Contents

Before you begin vii

Topic 1: Plan financial management approaches 1

1A Access budget/financial plans for the work team 2
1B Ensure budget/financial plans are achievable, accurate and comprehensible 8
1C Negotiate any changes required to plans 13
1D Prepare contingency plans in the event that initial plans need to be varied 18
Summary 24
Learning checkpoint 1: Plan financial management approaches 25

Topic 2: Implement financial management approaches 37

2A Disseminate relevant details of the agreed budget/financial plans to team members 38
2B Ensure team members perform financial tasks competently 41
2C Use resources and systems to manage financial management processes 73
Summary 80
Learning checkpoint 2: Implement financial management approaches 81

Topic 3: Monitor and control finances 93

3A Implement processes to monitor actual expenditure and to control costs
across the work team 94
3B Monitor expenditure and costs on an agreed cyclical basis 97
3C Implement, monitor and modify contingency plans as required to maintain
financial objectives 107
3D Report on budget and expenditure in accordance with organisational protocols 112
Summary 117
Learning checkpoint 3: Monitor and control finances 118

Topic 4: Review and evaluate financial management processes 125

4A Collect and collate data for analysis 126
4B Identify the effectiveness of financial management processes  131
4C Implement and monitor agreed improvements 138
Summary 141
Learning checkpoint 4: Review and evaluate financial management processes 142

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Financial budgets

Financial budgets are also called financial plans. They are focused on obtaining
funds (cash) and the use of those funds for the advantage of the organisation.
These budgets include the cost of finance in relation to the cost of obtaining
capital through borrowing or other mechanisms; for example, capital raising
through the sale of shares.

Understand financial plans

It is your job to access and familiarise yourself with the following financial plans so you can
explain them to members of your work team. In this way, they can understand the goals and
objectives they are expected to achieve and the financial boundaries within which the team
must operate. Make sure you are familiar with, and can clarify with team members, relevant
terminology such as cashflow, profit and loss, balance sheet, financial statement, capital
expenditure, assets and liabilities, depreciation and lease versus purchase.
The types of financial plans and budgets utilised depend on the size and nature of the
business. Below are some definitions and explanations of budgets, plans and projections.

Strategic long-term Long-term budgets and plans are closely allied to an organisation’s
budgets/plans strategic goals and objectives. They are generally developed for a
five- to ten-year period.

Short-term and Operational plans relate to the ongoing day-to-day and weekly
operational activities of an organisation. They are focused on the operational
budgets/plans side of a business in terms of achieving short-term goals and
objectives associated with the expected expenditure and income of
the organisation’s goods and services.
Operational plans are short-term plans that generally relate to an
organisation’s financial year. A significant part of this process is
managing the budget on a day-to-day basis.

Cash budget Cash budgets detail the expected cash/funds coming in and
or cashflow cash/funds going out for payments over time. A negative position
projections indicates cash is not available to pay accounts and thus additional
monies may be required or action taken to delay some payments.

Spreadsheet-based In developing inputs, parameters for operational and financial

financial projections budget spreadsheet models are often developed to provide
a picture of the expected sales and expenditure for various
departments or entities of an organisation. They can be used to
set targets that are required in meeting sales objectives, expected
expenditure and, therefore, profit. By using the ‘what-if’ approach
in changing various parameters, such projections can be useful
in providing guidance on the position of the organisation at some
future point in time.

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1C Negotiate any changes required to plans

You may believe that a budget is not achievable

without further financial resources being made
available, or that allocations need to be altered to
provide a better balance. In such situations you need
to negotiate with others to change part of the budget
to ensure you and your team can achieve designated
targets. Final approval for your budget remains with
the financial manager.
Consultation is a key component of the process in
developing accurate and achievable budgets within
an organisation.

Budget changes
Changes may need to occur for many reasons, some of which may be out of your control.
Often budgets and financial plans span more than one area and the responsibilities for the
budgets sit with more than one person. External decisions can impact an organisation and,
consequently, its total budget. In many cases organisations have a contingency fund for
adjusting budgets when necessary.
Below are a number of reasons why budgets may have to be changed after they are put
together.

Making changes to a budget

•• Initial costings have proven inadequate or inaccurate.

•• A new staff member is required but not included in the budget.
•• The time allocated to tasks is unrealistic.
•• Wage rises dictated by government or union action have increased staffing
costs.
•• There is a corporate directive to reduce expenditure in all areas.
•• There have been significant increases in supplier costs.
•• A new, compulsory initiative that has not been budgeted for has to be
implemented.

