Financial reporting
This section aims to provide Victorian not-for-profit community organisations with information about legal duties of a community organisation in relation to overseeing the finances of the organisation.
There are different types of structures under which community organisations can be arranged. The main structures are unincorporated groups, incorporated associations and companies limited by guarantee. Whether the community organisation is unincorporated or incorporated, the responsibilities of the management of the organisation in relation to the financial affairs of the organisation are very similar. However, as different rules apply to each kind of community organisation, you should seek specific advice from a lawyer. This section will concentrate on the requirements for incorporated associations and companies limited by guarantee.
If you are looking for information on financial difficulties in your organisation, please see If things go wrong > Financial problems or insolvency.
The information on this website is intended as a guide only, and is not legal advice. If you or your organisation has a specific legal issue, you should seek advice before making a decision about what to do.
Who is responsible for overseeing the finances of a community organisation?
The golden rule is that the committee of management of an incorporated association or the directors of a board are ultimately responsible for managing the finances of the organisation.
There are a number provisions in the Associations Incorporation Act 1981 (Vic) and the Corporations Act 2001 (Cth) that make this clear, as well as a lot of case law on this issue.
Incorporated Association
For incorporated associations, the powers available to the organisation under the Associations Incorporation Act 1981 (Vic) include the powers to:
- invest and deal with moneys of the incorporated association not immediately required in such manner as is from time to time thought fit;
- raise or borrow money upon such terms and in such manner as it thinks fit;
- secure the repayment of moneys raised or borrowed, or the payment of a debt or liability of the incorporated association, by giving mortgages, charges or securities upon or over the property of the incorporated association; and
- do other things that are incidental or conducive to the attainment of the purposes and the exercise of the powers of the incorporated association.
The constitution of an incorporated association must state the powers of the committee of management (see Schedule of the Associations Incorporation Act 1981 (Vic)). An association's constitution will often state that the committee of management shall exercise all of the powers of the organisation, as well as manage and control the business and affairs of the association. The courts have often determined that duties of the committee members are analogous to those of the directors of a board, and include:
- a duty to exercise reasonable care and skill in managing the affairs of the association (including the financial affairs); and
- a duty to prevent insolvent trading by the association.
For more information about the duties of committee of management members, see The people involved > Incorporated association.
Company limited by guarantee
The Corporations Act 2001(Cth) provides that the:
- business of a company is to be managed by or under the direction of the directors;
- the directors may exercise all the powers of the company except any powers that the Act or the company’s constitution (if any) requires the company to exercise in general meeting.
The Corporations Act also sets out various legal duties that all directors of a board must comply with, including:
- a duty to exercise reasonable care and skill in managing the affairs of the association (including the financial affairs); and
- a duty to prevent insolvent trading by the company.
For more information about directors' duties see The people involved > Company limited by guarantee.
What financial records does our organisation have to keep?
Every community organisation must maintain adequate and accurate accounting records of its financial transactions.
Incorporated association
The Victorian Associations Incorporation Act requires incorporated associations to maintain adequate accounting records of their financial transactions. These records are must be kept for 7 years.
In addition, prescribed incorporated associations (that is, those with a gross revenue of more than $200,000 per year or assets in excess of $500,000), must have their accounts audited at the end of every year and keep those records for at least 7 years.
The Act does not state what financial records should be kept, but at a minimum the records should include receipts for all money received, evidence that it has been banked, and available documentation for all money paid out.
Company limited by guarantee
The Commonwealth Corporations Act requires that a company must keep written financial records that correctly record and explain its transactions, financial position and performance, and enable true and fair financial statements to be prepared and audited. These records must be kept for 7 years.
'Financial records' are defined in the Corporations Act as including:
- invoices, receipts orders for the payment of money, bills of exchange, cheques, promissory notes and vouchers;
- documents of prime entry;
- working papers and other documents needed to explain the methods by which financial statements are made up; and
- adjustments to be made in preparing financial statements.
