BSBFIM501 Manage Budgets and Financial Plans: Learner Guide

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BSBFIM501

Manage budgets and


financial plans
Learner Guide
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Table of Contents

Unit of Competency 4
Application 4
Performance Criteria 5
Foundation Skills 6
Assessment Requirements 7
1. Plan financial management approaches 9
1.1 – Access budget/financial plans for the work team 10
1.2 – Clarify budget/financial plans with relevant personnel within the organisation to ensure that
documented outcomes are achievable, accurate and comprehensible 10
1.3 – Negotiate any changes required to be made to budget/financial plans with relevant personnel
within the organisation 10
Introduction 10
Basic accounting principles 10
Budget/financial plans 11
Long-term planning 13
Medium-term planning 13
Budgeting 14
Budget structure 16
Computer-based budget management 16
Closing accounts 17
Activity 1A 18
1.4 – Prepare contingency plans in the event that initial plans need to be varied 19
Contingency plans 19
Activity 1B 21
2. Implement financial management approaches 22
2.1 – Disseminate relevant details of the agreed budget/financial plans to team members 23
Communication 23
Activity 2A 25
2.2 – Provide support to ensure that team members can competently perform required roles
associated with the management of finances 26
Support for team members 26
Activity 2B 28
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2.3 – Determine and access resources and systems to manage financial management processes within
the work team 29
Resources and systems 29
Electronic spreadsheets 30
Human, physical or financial resources 30
Record keeping systems (electronic and paper-based) 32
Specialist advice or support 33
Activity 2C 34
3. Monitor and control finances 35
3.1 – Implement processes to monitor actual expenditure and to control costs across the work team
36
Monitoring expenditure 36
Controlling cost 37
Activity 3A 38
3.2 – Monitor expenditure and costs on an agreed cyclical basis to identify cost variations and
expenditure overruns 39
Expenditures and costs 39
Activity 3B 41
3.3 – Implement, monitor and modify contingency plans as required to maintain financial objectives
42
Contingency plans 42
Activity 3C 44
3.4 – Report on budget and expenditure in accordance with organisational protocols 45
Reporting on budgets 45
Australian Taxation Office 48
Activity 3D 50
4. Review and evaluate financial management processes 51
4.1 – Collect and collate for analysis, data and information on the effectiveness of financial
management processes within the work team 52
Effectiveness of financial management 52
Cash flows 52
Profit and loss statements 53
Petty cash 53
Activity 4A 55
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4.2 – Analyse data and information on the effectiveness of financial management processes within
the work team and identify, document and recommend any improvements to existing processes 56
Recommending improvements 56
Identify, document and recommend improvements 56
Activity 4B 58
4.3 – Implement and monitor agreed improvements in line with financial objectives of the work team
and the organisation 59
Agreed improvements 59
Monitoring and reporting budgets 59
Forecasting expenditure trends 60
Activity 4C 61
Summative Assessments 62
Appendices 63
Key processes – Do you have the skills? 63
Interpreting budgets 63
Ageing summaries 63
Cash flow 64
Petty cash 66
Good and Services Tax (GST) 66
Profit and loss statements 67
Financial Procedures Manual / Financial policies and procedures 68
References 69
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Unit of Competency
Application

This unit describes the skills and knowledge required to undertake financial management within a work
team in an organisation. It includes planning and implementing financial management approaches,
supporting team members whose role involves aspects of financial operations, monitoring and
controlling finances and reviewing and evaluating effectiveness of financial management processes.

It applies to managers in a wide range of organisations and sectors who have responsibility for ensuring
that work team financial resources are used effectively and are managed in line with financial objectives
of the team and organisation.

No licensing, legislative or certification requirements apply to this unit at the time of publication.

Unit Sector

Finance - Financial Management


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Performance Criteria
Element Performance Criteria
Elements describe the Performance criteria describe the performance needed to
essential outcomes. demonstrate achievement of the element.

1. Plan financial 1.1 Access budget/financial plans for the work team
management 1.2 Clarify budget/financial plans with relevant personnel within
approaches the organisation to ensure that documented outcomes are
achievable, accurate and comprehensible
1.3 Negotiate any changes required to be made to
budget/financial plans with relevant personnel within the
organisation
1.4 Prepare contingency plans in the event that initial plans
need to be varied

2. Implement financial 2.1 Disseminate relevant details of the agreed budget/financial


management plans to team members
approaches 2.2 Provide support to ensure that team members can
competently perform required roles associated with the
management of finances
2.3 Determine and access resources and systems to manage
financial management processes within the work team

3. Monitor and control 3.1 Implement processes to monitor actual expenditure and to
finances control costs across the work team
3.2 Monitor expenditure and costs on an agreed cyclical basis to
identify cost variations and expenditure overruns
3.3 Implement, monitor and modify contingency plans as
required to maintain financial objectives
3.4 Report on budget and expenditure in accordance with
organisational protocols

4. Review and evaluate 4.1 Collect and collate for analysis, data and information on the
financial management effectiveness of financial management processes within the
processes work team
4.2 Analyse data and information on the effectiveness of
financial management processes within the work team and
identify, document and recommend any improvements to
existing processes
4.3 Implement and monitor agreed improvements in line with
financial objectives of the work team and the organisation
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Foundation Skills
This section describes language, literacy, numeracy and employment skills incorporated in the
performance criteria that are required for competent performance.

Reading

 Interprets and analyses information to determine activities required.

Writing

 Records information in correct forms and prepares materials which convey detailed
and factual content in accordance with internal procedures.

Oral communication

 Presents information about financial issues and requirements to a range of audiences


using structure and language to suit the audience

 Uses active listening and questioning to clarify information and to confirm


understanding.

Numeracy

 Uses a wide range of mathematical calculations to analyse numeric information in


budgets or financial plans.

Navigate the world of work

 Recognises, understands and adheres to organisational requirements in undertaking


own work.

Interacts with others

 Uses a range of strategies to connect, collaborate and cooperate with other work
colleagues in activities requiring collective effort and diverse skills and knowledge.

Get the work done

 Uses logical processes in planning, implementing and evaluating complex tasks and
developing alternative strategies in achieving goals and timelines

 Uses a range of digital technologies to access, filter, compile, integrate and logically
present complex information from multiple sources.
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Assessment Requirements
Performance Evidence

Evidence of the ability to:

 Use financial skills to work with and interpret budgets, ageing summaries, cash flow,
petty cash, Goods and Services Tax (GST), and profit and loss statements

 Communicate with relevant people to clarify budget/financial plans, negotiate changes


and disseminate information

 Prepare, implement and modify financial contingency plans

 Monitor expenditure and control costs

 Support and monitor team members

 Report on budget and expenditure

 Review and make recommendations for improvements to financial processes

 Meet record keeping requirements for the Australian Taxation Office (ATO) and for
auditing purposes.

Note: If a specific volume or frequency is not stated, then evidence must be provided at least once.

Knowledge Evidence

To complete the unit requirements safely and effectively, the individual must:

 Describe basic accounting principles

 Identify and explain the relevant legislation and current requirements of the Australian
Taxation Office, including the Goods and Services Tax (GST)

 Explain the key requirements for financial record keeping and auditing

 Describe the principles and techniques involved in managing:

o budgeting

o cash flows

o electronic spreadsheets

o GST

o ledgers and financial statements

o profit and loss statements.


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Assessment Conditions

Assessment must be conducted in a safe environment where evidence gathered demonstrates


consistent performance of typical activities experienced in the financial management field of work and
include access to:

 Resources and documentation used in the workplace

 Workplace policies and procedures

 Workplace budgets and financial plans

 Business technology

 Case studies and, where available, real situations.