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1D Prepare contingency plans in the event

that initial plans need to be varied
All budgets and financial plans are designed to be a framework within which the
organisation works, so when you identify that they are no longer working or you are unable
to achieve them, you need to vary or adjust them to meet the new circumstances.
It is good business practice to identify potential risks faced by your area/department in
achieving organisational plans; perform a risk analysis and have contingency plans that
can be actioned if and when a change occurs. A proactive approach is to incorporate risk
management into the planning processes of the organisation and to have options readily
available.

Manage risk
The first step in financial risk management is to identify the financial risks that the
organisation can face and how these would impact the budget. Then you can identify
possible contingencies.
The organisation should undertake a risk assessment and effectively rank each identified
risk. Each manager should be part of this process. Commencing with the major risk
issue, review the current processes in place for managing that risk to determine if it is
appropriately managed. This may involve consultation across a broad range of areas within
and external to your organisation. Plans should be prepared to manage or control the
risk by reducing its likelihood, or reducing the risk and the impact if it does occur. This
information in turn impacts the organisation’s budgets and financial plans. Possible risks
and risk control measures are outlined in this table.

Risk Example Risk control

Equipment Regular breakdowns add to the Lease equipment

failure maintenance budget.
Delayed input Materials not arriving or being held Hold greater quantities at an increase
supplies up at customs halt production and in inventory costs
impact on cashflow.
Price and cost Increased costs of inputs and Hold greater quantities of inputs or
changes unexpected salary increases add to have firmer contractual arrangements
the labour and production and thus in place
cashflow.
Staff shortages Sudden illness or departure impacts Increase in casual/flexible labour
on labour costs; you may need to
pay other staff overtime to meet
production schedules.
Security Breaches of confidentiality or privacy Tighter security and confidentiality
breaches of clients reduces confidence in the control measures in place
company and reduces demands for
goods and services.
Financial loss Mismanagement of resources, theft Increased security measures
or fraud adds to costs and impacts on
cashflow.

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6. Read the case study, then complete the tasks that follow.

Case study

Hasan works for a company that manufactures shower screens. He is the cost centre manager
for the production area. For the four products they manufacture, sales at the end of February
are in the table below.

Product Unit Value ($)

Basic 150 37,500 (250 per unit)

Standard plus 250 125,000 (500 per unit)

Deluxe 200 150,000 (750 per unit)

Super deluxe 100 100,000 (1000 per unit)

The above production is standard from month to month and the costs involved are below.

Product Labour per Material cost Overhead

unit (hours) per unit ($) contribution
per unit ($)

Basic 2.0 100 10

Standard plus 3.0 250 20

Deluxe 4.0 480 34

Super deluxe 5.0 600 43

Labour is costed at $50 per hour and includes contributions to leave entitlements and
superannuation. Material costs are fixed with a supply contract for the standard quantities
required each month.
Hasan is advised that the company has just won an extra special order for the supply of shower
screens for a refit of a hotel, and the products are required by the end of March. The quantities
and agreed per unit price are below.

Product Required units Price agreed per unit ($)

Basic 30 275

Standard plus 50 550

Deluxe 10 750

Super deluxe 5 900

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Formal meetings

└└ Where the recipients are identified and presented with specific

information relevant to their roles and responsibilities.

Group meetings/sessions

└└ Where a specific focus is required and those attending have a common

area or linked activities.

Written communication

└└ Where the information is sent via written memorandum, letter or report.

Face-to-face presentations

└└ Where an audience can be selected (this can include such technologies

as videoconferencing and teleconferencing).

Electronic communication

└└ Where emails are sent to individuals or groups, or documentation is

made available on the intranet.

Timing and format

Budget plans and information should be disseminated in a timely fashion so that there is
sufficient lead-time for the recipients to make adjustments, if necessary, to the way they and
their teams operate. People should have sufficient time to study the plans and note whether
any points they had brought up in the developmental phase have been addressed.
The format for presenting the budget may vary depending on the information being
delivered; for example, the information may be presented verbally as well as in written,
numerical (spreadsheet or tables) or graphical form.
The format may also vary depending on the level of budget information being disseminated
and the nature of the recipients as shown below.

Senior management

Senior management of a medium to large organisation might provide

information to employees in a total staff presentation using a graphical overview
of expected income and expenditure for the next year against projections based
on historical data, plus any indications of impacts of potential global economic
changes or other scenarios.

