Risk and control
Sound finance and transparency in financial management are essential to effective sports organisations. Financial control measures help ensure that your organisation maintains a strong financial basis for the delivery of the sport and other services and operations. Good financial control also helps manage risk in your organisation.
Financial compliance with legal requirements
Financial probity dictates that organisations must exhibit undeviating honesty, integrity and competence in financial matters. Organisations must be fully accountable to their public funders for the management and use of funding, demonstrating how they have applied it to achieve the purposes for which it was given. They must therefore account for every public penny, with annual accounts including sufficient disclosure of public income and expenditure. Larger organisations (including NGBs, national partners and others) must make independently audited accounts available to stakeholders and the public.
All accounting designations are the culmination of years of study and rigorous examinations, combined with a minimum number of years of practical accounting experience. There are regulatory bodies that set accounting standards.
Basic accounting principles are understood and accepted by practising accountants. The major principles applied by accountants are:
- going concern
- substance over form
- separate determination
Accounting policies are concerned with:
- selecting measurement bases for; and
- presenting assets, liabilities, gains, losses and changes to shareholders’ funds.
Put simply, accounting policies determine which facts about an organisation are to be presented in financial statements and how those facts are to be presented, while estimation techniques are used to establish what those facts are. In the UK, all private limited companies, at the end of their financial year, must prepare full statutory annual accounts and a company tax return in line with the accounting policies outlined above. There are exemptions to this if a company is classed as ‘dormant’ or ‘small’ or is registered as a charity. However, even companies such as this still have to file information relating to financial performance through an annual return, abbreviated accounts or, at the very least, provide a breakdown of income and funding streams. This information also has to be consistent with the relevant accounting policies and standards.
Financial controls are formal processes, policies and procedures that are implemented to manage finances. They are crucial to achieving your organisation’s financial goals and meeting obligations of corporate governance, fiduciary duty and due diligence. Controls may be implemented with accountabilities, responsibilities and automation. The following are illustrative examples of financial controls with supporting information.
Adopting an accounting standard, with knowledgeable staff who are accountable and responsible for its implementation, is particularly important when considering the different types of organisations across different sectors (public, private and voluntary) and different sizes (small, medium and large) of organisations. Despite the influence of accounting standards, not every standard will fit with each organisation, so it is important that staff are knowledgeable about each one and can align them with best practice within their organisation.
is a single financial reporting standard that applies to the financial statements that are intended to give a true and fair account of the entity’s financial position and profit or loss for a period.
The standard sets out the principles to be followed in selecting accounting policies and the disclosures needed to help users to understand the accounting policies adopted and how they have been applied. An organisation must also consider the appropriateness of accounting policies to its particular circumstances against the objectives of relevance, reliability, comparability and understandability. All material items should be categorised and conform with giving a true and fair view. Policies adopted should be reviewed regularly to ensure they remain appropriate and that the financial statements and the information disclosed enable users to understand the accounting policies adopted and how they have been implemented.
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Executive leadership such as the CEO and chief financial officer (CFO) are accountable to deliver timely and accurate financial statements such as statements of comprehensive income (income statements), cash flow statements, statements of financial position (balance sheets) and statement of changes in equity.
Effective financial reporting can enable effective decision making in line with business objectives. A not-for-profit organisation, for example, might focus purely on balancing the books and making sure that expenditure is covered by income and funding each year. A larger commercial organisation might use effective financial information to fund realistic expansion through methods such as borrowing, while even larger, major organisations may attempt to stretch their profit margins as far as possible to reinvest in future business strategies.
Executive leadership such as the CEO, CFO and chief operating officer are also accountable for delivering timely and accurate operating metrics such as profit margins. Defining the appropriate metrics for your sports organisation is important. There are many indicators of financial performance, including:
- profit before and after-tax
- how much cash is available to an organisation
- what money is owed to creditors
- donor and donation growth
- fundraising ROI
Depending on the type and size of the organisation you are involved in, you should choose financial performance measures that offer meaningful indicators by which to monitor and measure your financial situation.
Policies are useful to clarify areas such as general ledgers, chart of accounts, recognition of revenue, reconciliations, invoicing, payment processing, inventory and asset management. Knowledgeable accounting staff, managed by the executive team, are responsible for implementing policy and should also make sure that policies are aligned with business objectives.