Assessors must satisfy NVR/AQTF assessor requirements.

Links

Companion volumes available from the IBSA website: http://www.ibsa.org.au/companion_volumes -


https://vetnet.education.gov.au/Pages/TrainingDocs.aspx?q=11ef6853-ceed-4ba7-9d87-4da407e23c10
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1. Plan financial management approaches


1.1. Access budget/financial plans for the work team

1.2. Clarify budget/financial plans with relevant personnel within the organisation to ensure that
documented outcomes are achievable, accurate and comprehensible

1.3. Negotiate any changes required to be made to budget/financial plans with relevant personnel
within the organisation

1.4. Prepare contingency plans in the event that initial plans need to be varied
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1.1 – Access budget/financial plans for the work team


1.2 – Clarify budget/financial plans with relevant personnel within the
organisation to ensure that documented outcomes are achievable, accurate and
comprehensible
1.3 – Negotiate any changes required to be made to budget/financial plans with
relevant personnel within the organisation

Introduction
This unit describes the skills and knowledge required to undertake financial management within a work
team in an organisation. It includes planning and implementing financial management approaches,
supporting team members whose role involves aspects of financial operations, monitoring and
controlling finances and reviewing and evaluating effectiveness of financial management processes.

It applies to managers in a wide range of organisations and sectors who have responsibility for ensuring
that work team financial resources are used effectively and are managed in line with financial objectives
of the team and organisation.

No licensing, legislative or certification requirements apply to this unit at the time of publication.

Basic accounting principles


When dealing with accounts, it is essential to know the basic principles – known as 'generally accepted
accounting principles'.

They are as follows:


 Revenue: Revenue is made when a sale is made. This is when legal ownership of the
goods passes from the seller to the buyer. It is not simply when you collect cash for
something

 Expense: This is when a business uses goods or services i.e. the opposite of revenue.
Expenses become active as soon as you receive the goods or services, not when you
actually pay for them

 Matching: This is when you match


revenue to expenses – only counting
expenses on the day that you get
revenue for them, not when you
initially buy them. So if, you buy stock
in bulk, only count expenses when you
sell individual items

 Cost: Costs of items will only be measured at their value for the time you initially
bought them – you should not adjust them in the accounting system to reflect current
market values
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 Objectivity: All data in the accounting system should be objective, factual and verifiable

 Continuity assumption: Accounts should assume that the business will continue to
operate in the future; otherwise, none of the assets have any definite value

 Unit-of-measure assumption: The domestic currency should be used by a business in


its accounting system, regardless of inflation and deflation effects on that currency's
purchasing power

 Separate entity assumption: The business is a separate thing from its owner; a
partnership is also a separate entity to the partners who own the business. Therefore,
the financial records of the business and those of the owners/partnership are entirely
separate.

Financial record keeping and auditing


Key principles of financial record keeping include:
 Accountability: A senior manager shall be responsible for all aspects of it

 Transparency: All activities will be clearly documented and be accessible to authorised


people

 Integrity: All records are authentic and reliable

 Protection: All records are protected according to their privacy or confidentiality


requirement

 Compliance: Record keeping shall follow organisation policies and legislation

 Retention: Records shall be kept retained for the required amount of time and
disposed when not needed.

(Source: http://searchcompliance.techtarget.com/definition/Generally-Accepted-Recordkeeping-
Principles)

Budget/financial plans
Budget/ financial plans are an essential part of any business – without them, it is impossible to plan and
monitor income and expenditure.

They can include any of the following aspects:


 Cash flow projections

 Long-term budgets/plans

 Operational plans

 Short-term budgets/plans

 Spreadsheet-based financial projections


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 Targets or key performance indicators for production, productivity, wastage, sales,


income and expenditure.

The types of people that budget/financial plans must be clarified with include the following
personnel:
 Financial managers, accountants or financial controllers

 Supervisors, other frontline managers.

Financial plans need to achieve the following:


 Analyse the past

o compare customer demand to company spending

o identify the sources of cash flow

o compare the financial performance against the performance indicators set at the
start of the financial year

o analyse audit results and accountant reports for ways to improve

 Plan for the future:

o identify future cash flow sources and their potential impact

o analyse organisational policies and their impact of organisational operations

o look at spending trends and their potential impact

 Implement new strategies for the future:

o analyse organisational policies and create new ones

o account for existing strategies when financial planning

o examine existing staff and their skill levels – determine whether goals can be
achieved at their current level

o assess all available options

o get the opinions of stakeholders in decisions

 Set annual budgets:

o arrange plans to set a budget

o budgets should be centred around financial plans

o involve budget managers in setting budgets

o ensure work meets budgeting organisational


standards

o plan for contingencies

o set budgets for certain departments of the organisation


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o provide a structure to budgets

o monitor work to ensure it complies with budgets

o take long and short-term arrangements into account

Long-term planning
Looking long-term is essential with financial planning and it should be integrated into the overall
strategy of the organisation. While short-term planning is also required, doing only this will result in a
lack of security and financial problems in the future.

The benefits of long-term financial plans are:


 You can estimate the funding required

 Budget allocations increase in


accuracy

 Trends in demand can be identified

 Change is easier to implement

 Financial consequence of major


programs/changes can be planned

 Change can be implemented more


easily

 You can forecast how the market is likely to change and account for this

 You can plan for human resources changes

 Staffing needs and resources can be calculated and planned.

Medium-term planning
This is the go-between for short and long-term planning. For this stage, you need to:
 Identify likely sources of cash flow

 Create a cash flow forecast statement, identifying the major changes of income sources

 Think what things may occur based on what you know will happen

 Identify future spending levels

 Consult with stakeholders for their opinions on what the major changes could be

 Analyse the impact of proposed changes of future finances.


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This approach will do the following:


 Helps management deal with cost cutting, budget cuts, resource allocation and
resource levels

 Allow changes to be more easily planned rather than being impulsive reactions

 Helps managers plan for the future – if they know their budget and budget forecasts,
they can assess whether change is viable.

Option appraisal
The idea of this is to make decisions based on the advantages and disadvantages of the options
available. It is a useful tool for allocating limited resources; for example, if budget is limited, you can
decide the most effective part of the organisation for it to be invested in.

Budgeting
When budgeting, there are various people who play a role in managing them.

Management
They are accountable for their own budgets. However, their accountability depends on their level in the
organisation.

Within budgets, the following should be made


clear:
 The difference between
managers and financial support
staff

 Who is responsible for setting


and analysing each budget

 The delegation of roles (and


their levels).

Budgets must be built upon current pricing levels, with price changes and inflation allowed and
accounted for.

This involves:
 Anticipating the type and extent of possible price changes, allowing for if they become
a reality

 Contingency planning for price changes

 Consultation with staff and experts to determine accountability and allowances.

When changes in accountability are possible, you must make sure:


 Everyone is aware of them and their impact

 Decisions are only made by the top-level people in the budgeting process
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 Accountability is not with the original budget holders anymore.

Budget holders
These people contribute to setting budgets and provide the information that is used to calculating exact
figures.

They are responsible for:

 Identifying trends and determining areas of change for budgets

 Dealing with budget reports

 Determining corrective actions for problems identified in budget reports (and


implementing them)

 Reporting any issues which cannot be resolved to senior managers

 Analysing data with support staff

 Providing expertise for support staff.

