Adele Johns Executive Officer Community Compass Inc Research student International Graduate School of Business University South Australia Director Adssi Home Living Australia Better Boards Conference 2013 ID: 244137
Download Presentation The PPT/PDF document "Presenter:" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Slide1
Presenter: Adele Johns Executive Officer: Community Compass Inc.Research student: International Graduate School of Business, University South AustraliaDirector: Adssi Home Living Australia
Better Boards Conference 2013
Board Complexities and the (
dis
)Engagement of Financial DataSlide2
AcknowledgementAcknowledgement to countryIntroductions background, purpose, outcomesSlide3
Non profit sector in Australia is worth at least $70 billionIt is Australia’s principal employer with more than 600,000 employeesIt is reported that charities employ about 7% of the workforce and account for 5% of gross domestic product – making the sector equivalent in size to
agriculture
Not for Profit Productivity Commission Report 2010 – Peter Fitzgerald.
Setting the sceneSlide4
Of the 59,000 non profits that are employers the CEO/Manager position works under the governance structure of a board.Requires Executive positions to be held by the board, the financial executive position known as the Treasurer
.
All board members have a legal fiduciary responsibility
Governance structureSlide5
Australian Charities & Nonprofit Commission:“Governance is the process, activities and relationships that make sure your organisation is effectively and properly run.”Governance for Good: The ACNC’s Guide for charity board members. www.acnc.gov.au/ACNC/manage/tools/ACNC/edu/tools Governance Good Governance Guide - ACNCSlide6
Strategic planning – big picture thinkingSetting the Vision
Setting the objectives to meet the key purpose of the organisations existence
Ensuring sustainability and viability – ability to meet all pecuniary liabilities
Certify compliance and accountability matters of the organisation are adhered to
Role of GovernanceSlide7
Maintain effective record keeping and monitoring of organisational objectives Audit requirements dependent on level of income received.Australian Taxation obligations – Goods and Services tax, Withholding taxes Fringe benefits tax
Funders requirements – philanthropic or Government funds, State and Federal
Statutory ComplianceSlide8
The purpose of this research is to highlight the complexities of board dynamics and engagement of financial management providing an insight as to ‘how’ boards are currently engaging in financial management practices and alternate models. To identify if Boards of non profit organisations are insufficiently engaged with sound financial management practices. To observe Board members
(lack)
confidence in asking appropriate questions regarding financial
matters.
Determine the level of understanding of financial reports.
Research purposeSlide9
My observation is, the member of the board responsible for financial matters, usually called the Treasurer, presents a report which is only given moments of ‘air-time’, before the agenda is quickly whisked along to matters of general business. The treasurers report and financial statements are either inappropriately set out, condensing financial data to meaningless reports/spreadsheets, rather than formal financial statements. This could be the result of lack of interpretation and understanding of accounting standards and formats but there are a range of other issues including the capability of the board to deal with financial issues.
Research purposeSlide10
This research provides the opportunity to delve deeper into the complex nature of board, unveiling boardroom capacity in financial management mattersObservation of member participation in their engagement with financial data, report layouts and time allocated for exploring the financial performance and position
Recognise the human dynamics at play with the theoretical perspective of Ralph Stacey
.-
Stacey
, R. and Griffin, D., (2005). “Complexity and the Experience of Managing in Public Sector Organisations”. London,
Routledge
.
MethodSlide11
How could non profit boards improve engagement in financial management?Subsidiary questions… What issues/complexities arise due to the relationship(s) between the CEO and the board? The power of influence – Ralph Stacey – Complexity Theory.The research questions posed… Slide12
Zahara and Pearce (1989) have stated, “There are countless lists of what boards should do. Yet evidence of ‘what boards actually do’ is not well documented… there is a pressing need to document what boards actually do: (pp325 – 326). Zahara, S.S & Pearce, J.A., (1989) “Boards of directors and corporate financial performance: A review and integrative model. Journal of Management, 15,291-334.Slide13
Board members often lack skills in understanding financial management reportsMeaningless reports are being
presented
Large asset purchase decisions being made by members with little understanding of the financial position or future forecast
Cash flow forecasts either being
non-existent
or provided with limited
information and understanding
Current observationsSlide14
Movement away from ‘Community’ based committees/ boards being replaced with ‘Skills’ based board membershipAgenda set and led by internal staffLongevity of membership linked to ‘power’ by either board or staff depending on term.
Current observationsSlide15
Strategic planning led by staff, with limited input by BoardDominance of position linked to longevityNew members have silenced voices
Selection of board members led by CEO/internal staff
Current observationsSlide16
Shielding - Lightbody M (2000) – agenda set by internal staff creating opportunity to shield information due to differentiating between operational and governance activity of the board.
