Kate H: Imagine this. It's the first committee meeting after the AGM. The first major item of business is to decide who will be the office bearers and other key roles. Now the treasurer of the last six years has made it very clear that she's not doing it again.

Kate M: The chair asks who'd like to take on the role. There's silence, the awkward pause. Everyone's quietly hoping that someone else will put their hand up.

Kate H: So then the outgoing treasurer says, Sam, you'd be great, and I'll show you the ropes for the first few months. And Sam backed into a corner very reluctantly says, well, if you'll help. And just like that, Sam's the treasurer,

Kate M: and everyone else at the table breathes a sigh of relief. The finances are in Sam's hands now.

Kate H: But that's not quite how it works. Everyone at the table shares the same responsibility for the members' money. Nobody needs to be an accountant, but everyone needs to be able to follow the story the numbers are telling. Over the next couple of episodes, we'll help you read that story.

Kate M: Welcome to The Committee Room.

Kate H: Welcome back to The Committee Room. I'm Kate Hartwig.

Kate M: And I'm Kate McPhee. We help volunteer board and committee members of small, not for profit organisations who feel overwhelmed, frustrated, or just plain stuck to get their organisation back on track, meet their legal and compliance obligations, and work better together.

Kate H: We are starting a new series today, Financial Confidence. The next few episodes will cover the financial side of governance, who's responsible for what, how to read the reports, and how to plan the numbers. And we're starting with the basics. Before anyone needs to open up a spreadsheet or log in to Xero or MYB or QuickBooks or whatever you use, there are a few things every committee member needs to get their head around.

Kate M: And a quick note before we start, this podcast is for general information on best practice governance for small to medium associations. It is not legal advice. And, Kate, this is not financial advice either.

Let's start with a myth that turns up at a lot of committee tables. It goes something like this. We're not for profit, so we can't make a surplus, or we shouldn't make a surplus. So everything that comes in gets spent, and fees and charges stay low so the, in air quotes, profit doesn't go up.

Kate H: And it drives me absolutely crazy, Kate, because it is so wrong, and it costs the organization. No reserves means no buffer when things go wrong and no money to grow. It means the equipment wears out with nothing set aside to replace it. It means when costs finally catch up, and they always do, fees will have to jump all at once, and members are rightly upset. And it means one bad year can close your doors.

Kate M: So here's what not for profit actually means. It means that any surplus your organisation makes can't be distributed to members. The surplus stays in the organisation and gets used to meet your objectives. That's it. That's the whole rule. Some people call it profit for purpose rather than not for profit, and, you know, that's a that's a perfectly good name for it. Making a surplus isn't just allowed. It's actually good governance.

Kate H: And while we're at it, there's one other phrase I'd love to bury in a deep, dark hole. We budget to break even. Frankly, Kate, there is no such thing. A break even budget is just budgeting to fail, and it leaves nothing for you to fall back on. Three months of operating costs in reserve is the absolute minimum target for any organisation.

That's the buffer between a difficult period and a crisis, and you build that buffer by making surpluses deliberately year on year. Because the surplus is what pays for your strategies and your plans. Your strategic plan says where the organization wants to be in the next two to three or five years. The new equipment, the expanded program, the upgrade to the club rooms everyone's been talking about for years, and an idea without money behind it is just a wish. So the question isn't should we make a surplus? It's how much do we need to put our plans in motion.

Kate M: So the next time someone at the committee table says, we can't make a profit because we're not for profit or tries to shut down for the third year in a row, insert eye roll, any discussion about changing the membership fees, that's your cue, dear listener. Have this conversation with them gently but very firmly, kind of nanny McPhee style.

Kate H: And we do love it when Kate too goes all nanny McPhee on us. People get very scared.

Kate M: So they should.

Kate H: Now back to that silence around the table. It's completely human.

Plenty of people don't feel confident with numbers. But here's the trouble. Underneath the silence sits the assumption that the treasurer's got all the money stuff covered so the rest of us can relax. And that's when things start to go wrong.

Kate M: That's right. Because, in fact, every committee member shares responsibility for the organisation's finances. It's not just the job of the treasurer. It's part of every committee member's duty of care, which we covered in episode four. So if you vote to approve a financial report you haven't read or don't understand, that's not a defence. You still approved it. Now we'll show you how to do it the right way in the next episode.

Kate H: The fact is that the treasurer's role is to lead the financial oversight, to present the reports, lead the budget process, and make recommendations. But the treasurer cannot do the committee's job for them. The committee must engage with the numbers every month.

Kate M: And what does that look like in real life, you ask? Well, starts off with the the agenda, the meeting pack, and the financial reports that go with it, which land in your inbox five days before the meeting. So you read the financial reports, tick. You do your homework, tick. You come to the meeting with at least one question, tick.