Finance and support staff


Their role is to:
 Set budgets in collaboration with budget holders

 Implement monitoring of:

budgets

reporting processes

timeframes of processing changes

reporting procedures

 Analyse financial data

 Examine data that impacts budget holders

 Provide advice to budget holders

 Be accountable for the quality of financial data they create

 Implement monitoring and reporting processes for financial decisions

 Be accountable for the quality and relevance of financial data used for budget
monitoring.
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Budget structure
The overall budget of an organisation, as previously discussed, should be divided into separate budget
for different departments. However, these should be grouped together so that related budgets are
under the responsibility of one person. It should also be clear who is responsible and accountable for
each budget, to avoid confusion.

Computer-based budget management


In the modern age, most systems in an organisation have become computerised – this includes budget
management.

A budget tracking system allows monitoring/recording of:


 Organisational spending

 Budgets

 Organisational income

 Debtor and creditor records

 Payment processing

 Budget management

 Contract management

 Financial analysis.

The system you use needs to do the following:


 Work in collaboration with the other information systems you use
 Allow comparison of accounts (automatically)
 Maintain and update budget management information
 Transfer information between budgets
 Enable easy billing
 Facilitate financial analysis
 Record actual income and outgoings
 Record expenditure commitments over time
 Make creditor payments easy
 Record costs individually
 Allow for easy forecasting
 Provide required reports
 Export data to spreadsheets
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 Facilitate easy sharing of data.

Closing accounts
This involves having a set point where all data into accounts is frozen and recorded, so it can be
analysed accurately over a set time period. It allows decisions and performance measurement to be
made from a set point.

Having this closure allows decisions to be made on:


 Whether under/over-spends can be carried forward
 How budget managers can examine results
 If any underspend can be given back
 If over-spend needs to be given back (at a
later date)
 Whether performance variances between
actual and desired performance can be
assigned to future projects.
When dealing with variances:
 Have your approach set out in writing at the beginning of each cycle, to ensure
everyone is clear about expectations
 Ensure that the approach aligns with the overall financial strategies and approaches
 Keep the approach in line with responsibility levels
 People feel in control of dealings with variances
 Ensure that everyone is aware of the levels of variance that will instigate an
investigation
 Make sure that investigations are done by those external to the department they
concern.
Managing joint budgets
These are also known as pooled budgets.

Make sure that:


 Contribution levels of managers is clear
 The acceptable level of variance is set
 The methods of dealing with variances are clear to all staff
 People involved in a joint budget know the management strategy for it
 Reporting responsibilities are allocated
 Accountabilities are assigned
 Management responsibilities are outlined.
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Activity 1A
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1.4 – Prepare contingency plans in the event that initial plans need to be varied

Contingency plans
Contingency plans need to be present in budgets and budget forecasts, in the event that things do not
go to plan and the initial plan needs to be altered. There can be any number of unexpected variances,
such as your main supplier going bankrupt, power cuts, data corruption, etc.

Examples of contingency plans include:


 Contracting out or outsourcing human resources and other functions or tasks

 Diversification of outcomes

 Finding cheaper or lower quality raw materials and consumables

 Increasing sales or production

 Recycling and re-using

 Rental, hire purchase or alternative means of procurement of required materials,


equipment and stock

 Restructuring of organisation to reduce labour costs

 Risk identification, assessment and management processes

 Seeking further funding

 Strategies for reducing costs, wastage, stock or consumables

 Succession planning

Every organisation will have contingency plans in place for various situations. If a workplace event
doesn’t go according to plan – or if another solution is required – then a contingency plan will be
required. There should be risk management plans and contingency plans in place for almost anything
that can go wrong.

A contingency plan does not mean that you expect things to go wrong but rather are planning ahead for
all eventualities, which is incredibly sensible in the business world. Contingency plans can help to save
time, money and a great deal of stress. A contingency plan may be put in place from day one, or it may
be something that needs to be implemented following a situation that did not go according to plan first
time around.

A contingency plan doesn’t necessarily have to focus on risk management or health and safety issues
(although both are very important); it can include finding alternative resources or gaining further
funding, for example. A contingency plan does not necessarily mean your current plan has not worked;
it just might need certain alterations.

Contingency plans should be part of the organisational policies and procedures and be seen as flexible
and adaptable as every situation will be different.
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Contingency plans may need to cover situations such as:


 Broken/malfunctioning equipment

 Staff quitting or needing time off due to illness, holidays, etc

 Health and safety issues

 Natural disasters (i.e. floods, earthquake, etc.)

 Theft, fraud or other security issues.

Contingency plans should be flexible enough that last minute changes can be implemented. They should
provide an opportunity for action to take place so that an immediate solution can be found and utilised.

Contingency plans may need to include the following information:

 The situation needing action

 Personnel to be involved

 Contact numbers for personnel, resources, etc.

 Legislative, organisational and ethical requirements to


consider

 How it will impact on the organisation

 Costs that may occur – including how to resolve the issue

 Solutions – these can be as many as necessary for different outcomes

 How the solution will be implemented and by who

 A deadline.
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Activity 1B
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2. Implement financial management approaches


2.1. Disseminate relevant details of the agreed budget/financial plans to team members

2.2. Provide support to ensure that team members can competently perform required roles
associated with the management of finances

2.3. Determine and access resources and systems to manage financial management processes
within the work team
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2.1 – Disseminate relevant details of the agreed budget/financial plans to team


members

Communication
It is important that all relevant personnel receive relevant details about the agreed budget/financial
plans.

It is vital that price changes and pricing policies are communicated to staff members to ensure they are
all on the same page and can work cohesively.

Most of this communication will be verbal; however written communication can be useful for the
purposes of:
 Ensuring everyone gets the same message

 Ensuring there is a record of communication

 People can refer to the contents of the communication later (if need be).

Pricing policies and changes are likely to be communicated in stores on a vertical level – the manager
should hold a staff meeting to inform employees of this information.

When informing staff, you need to bear the following


in mind:
 Be clear and concise – don't leave
room for interpretation

 Check they understand – make sure


your instructions have been
understood and provide clarification

 Consider cultural differences – use


suitable languages and avoid slang.

Who is informed?
After the budget/financial plans have been agreed, you will now need to divulge the relevant details to
team members.

People who may be informed include:


 Senior management – they will need to see the full details of the budget/financial
plans (as they are responsible for it)

 The accounts department – so that they can enter the figures into appropriate
software and create the necessary budget lines, etc

 Budget committee – where the (usually large) establishment has a budget committee,
they will be responsible for ongoing monitoring of income and revenue against
projections. Their role may also extend beyond this overseeing role, into proposals for
increasing revenue streams and limiting/reducing expenditures, as appropriate
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 Managers – middle-level management (people such as heads of department)


commonly have daily control over the revenue raising areas of the property and power
over relevant areas of expenditure. It is predominantly these individuals who are
responsible for generating the bulk of the income, and whose decisions have immense
impact on the profitability and viability of the premises; while they operate under
direction from senior management, they make numerous day-to-day and on-the-spot
decisions that have the potential to greatly impact on budget figures

 Establishment staff – the head of department usually explains the latest budget
allocations to departmental staff. This news is traditionally passed on verbally in a
formal departmental meeting – as well as written information being distributed. The
head of department commonly sets the scene by explaining the general budgetary
context and the trading situation the establishment finds itself in – general statements
are normally used to describe the current situation as it compares to the last period.

Next, further general statements are made about what management expects from the department (and
by association, the staff); it is not common to pass on exact dollar figures to the staff as this is seen as
material that is 'commercial in confidence'.

Staff may be told that there is an expectation that, for example, they are expected to increase revenue
in the upcoming 12-month period by an average of 10% over the previous year: this indicates
management requirements without disclosing the actual figures involved.

Staff may be informed, for example, that there is an expectation for expenses to be reduced by five per
cent.