For more information about the kind of records a company should keep, your organisation should seek professional accounting advice. ASIC have a guidance note called What books and records should my company keep? which provides some basic background information (see Related Resources section below).
What kind of financial information do we need to provide at the Annual General Meeting (AGM)?
Incorporated association
The Victorian Associations Incorporation Act requires an association to hold an annual general meeting (AGM) at which it must present a 'financial statement' to the association's members. The statement must give a 'true and fair' view of the financial position of the incorporated association during and at the end of its last financial year. The Act states that the financial statement is to include:
- the income and expenditure of the incorporated association during its last financial year;
- the assets and liabilities of the incorporated association at the end of its last financial year;
- the mortgages, charges and securities of any description affecting any of the property of the incorporated association at the end of its last financial year; and
- any trust, held on behalf of the incorporated association by a person or body other than the incorporated association, in which funds or assets of the incorporated association are placed.
In the case of a prescribed association, the financial statement must be audited. The requirements for the audit are set out in the Associations Incorporation Act and Regulations.
Company limited by guarantee
The Corporations Act was amended on 28 June 2010 to introduce new measures designed to reduce the financial reporting burden on smaller companies limited by guarantee. Under the previous reporting regime, all companies limited by guarantee were required to have their accounts audited by a registered company auditor.
As of (and including) the financial year ended 30 June 2010, companies limited by guarantee have varying levels of financial reporting/auditing obligations, depending on which ‘category' they fit into. There are three categories, defined by reference to the size of the company's annual revenue and whether they are endorsed as a Deductible Gift Recipient (DGR) for tax purposes.
Below is a table which sets out the categories and their minimum reporting obligations.
| Category |
Definition of category |
Financial reporting requirements |
| Category 1 |
Companies limited by guarantee with annual revenue less than $250,000 without DGR status |
- No financial report required (unless requested by 5% of members or by ASIC)
- No Director's report required (unless requested by 5% of members or by ASIC)
- No audit/review of accounts required (unless requested by 5% of members or by ASIC)
|
| Category 2 |
Companies with annual revenue less than $250,000 with DGR status
- or -
Companies with annual revenue over $250,000 but less than $1 million (with or without DGR status)
|
- Required to produce a financial report which can be 'reviewed' instead of audited*
- Required to produce a 'streamlined' Director's report (less detailed than a full Director's report)
- Members to be notified of annual reports (rather than automatic distribution)
|
| Category 3 |
Companies with annual revenue over $1 million (with or without DGR status) |
- Required to produce an audited financial report
- Required to produce a 'streamlined' Director's report (less detailed than a full Director's report)
- Members to be notified of annual reports (rather than automatic distribution)
|
*A ‘review' is less onerous than an audit, and can be conducted by an accountant with a practicing certificate issues by the Institute of Chartered Accountants in Australia, CPA Australia or the National Institute of Accountants - ie. the person does not have to be a registered company auditor.
Note: these are the minimum financial reporting requirements for companies limited by guarantee. Companies in the lower categories can choose to report at a higher level than they are required to (eg. ‘category 1' or ‘category 2' companies can continue to have their accounts audited). Even for 'category 1' companies it is good governance to prepare (at least) a financial report and present it to members at the AGM.
There are various time provisions and deadlines which apply to the provision of the financial report to members / tabling requirements.Your organisation should ensure that it understands and complies with these timeframes to avoid penalties.
Also, it is important to keep track of your company's annual revenue so that you can assess its reporting obligations from year to year. If your organisation makes more (or less) in a particular year, or obtains DGR status, it may fall into a different reporting category.
What financial information needs to be provided to the government regulator?
Incorporated Association
Consumer Affairs Victoria (part of the Victorian Department of Justice) is the regulator of all incorporated associations in Victoria. The Associations Incorporation Act says that within one month after the AGM, the public officer of an incorporated association must provide CAV with a copy of the financial statement that was presented at the AGM. The statement is to be certified by a member of the committee of management, and to include any details of any resolutions passed at that meeting in relation to the statement. CAV will send your organisation the form to complete for this purpose. A fee is required to be paid to lodge the statement.
