5.4 Governing finances and resources
MG Corporation’s road to financial independence
MG Corporation's former CEO Franklin Gaffney talks about MG Corporation’s road to financial independence from government.
Today, an increasing number of Aboriginal and Torres Strait Islander groups are successfully negotiating resource development agreements, securing property rights and establishing major enterprises. As a consequence, they face the challenge of managing valuable land and natural resources.
At the same time, incorporated organisations often remain substantially dependent on government funding, which comes with rules about how it can be used.
Under these circumstances, effective governance is a critical foundation for wisely managing your resources and promoting economic development.
5.4.1 Your duty of care
The governing body is responsible for managing the funds, resources and assets of the organisation. In this way, the governing body acts as a trustee for its members.
Definition: A person who has decision-making authority over the assets, finances or resources of another person is called a trustee.
A community or nation’s resources are not just about money. They include its human, financial, cultural, intellectual, technical and information resources.
Such resources are often scarce, but, they are critical to Aboriginal and Torres Strait Islander peoples’ future development, and so need to be strategically and fairly managed.
This duty of care is one of the most complex and challenging governing responsibilities because of:
- the continuing low levels of education and financial literacy within many communities
- the small size of many organisations
- the low staff capacity and high workloads within these organisations
- the multiplicity of short-term government funding
- the technical complexity of financial reporting arrangements.
These factors can seriously undermine the financial decision making and effectiveness of governing bodies and their managers.
A framework for understanding the barriers to Indigenous financial capability
This report prepared by the First Nations Foundation and Reconciliation Australia outlines best practice principles for the design and delivery of financial education programs for Aboriginal and Torres Strait Islander communities. On page seven, there is a diagram that outlines the barriers that need to be overcome to enhance financial literacy in Indigenous communities.
5.4.2 Making decisions about money and resources
Many organisations fail because their governing bodies do not understand the money side of their operations, and so cannot make informed decisions about these matters.
An organisation will quickly have financial problems and get a bad reputation if:
- the governing body does not make sure that money and resources are used properly
- family and friends of governing body members or the CEO receive money or assets from the organisation without legitimate reasons
- the CEO—rather than the governing body—makes strategic decisions about how money is spent
- there is a lack of accountability and transparency around financial decisions and spending.
The governing body and the CEO or top manager need to work together as a team to manage an organisation’s finances and assets, and make informed decisions about them.
For some organisations—such as those where the governing body is financially literate and the manager is open and communicative—this can be straightforward.
In other organisations—such as those where the governing body is comprised of non–English speaking members, and the manager makes shortcuts or unilateral decisions—this can present a major challenge.
While it’s the governing body’s job to set the strategic directions, approve budgets and make overall decisions about funding and resources, it’s the top manager’s job to ensure the governing body thoroughly understands the ‘money business’ of the organisation.
A strong governing body should:
- always ask its top manager the hard questions about money issues
- expect to get accurate information and straightforward answers back from the top manager
- make an effort to understand the way the ‘money business’ of the organisation works
- make informed decisions on the basis of information from the top manager and the members.
If the governing body is not doing these things, it is failing to look after the organisation and its members. If the top manager is not doing these things he or she is failing the governing body and the organisation.
This combined failure can have major negative impacts for members, and create conflicts that spread into the whole community.
5.4.3 Financial reporting
The main purpose of financial analysis and reporting is to clearly lay out the story about the money that has come into the organisation, the state of resources held by the organisation, and how these are being managed and spent.
Some reports are mainly for the governing body, or for external funding agencies and business partners.
But many of these are made public and are accessible to members and communities too.
Today, organisations are increasingly using computerised systems to keep records of decisions made, allocate responsibility for follow-up action, track outcomes, report back to the governing body and deal with any problems.
All of this complex financial and business information needs to be pulled together into accessible formats for presentation to governing bodies that usually have large agendas and need succinct reports in plain English.
Unfortunately, financial information is often presented to governing bodies in highly technical language. Many governing bodies are now requiring this information to be given in a way that is more easily understood. For example, the Miriuwung-Gajerrong Corporation provides a straightforward ‘performance snapshot’ in its annual report, covering every strategic objective, what the corporation promised to achieve and what it actually delivered.
Good financial reporting should help a governing body to:
- understand the overall financial situation as reported
- ask the right questions so it can know the true state of the finances
- understand any differences between the actual and budgeted expenditure and income so that it can work out if the organisation is viable
- make independent and informed decisions about budgets and financial cuts.
A governing body should not have to rely on its managers to tell them it that its financial reports are accurate.