Dominance and power observed through robust conversations, (or lack thereof), linked to longevity of membership and skill
–
Renz,D
(2001
),
DiscussionSlide17
Ralph Stacey lens – the interplay of human dynamics and relating that are apparent around the board room tableTo Stacey an organisation is not a system, but a set of inter-connections.
Complex nature of humans, a set of interactions and relations
DiscussionSlide18
Two organisation observed – both Company Ltd by Guarantee reporting compliance to Australian Securities Investment Commission (ASIC)
Further research to broaden the scope of services observed, diversifying entity type and governance models
Limitations of current research:Slide19
Investigate board member selection practicesLittle research has been conducted into the composition of not for profit boards in Australia.Limitations
Slide20
Organisation 1 ( Org 1)Organisation 2 (Org 2)
Entity Type:
Company Limited by Guarantee
Company Limited by Guarantee
Reporting to:
Australian Securities Investment Commission (ASIC
)
Australian Securities Investment Commission (ASIC
)
Financial Reporting compliance:
Corporations Act 2001.
Australian Accounting Standards
Board
(AASB)
Australian Taxation Office (ATO)
Corporations Act 2001.
Australian Accounting Standards
Board(AASB
)
Australian Taxation Office (ATO)
Current Board Membership
7
7
Membership mix
Staff representatives, Project Volunteers and Community members
Directorship volunteer capacity – no remuneration
Note CEO holds position of Company Secretary
Community or Skills based board
Mixed
Transitioning from Community representatives to Skills based board
Funding source
70% Government grants
77% Government grants
Total revenue
$1,021,000
$8,254,000
Interest Income
$14, 648 – 1.4% of total revenue
$131,563 – 1.6% of total revenueSlide21
What is the future sustainability of the non profit sector when research identifies such gaps. With accountability mechanisms and compliance increasing, coupled with a shrinking pool of funds/resources/volunteers – how will the development of government intervention – ACNC impact the sectors sustainabilityHow can boards strengthen their skills and understanding of financial management without loosing the value of community based membership?Further research questions…Slide22
Bridging the gap..Presentation of financial dataSources of incomeRisk – dependenciesOutgoingsCritical cost areasMonitoring and tracking trendsSlide23
Data Analysis for effective decision makingWhat is the ‘back-story’ the financial reports reveal about your serviceHow do we portray this story to other members
Strengthening/empowering the board with informative data to aid in effective decision makingSlide24
Where we are at….. The accounting conceptsBalance sheet itemsUnderstanding the financial position of the organisationUnderstanding the performanceInflow and outflows of funds… vulnerabilities/reliance's/ diversifying income..
Moderating expenditure.. Maximising efficienciesSlide25
Where do we want to be.. Linking strategy to financial reporting…How do we know what we want to measure… Ratio analysis – snap shot of data, showing big picture outcomes.. D
ashboard
of key performance indicators
Slide26
Presentation of financial dataPie chartsTrendsRatio analysisKey critical cost areas – what are we trying to measure / monitor ?Are reports aligned with strategyKey critical sources of income How do we manage these ?Slide27
Project analysisSlide28
Pie Chart/ Sources of IncomeSlide29
Tracking TrendsSlide30
Ratio AnalysisGross Profit Margin Gross Profit Income- % of each income dollar is gross profit- determines the adequacy of direct income/selling priceSlide31
Ratio AnalysisOperating Expense RatioTotal Operating Expense IncomeIndicates the % of each income dollar absorbed by operating costsHelps control operating expenses(Lower the better )Slide32
Ratio AnalysisWage cost ratioWages x 100 IncomeLower the better, indicates the level of wages to incomeSlide33
Ratio AnalysisCurrent RatioCurrent AssetsCurrent LiabilitiesMeasures cash positionAssets available for every dollar of current liability(Higher the better)Slide34
Ratio AnalysisLiquidity or Quick RatioCurrent Assets less stockCurrent Liabilities less overdraftBetter measurement of cash measures liquid (cashable) current assets(Higher the better)Slide35
Ratio AnalysisCash reserves in weeksCash – Grants in AdvanceTotal Expenditure / 52 (weeks)Indicates how many weeks an organisation could continue to operate if all income was ceased immediatelySlide36
Thinking differently about the presentation of financial dataMonitoring and review of critical income and cost areaImportance of governance and effective reporting to enhance/support effective decision making aligned with strategyImportance of a robust induction process for new board membersUnderstanding the complex nature of board dynamics.Take homes…Slide37
Tips and Tools available for downloadwww.betterboards.netwww.communitycompass.org.auAdele JohnsCommunity Compass Incadele@communitycompass.org.auTo wrap…