It is always important to convey this sort of news within a positive context, wherever possible, to reduce
the possibility of staff disillusionment and the likelihood that staff may misinterpret 'economic
imperatives' as signals that their job is in jeopardy. When staff pick up this sort of message they
commonly start looking for employment elsewhere because they can 'see the writing on the wall'.

Traditional ways to inform about budget allocations include:


 Departmental meetings where information is
delivered verbally and face-to-face (as described
above)

 All staff meetings where a series of overhead


projections (or a PowerPoint presentation) is used

 Internal memos or emails sent to staff

 Paper-based documentation that outlines, without


being too specific, the requirements that have
been decided on.

Certainly, where staff are informed and involved (wherever that is possible), it creates a situation that
will lead to greater work satisfaction, higher levels of productivity and enhanced staff commitment to
organisational goals.
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Activity 2A
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2.2 – Provide support to ensure that team members can competently perform
required roles associated with the management of finances

Support for team members


Team members will need support in the workplace to adequately perform their roles and to facilitate
improvement.

Roles associated with the management of finances may include:


 Arranging for use of corporate credit cards

 Banking

 Debt collection

 Ensuring security, accuracy and currency of


financial operations

 Invoicing clients, customers and consumers

 Maintaining journals, ledgers and other record keeping systems

 Maintaining petty cash system

 Purchasing and procurement

 Wages and salaries payments and record keeping.

(Source: http://smallbusiness.chron.com/important-roles-within-financial-management-system-
31146.html)

The types of support that can be offered include:


 Access to specialist advice – an advice service or someone on hand to answer any
specialist questions that team members will save time and ensure that roles are
performed in a uniform manner

 Documentation of procedures – keeping records of procedures is a useful tool in


retrospectively identifying problems or issues. The documentation process also makes
you more aware of what you are doing, so you are less likely to become casual in your
role/make errors

 Help desk or identified experts within the organisation – having specific personnel to
use as a first port of call for any queries will save time and make the problem-solving
process more efficient

 Information briefings or sessions – having meetings where finance management is


explicitly discussed is a great way to clarify the roles of team members and provides an
opportunity for staff to raise any issues they might have
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 Intranet-based information – having an online resource for all employees to access at


any time is extremely useful. It is a more efficient way of explaining processes and can
provide comprehensive guides to certain roles and situations

 Training including mentoring, coaching and shadowing – having tailored


demonstration, monitoring and feedback on roles will ensure that each employee is
performing their role to the best of their abilities and in line with organisational
policies.

When arranging for support to team members, you should identify what their position with the
company is and what duties they perform. Support needs may vary according to whether they are
relatively new or experienced.

To identify them further, you could review their performance for areas that require improvement. You
can then determine which of the options that are open to you would be most suitable. One-on-one
interviews can also perform the same function as long as the workers are open and honest about their
needs; emphasise that they won’t get into trouble for requesting support.

When you have provided support, it is usually prudent to follow-up several weeks or months later.

Ask questions such as:


 Did the support help? If not, why not?

 Do they have any outstanding support needs?

 Are there any other areas of skills they


would like to learn?

 What is their preferred support method?


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Activity 2B
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2.3 – Determine and access resources and systems to manage financial


management processes within the work team

Resources and systems


The resources and systems needed to manage financial management processes within the work team
may include:
 Hardware and software

 Human, physical or financial resources

 Record keeping systems (electronic and paper-based)

 Specialist advice or support.

Hardware and software


The majority of businesses in the developed world now use some form of computerisation – with
financial management, this offers many advantages.

You will need to determine the type of hardware – such as computers and necessary accessories – that
will fulfil the minimum requirements of financial management software.

The types of software you will need for financial management will include:
 A universal ledger – covering your general ledger, accounts payable, accounts
receivable, fixed assets, project accounting and other financial reporting requirements

 End to end spend management program – to allow the control of purchasing activity
and to organise it in one document

 Budgeting, planning and forecasting program

 Reporting program – to analyse the efficiency of the business processes

 Process and control automation program – to allow all operations to be managed and
organised into an auditable format.
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Electronic spreadsheets
Electronic spreadsheets are digital versions of hard-copy accounts with added benefits such as auto-
sum, and the ability to easily change and update information. By changing select values within an
electronic spreadsheet, it is also possible to analyse cause-and-effect, or other aspects of actual or
potential financial change.

Examples of electronic spreadsheets that may be used in accounting include:


 Microsoft Excel

 Google sheets

 Zoho Sheet

 WPS Spreadsheet.

Functions you may be expected to perform using spreadsheet software could include:
 Autosum or other calculations

 Projections

 Creating visuals from numerical data (i.e. charts and graphs)

 Inputting data manually

 Importing or exporting data

 Adding or removing columns

 Organising tabs or pages.

Human, physical or financial resources


Human resources
This includes all of the skill-sets that the business already has within
its personnel. They need to be sufficient to meet the needs of
business in achieving its strategy – if they aren't, can staff be
trained efficiently, or do new personnel need to be acquired?

Existing resources may include:


 Amount of staff in each role (take into account
location, grade, experience, qualifications, pay)

 Rate of staff loss

 Training standards for key roles

 Intangibles e.g. morale, business culture, work


relationships.
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Changes to resources may be needed when strategies change. Consider:


 What the change of strategy is e.g. change of location, extra locations, new
products/product lines

 The human resources required for these changes

 Sources of fulfilling the human resource requirements.

Physical resources
These include the following facilities:
 Production facilities – location, maintenance requirements, production processes,
efficiency of facilities for meeting business requirements

 Marketing facilities – distribution channels and marketing management process

 Information technology (IT) – what programs and equipment is used? How is it


integrated with customers and suppliers?

Financial resources
This refers to the ability of a business to fund its chosen
strategies – it includes the existing funds, and the ability
to source new funds.

Existing funds include:


 Cash balances

 Loans

 Bank overdraft

 Shareholders' capital

 Capital invested in the business e.g.


stocks, debtors

 Creditors e.g. suppliers, government.

New funds may depend on:


 The reputation and strength of the business and its management team

 Relationships with existing investors/lenders

 The attractiveness of the market your business deals with (is it appealing to investors)

 Listing on a quoted Stock Exchange.


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Record keeping systems (electronic and paper-based)


Businesses will need accurate and efficient record keeping systems to allow them to collect revenue,
pay employees and suppliers, and pay taxes in a timely manner and using the correct processes.

Paper-based record keeping


Also known as manual record keeping, this involves
keeping a paper-based journal of transactions for
each financial year.

It is divided into the following types of sections:


 Receipts

 Payments

 Wages and superannuation

 Bank reconciliation

 Inventory.

This system requires a cash accounting approach, where you record revenue and expenses when
transactions actually occur – so, for example, when you receive the money as opposed to when you
send the invoice.

Electronic record keeping


These are an efficient way of maintaining financial records, providing a comprehensive way of managing
all accounts under one program and giving the option of using accrual accounting (recording revenue
and expenses when they are incurred) – this means a sale is recording when an invoice is created and
sent as opposed to when you receive the payment from the client.

Computer-based accounting programs can create the following:


 Orders

 Invoices

 Aged debtor reports

 Financial statements

 Employee pay records

 Inventory reports.

Some programs have the ability to send (via direct email):


 Invoices to clients

 Orders to suppliers

 BAS returns to the Australian Taxation Office.


P a g e | 34

Others can also produce financial forecasts and allow you to monitor business performance.

Whichever system you use, you need to make sure it is compatible with the systems of your book-
keeper and accountant. Also, consider the costs of keeping the software up-to-date and any training
costs for staff to use it.

Specialist advice or support


This advice/support can be internal or external to
the company.

