Component Finance : Bean Counter to a Strategic Thinker 25 February 2006 16.00-17.00 by Saji Madapat PMI Component Mentor, Asia

Level Set . . . We are not here to teach you Accounting Finance is a key and vital focus for all components Need for a professional approach Running a Business not a Project

We are not here to teach you Accounting

Finance is a key and vital focus for all components

Need for a professional approach

Running a Business not a Project

“Not-for-Profit” Rules vary from country to country, but generally speaking: Components are not in the business for profit Equally they are not expected to run at a loss Should hold a reserve of 3 to 12 months expenses Legal and Ethical duties will apply

Rules vary from country to country, but generally speaking:

Components are not in the business for profit

Equally they are not expected to run at a loss

Should hold a reserve of 3 to 12 months expenses

Legal and Ethical duties will apply

So what do you do first . . .? Identify the Financial Officer Do a rough estimate on budget Determine level of control needed Select Bank and setup not-for-profit account Select Accountant/Auditor Select Accounting software

Identify the Financial Officer

Do a rough estimate on budget

Determine level of control needed

Select Bank and setup not-for-profit account

Select Accountant/Auditor

Select Accounting software

Identify the Financial Officer Does not matter how big or small the component is, you need someone to take responsibility for the Finances The Financial Officer is accountable for the financial well-being of the Component Pick someone who has overview of chapter activities

Does not matter how big or small the component is, you need someone to take responsibility for the Finances

The Financial Officer is accountable for the financial well-being of the Component

Pick someone who has overview of chapter activities

Duties of the Financial Officer Same as all component leaders Duty of Loyalty Duty of Care Duty of Compliance Duty of Integrity

Same as all component leaders

Duty of Loyalty

Duty of Care

Duty of Compliance

Duty of Integrity

Prime Responsibility Meet Fiscal responsibilities and obligations: Development of Annual Budget based on input from Directors and Portfolio Managers Collecting and Disbursing Component’s funds in accordance with approved budgets and sound accounting practices Reporting current and future financial status to enable the Board to make informed decisions

Meet Fiscal responsibilities and obligations:

Development of Annual Budget based on input from Directors and Portfolio Managers

Collecting and Disbursing Component’s funds in accordance with approved budgets and sound accounting practices

Reporting current and future financial status to enable the Board to make informed decisions

Rough estimate of Budget Do the calculation Small components with say less than 100 members will have a Budget of about $5,000 Larger components can be as big as $500,000 Different approaches will apply, for controls, risk management and reporting

Do the calculation

Small components with say less than 100 members will have a Budget of about $5,000

Larger components can be as big as $500,000

Different approaches will apply, for controls, risk management and reporting

Size does matter . . . Resulting behavior Component Size You should be up here presenting with me . . . Over 2,000 If you are here today someone please call an auditor . . . 1,200 to 2,000 members Budgets are getting scary . . . need a professional bookkeeper . . . 600 to 1,200 members Now knows PMI wants $200 for Insurance premiums . . . 100 to 600 members Knows where the chequebook is, not sure about the Bank . . . Less than 100 members

Lots of money involved . . . . . . $60,000 to $500,000 $40,000 to $160,000 $24,000 to $72,000 $12,000 to $36,000 $2,500 to $5,000 Potential Budget Reserves Component Size $15,000 to $125,000 Over 2,000 $10,000 to $40,000 1,200 to 2,000 members $6,000 to $18,000 600 to 1,200 members $3,000 to $9,000 100 to 600 members $625 to $1,250 Less than 100 members

Determine level of control The level of control changes $1,500 budget - Finance Officer issues the cheques and accounts for the disbursements At $50,000 level - maybe part-time Committee/bookkeeper At $100,000 or more - paid staff an option Risk adverse Project Managers require controls Automate the process (ex. online registrations)

The level of control changes

$1,500 budget - Finance Officer issues the cheques and accounts for the disbursements

At $50,000 level - maybe part-time Committee/bookkeeper

At $100,000 or more - paid staff an option

Risk adverse Project Managers require controls

Automate the process (ex. online registrations)

Bank Account Select and talk to local Banks . . . Each may offer different packages Emphasise “not-for-profit” Suggest large reserve may occur Avoid “Business Accounts” with higher fees

Select and talk to local Banks . . .

Each may offer different packages

Emphasise “not-for-profit”

Suggest large reserve may occur

Avoid “Business Accounts” with higher fees

Accountant/Auditor Select an Accountant who can be your Auditor Valuable support for the Component Can be expensive especially as you start up, so shop around, emphasise “not-for-profit” How about CA/CPA Member volunteer

Select an Accountant who can be your Auditor

Valuable support for the Component

Can be expensive especially as you start up, so shop around, emphasise “not-for-profit”

How about CA/CPA Member volunteer

Accounting software You need a Software tool to maintain your records and transaction details Based on the size - can be done manually - not recommended Packages QuickBooks; Quicken and others. Must be designed for Small Business

You need a Software tool to maintain your records and transaction details

Based on the size - can be done manually - not recommended

Packages

QuickBooks; Quicken and others.

