was designed for community organisations and associations. We encourage and help them in producing their cashflow forecasts. Most people know us for our budgeting software but don’t realise how easy we make forecasting cashflow”.
Associations are encouraged to contact DonorTec on 08 8122 2701 to apply.
About the Connecting Up program…
Calxa Australia has partnered with Connecting Up and TechSoup New Zealand to provide $1,000,000 worth of budgeting software to grassroots Not-for-Profit organisations across Australia and New Zealand. Through the alliance, Calxa donates its Calxa Premier budgeting and cashflow forecasting software to smaller Not-for-Profit organisations that meet the Connecting Up eligibility criteria. This will allow grassroots organisations to achieve the same productivity increases as their larger counterparts – freeing up resources to be directed towards core services. Everyone expects NFPs to spend more of their resources on service delivery and less on administration. This is Calxa’s way of helping them realise this goal while still providing the reporting needed to achieve good governance. NFP organisations with turnover under $1m are encouraged to apply. Contact Connecting Up on 08 8122 2701.
For more information please contact:
Mick Devine, CEO Calxa Australia Pty Ltd Email: [email protected] Phone: 0433 77 88 05