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CHCORG614A: Manage a service organisation

Design and implement the structures and process of the organisation

Contents

Establish financial accountability systems 3

Prepare budgets in line with strategic plan 5

Budgeting for staff 7

Cash flow chart 7

Budgeted versus actual performance 11

Funding options and opportunities 12

Funding applications 12

Diploma of Children’s Services: CHCORG614A: Reader LO 9375 2© NSW DET 2010

Establish financial accountability systems

A children’s service is a business, and like any business it needs to raise at least as much money as it spends if it is to continue to operate. As a service director or coordinator you will be responsible and accountable to the committee, sponsor, council or owner for the effective financial management of the service, so it is imperative that you are familiar with the underlying financial principles of the business.

What are financial accountability systems?

Effective financial accountability systems will assist in keeping an eye on the financial performance of a service. These systems will include effective record keeping and budget forecasting.

Activity 1

LedgersMany centres now have computerised accounting systems which will track purchases and payments. There will be many, however, that will still rely on manual ledgers. The principles are the same regardless of the tools used.

A ledger will be divided into columns and rows. The columns will be assigned different budget lines, such as food, cleaning or consumables. The rows would be filled out as individual items are purchased. This system allows anyone to track expenditure by line items and compare it to budgeted expenditure.

Petty cashMost of the expenditure in a service will be covered by invoices that will be paid by cheque from the centre’s bank accounts or by using the various internet facilities such as direct debit or funds transfer. However, there will be many daily purchases which will be too incidental or small to be able to be paid by cheque. Most shops will not accept a cheque for a bottle of milk, and a staff member might not be impressed if you tried to reimburse them for those exercise books


they so nicely picked up for you with a cheque. This is why the centre will have a petty cash account.

There will be a float with the amount varying according to the service’s size and accounting procedures. A ledger will be kept to detail purchases made, and these will be transferred to appropriate line budgets when the reconciliation is made. In a reconciliation the float will be squared off (e.g. purchases recorded and cash outstanding will be compared and matched), before a cheque is cashed to replace the money spent and to bring the float back to its original figure.


Prepare budgets in line with strategic plan

A budget is an estimate of the organisation’s income and expenditure for a future period, usually a year. The budget may be set by financial year (July 1–June 30) or calendar year (January 1–December 30).

Have a look at the following sample budget. Note: Only the first few figures have been included to give an overview. Figures given are completely hypothetical and do not reflect accurate figures for a centre.

Sample budget

Item $

Accountant’s fees 3,500.00

Advertising 7,500.00

Bank fees 1,200.00

Consumables 22,800.00

Electricity 2,400.00

Equipment & resources – non-consumable

Insurance

Maintenance & repairs

Mortgage payments

Petty cash

Postage

Stationery

Subscriptions & memberships

Telephone

Training

Wages

Total


Depending on the structure of an organisation, you may be required to draw up and present the proposed budget for approval; or it may be handed down to you with you having little say in its development. Either way, the director or coordinator of a service will be responsible for managing the service so that it operates within its budget.

When creating a budget, it is important to firstly review last year’s budget and the centre’s performance against it. If any budget lines (categories) went over or under budget, we need to be confident we know the reason why. Our consumables might have been much higher than budgeted because we enrolled more babies that expected, which increased our expenditure in disposable nappies. Perhaps our maintenance line item was greatly under budget as one of the parents who is a painter offered his services for free so the centre only paid for paint, and/or a tradesperson couldn’t be found in time to change the shade sails so they will definitely need replacing next year.

Having analysed and understood the centre’s performance against last budget, you now need to consider what important changes are likely to occur next year. Do you expect enrolment numbers to drop as your waiting list is currently diminishing and a new service has opened nearby? Have you been informed of an increase in the price of cleaning products? Is there a likely wage increase coming up? If you have a mortgage, are interest rates expected to increase or decrease? As a general rule you should also take inflation into account and increase all expenditure by the expected CPI (the consumer price index, set by the reserve bank yearly; it is an indication of the inflation (increase) in the cost of living).