Examples include:
 Accountants

 Book-keepers

 Finance seminars

 Mentors.

The areas they advise on are those which require specialist and technical knowledge. Trying to manage
finances of a business without the proper information is a huge risk and can lead to many problems
down the line. While it may seem like a high initial cost for advice, in the long-term it should save you
far more than it costs you.
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Activity 2C
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3. Monitor and control finances


3.1. Implement processes to monitor actual expenditure and to control costs across the work team

3.2. Monitor expenditure and costs on an agreed cyclical basis to identify cost variations and
expenditure overruns

3.3. Implement, monitor and modify contingency plans as required to maintain financial objectives

3.4. Report on budget and expenditure in accordance with organisational protocols


P a g e | 37

3.1 – Implement processes to monitor actual expenditure and to control costs


across the work team

Monitoring expenditure
The processes to monitor actual expenditure and to control costs across the work team include the
reporting of:
 Assets

 Consumables

 Equipment

 Expenditure

 Income

 Stock

 Wastage.

Ledgers and financial statements


A general ledger is the main accounting record of a company – it contains a complete record of financial
transactions over the entire life of a company.

It is used to prepare financial statements and includes the following accounts:


 Assets

 Liabilities

 Owners' equity

 Revenues

 Expenses.

Generally, businesses employ a double-entry book-keeping method – each financial transaction is


posted twice (as a credit and a debit). Therefore, the total of all debits is equal to the total of all credits.
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Balance sheet ledger accounts


These record each asset, liability and equity component of the financial position statement.

For example, a receivable ledger account may look something like this:

Receivable account

Debit $ Credit $

Balance b/d 1 250 Cash 3 250

Sales 2 750 Balance c/d 4 750

1000 1000

Income statement ledger accounts


These record incomes and expenditures of businesses; for example, the ledger may look something like
this:

Gas expense account

Debit $ Credit $

Cash 1 500 Income statement 2 500

500 500

Controlling cost
Investopedia defines ‘cost control’ in the following terms:

“Cost control is the practice of identifying and reducing business expenses to increase profits, and it
starts with the budgeting process. A business owner compares actual results to the budget expectations,
and if actual costs are higher than planned, management takes action. As an example, a company can
obtain bids from other vendors that provide the same product or service, which can lower costs.”

Source: Investopedia, ‘Cost Control’, http://www.investopedia.com/terms/c/cost-control.asp


(07/03/17)
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Activity 3A
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3.2 – Monitor expenditure and costs on an agreed cyclical basis to identify cost
variations and expenditure overruns

Expenditures and costs


An important aspect of controlling finances is monitoring expenditures and costs. They may vary over
time, causing you to adjust your business model. If you don’t identify patterns and changing costs early,
it may be too late to take corrective action, reducing your profit.

Cost variations occur when the estimated cost at time of planning differs from the actual cost at time of
purchase. For example, you may plan on paying a set amount for raw materials but the prices rise and
you have no choice but to purchase it at a higher cost.

Expenditure overruns are when the cost of a project, activity or department goes over its budget. This is
especially common on new projects when accurate estimates aren’t available, and also when costs
change.

Costs may vary because of:


 Legislation which sets new requirements for organisations, such as minimum wages of
WHS

 Market changes, such as the prices of raw materials

 Competition which forces change of prices

 Business plans, such as expansions or marketing.

 Unexpected events, such as accidents or legal accidents.

Note that costs may go down as well as up. Your organisation should respond in appropriate ways.

It is important to monitor costs and expenditure regularly. Your organisation may have policies to
review it monthly or quarterly.

Different meetings could be undertaken with different individuals. For example, you may require an
overall meeting with a manager to analyse the organisation’s general costs, and then subsequent, more
detailed meetings with people responsible for different areas.

To monitor costs, you will need information such as:


 The organisation’s budget plan

 Reports of expenditure from around the organisation

 Future expenditure commitments

 Reports of current and predicted costs

 Forecast outturn, the projected balance at the end of the financial year.
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If you identify and agree any actions to be taken regarding expenditure and costs, (e.g. ‘Identify cheaper
alternative suppliers) you should ensure they are documented. This way, they can be followed up at the
next meeting.

(Source: https://www.sheffield.ac.uk/finance/staff-
information/howfinanceworks/allocating_budgets#monitoring,
http://smallbusiness.chron.com/expenditure-overruns-32719.html)
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Activity 3B
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3.3 – Implement, monitor and modify contingency plans as required to maintain


financial objectives

Contingency plans
As outlined in Chapter 1.4, examples of contingency plans include:
 Contracting out or outsourcing human resources and other functions or tasks

 Diversification of outcomes

 Finding cheaper or lower quality


raw materials and consumables

 Increasing sales or production

 Recycling and re-using

 Rental, hire purchase or alternative


means of procurement of required
materials, equipment and stock

 Restructuring of organisation to
reduce labour costs

 Risk identification, assessment and management processes

 Seeking further funding

 Strategies for reducing costs, wastage, stock or consumables

 Succession planning.

Once you have developed the contingency plan, it needs to be implemented, monitored and modified
(where necessary). As a business changes, the plans will need to be reviewed and updated to make sure
that any new potential problems are accounted for.

To maintain a contingency plan, you must do the following:


 Communicate the details of it to everyone in the organisation

 Tell people their roles and responsibilities in the contingency plan

 Provide training (if necessary) for people to perform their roles

 Perform training drills periodically (to test the contingency plan)

 Use training drills to identify and implement any necessary changes

 Review the plan any time there are personnel, operational and technological changes

 Distribute amended plans throughout the company (discard the old plan)
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 Make and store copies off-site that can be easily accessed if need be

 Perform audits on the plan from time to time. They should:

o reassess business risks


o compare actual performance levels to desired performance levels in the
contingency plan
o identify changes and implement them, if necessary.
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Activity 3C
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3.4 – Report on budget and expenditure in accordance with organisational


protocols

Reporting on budgets
In line with the requirements of the Australian Taxation Office, you must report on budget and
expenditure.

Reporting may include data from:


 Bank statements

 Credit card statements

 Financial reports

 Invoices and receipts

 Ledgers and journals

 Logs

 Petty cash records

 Spreadsheet-based records.

The need for reports


Operational reports can be seen as providing:
 A communication link between management and staff – in an organisation where, say,
the business operates every hour of every day, no-one can be there all the time; so,
these reports provide one way of making sure everyone gets vital information

 A historical database which builds into a useful management tool that can help future
predictions

 Data to managers which can inform and assess operational performance against
budgets.

Report components
There is no such thing as a typical report does not exist as their format and content varies widely.

However, reports typically contain certain basic elements:


 A statement of purpose: Identifying the type of report and its intention so that readers
are quite clear about what this specific report is all about

 Subject topic: A note explaining the exact focus of the document

 The nature of the contributory evidence: Explanation or verification of sources,


information and the period used as the basis for the report
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 A conclusion: A plan of action formulated from the evidence provided in the report

 Identification: Who generated the report, together with its intended target audience
(by individual names or positions/titles)

 Authorisation: An indication as to who has authorised the report

 Date of the report: Reports can be regular in nature (every month), or they can be ad
hoc to respond to a particular issue.

The precise types of reports will vary from venue to venue (as will the names of the reports); also, how
venues calculate their version of them may differ (some may include certain aspects/figures that others
don't).

Photocopies of original source documents may accompany the report to validate the figures.
Accompanying explanatory notes may also be attached.

