Good financial management requires that there is a record of every financial decision and a receipt for each purchase. Furthermore, budgeting must be realistic, and the association must have an operations inspector and a competent treasurer or accountant. The executive committee of an association is collectively accountable for the legality of financial management and bookkeeping, in addition to ensuring that financial statements are produced on time. Double-entry bookkeeping is required. In small associations, bookkeeping is carried out by the treasurer, and in larger ones, by a professional accountant. Receipts must be archived for six years and other documents related financial statements for ten years.
In an association, members hold the financial decision-making power through the annual meeting. Decisions regarding the budget and plan of operations are made in the meeting, and the executive committee only implements the will of the members as they make financial decisions. High-quality financial management is a requirement for receiving grants and external funding. In brief, good financial management involves:
1. A plan of operations and a budget plan
2. Daily bookkeeping, decisions and archiving
3. The financial statement and the annual report
4. Operations inspection
Plan of operations and budget plan
Every year, associations must make a written plan of operations and a budget plan for the coming year. The plans are approved by the annual general meeting. A plan of operations describes the associations planned activities in a clear manner. The budget plan is based on the plan of operations and presents the future plans in numbers. The plan of operations and the budget plan should be in line with one another, and they guide the association’s operations at an annual level.
Accounting in an association
Associations’ accounting involves double-entry bookkeeping. In double-entry bookkeeping, debits and credits are recorded in bookkeeping accounts, with balance-sheet accounts (such as bank accounts or cash funds) used as contra accounts. Items can be recorded on an accrual basis or on a cash basis. We recommend cash-basis accounting wherein income and expenses are recorded on the day of the transaction. There are several free programs that can be of use in an association’s accounting. The most often used and recommended one is Kitsas (website available only in Finnish; the link opens in new tab).
Financial statement and annual report
Financial statements are prepared after the end of each accounting period. The financial statement must present an accurate and adequate picture of the organisation’s performance and financial situation. The financial statement must be comparable to the previous year’s financial statement as well as the financial year’s budget plan and annual report.
The annual report states all essential information regarding the past year. Its content must be comparable to the plan of operations and the figures in the financial statement.
An operations inspection involves auditing the association’s accounts, use of funds and administration. It is carried out in a scope deemed sufficient relative to the association’s operations. The operations inspector draws up and submits an operation inspector’s report, memo and record to the meeting of the association. The operations inspector’s record shows any such flaws or shortcomings in financial management that must be corrected immediately. The operations inspector’s memo states general observations and flaws that should be taken into account in the next financial statement. The administration inspection assesses whether the administration in general is properly organised and whether members are treated equally in the association’s activities.