The meeting is not the place to see the numbers for the first time.

Kate H: Oh, it absolutely is not. You don't need to be an accountant. What you need is enough understanding to ask the right questions and recognise a red flag when it's staring you in the face. That's what our next two episodes are about, and it is absolutely doable.

Kate M: So if you've done your homework, you've read the financial statements, you ask a question, and you get a vague answer, don't be put off. Ask again, and again if you have to, because a vague answer is a red flag in its own right. So what does the treasurer actually do? There's quite a bit of confusion about it, and that confusion means that sometimes committees end up with the wrong person in the role, or the right person says no because they think that you need to be an accountant.

Kate H: Which, of course, you don't. The treasurer's job is oversight, not doing the accounts. The bookkeeper does the data entry work. The treasurer asks the accountant the right questions and spots problems early, then brings that information to the committee table and makes sure everyone understands it.

Kate M: Now hang on. Before we go any further, Kate, let's just check. Bookkeeper, accountant, sometimes people use those words like they mean the same thing, like they're interchangeable.

Kate H: Well, they're not interchangeable. The bookkeeper is the person who records money in and money out, doing all of the data entry. The accountant takes those records and turns them into reports, budgets and forecasts that the committee can use. So really different jobs. And depending on your size, you might need one, both or neither.

Kate M: And neither, neither, neither... What do I say? I think I say neither, is where many of the small organizations that we work with are. So they don't have a bookkeeper. They don't have an accountant. In reality, the treasurer does the lot.

Kate H: And that's fine. But you have to remember that the oversight role of the committee doesn't go away. Now, if you only have the treasurer, then the rule is simple. No one person should control a payment from start to finish. So before any money goes out, there's an invoice and two people approve it. After it's gone out, someone other than the treasurer checks the bank statement against the treasurer's reports every month.

And to make that work, two or three committee members, not just the treasurer, need access to the bank account. And if there's no bookkeeper and no accountant, that work doesn't disappear. It falls to the treasurer, the monthly reports, the draft budget, the forecast for the rest of the year. Now modern software helps a lot, but someone still has to check that the figures make sense and explain them to the committee. That's a lot to put on one volunteer, which is why a finance subcommittee, even just two or three people makes a huge difference.

We'll talk more about that later.

Kate M: Some people hear all of this, and they think it sounds like we're saying don't trust your treasurer, but it's not that at all. Having proper checking processes protects the treasurer as much as it protects your organization's money. So if or when a question comes up, the treasurer can show exactly what was checked and by whom. Now, Kate, you mentioned in an earlier episode about the very best treasurer that you've ever worked with. Tell us a bit more about that person.

Kate H: Oh, I did. I did. The best treasurer I've ever worked with was a primary school teacher. Not an accountant, not a financial professional, not even a maths teacher, but meticulous. She asked brilliant questions at the bookkeeper, and the part that I love the most is that she welcomed other committee members saying, I don't understand. Can you explain it? No eye rolling or sighing. She just explained it, and by the end of the year, everyone was asking better questions.

Kate M: And that's exactly the kind of healthy culture you want around your meeting table. In Just a Tick, I list questions are treasured as one of the signs of a healthy committee. So a treasurer who welcomes the so called silly question makes everyone else braver about asking next time. And back in episode six, we talked about why questions are gold for your committee.

Kate H: So to the nuts and bolts, The treasurer makes sure every transaction is properly recorded and authorised, and presents the financial reports at every meeting, keeping an eagle eye on actual expenditure against the agreed budget. They lead the budget setting process for the next year, make recommendations on income, spending, and investments, and they make sure the audit or financial review, if you have them, happen on time.

Kate M: It's a big job, you know, eight to twelve hours a month, Kate. Do you think that's realistic for your average salary? That. Yeah. Yeah.

And, of course, more at budget time and a bit more when the audit's due if if your organization needs an audit. So that means that who an organization puts into that role deserves some real thought well before the AGM, and it's not left to whoever is willing or can be coerced on the night.

Kate H: As I think we may have mentioned before, Kate. And I think we'll probably mention again. Good financial management isn't just about the reports and the budget. It's about having the right structures in place around them. And there are five structures that make life easier for the treasurer and the committee. And the members are happier too.

Kate M: First, the finance subcommittee, and that's one of my favorites. So the finance subcommittee is usually chaired by the treasurer, and that's where the detailed financial work happens between committee meetings. So going through the reports properly, keeping the budget process on track, working with the bookkeeper and the accountant, It shares the load around so the treasurer isn't carrying it all alone, and the finances get the time and attention that they need.

Kate H: Second, the financial management policy. It sets out how the money is managed, who approves payments and how, how often are reports prepared, what exactly is the treasurer responsible for, what happens when something goes wrong. It takes the guesswork out and that's what good governance is all about.