You now need to combine all this knowledge and project next year’s expenditure. Once you are confident of the service’s expected expenditure, you can go about setting the fees for the year. This is done by adding up all the expected expenditure, and dividing the difference by the number of childcare places and number of operating weeks. This will give you a weekly fee, which can then be converted to a daily fee. Regardless of the structure of the service (for-profit or not-for-profit), this exercise needs to be carried out, as you are calculating your ‘break even’ point. However services aiming to make a profit would then repeat the same exercise with their nominated annual profit as the starting figure, to determine how much is required to add to the daily fee to meet their target.

Example:

A 35-place centre operating for 48 weeks per year might expect a total expenditure for a year of $450,000.

$450,000 divided by 48 weeks = $9375.00

then divided by 35 places = $267.86 (rounded up to the nearest cent) per week

and divided by 5 days = $53.58 (rounded up to the nearest cent) per day.


However, centre’s often budget for less places and weeks as they know that a place may not be filled straight away if a child leaves or there may be a delay in filling positions in a new year. It might be decided to round up the fee so as to cover that possibility. The fee might then be set at $55 per day 5 days 48 weeks 35 places = $462,000.

Budgeting for staffWhen budgeting for staff wages it is important to consider all of the factors, since budgeting for gross wages only could end up disastrous! Additional expenses on top of gross wages include;

• Superannuation—currently 9% of the gross wage• Annual leave loading—currently 17.5% of the gross wage in addition to

the regular wage during leave• Replacement casual staff costs for:

– Annual leave (usually four weeks per year)

– Sick leave (calculate using the award as a guide to each employee’s eligibility)

– Rostered days off (RDOs) – Non-contact time if applicable (eg programming time)

• Workers’ compensation costs (calculated to a formula depending on the industry type)

• Long Service Leave—while this may seem a long way off, it’s always best to cover yourself and the business by budgeting to put aside money towards it. Likewise you may like to allocate funds for the various ‘other’ types of leave the staff may be eligible for.

Cash flow chartYou now have a yearly budget, but the figures are large and often difficult to track as they cover a whole year. You will also often find that items in the budget are ‘lumped’ together. For example, one line may say ‘insurance’, but when it comes time to write up our cash flow chart, we want to be a little more specific so as to have an accurate overview of the year. We would therefore break it down into workers’ compensation, building insurance, business insurance and so on. There will also be times when a large income amount is received, such as when Child Care Benefit is paid to the service, and times when large expenditure occurs, such as when paying insurance premiums. One way to track these fluctuations is with a cash flow chart.

These charts indicate on a monthly basis what income is expected, and what expenditure is expected and has been budgeted for. Some expenditure will be


fairly consistent throughout the year (such as food, cleaning products and bank fees), and therefore the yearly budgeted amount can be divided by 12 (months in a year). There will also be some expenses (such as mortgage payments or rent) that will occur each month and some that occur quarterly (every 3 months) (such as phone and electricity) which can therefore be easily transferred to the cash flow chart. Other expenses may be annual (once per year) expenses (such as insurance and accountant’s fees). By including everything on the cash flow chart it ensures that you know what lies ahead financially, and don’t make the mistake of thinking you have all this spare cash in one particular month so go and spend it!

Have a look at the following example of a cash flow chart. Note: Only the first few figures have been included to give an overview (these figures correlate with the figures in the sample Budget). Figures given are completely hypothetical and do not reflect accurate figures for a centre.