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Adjustments
Up to the trial balance stage, it is assumed that the expenses paid
during an accounting period correspond exactly to the amounts
due to be paid during that period. For example, if the profit is
being calculated for the year ended 30 June 2016, it is assumed
that the rent paid and recorded in the rent account is exactly the
amount that was due for that period. However, in reality it is
likely that some of the rent will have been paid in advance for the
next period. Other expenses, such as wages and electricity, may
have been incurred but may not be paid until after the end of the
current accounting period.
Accountants assume that a business is a profitable concern. In the absence of clear evidence
to the contrary, the business will continue operating beyond the end of the accounting
period. Because of this, certain transactions of the business may overlap accounting periods.
Therefore, revenue and expenses received or paid within a period may not necessarily relate
to that particular accounting period. All or part may apply to the accounting period before,
or after, the period in which it was actually received or paid.
While accrual accounting provides an accurate picture of profitability, the accuracy depends
on certain adjustments being made prior to the preparation of the financial statements.
These adjustments are referred to as balance-day adjustments.

Balance-day adjustments
The balance day adjustments which are required to be performed are described below.

Accrued expenses

Accrued expenses are those that have been incurred in the current accounting
period but not paid by the end of the accounting period. For example, salaries
and wages are an expense often incurred but not paid as of balance day,
because the end of the accounting period may fall midway through a pay period.

Prepaid expenses

Prepaid expenses are expenses that have been paid in the current accounting
period but relate to the next financial year. This results in an overstatement of
expenses for the current period as the payment of the expenses will be recorded
in the current period. For example, insurance is an expense that is often paid in
advance.

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The capital cost of an asset

The total capital cost of an asset includes the
purchase price of the asset plus any additional costs
associated with preparing the asset for use in the
business. Additional costs include:
• installation
• delivery
• modifications required by the business
• stamp duty
• customs duty.
The capital cost of an asset does not include any
goods and services tax (GST) paid, as this is claimed
back by the business from the Australian Taxation
Office (ATO) as an input tax credit (if the business is registered for GST).
Recurring costs associated with an asset are also not included in the capital cost. Recurring
costs are those costs associated with the ongoing use of an asset. These include annual
insurance, registration, repairs and maintenance.

Depreciation
There are a number of methods a business may use to calculate depreciation of an asset. The
two most commonly used methods are described below.

Straight-line depreciation

Also known as prime-cost depreciation or on-cost depreciation, this method

allocates the total capital cost of the asset evenly over the asset’s estimated
useful life, meaning that the annual depreciation is the same amount each year.

Reducing-balance depreciation

Reducing-balance depreciation is also known as written-down-value

depreciation or diminishing-value depreciation. This method calculates
depreciation based on the written-down value of the asset each year.
The written-down value is equal to the cost price of the asset less the
accumulated depreciation charged against the asset. The written-down value
can also be referred to as the book value or the carrying cost.
The effect of using the reducing-balance depreciation method is higher annual
depreciation in the early years of the asset’s estimated useful life than in the
later years.

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Financial statement (budget)

Financial statements are documents (budgets) that reflect the gross and net profit on
goods sold. A balance sheet (statement of financial position) can be developed as a
budget to reflect the expected position of an organisation at the budgeting period; for
example, end of financial year.

Targets and key performance indicators

Targets or key performance indicators (KPIs) are developed to measure business
performance and progress towards the objectives of the organisation. They are designed
to ensure that the day-to-day activities are being achieved and are contributing to the
organisation’s goals.
KPIs are often based on the expected outcomes detailed in the budgets; for example,
cashflow projections are based on expected sales, which in turn set a target or KPI for the
sales personnel to achieve a certain level of sales.
Organisations generally set targets or KPIs and record the outcomes for:
• production
• productivity
• resource utilisation and wastage
• sales
• income, expenditure and profitability
• performance and attitude of employees and performance improvement of managers
• public and environmental responsibility.

Access budgets/plans and financial information

Organisational and team budgets are developed by senior
management then disseminated to team members through their
manager for discussion. You need to know where these budgets
and financial plans are kept so they can be easily accessed when
needed. In some circumstances, sensitive financial plans may be
confidential and only available to senior staff, so be aware of the
type of information you can discuss with your team.
Operational budgets are usually kept by the manager and shared
with team members so they can set relevant targets or KPIs to
be achieved and discuss the team’s responsibilities in meeting
the budget.
You may like to read a comprehensive book on budgeting:
Shim JK & Siegel JG 2012, Budgeting basics and beyond, 4th edn, John Wiley & Sons, New
Jersey, USA.