Kate M: Third, the delegation's register, which we covered back in episode nine. When it comes to the members' money, it's especially important. The delegation's register spells out who can improve spending, sign contracts, make financial commitments, and so on, and up to what amount. Without the delegations registered, nobody's quite sure who can say yes or no. Some people are so worried about overstepping their role or overstepping the boundaries that in fact they get constipated and nothing gets done. Others charge ahead without the proper authority to be making those decisions or or those commitments. Neither one of those is good for anyone.

Kate H: Fourth, the procurement policy. Now that sets out how the organisation buys goods and services, particularly for larger purchases and long term supplier contracts.

It works hand in hand with the delegations register. The register says who can approve spending and up to what amount. The policy says what process to follow, and that process usually changes as the price goes up. Now a small purchase, say getting the iced vovos for your next committee meeting, usually doesn't require more than one quote or perhaps just a quick trip down to the supermarket. But a big one might need three or four quotes and a committee decision.

Price matters, but so do quality, reliability and value over the life of the contract. Many community organisations also choose to support local businesses where they can. The policy is the place to write all that down so everyone knows the rules. And remember, who you do business with also reflects on your organisation's reputation, so you have to be careful about that as well.

Kate M: Exactly. And lastly, the assets register. So that is a complete up to date list of everything your organisation owns, the the laptops, the trailer, the ride on mower, and the building itself if you own it. More on that in a couple of weeks' time when we cover the budget. So if something is not on the asset register, as far as the committee's concerned, it doesn't exist, and you can't insure, maintain, or replace something you don't know that you have.

Kate H: If you're thinking we don't have most of those, well, start with the finance subcommittee and the delegations register. They are the most critical. The subcommittee gives you the capacity to manage finances properly. The delegations register protects you from people acting beyond their authority. Once those are in place, build the others across the following year.

Kate M: So these structures aren't red tape sitting on top of financial management. They are financial management. Every committee should treasure its treasurer and give them a finance subcommittee, two or three people who share the load, do the detailed work between meetings, and pick up problems and opportunities early. So there's a second set of eyes on the money, and that protects everyone. And when the treasurer eventually steps down, there's someone ready to step up. Yay. Yay, Kate. We love a succession plan. No more awkward silences at that first meeting after the AGM.

So, Kate, let's sum up.

Kate H: Not for profit does not mean you can't make a surplus. Build reserves deliberately. Three months of operating costs in the bank is your minimum target. Every committee member is financially responsible, not just the treasurer. The treasurer's job is oversight, not bookkeeping or accounting necessarily.

Of course, if you can't get someone else to do the books, then the reports, budget, and forecasts fall to the treasurer, so make sure they've got the support of a subcommittee to share the load. And the five governance structures protect the organization's money. Start with the finance subcommittee and the delegations register.

Kate M: So, listeners, we have two improvement challenges for you this week. Kate, I think they've... We're giving everybody an extra improvement challenge, are we? Because they had last week off. Missed out last week.

Yes. Yes. We we gave them a week off. We were kind. So first improvement challenge, have a look at those five structures. How many does your committee have? If there's a gap, pick the one you need most and put it on the next agenda.

Kate H: Second challenge, just a really quick one, have a look at the treasurer's role description card, which we've included as a download with this episode, and just make sure that you're ticking all the boxes.

Kate M: If your committee needs more help with the financial side than a few episodes of our podcast can give you, there are two places to start. The Committee Companion has practical templates and tools you can use straight away. And if you'd like a closer look at how your committee manages its money, that's what our Good Governance Health Check through Fresh Allsorts is for. The details for both of them are in the show notes.

Kate H: And if you've got a governance question you'd like us to tackle on the show, the contact form is @thecommitteeroom.com.au. Now we also are going to be introducing a new way for you to contact us, and details of that will be given to you next episode.

Kate M: If today's episode was useful, please subscribe wherever you get your podcasts. That way, the next episodes in our financial confidence series come to you just like magic. And please share the podcast with someone on your committee, maybe your treasurer. And if you are the treasurer, then definitely share this podcast with the rest of your committee. The show notes that Kate mentioned with the downloads are at the committeeroom.com.au.

Kate H: Next time, the three financial reports every committee member needs to understand, the balance sheet, the profit and loss, and the cash flow, in plain English with the red flags that tell you something needs attention, especially for people like my friend Kate Too here who, when handed a page full of columns, suddenly remembers something urgent in the oven. That's episode 24.

Kate M: Guilty as charged. I'm Kate McPhee, Kate Two, and until then, I'll be

Kate H: in the kitchen probably procrustabaking. And I'm Kate Hartwig, Kate One, thinking up some more really bad jokes for the next episode.

Kate M: This has been The Committee Room. And remember,

Kate H: you don't need good luck if you've got good governance.