Beyond Bean Counting – Strategic Role of Component Finance

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Workshop to PMI’s Asia PAC Leadership Institute Conference at Bangkok in Feb’06.

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  • Pushing component to perform better at every level of the organization. Only finance has the broad organizational reach, the rich understanding of the numbers behind the business, and the analytical training necessary to provide this support.
  • Beyond Bean Counting – Strategic Role of Component Finance

    1. 1. Component Finance : Bean Counter to a Strategic Thinker 25 February 2006 16.00-17.00 by Saji Madapat PMI Component Mentor, Asia
    2. 2. Level Set . . . <ul><li>We are not here to teach you Accounting </li></ul><ul><li>Finance is a key and vital focus for all components </li></ul><ul><li>Need for a professional approach </li></ul><ul><li>Running a Business not a Project </li></ul>
    3. 3. “Not-for-Profit” <ul><li>Rules vary from country to country, but generally speaking: </li></ul><ul><ul><li>Components are not in the business for profit </li></ul></ul><ul><ul><li>Equally they are not expected to run at a loss </li></ul></ul><ul><ul><li>Should hold a reserve of 3 to 12 months expenses </li></ul></ul><ul><li>Legal and Ethical duties will apply </li></ul>
    4. 4. So what do you do first . . .? <ul><li>Identify the Financial Officer </li></ul><ul><li>Do a rough estimate on budget </li></ul><ul><li>Determine level of control needed </li></ul><ul><li>Select Bank and setup not-for-profit account </li></ul><ul><li>Select Accountant/Auditor </li></ul><ul><li>Select Accounting software </li></ul>
    5. 5. Identify the Financial Officer <ul><li>Does not matter how big or small the component is, you need someone to take responsibility for the Finances </li></ul><ul><li>The Financial Officer is accountable for the financial well-being of the Component </li></ul><ul><li>Pick someone who has overview of chapter activities </li></ul>
    6. 6. Duties of the Financial Officer <ul><li>Same as all component leaders </li></ul><ul><ul><li>Duty of Loyalty </li></ul></ul><ul><ul><li>Duty of Care </li></ul></ul><ul><ul><li>Duty of Compliance </li></ul></ul><ul><ul><li>Duty of Integrity </li></ul></ul>
    7. 7. Prime Responsibility <ul><li>Meet Fiscal responsibilities and obligations: </li></ul><ul><ul><li>Development of Annual Budget based on input from Directors and Portfolio Managers </li></ul></ul><ul><ul><li>Collecting and Disbursing Component’s funds in accordance with approved budgets and sound accounting practices </li></ul></ul><ul><ul><li>Reporting current and future financial status to enable the Board to make informed decisions </li></ul></ul>
    8. 8. Rough estimate of Budget <ul><li>Do the calculation </li></ul><ul><ul><li>Small components with say less than 100 members will have a Budget of about $5,000 </li></ul></ul><ul><ul><li>Larger components can be as big as $500,000 </li></ul></ul><ul><ul><li>Different approaches will apply, for controls, risk management and reporting </li></ul></ul>
    9. 9. 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
    10. 10. 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
    11. 11. Determine level of control <ul><li>The level of control changes </li></ul><ul><ul><li>$1,500 budget - Finance Officer issues the cheques and accounts for the disbursements </li></ul></ul><ul><ul><li>At $50,000 level - maybe part-time Committee/bookkeeper </li></ul></ul><ul><ul><li>At $100,000 or more - paid staff an option </li></ul></ul><ul><ul><li>Risk adverse Project Managers require controls </li></ul></ul><ul><ul><li>Automate the process (ex. online registrations) </li></ul></ul>
    12. 12. Bank Account <ul><li>Select and talk to local Banks . . . </li></ul><ul><ul><li>Each may offer different packages </li></ul></ul><ul><ul><li>Emphasise “not-for-profit” </li></ul></ul><ul><ul><li>Suggest large reserve may occur </li></ul></ul><ul><li>Avoid “Business Accounts” with higher fees </li></ul>
    13. 13. Accountant/Auditor <ul><li>Select an Accountant who can be your Auditor </li></ul><ul><li>Valuable support for the Component </li></ul><ul><li>Can be expensive especially as you start up, so shop around, emphasise “not-for-profit” </li></ul><ul><li>How about CA/CPA Member volunteer </li></ul>
    14. 14. Accounting software <ul><li>You need a Software tool to maintain your records and transaction details </li></ul><ul><li>Based on the size - can be done manually - not recommended </li></ul><ul><li>Packages </li></ul><ul><ul><li>QuickBooks; Quicken and others. </li></ul></ul><ul><ul><li>Must be designed for Small Business </li></ul></ul>