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Regulatory requirements for organisations in Australia

•• Reporting of GST and other taxation-related issues on the business activity statement
•• Administering and reporting the superannuation guarantee levy
•• Complying with the capital gains tax and fringe benefits tax regulations
•• Compliance with the Income Tax Assessment Act 1997 (Cth) (for organisations registered as
companies)
•• Compliance with the Corporations Law
•• Compliance with the Australian Accounting Standards

The main regulatory bodies

The main bodies regulating the reporting of the financial affairs of an organisation in the
public arena are outlined here.

ASIC

Australian Securities and Investments Commission (ASIC)

ASIC is the chief regulatory agency of all incorporated entities (public and
private) and fund managers within Australia. ASIC has responsibility for the
administration and enforcement of the Corporations Act 2001 (Cth), Australian
Securities and Investments Commission Act 2007 (Cth), Insurance Contracts
Act 1984 (Cth), Superannuation (Resolution of Complaints) Act 1993 (Cth),
Superannuation Industry (Supervision) Act 1993 (Cth), Retirement Savings
Account Act 1997 (Cth), Life Insurance Act 1995 (Cth) and the Medical
Indemnity (Prudential Supervision and Product Standards) Act 2003 (Cth). ASIC
is responsible for protecting investors and consumers in the Australian financial
system.
Incorporated entities can take the form of companies, incorporated associations
(including not-for-profit entities) and trusts. All entities covered by ASIC must
submit an annual return by January each year noting changes to address,
incorporation and directors’ details. All incorporated bodies must also submit a
copy of their annual accounts.
For public companies, those accounts must be presented in accordance with
the Australian Accounting Standards and must be audited. In addition, public
companies must also disclose a summarised half-yearly result, showing income,
expenditure and profit, balance sheet and cashflow.
For private companies the requirements are not as stringent. Private companies
can report their financial affairs with less formality and disclosure and their
accounts do not need to be audited.

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Other regulators outline the required formats, frequency of reporting and due dates in an
initial bulletin and simply expect compliance thereafter. Regulators are also responsible for
communicating any changes to requirements and the dates from which they take effect.

Calculate taxation liabilities

An important part of the organisation meeting its statutory
reporting requirements is the calculation and submission of
taxation liability. It may be your responsibility to gather data that
is used by the regulatory bodies to calculate your organisation’s
taxation liabilities.
The Australian federal government, through the Australian
Accounting Standards Board, is responsible for developing and
issuing accounting standards that comply with the accounting
standards used internationally.
These accounting standards must be followed by all Australian reporting organisations.
To keep abreast of the development of these accounting standards towards international
compliance, refer to the website of the Australian Accounting Standards Board at:
www.aasb.gov.au

Accounting standards
There are two accounting standards that are directly relevant to gathering revenue data for
statutory recording and reporting. These are described below.

AASB 101 – Presentation of financial statements

└└ AASB 101 requires accrual accounting concepts to be adopted and that

all information (data), when recorded in source documents and carried
through to the accounting records, be:
• relevant, in terms of the size and nature of the transaction
• reliable, in that it faithfully conveys the nature of the underlying
transactions
• able to show the economic impact on the business of the transaction,
i.e. increasing sales, increasing expense levels, increasing asset or
liability levels within the organisation; the recording must be at an
adequate level of detail
• treated consistently over time so that information is understandable
and comparable over different aspects of the business and over
different periods of time.

AASB 118 – Revenue

└└ AASB 118 stipulates that the treatment of income (termed in the

standard as revenue) must have these same characteristics, but also
prescribes those items that can generally be treated as revenue.

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… continued

PAYG instalments

PAYG instalments is a system where organisations pay tax instalments on their business and
investment income, allowing them to pay their tax obligations ‘as they go’ rather than being
required to pay a lump sum amount of tax at the end of the financial year.
The ATO advises each organisation as to whether they are required to pay PAYG instalments
and issues the organisation with a PAYG instalment tax rate. Payments are shown and remitted
with the business activity statement.
At the end of the financial year, the organisation lodges an annual income tax return. Any PAYG
instalments paid during the year are credited against the total tax liability calculated from the
income tax assessment.

