New Legislation Means NFP Boards To Demand Cashflow Forecasts
While historically many Not for Profits have considered cashflow forecasts a luxury, new Victorian legislation will now make them essential.
From 1 July, board and committee members of incorporated associations face penalties of up to $20,000 for breaches of new legal duties, including allowing their organisation to trade while insolvent.
This has prompted changes to the reporting that Executive Boards require from their treasurers and finance staff – in particular the need for forecasts of future cashflow.
Not for Profit experts says while a few organisations have been proactively using cashflow forecasts in the past, the practice hasn’t been widespread and 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,” Addison said.
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) and ‘reliance on information’ (a decision relied on information provided by a competent person).
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. Timing is critically important to cashflow and board members need to ensure there are funds available when they are needed.
Minimising Risk
Experts says the key to minimising risk for board or committee members is to be informed when making financial decisions.
Some Treasurers have already started producing cashflow forecasts. Jeff Little, Treasurer of Junction Support Services in north-eastern Victoria, says his Committee of Management is regularly updated with cashflow forecasts to keep them abreast of the solvency of the organisation.
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 DonorTec and their donor partners Calxa.
Mick Devine, CEO of Calxa Australia, said: “Our donation program IS designed for community organisations and associations and we encourage and help them in producing their cashflow forecasts".
Calxa Australia has partnered with DonorTec and TechSoup New Zealand to provide $1,000,000 worth of budgeting software to grassroots Not for Profit organisations across Australia and New Zealand.
NFP organisations with turnover under $1m are encouraged to apply. Contact DonorTec on 08 8122 2701.