    15. 15. Next . . . ? <ul><li>Set up your Financial Records or familiarise your existing ones </li></ul><ul><ul><li>Start with the Chart of Accounts </li></ul></ul><ul><li>Set Budget for the Year </li></ul><ul><ul><li>what Revenue do you expect </li></ul></ul><ul><ul><li>what Expense are you committed to </li></ul></ul><ul><ul><li>what Reserve do you need to provide for </li></ul></ul><ul><li>Remember that this a Business not a Project </li></ul><ul><li>Very different Budget requirements and impacts </li></ul>
    16. 16. Chart of Account Summary <ul><li>Chart of Accounts </li></ul><ul><ul><li>These setup initially with the help of an Accountant/ Adapted from similar component. </li></ul></ul><ul><ul><li>Reviewed annually at Budget time for changes </li></ul></ul><ul><ul><li>Used to actively monitor and control expenditures and revenues </li></ul></ul><ul><ul><li>Allocated by Portfolio for easy Portfolio Reporting </li></ul></ul>
    17. 17. Budget Process <ul><li>Prioritize your objectives – Then work on the Budget </li></ul><ul><li>Follow Chart of Accounts </li></ul><ul><ul><li>Base on past 3 year’s results, plus Strategic and Operational Plan for current year </li></ul></ul><ul><ul><li>Develop Plan for each Portfolio </li></ul></ul><ul><ul><li>Aim for a Zero based Balance Budget </li></ul></ul><ul><ul><ul><li>(Expenses plus Reserve Allocation, equals Revenue) </li></ul></ul></ul><ul><li>Monitor and record monthly, manage and update quarterly </li></ul>
    18. 18. Other Considerations <ul><li>Transactions </li></ul><ul><li>Financial Reports </li></ul><ul><li>Audits </li></ul><ul><li>Charter Renewal </li></ul><ul><li>Taxes & Regulations </li></ul><ul><li>Legal Requirements </li></ul><ul><li>Finance/Treasurer Transition Checklist </li></ul>
    19. 19. Transactions <ul><li>Income </li></ul><ul><ul><li>Membership dues </li></ul></ul><ul><ul><li>Event or Program Fees </li></ul></ul><ul><ul><li>Sponsorship and Donations (Advertisements) </li></ul></ul><ul><ul><li>Professional Development/Education Income </li></ul></ul><ul><li>Expense Disbursement </li></ul><ul><ul><li>Administration and Overhead </li></ul></ul><ul><ul><li>Program Costs </li></ul></ul><ul><ul><li>Professional Development Costs </li></ul></ul><ul><ul><li>Leadership Costs </li></ul></ul>
    20. 20. Financial Reports <ul><li>Profit & Loss – Actual vs. Budget (by Project) </li></ul><ul><li>Balance Sheet </li></ul><ul><li>Cash flow </li></ul><ul><li>Audited Accounts </li></ul><ul><li>Annual Reports </li></ul>
    21. 21. Audits <ul><li>Professional audit done by outside entity </li></ul><ul><li>Indépendant team </li></ul><ul><li>(e.g. members with no officer position) </li></ul><ul><li>Appointed independent member </li></ul><ul><li>(e.g. Past President) </li></ul>
    22. 22. Charter Renewal <ul><li>Financial Report to be provided to PMI on February of each year: </li></ul><ul><li>Balance sheet as end of previous year </li></ul><ul><li>- Incoming gross funds </li></ul><ul><li>- Expenses </li></ul><ul><li>- Net total </li></ul><ul><li>Balance sheet as reporting year </li></ul>
    23. 23. Taxes & Regulations <ul><ul><li>The laws vary significantly from country to country </li></ul></ul><ul><ul><li>Component leaders will need to investigate the requirements and process in each country </li></ul></ul><ul><ul><li>Official legal registration of the Finance Officer </li></ul></ul>
    24. 24. Legal Requirements <ul><li>Keep accurate and complete records </li></ul><ul><li>Corporate records book </li></ul><ul><ul><li>Articles of incorporation, bylaws </li></ul></ul><ul><ul><li>Meeting minutes </li></ul></ul><ul><ul><li>Tax exemption determination letters </li></ul></ul><ul><ul><li>Contracts </li></ul></ul><ul><ul><li>Financial records </li></ul></ul><ul><ul><li>Insurance </li></ul></ul>
    25. 25. Finance/Treasurer Transition Checklist <ul><li>Copy of component strategic plan, policies and procedures, and job descriptions for all officers </li></ul><ul><li>Copies of all bank statements, account information, etc. </li></ul><ul><li>Check book and transaction log </li></ul><ul><li>Checking Account signature card (s) </li></ul><ul><li>Documents/statements of other investments </li></ul><ul><li>Copies of all past tax returns </li></ul>
    26. 26. Transition Checklist Continued.. <ul><li>Budget for past, current and upcoming year </li></ul><ul><li>Income statement and other financial records history </li></ul><ul><li>ACH/wire transfer transactions from PMI Headquarters </li></ul><ul><li>Audited financial statements </li></ul><ul><li>Employer Identification Number (EIN) or Tax identification number </li></ul><ul><li>Documentation/records on tax exemption </li></ul>
    27. 27. Any Questions? <ul><li>Adapted from: Michael Flint, PMI SOC </li></ul>Carrot and sticks to : Saji Madapat PMI Component Mentor, Region 9 (Asia) [email_address]

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