Fringe Benefits Tax (FBT)

Organisations that provide employees with payments in the form of non-cash benefits may be
required to register for and remit FBT at the rate equal to the top prevailing marginal rate of
personal taxation plus the Medicare levy. This is because the benefit is deemed to be made as
a substitute for taxable income.
The applicable rate is currently 48.5 per cent. It should be noted that the tax year for FBT
differs to the normal financial year and runs between 1 April and 31 March. Some benefits that
are generally subject to fringe benefits tax include:
•• Cars: a car fringe benefit arises when a car owned or leased by an employer is made
available for the private use of the employee.
•• Loans: a loan fringe benefit arises when an employer provides a loan to an employee either
interest free or at an interest rate that is less than the statutory interest rate.
•• Housing: a housing fringe benefit arises when an employer provides accommodation to an
employee rent free or at a reduced rental and it is the employee’s usual place of residence.
•• Airline transport: an airline transport fringe benefit arises when an employer provides airline
transport (for-non-work-related travel) to an employee for free or at a discounted rate.
Employers are required to calculate the amount of fringe benefits provided to employees during
the fringe benefits year, calculate the amount of FBT payable, and complete a fringe benefits
tax return form. Amounts are recorded as liabilities in the general ledger.
The timing of the payment of the fringe benefits tax is determined by the total amount that is
payable and whether the employer has previously lodged a fringe benefits tax return.

Superannuation guarantee levy

All employers are required to contribute to a complying superannuation fund for all
eligible employees (currently 9.5 per cent of gross ordinary income). This is known as the
superannuation guarantee levy.
When a company fails to make these contributions, the government effectively fines the
business an equivalent amount and holds it on behalf of the employees until the organisation
makes arrangements with a complying fund.
The government also charges interest on the amount involved and an administrative fee
per employee. This is a significant incentive to make organisations put in place their own
arrangements with complying superannuation funds.

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Documentation of procedures
All financial procedures should be clearly documented in an organisation’s policies and
procedures manual. They should be easily accessible. You may wish to prepare simple
overview sheets or flow charts to describe a particular function, or develop a series of
checklists so that each step is ticked off when following the procedure. This is especially
useful if a staff member needs additional help with understanding.
Methods of documenting and disseminating information are summarised below.

Intranet-based information

└└ Depending on the size of the organisation, placing information on the intranet

may be an efficient way of disseminating material. An intranet can be used
to provide access to organisational information to support employees.
Information related to financial management can include budgets and plans,
procedures for performing specific tasks and relevant records. Access to
specific files can be protected via security access using a password or security
access procedure; for example, a fingerprint reader. Some organisations use
the intranet as a training environment with particular courses listed.

Information briefings or sessions

└└ Informal briefings or meetings can take place where relevant issues are
discussed between colleagues or between an employee and supervisor.

└└ Sessions can be formal or informal. Formal meetings or briefings with set

agendas can be used to provide financial managers and people with budgetary
responsibilities with key information relating to their roles, or as opportunities
to discuss particular issues. A formal meeting can also take place where
a supervisor informs employees on specific matters through face-to-face,
teleconferencing or videoconferencing options. Team meetings are an efficient
way of providing support as each member can contribute in a non-threatening
environment.

Help desk or internal experts

└└ Help desks are used as the first point of contact when an employee needs
advice. ‘IT Help Desks’ are commonplace in many organisations and may
provide support on hardware, software and internet problems.

└└ Organisations can recognise people with exceptional skills and knowledge,

and designate them as ‘internal experts’ to provide advice on issues within
their knowledge and skill set.

Access to specialist advice

└└ Specialist advice may be provided in-house from experienced, senior staff

involved in financial management. An organisation might also take advantage
of professional advice and training from external consultants for structured
training sessions, or to gain a second opinion on an accounting standard or
legal matter. Be prepared with a list of reputable experts in financial matters
within your local area.

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Variance analysis is commonly reported on a monthly basis. Care should also be taken to
ensure that annual expenditure patterns are taken into account; for example, if insurance
is budgeted at $2,400 for the year, then the expected monthly expenditure would be listed
as $200 per month. Therefore, if insurance is paid annually in August (the second month of
the financial year), the budgeted amount could read $400 but the actual amount would show
$2,400; this would suppose an unfavourable position, but in reality it is acceptable as you
have paid the insurance for the whole year. Barring any changes in premiums or additional
insurance costs, the end result is on budget.
You may like to read a book that offers a detailed overview of methods for assessing business
performance:
Helfert, E. A. (2001), Financial analysis tools and techniques – a guide for managers,
McGraw-Hill, New York, pp. 95–160.