Sample reports include:


 Sales summaries – these can provide total figures (units
and/or dollars) for a given period as well as trends by
day/hour, together with brand/product/item trends.
Some reports may also provide a 'sales by staff member'
breakdown which reflects the selling records of each
team member

 Daily, weekly or monthly transactions – outlining and providing an overview of the


statistics, progress and acceptability of the operation of the nominated department or
revenue centre; while profitability will be very important, turnover may also be a major
concern

 Department expenditures – this report will focus exclusively on expenditure and is


likely to highlight 'cost of goods sold' figures, 'wages' and 'overheads'

 Commission earnings – in some properties, especially those in high tourist areas or


those who belong to a chain, the income from earnings may be a critical key
performance indicator (KPI). This may not be so much as a revenue earner, but more as
an indicator of how well you are promoting other allied agencies/properties. This
report will highlight not only the revenue earned but also the commissions paid out,
and a breakdown of both commission income and expenditure (such as travel agents,
airlines, cars, other venue, etc.)

 Marketing activities – this report will detail promotions and publicity campaigns,
identifying the response in terms of dollars to these activities

 Accident reports – detailing accidents for the period under consideration and updating
the report recipients regarding post-accident events (possible legal action, out of court
settlements, action taken to address the cause, training proposed)
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Sources of information
Typical sources of information used to develop financial reports are:
 Internal sales analysis figures from each department and/or revenue source – this will
include dockets, cash register audit tapes, daily takings sheets, debtor accounts

 Actual staff rosters for each revenue centre – these must be costed and, where a role
extends across a more than one revenue centre, there must be a breakdown of wage
allocation for each area/centre

 Internal stock movement sheets on a revenue centre basis – this will require costed
requisitions, purchases records, goods received books, interdepartmental transfer
sheets

 General and specific financial statistics and data – this embraces budgets in 'for the
period', and 'year-to-date' formats together with comparisons with performance, say,
last month, and 'same month last year'.

These reports should provide:


 A snapshot of the current position – a financial and
operational picture of the business showing where
you are and how you're doing

 A prompt for action – they should provide the basis on


which to make some planning/action decisions

 A reliable foundation for upcoming planning – by supplying data that shows trends.

The reports should also be prepared to be:


 Easy to read and interpret: The information and statistics contained shouldn’t clutter
the main objectives

 Well-timed: They must be distributed as soon as possible after the data they contain is
captured

 Truthful and precise: They must be double checked to ensure that the information
they contain is accurate in all respects

 Sufficient data relevant to the issue(s) under consideration: The points made in
organisational statements should be covered by the reports so that there is a link from
planning through to actual operation. For example, if a statement was made that you
aimed to achieve 'X' percent increase in sales in the 'Y' department by the end of the
year, then this – and other similar figures and percentages – must be covered in the
report

 Similar in layout and style to all other reports: So that where people are promoted or
transferred, they remain familiar with the format of the report.
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Forward reports
Reports and recommendations may need to be forwarded to:
 Senior management

 Owners

 Personnel manager

 Sales manager

 Finance manager

 Heads of departments

 Supervisors

 General staff.

Australian Taxation Office


Each year, businesses need to submit an income tax return with the Australian Taxation Office. This
includes a comprehensive list of its income. The other information will vary according to the
organisation’s structure (e.g. if it is a company, partnership, trust or sole trader).

If the organisation is a business, it needs to report:


 Taxable income

 Tax offsets and credits

 PAYG instalments

 Amount of tax it is liable to pay or amount that needs to be refunded.

(Source: https://www.ato.gov.au/business/reports-and-returns/income-tax-return/#Companies)

A wide range of legislation applies to interactions with the Australian Taxation Office. A comprehensive
list which can be searched can be found here: https://www.ato.gov.au/A-Z-
index/AZItems.aspx?id=3674&category=Tax+legislation+and+regulations&sorttype=azindexdisplay&Dis
p=True

Goods and services tax (GST)


This is a tax of ten per cent on most goods, services and other items sold or consumed in Australia. In
terms of pricing, this is usually factored into the price of sales to customers; this business then claims
credits for GST included in the price of business purchases. All businesses that reach the registration
threshold for GST will only register for this once.

Businesses must fill in an activity statement to report and pay the GST the business has brought in and
claim GST credits. Reporting and payments can be made either monthly, quarterly or annually – most
businesses choose to pay GST quarterly.
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GST can be calculated in one of two ways:


 Derived from accounts methods – using the GST amounts from business records. This
method is easier if you have recorded the GST amounts for sales and purchases
separately

 Calculated sheet method – using a step-by-step worksheet.

For both methods, you need to keep valid tax invoices of transactions to support your claims.

If something happens that requires adjustment of a previous activity statement (e.g. returned
goods/cancellation of sale), you will need to lodge a revised activity statement with the Australian
Taxation Office.

Full details and a calculation worksheet for GST can be found at www.ato.gov.au.

Business activity statements


Business activity statements (BAS) are reports which summarise what tax the organisation owes to the
Australian Taxation Office. These are often submitted quarterly.

The BAS should include:


 Goods and services tax (GST)

 Pay as you go (PAYG) income tax


instalment

 Pay as you go (PAYG) tax withheld

 Fringe benefits tax (FBT) instalment

 Luxury car tax (LCT)

 Wine equalisation tax (WET)

 Fuel tax credits.

(Source: https://www.ato.gov.au/Business/Business-activity-statements-(BAS)/Preparing-your-Business-
activity-statement-(BAS)/)
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Activity 3D
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4. Review and evaluate financial management processes


4.1. Collect and collate for analysis, data and information on the effectiveness of financial
management processes within the work team

4.2. Analyse data and information on the effectiveness of financial management processes within
the work team and identify, document and recommend any improvements to existing processes

4.3. Implement and monitor agreed improvements in line with financial objectives of the work team
and the organisation
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4.1 – Collect and collate for analysis, data and information on the effectiveness
of financial management processes within the work team

Effectiveness of financial management


Before you can analyse the effectiveness of financial management processes, you will first need to
collect data and information related to financial management processes.

Data and information on the effectiveness of financial management processes may include records
(paper-based and electronic) related to:
 Bank account records

 Cash flow data

 Contracts

 Credit card receipts

 Employee timesheets

 Files of paid purchase and service invoices

 Income and expenditure

 Insurance reports

 Invoices

 Job costings

 Petty cash receipts

 Quotations

 Taxation records

 Wages/salaries books.

The information should be collected and filed on an ongoing basis to make it easily accessible for when
the time comes that you need to use it.

It should be ordered chronologically and by department – this will make searching for specific data
much easier.

Much of the figures for the above information can be found in the general ledger, but original copies of
all the documents should still be filed as evidence and for clarification purposes.

Cash flows
Cash flow describes the movement of money in or out of a business – it is measured over a specified
time period, and is usually divided into three categories: operating, investing and financing activities. It
is calculated by adding non-cash charges (e.g. depreciation) to net income after taxes. The cash flow of a
P a g e | 54

company can indicate its financial strength and is essential for it to remain solvent e.g. having enough
available money to finance its operations.

If a company's statement of cash flow shows that the company is performing well, the available
remaining cash can be reinvested into the business to generate more profit.

A company’s statement of cash flow, which can be organised weekly, monthly, or annually, can help a
business to identified revenues of income and when and how money is being spent.

Profit and loss statements


Profit and loss statements (also known as income statements) summarise the revenues, costs and
expenses of a company over a specific time – this is usually a fiscal quarter or year.

They will provide information to show a company's ability to make profit via increasing revenue and
reducing costs. It does this by subtracting the costs of running the business from the revenue to show
net income (profit).

The cost of running a business includes:


 Stock expenses

 Operational expenses

 Tax expenses

 Interest expenses.

Along with the balance sheet and income statement, it is the most important financial statement
produced by a business; together, they can be analysed to give a complete overview of a company's
finances.