There is provision in Victoria's Associations Incorporation Act for associations to apply to CAV for an extension of time to lodge these documents (a small fee must be paid). A link to the form used to apply for an extension is included in the Related Resources section below.
The Act has some extra provisions applying to associations that do not hold their AGM within the time period and also for prescribed associations to also lodge a copy of the audited accounts.
Company limited by guarantee
The Australian Securities and Investments Commission (ASIC) is the regulator of all companies limited by guarantee in Australia. The Corporations Act requires companies to report to ASIC by lodging its financial, director's and auditor's reports of a review or audit (if required) and an annual 'review fee' at the end of every financial year. Companies limited by guarantee may be eligible for a reduced annual review fee if it meets the criteria under the definition of 'special purpose company' in the Corporations (Review Fees) Regulations 2003 (Cth).
A company is also required to review a statement of its company's details which will be send to them by ASIC and to notify ASIC of any changes to the details.
Timeframes for lodging these documents are strictly enforced and penalties apply for late filing. For more information about reporting to ASIC - see the Related Resources section below.
Can't we just leave all the financial management and reporting to the Treasurer?
No - if you are a committee of management member or a director on a board, the law is clear that all members of the management committee or directors on a board are responsible for managing an association's or company's finances.
The treasurer (financial officer or whatever other name is given to the position) is generally charged with the task of ensuring that financial transactions are properly recorded and reported on. The treasurer presents financial reports at management committee / board meetings. It is important that these reports are easily understood by all the committee / board members because all committee members / directors are responsible for keeping a check on the finances of the organisation.
While the treasurer may not be able to do all these daily duties personally, it is the responsibility of the treasurer to ensure that good systems are in place to allow these tasks to be done efficiently and in a foolproof manner. Other tasks of the treasurer may include:
- making sure finances are well planned by preparing an annual budget and then regularly monitoring this budget to see that the organisation is staying within it;
- making sure that the books are up to date and in order – this means that there is a proper record of all payments and money received, and that accounts are reconciled at least once a month;
- taking reasonable steps to make sure that the organisation's finances are arranged so as to prevent funds from being stolen or misused; and
- ensuring that the necessary information and account books are ready for financial statement to be prepared (and if necessary reviewed or audited) at the end of the year.
Related legislation
Incorporated associations
-
This is the Act that regulates incorporated associations in Victoria, including their financial reporting requirements. Part VI, sections 30A and 30B apply to the financial statement.
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This link to is to the Regulations, which set out the detail of the requirements for incorporated associations. The regulations set out some of the detail of the preparation of financial statements by prescribed associations.
Company limited by guarantee
Related links - Consumer Affairs Victoria (CAV)
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On this page under 'Annual Statement', CAV provides basic information about annual statements and a link to the form to apply for an extension of time to lodge an association's annual statement. Online filing is available.
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Some Victorian organisations use these rules. However, you should check your association's rules to determine the requirements for your incorporated association.
Related links - Australian Securities and Investment Commission (ASIC) resources
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This ASIC guidance note is written primarily for directors of small proprietary companies but may be a useful guide to basic financial record-keeping requirements.
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This ASIC page provides basic information about the lodgement of annual statements. It is not specifically written for companies limited by guarantee and your organisation may wish to seek specialist advice on reporting requirements.
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This page of the ASIC website has information about financial reporting (for all types of companies).
Related links - other
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The ICA has a page of resources on not-for-profit financial reporting issues.
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CSA is the peak professional body for governance professionalsThe CSA has a series of good governance guides on financial reporting. They also provide a pro bono program to assist with things like governance audits, board paper templates and annual report preparation.
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The Australian Centre for Philanthropy and Nonprofit Studies at the Queensland University of Technology has a resource on nonprofit governance which includes a page on approving financial statements.