Reasons for variances

It is important to determine the reason for the variances. You may have to put controls in
place to ensure budgeted costs are maintained.
When considering the variations look for an explanation and determine if action needs to
be taken. Simply shifting savings (low expenditure – money not spent) or additional income
(excessive income – extra money received) to overruns on costs or to offset a lower-than-
expected income area is not addressing the cause and has the potential to mask the true
position which, if left unaddressed, may get worse. Managers must be able to monitor and
present financial data using electronic spreadsheets and other software associated with
financial record keeping.
Some examples of variances, whether they are favourable or not and suggestions about their
cause are presented here.

Low sales income Excessive Low expenditure Excessive

(unfavourable) expenditure (favourable) sales income
Does it suggest (unfavourable) Are there (favourable)
a trend and the Is there a seasonal seasonal or Does it suggest
potential that issue? Has the irregular patterns that demand is up
you won’t shift organisation of expenditure and that you may
products at current bought resources involved? Has need to increase
prices? Or is there in bulk and thus there been a production, since
a seasonal impact have them in stock reduction in the stocks of finished
to consider; (for or has the input price of the inputs products for sale
example, overcoats price risen? or is less of the are getting low?
won’t sell much in input required
summer)? due to some other
factor?

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Practice task 9
Insert the missing values in this variance table.

Item Budget ($) Actual ($) Variance result

Income – Sales

Product A 400,000 350,000

Product B 125,000 (5,000) U

Product C 80,000 20,000 F

Costs – Sales

Material X 60,000 56,000

Material Y 45,000 (3,000) U

Material Z 30,000 1,000 F

Direct labour 100,000 105,000

Overheads 7,525 125 F

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Example: implement contingency plans in response to a

sales decline
Isabel is the manager of the sales department in Direct Meats, a small food-processing
manufacturing plant. There has been a recent drop in sales as a competitor has introduced the
same product. The budget variance reports indicate that Direct Meats is not going to achieve the
targets for the year. Furthermore, there is an excess of the product in the
warehouse. The first contingency plan implemented by Isabel is to increase
marketing strategies for the product and have sales representatives promote it
heavily to customers. After two weeks there is no significant increase in the
orders.
The second contingency plan implemented is to again promote the product but
at a discounted price, in an attempt to increase orders and therefore boost
sales and reduce waste. Sales representatives contact the buyers with the offer.
Sales increase and the impact of the competing product lessens. However,

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contingency plans need to be reviewed and updated as the situation with the
competitor is monitored.

Practice task 10
Think of an example where it would be necessary to implement a contingency plan in relation to
budget management. Provide brief details for each of the following.
1. What led to the identification of the issue and what objectives were not going to be achieved

2. The details of contingency plan that could be implemented

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Tips for preparing a report

A report should be prepared and planned with a clear objective in mind and knowledge of
the reader. Some tips for writing reports are shown below.

Characteristics of good reports

•• Well-structured according to requirements; for example, a title; executive

summary (if appropriate) with an overview of the area, analysis undertaken
with findings and recommendations; introduction; body; conclusion;
reference list and appendix if required.
•• Accurate and complete – it provides a full view and is not focused on one
perspective; it includes all information required to make a decision or move
forward.
•• Genuine – data is from a trustworthy and honest source.
•• Targeted and mindful of the reader – it is written in understandable language
with the appropriate use of diagrams and graphs so it can be understood.
•• Positive and proactive – it is concerned with the future and leads in that
direction.
•• Well-timed – it is appropriate to the time when decisions need to be made.

Things to avoid

•• Inaccurate or conflicting information and comments

•• Outdated or irrelevant data
•• Facts and opinions intermixed
•• Conclusions and recommendations not supported
•• Poor presentation, spelling and grammatical errors
•• Fancy visual appearance and lack of attention to content

Example: prepare appropriate reports within deadlines

Sanjit is the budget manager for a cost centre that has a turnover of over $10 million a year in an
organisation that turns over more than $120 million a year. He prepares a monthly variance analysis
with a report on any variations to his supervisor, the cost centre manager.
Sanjit provides a comment against any variation in the report and, where significant variations are
observed, he researches the situation and makes recommendations on contingency plans that could
be considered.
Sanjit also undertakes a trend analysis so he can consider the income and expenditure over the
preceding months to determine if there is a trend developing. He also compares each month’s
position against the position at the same time in the preceding year if appropriate.
The report has to be with his supervisor one week after the release of the variance reports so Sanjit
makes sure this is entered into his diary so he can complete the report on time.