Must be designed for Small Business

Next . . . ? Set up your Financial Records or familiarise your existing ones Start with the Chart of Accounts Set Budget for the Year what Revenue do you expect what Expense are you committed to what Reserve do you need to provide for Remember that this a Business not a Project Very different Budget requirements and impacts

Set up your Financial Records or familiarise your existing ones

Start with the Chart of Accounts

Set Budget for the Year

what Revenue do you expect

what Expense are you committed to

what Reserve do you need to provide for

Remember that this a Business not a Project

Very different Budget requirements and impacts

Chart of Account Summary Chart of Accounts These setup initially with the help of an Accountant/ Adapted from similar component. Reviewed annually at Budget time for changes Used to actively monitor and control expenditures and revenues Allocated by Portfolio for easy Portfolio Reporting

Chart of Accounts

These setup initially with the help of an Accountant/ Adapted from similar component.

Reviewed annually at Budget time for changes

Used to actively monitor and control expenditures and revenues

Allocated by Portfolio for easy Portfolio Reporting

Budget Process Prioritize your objectives – Then work on the Budget Follow Chart of Accounts Base on past 3 year’s results, plus Strategic and Operational Plan for current year Develop Plan for each Portfolio Aim for a Zero based Balance Budget (Expenses plus Reserve Allocation, equals Revenue) Monitor and record monthly, manage and update quarterly

Prioritize your objectives – Then work on the Budget

Follow Chart of Accounts

Base on past 3 year’s results, plus Strategic and Operational Plan for current year

Develop Plan for each Portfolio

Aim for a Zero based Balance Budget

(Expenses plus Reserve Allocation, equals Revenue)

Monitor and record monthly, manage and update quarterly

Other Considerations Transactions Financial Reports Audits Charter Renewal Taxes & Regulations Legal Requirements Finance/Treasurer Transition Checklist

Transactions

Financial Reports

Audits

Charter Renewal

Taxes & Regulations

Legal Requirements

Finance/Treasurer Transition Checklist

Transactions Income Membership dues Event or Program Fees Sponsorship and Donations (Advertisements) Professional Development/Education Income Expense Disbursement Administration and Overhead Program Costs Professional Development Costs Leadership Costs

Income

Membership dues

Event or Program Fees

Sponsorship and Donations (Advertisements)

Professional Development/Education Income

Expense Disbursement

Administration and Overhead

Program Costs

Professional Development Costs

Leadership Costs

Financial Reports Profit & Loss – Actual vs. Budget (by Project) Balance Sheet Cash flow Audited Accounts Annual Reports

Profit & Loss – Actual vs. Budget (by Project)

Balance Sheet

Cash flow

Audited Accounts

Annual Reports

Audits Professional audit done by outside entity Indépendant team (e.g. members with no officer position) Appointed independent member (e.g. Past President)

Professional audit done by outside entity

Indépendant team

(e.g. members with no officer position)

Appointed independent member

(e.g. Past President)

Charter Renewal Financial Report to be provided to PMI on February of each year: Balance sheet as end of previous year - Incoming gross funds - Expenses - Net total Balance sheet as reporting year

Financial Report to be provided to PMI on February of each year:

Balance sheet as end of previous year

- Incoming gross funds

- Expenses

- Net total

Balance sheet as reporting year

Taxes & Regulations The laws vary significantly from country to country Component leaders will need to investigate the requirements and process in each country Official legal registration of the Finance Officer

The laws vary significantly from country to country

Component leaders will need to investigate the requirements and process in each country

Official legal registration of the Finance Officer

Legal Requirements Keep accurate and complete records Corporate records book Articles of incorporation, bylaws Meeting minutes Tax exemption determination letters Contracts Financial records Insurance

Keep accurate and complete records

Corporate records book

Articles of incorporation, bylaws

Meeting minutes

Tax exemption determination letters

Contracts

Financial records

Insurance

Finance/Treasurer Transition Checklist Copy of component strategic plan, policies and procedures, and job descriptions for all officers Copies of all bank statements, account information, etc. Check book and transaction log Checking Account signature card (s) Documents/statements of other investments Copies of all past tax returns

Copy of component strategic plan, policies and procedures, and job descriptions for all officers

Copies of all bank statements, account information, etc.

Check book and transaction log

Checking Account signature card (s)

Documents/statements of other investments

Copies of all past tax returns

Transition Checklist Continued.. Budget for past, current and upcoming year Income statement and other financial records history ACH/wire transfer transactions from PMI Headquarters Audited financial statements Employer Identification Number (EIN) or Tax identification number Documentation/records on tax exemption

Budget for past, current and upcoming year

Income statement and other financial records history

ACH/wire transfer transactions from PMI Headquarters

Audited financial statements

Employer Identification Number (EIN) or Tax identification number

Documentation/records on tax exemption

Any Questions? Adapted from: Michael Flint, PMI SOC Carrot and sticks to : Saji Madapat PMI Component Mentor, Region 9 (Asia) [email_address]

Adapted from: Michael Flint, PMI SOC