Petty cash
This is a small amount of money which is kept on hand and used to pay
for small amounts owed, as opposed to writing cheques. It is usually
assigned to a petty cash custodian – employees must then refer to this
person if they need to use petty cash or be reimbursed for a company
expense they have paid for out of their own pocket. When the petty
cash fund gets low, the custodian can request the cashing of a cheque
to top it up.

The reason for petty cash is that is simpler than the writing, signing and cashing cheques for minor
transactions. For example, think about paying a delivery man costs due on delivery (these can be under
a dollar) – it is not worth recording this individual transaction individually – therefore, recording small
transactions collectively as petty cash makes the accounting process simpler.

The custodian must still keep a record of individual petty cash expenditure by issuing petty cash
vouchers for each transaction, complete with an invoice and receipt. These vouchers and the amount of
cash to hand must always equal the original fund. They should also keep a petty cash daybook to keep a
P a g e | 55

record of petty cash transactions over time. Because of the easiness with which petty cash can be
abused, it needs to be kept under close monitoring.
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Activity 4A
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4.2 – Analyse data and information on the effectiveness of financial


management processes within the work team and identify, document and
recommend any improvements to existing processes

Recommending improvements
Now the information has been gathered and collated; it now needs to be analysed to determine the
effectiveness of your financial management processes.

This information can be used to create the following:


 Cost/benefit analysis (of individual processes)

 Profit statements

 Electronic spreadsheets

 Budgeting forecasts

 Ledgers and financial statements

 Profit and loss statements

 Ageing summaries.

Identify, document and recommend improvements


From this, these documents must be analysed to see if productivity/profitability is going up or down.

The things that you want to see include:

 Earnings growth – over the previous year, quarter or month. You also want to strive for
growth to be above the market average.

 Earnings stability – you want steady, predictable growth as opposed to spikes of


revenue and periods of inactivity. This makes it easier to predict the financial position
of the company in the future

 Return on equity – you want to turn a profit on the money invested.

The findings of your analysis should be documented and reported to the appropriate personnel in your
organisation. The specific nature and methods of this, as well who you report your findings to, will
depend on your organisational policies and procedures.

The people you discuss the findings with may include:


 Colleagues

 Supervisors

 Managers

 Financial advisors
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 Accountants

 Industry experts

 Departmental specialists.

One method of identifying areas for improvements is comparing where you are now with where you
would like to be. This could be as simple as: “Right now we’re slow to address the changing markets; we
need to be quicker.” It is important to be honest and open here; it may help to communicate with
others involved in financial management to gather their feedback.

Areas that you need to improve upon may include:


 Efficiency

 Accuracy

 Staff roles and participation in relevant


activities

 Training standards

 Practicality of policies

 Staff understanding of policies

 Financial rules and regulations are enforced

 Strategic planning process

 Budgeting process.

If you are unsure of which areas you need to improve upon, you could hire an independent consult to
assess your organisation. Self-assessment tools are also available free online to determine which of your
financial management processes may need improvement.

(Source: https://www.mango.org.uk/guide/improvingyourfinancialmanagement)
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Activity 4B
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4.3 – Implement and monitor agreed improvements in line with financial


objectives of the work team and the organisation

Agreed improvements
The purpose of analysis is not only to see how the business is performing in relation to its targets, but to
identify areas for improvement. These improvements will need to be made and monitored in line with
the financial objectives and organisational requirements of the work team and organisation.

You should first find out who is responsible in your organisation for implementing any agreed
improvements.

The people you may need to talk to include:


 Management

 Budget holders

 Finance and support staff.

Once you have determined what improvements


need to be made, you should make an action plan to
explain how they will be implemented. These should
include who is responsible for them and the
timeframes, as this will increase accountability and
the likelihood of them being completed.

You may need to conduct regular review meets to assess progress and look at any obstacles that are
occurring. A common problem is to begin improvements and never follow-up on them; staff can sense
the lack of drive and don’t put any effort into completing the task. To prevent this, try to get senior
management engaged and involved with the changes as they can help to drive change from above.

While implementing improvements, you should consider whether they are in line with the financial
objectives of your organisation. For example, if an objective is to improve profit margins, you may need
to identify ways to cut costs or raise revenue.

Monitoring and reporting budgets


Budgets must be monitored and reported on, to ensure that they are meeting expectation and to
identify any problems that need rectifying.

Monitoring and reporting processes should cover the following:


 Set timetables and deadlines for monitoring and setting up of budgets

 Having a system to ensure data is up-to-date and accurate

 Reports should be made available for to management

 Reports should be done at least monthly


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 Data should be inputted into your records regularly, to allow for better budgetary
planning

 Reports should be produced as soon as possible to ensure they are relevant

 Reporting should happen from the bottom up – it should include:

o actual expenditure

o forecasted expenditure

o expected changes

 Monitoring should happen from management downwards

 Monitoring processes should be reviewed regularly (to check they are working).

Forecasting expenditure trends


This is usually the responsibility of budget holders as they provide the information that is required for
forecasts themselves.

Forecasts should:
 Account for all expenses

 Assign expenses to the correct budget

 Ensure expenses are accounted for over the correct


time period

 Detail the correct length of time for financial


commitments

 Account for delays

 Account for the level of activity required

Remember that budgets must be inherently flexible, as it's impossible to predict exactly what will
happen. Therefore, there needs to be in place a system for adjustment, should any changes occur.
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Activity 4C
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Summative Assessments
At the end of your Learner Workbook, you will find the Summative Assessments.

This includes:

 Skills assessment

 Knowledge assessment

 Performance assessment.

This holistically assesses your understanding and application of the skills, knowledge and performance
requirements for this unit. Once this is completed, you will have finished this unit and be ready to move
onto the next one – well done!
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Appendices
Key processes – Do you have the skills?

Interpreting budgets
Ask yourself:
 Do I understand all key terms of the budget plan?

 Can I identify how the budget is allocated to different departments/processes, etc.?

 Can I identify and analyse any budget variance?

Ageing summaries
An ageing summary (also known as an ageing report) is a report that lists outstanding sums that your
organisation is owed by clients. The ageing summary can be used to identify clients that need to be
contacted to follow-up on invoices and to track how and when receivables are paid.

The ageing summary can also be used to determine the organisation’s payment policy. If most
customers do not pay their invoices within the currently specified timeframe, for example, the
organisation may consider a policy review.

Furthermore, the ageing summary can be used as an indicator of the financial health of its clients. If
most clients pay late, or have difficulty in paying their invoices, this can indicate that the organisation is
taking too much of a financial risk.

An ageing summary can be viewed as a table or report which is usually divided into 30-day
increments, and information will often be organised into the following categories:
 Customer name and/or invoice number

 Amount receivable (total owed)

 How much has been paid in each time-period

 Amounts outstanding

 Amounts paid.

Each 30-day increment indicates when a payment is due. For example:


 Current – due within a month

 30 days – a month overdue

 60 days – two months overdue

 90 days – three months overdue.

Source: How to Prepare and Use an Accounts Receivable Aging Report, The Balance,
https://www.thebalance.com/accounts-receivable-aging-report-397853 (07/03/17)
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Here is an example ageing summary:

Amount
Client Current 31-60 61-90 90+
receivable

Motors Inc. 14,000 7,000 7,000

Cars R Us 9,500 4,500 2,500 1,000 1,500

Engine Shed 10,000 10,000

TOTAL: 33,500 21,500 9,500 1,000 1,500

An ageing summary can help you to prioritise collections. Consider:


 Which client(s) ow the greatest sum?

 Which client’s/clients’ payment is the longest overdue?