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Topic 4
Review and evaluate financial
management processes
The activities of an organisation must be documented to provide a record of the operation
of the business. The data and records kept are analysed to monitor, control and determine
the performance and effectiveness of the systems the organisation has in place. Records
are also kept in accordance with legislative requirements and can be used to reconcile
various accounts, investigate anomalies, provide information to regulatory bodies and
provide evidence at audit time. Processes must continue to be reviewed and analysed for an
organisation to remain competitive and profitable. Improvements to existing processes need
to be identified, implemented and monitored to ensure the organisation continues to achieve
its financial objectives.
In this topic you will learn how to:
4A Collect and collate data for analysis
4B Identify the effectiveness of financial management processes
4C Implement and monitor agreed improvements

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 BSBFIM501
Manage budgets and financial plans

Circumstances responsible for budget variations

If current data is not entered on the system in a timely manner, you may find a report is
based on out-of-date information that consequently provides an inaccurate picture. If actual
expenditure is lagging as a result of slow data entry then expenditure shown on the end-
of-month report may appear to be better (less) than it really is. Similarly if all the income
received is not entered in time for the running of the end-of-month variance reports for a
cost centre, the picture appears worse than it should be.
Source documentation can also provide an insight into circumstances that have changed
and that directly impact on the budget as shown below.

Source documentation may assist with identifying

reasons for budget variations

Standing orders
1
Standing orders such as the weekly supply of inputs often occur without
weekly approval and cost increases in these inputs may not have been
brought to the manager’s attention.

Job costings
2
Incorrectly estimated job costings resulting in cost overruns and lower-
than-appropriate charges to customers.

Labour costs
3
Changes in labour costs due to changes in personnel, resulting in
variations to salary and wages that are different to the budgeted
amounts.

Cost of supplies
4
Increases in the cost of supplies due to price rises from the supplier.

Overtime costs
5
Increased overtime costs that can be attributable to absences due to
illness or increased demand for products and services.

Data processing
6
Delayed processing of source data onto the financial system resulting in
incorrect reports.

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 Topic 4
Review and evaluate financial management processes

Monitoring implementation

Monitoring the implementation of the improvement itself against defined

targets by checking that staff understand their new responsibilities, appropriate
physical, human and financial resources are allocated and time lines are met.

Monitoring post improvement

Monitoring the situation after the improvement by obtaining feedback, analysing

reports and identifying whether there are any favourable variations between
budgeted and actual targets.

Example: improve a process that contributes to an

organisation meeting financial objectives
Grace works in the accounts department of a large plumbing business and is responsible for issuing
invoices to customers. When the plumbers are out on the road doing jobs for customers, they
purchase parts from the nearest plumbing supplies store or hardware store if they do not have the
materials on their truck. The plumbers use a company credit card to purchase these materials. The
process of tracking the purchases and allocating the costs to the correct job is breaking down and
so is the ability to accurately assess the productivity of individual jobs.
Grace suggests that the plumbers should have a simple form that can be used to record the date,
place of purchase and job number on a sheet; they attach the docket from the supplier. These
sheets are to be given to Grace on the last day of each week when the plumbers have to come via
the office to collect the job details and any supplies from stores for the following week. The senior
manager discusses the proposal with the plumbers and supervisors and it is agreed.
Grace is now able to provide accurate invoices to the customers and accurate reports on the
profitability of each job.

Example: improve timing of expenditure reports

Martina is the head of the finance department of a company that provides IT consultancy services
and systems installations. She is frustrated that the paperwork from the consultants on expenses
being incurred is constantly late. The current process is for consultants out at sites to use their own
resources to purchase needed items on site and complete paperwork as an expense claim later.
Martina’s target is to have the relevant reports compiled and distributed not
more than eight working days after the end of the month. The reports being
generated are not accurate as they do not contain all expenditure for the
preceding month, because consultants are not sending it in on time and often
have difficulty as they are interstate.
On discussing the situation with the general manager and with the consultants,
it is agreed that each consultant is issued with a corporate credit card so that
the expenses can be recorded on the credit card statement, and therefore taken
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into account when producing the monthly performance reports.

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