Sample Cash flow chart

Jan Feb Mar April May June July August Sept Oct Nov Dec

Number of days in month

10 20 22 22 21 22 23 21 22 22 21 14

Income – fees from families

390 780 858 858 819 858 897 819 858 858 819 546

Income - CCB 46,332 34,749 34,749 40,014 30,011 30,011 36,504 27,378 27,378 45,630 34,223 34,223Total Income 46,722 35,529 35,607 40,872 30,830 30,869 37,401 28,197 28,236 46,488 35,042 34,769

EXPENSESAccountant’s fees 3,500Advertising – yellow pages

6,432

Advertising – other 267 267 267 267Consumables – food & drink ($2 per child per day)

780 1560 1716 1716 1638 1716 1794 1638 1716 1716 1638 1092

Consumables – cleaning supplies

88 176 176 176 176 176 176 176 176 176 176 88

Consumables – art & craft

70 140 140 140 140 140 140 140 140 140 140 70

Consumables – resources

50 50 50 50 50 50 50 50 50 50 50 50

Electricity 500 550 800 550Equipment – non-consumableInsurance – business (inc. Public liability)Insurance – workers’ compensationInsurance – buildingMaintenanceMortgage

Jan Feb Mar April May June July August Sept Oct Nov Dec

Petty cashPostageStationerySubscriptionsMembershipsTelephoneTrainingWages – primary contactWages – ancillaryWages – reliefWages – on-costsWages - superannuation

TOTAL EXPENSES

As you can see, this cash flow chart allows the service to immediately view expected expenditure throughout the year and is therefore able to ensure that it has enough cash to meet all its expenses.

Budgeted versus actual performanceYou will need to review the centre’s performance against the budget on a monthly basis and report the service’s financial position to the appropriate people. This will be done by looking at a Profit and Loss report (P&L report), which will outline the income and expenditure for a particular period (usually the current month) and compare it to the budgeted amounts. You will then be able to compare the actual financial situation against what was budgeted. This information will allow you to make changes to balance the budget if necessary, usually by reducing expenditure.

DocumentationIt is important that correct and accurate records are kept and that all legislative and statutory requirements are met. The financial accounts of a service will generally be audited internally, though an external audit may be conducted for any funding granted. Other legislative records containing proof that regulations have been adhered to, may be reviewed when the license is due for renewal, or as requested by one of the Department’s officers. At any time, the ATO may also wish to conduct an audit of the centre’s books and financial records.

It is also the responsibility of the authorised supervisor to ensure that records are stored and retained as speculated in the relevant regulations.

Activity 2a

Activity 2b

Activity 2c

Activity 2d

Activity 2e

As you can see, it can be a bit complicated when it comes to the retention and storage of records. The best thing to do is always refer to the Regulations!


Funding options and opportunities

While most services will be registered childcare providers so their users can claim ‘child care benefit’ to assist with the cost of their fees, only not-for-profit services are usually eligible to apply for grants and funds offered by governments, councils, agencies and other groups. These grants can vary from small amounts of a few hundred dollars to large funds of tens of thousands of dollars. Usually the funds can only be spent on the specified criteria in the submission, and careful accounting of the whole amount is necessary.

There are a number ways to discover what funds or grants are available to your organisation.

• Local council will have details of community, cultural or other grants for which community organisations may be eligible.

• The Department of Family and Community Services often advertises capital and maintenance grants and you could check out their website at www.facs.gov.au

• Regional and metropolitan newspapers advertise grants in their council and community sections.

• Networking—most grants become available annually, so children’s services’ staff will come to know when a particular funding grant is due to be advertised.

Funding applicationsBeing eligible to apply for a particular grant does not guarantee that you will receive any funding. Usually a funding application or tender will need to be completed and submitted. All grants will have a set of criteria and a format which needs to be followed when applying. You also need to be aware that you could be competing with many other eligible services, so your application needs to stand out.

A good submission will:

• utilise the information package to ensure that it is presented in the required or suggested format and that all criteria are addressed

• arrive in a professionally presented format in clear, concise and legible writing by the due date


• clearly state why the grant is necessary and how the funding will enhance provisions and activities at your service

• be targeted to appeal to the relevant audience—what is the funding organisation looking for and what are its objectives?

• reflect accurate research and planning, with claims being supported with statistics and other data

• include a clear, accurate and concise budget• highlight the originality of your request and your service and include

additional information to support the application. Try to make it stand out while keeping to the advertised criteria.


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