For example, in the above ageing summary, we can see that ‘Cars R Us’ are regularly behind on their
payments with $1,500 three months overdue. On the other hand, the Engine shed has an outstanding
payment that is due this month, but not yet overdue. ‘Cars R Us’ may be breaking the terms of the
payment policy by being overdue, whereas ‘Engine Shed’ is still within the allowable time-period for
payment.

‘Engine Shed’ may be sent a follow-up to their original invoice, whereas further action may be taken
against ‘Cars R Us’ to receive payment.

You should ensure that you are familiar with your organisation’s collection processes and how to
respond to outstanding or late amounts receivable.

Cash flow
Cash flow describes the movement of money in or out of a business – it is measured over a specified
time period, and is usually divided into three categories: operating, investing and financing activities. It
is calculated by adding non-cash charges (e.g. depreciation) to net income after taxes. The cash flow of a
company can indicate its financial strength and is essential for it to remain solvent e.g. having enough
available money to finance its operations.

If a company's statement of cash flow shows that the company is performing well, the available
remaining cash can be reinvested into the business to generate more profit.

A company’s statement of cash flow, which can be organised weekly, monthly, or annually, can help a
business to identified revenues of income and when and how money is being spent.

Look at the example over page (taken from Accounting-Simplified.com).


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ABC PLC
Statement of Cash Flows for the year ended 31 December 2013
2013 2012
Notes
USD USD

Cash flows from operating activities

Profit before tax 40,000 35,000

Adjustments for:
  Depreciation 4 10,000 8,000
  Amortization 4 8,000 7,500
  Impairment losses 5 12,000 3,000
  Bad debts written off 14 500 -
  Interest expense 16 800 1,000
  Gain on revaluation of investments (21,000) -
  Interest income 15 (11,000) (9,500)
  Dividend income (3,000) (2,500)
  Gain on disposal of fixed assets (1,200) (1,850)

35,100 40,650

Working Capital Changes:

  Movement in current assets:


    (Increase) / Decrease in inventory (1,000) 550
    Decrease in trade receivables 3,000 1,400

  Movement in current liabilities:


    Increase / (Decrease) in trade payables 2,500 (1,300)

Cash generated from operations 39,600 41,300

  Dividend paid (8,000) (6,000)


  Income tax paid (12,000) (10,000)

Net cash from operating activities (A) 19,600 25,300

Cash flows from investing activities

Capital expenditure 4 (100,000) (85,000)


Purchase of investments 11 (25,000) -
Dividend received 5,000 3,000
Interest received 3,500 1,000
Proceeds from disposal of fixed assets 18,000 5,500
Proceeds from disposal of investments 2,500 2,200
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Net cash used in investing activities (B) (96,000) (73,300)


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Cash flows from financing activities

Issuance of share capital 6 1000,000 -


Bank loan received - 100,000
Repayment of bank loan (100,000) -
Interest expense (3,600) (7,400)

Net cash from financing activities (C) 896,400 92,600

Net increase in cash & cash equivalents (A+B+C) 820,000 44,600


Cash and cash equivalents at start of the year 77,600 33,000
Cash and cash equivalents at end of the year 24 897,600 77,600

Source: Accounting-Simplified.com, ‘Statement of Cash Flows’, http://accounting-


simplified.com/financial/statements/cash-flow-statement.html (07/03/17)

Petty cash
This is a small amount of money which is kept on hand and used to pay for small amounts owed, as
opposed to writing cheques. It is usually assigned to a petty cash custodian – employees must then refer
to this person if they need to use petty cash or be reimbursed for a company expense they have paid for
out of their own pocket. When the petty cash fund gets low, the custodian can request the cashing of a
cheque to top it up.

The reason for petty cash is that is simpler than the writing, signing and cashing cheques for minor
transactions. For example, think about paying a delivery man costs due on delivery (these can be under
a dollar) – it is not worth recording this individual transaction individually – therefore, recording small
transactions collectively as petty cash makes the accounting process simpler.

The custodian must still keep a record of individual petty cash expenditure by issuing petty cash
vouchers for each transaction, complete with an invoice and receipt. These vouchers and the amount of
cash to hand must always equal the original fund. They should also keep a petty cash daybook to keep a
record of petty cash transactions over time. Because of the easiness with which petty cash can be
abused, it needs to be kept under close monitoring.

Good and Services Tax (GST)


This is a tax of ten per cent on most goods, services and other items sold or consumed in Australia. In
terms of pricing, this is usually factored into the price of sales to customers; this business then claims
credits for GST included in the price of business purchases. All businesses that reach the registration
threshold for GST will only register for this once.

Businesses must fill in an activity statement to report and pay the GST the business has brought in and
claim GST credits. Reporting and payments can be made either monthly, quarterly or annually – most
businesses choose to pay GST quarterly.
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GST can be calculated in one of two ways:

 Derived from accounts methods – using the GST amounts from business records. This
method is easier if you have recorded the GST amounts for sales and purchases
separately

 Calculated sheet method – using a step-by-step worksheet.

For both methods, you need to keep valid tax invoices of transactions to support your claims.

If something happens that requires adjustment of a previous activity statement (e.g. returned
goods/cancellation of sale), you will need to lodge a revised activity statement with the Australian
Taxation Office.

Full details and a calculation worksheet for GST can be found at www.ato.gov.au.

Profit and loss statements


Profit and loss statements (also known as income statements) summarise the revenues, costs and
expenses of a company over a specific time – this is usually a fiscal quarter or year.

They will provide information to show a company's ability to make profit via increasing revenue and
reducing costs. It does this by subtracting the costs of running the business from the revenue to show
net income (profit).

The cost of running a business includes:


 Stock expenses

 Operational expenses

 Tax expenses

 Interest expenses.

Along with the balance sheet and income statement, it is the most important financial statement
produced by a business; together, they can be analysed to give a complete overview of a company's
finances.
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Financial Procedures Manual / Financial policies and procedures

Each organisation will have its own framework for financial processes that is underpinned by
organisational policies and procedures. Your organisation may have a Financial Procedures Manual, set
of policies and procedures, or equivalent guidelines for how financial operations are conducted within
your organisation.

Examples of organisational requirements that may be stipulated within a Financial Procedures


Manual may include:
 Authorisations, i.e. who is permitted access to which financial data, who can make
financial decisions, who can make purchases on behalf of the organisation, etc.

 Controls, e.g. expenditure, financial assets, human resources, physical assets

 Best practice guidelines

 Insurance and risk management policies

 Debt collection policies

 Customer management policies

 Procedure for selecting and communicating with suppliers.

You must ensure that you are familiar with your own obligations in relation to these policies and
procedures.
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References

These suggested references are for further reading and do not necessarily represent the contents of
this unit.

Websites
Financial management roles: http://smallbusiness.chron.com/important-roles-within-financial-
management-system-31146.html

Financial management improvements:


https://www.mango.org.uk/guide/improvingyourfinancialmanagement

Australian Tax Office legislation: https://www.ato.gov.au/A-Z-


index/AZItems.aspx?id=3674&category=Tax+legislation+and+regulations&sorttype=azindexdisplay&Dis
p=True

Australian Tax Office: www.ato.gov.au

Business activity statement: https://www.ato.gov.au/Business/Business-activity-statements-


(BAS)/Preparing-your-Business-activity-statement-(BAS)/

Tax returns: https://www.ato.gov.au/business/reports-and-returns/income-tax-return/#Companies

Record keeping principles: http://searchcompliance.techtarget.com/definition/Generally-Accepted-


Recordkeeping-Principles

All references accessed on and correct as of 9th September 2016, unless other otherwise stated.

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