Financial Management

An arts organisation that adopts sound financial practices is in a better position to focus on its artistic development and production work. Poor record-keeping and money management in the present could lead to a waste of resources and problems in the future.

Many companies may be small-scale outfits with a small and multi-tasking financial and administrative team. For some, their administration and finances are managed by volunteers. It is therefore important that proper accounting and procurement procedures are in place to ensure consistency and accountability in funds and resource management

Shown below are some recommended best practice measures.

Cash Flow Management

Prudent cash management is one of the most important aspects of financial management. The cash flow statement should be prepared regularly to record all cash payments and receipts as it provides an overview on the organisation’s ability to pay their bills and cover their recurring costs. It is recommended that bank reconciliation should be done monthly to ensure that transactions are accurate.

Payments

In issuing cash cheques and making payment in cash, the amount should be limited to a stipulated amount, e.g. $500 and should be supported by suppliers’ invoices, acknowledged delivery orders and recipients’ acknowledgements of receipt. Invoices should be marked “paid” with date of payment after payments to prevent duplicate payments. The person recording the payments should not be the cheque signatory.

For more stringent control, pre-signing of cheques should not be allowed. The issuance of cheques should require dual signatories and the cheque preparer should not be a cheque signatory.

To prevent unauthorised use, all unused cheques should be kept in a locked place.

Receipts

Pre-numbered official receipts should be issued for all cash or cheques received for all sales such as performance tickets, engagement fees and all services rendered. The official receipts should be issued by a person who does not have access to cash and bank accounts.

Issued receipts and void official receipts and event tickets should be recorded, reconciled and accounted for on a regular basis, also by a person who does not have access to cash and bank accounts.

Handling of Cash/Cheques

As a precaution, overnight cash should not exceed a stipulated amount, e.g. $1,000 or less, especially for a small company, and should be locked in a cabinet or safe. Cash/cheques received should be deposited into the bank account by the next working day. Many organisations maintain a petty cash float for incidental and miscellaneous expenses incurred in its day-to-day operations. This amount should not exceed a stipulated amount, e.g. $500.

Approvals and Supporting Documents

For all purchases, it is necessary to ensure that payments are supported by suppliers’ invoices and acknowledged delivery orders before making payment. The person who verifies the suppliers’ invoices and delivery orders for payments should not be a cheque signatory. For payments to staff, staff should not be allowed to approve payments to themselves. For employees’ salaries, a monthly payroll summary should be prepared and approved by a person independent of the preparer, preferably the General Manager (or equivalent).

Procurement

All purchases, such as purchases of all assets, services, engagement of artistic and production personnel, that are above a stipulated amount, e.g. $500, should be approved by at least 2 Directors. For items that are of higher value, e.g. $2,000, written approval from 2 Directors should be obtained.

For purchases of items or services above a stipulated amount, e.g. $5,000, written competitive quotes should be obtained and compared before making the purchase.

Budgeting and Reporting

An annual budget should be prepared every year before the commencement of the financial year and be should be approved by the Directors or Managing Committee. The budget should reflect a sound estimation of the company’s income and expenditure.

For arts organization, it will be practical to prepare separate production budgets for each performances and events to serve as a guide in planning their finances and resource allocation.

The actual figures should be analysed against the budget and the variance should be reviewed and accounted for by the General Manager. If the variance of most of the items is small, it will demonstrate that the organisation has a good understanding of their business and is able to execute their projects and control their finances as planned.