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Commitment 8.2 We ensure that funds and resources entrusted to us are properly controlled and managed.

Compliance Indicators

Compliance with the Commitments will be assessed against the following Compliance Indicators. All of the applicable Compliance Indicators must be met by every ACFID Member to be considered compliant with the Code. Each of the Compliance Indicators has one or more compliance Verifiers. Verifiers are the description of evidence that is required to substantiate compliance with each Compliance Indicator. Guidance is also provided.

8.2.1 Members can control and manage their financial resources and risks.

Verifier

Policy, procedure or guidance documents that address:

  • Risk management and control mechanisms.
  • Financial wrong-doing, especially fraud, corruption, counter-terrorism and money-laundering and violation of sanctions imposed by the Australian government.
  • Checks of individuals and organisations receiving funds against the Criminal Code list of terrorist organisations and the DFAT consolidated list of individuals and entities subject to targeted financial sanctions.
  • Appropriate and effective internal controls.

Members are required to extend the financial wrongdoing requirements of this compliance indicator and verifier to partners through MOUs or similar

Guidance

Having a policy, procedure or guidance document that outlines a Member’s financial systems and controls is very important to help ensure it runs effectively. The ACNC has developed a basic guide to setting up financial controls, which can be found in the resources section.

Tools4Development have a how-to-guide to prevent fraud and the ACNC has a briefing page for NGOs working overseas which addresses fraud. These can both be downloaded in the Resources Section below.

ACFID has also developed guidance for developing a financial wrong doing policy that addresses fraud, counter terrorism, money laundering and violation of sanctions, which can be found in the resources section. There is also further guidance on risk management at Compliance Indicator 4.2.2.

Members should also refer to the World Bank Listing of ineligible firms and individuals, the Asian Development Bank Sanctions List; the Attorney General’s Department List of Terrorist organisations; and DFAT’s consolidated list of individuals and entities subject to targeted financial sanctions, including relating to terrorism.

8.2.2 Members are effective in their use of resources and minimise financial wastage in the planning and implementation of activities.

Verifier

  • Evidence of consideration of costs, during activity planning, implementation and review, including alignment with strategic and good practice approaches for efficiency and continuous improvement.

Guidance

Evidence of consideration of costs will take multiple forms and will vary between members. Examples might include budgeting processes, procurement policies and processes, financial acquittal processes, the use of volunteers and in-kind services, travel policies, delegations and expenditure approval processes.  Policy templates and guidance in these areas of financial management are included in the Resources Section below.

8.2.3 Members undertake measurement, analysis and review of financial performance and financial position.

Verifier

  • An accounting system that is appropriate to the Member’s operational, legal and structural requirements, and is adequate to the scale, capacities and risks of the organisation.
  • Detailed accounting records that are structured to enable forecasting, measurement and review of income, expenditure, assets, liabilities and equity.

Guidance

Members should implement systems that are appropriate to the size and capacity of your organisation. A large, sophisticated signatory organisation would be expected to use accounting software in its financial management, and have documented policies, controls and systems. It may have dedicated financial staff, monthly management reports, internal websites, an audit committee and internal audit functions. A small signatory organisation may keep largely manual or spreadsheet-based accounts and rely, in part, on honorary officials in its financial management. It may have one staff member or volunteer accountable for finances, an honorary treasurer, and quarterly meetings of a committee or the Board to oversee the processes. Providing the arrangements are demonstrably appropriate to the risk, they would be compliant with this Code.

8.2.4 Members produce and publish annual audited financial statements.

Verifier

Members must have the following in place:

  • Full financial reports that comply with accounting standards
  • ACFID-Code-compliant financial statements (see 8.3.2) which are independently audited by a qualified accountant in accordance with relevant Australian auditing standards.
  • Publish in the full audited financial statements, a declaration by the Governing body stating that the financial statements are in accordance with the relevant legislation, accounting standards and provide a true and fair view of their financial position and performance. In addition, companies and trustee companies include in that declaration, that the organisation can pay its debts as and when they become due.
  • Review and approval of the Member’s financial statements by the Member’s governing body, evidenced in Governing Body meeting minutes – this does not need to be published.

The audit report that specifically relates to the full financial report must:

  • Accompany the full financial report.
  • Be signed by the auditor and include their identity, qualifications and contact
  • details.

The audit report that specifically relates to the Code of Conduct Summary Financial Report must:

  • Be included in the Annual Report.
  • Be signed by the auditor and include their identity, qualifications and contact details.

Members who do not include their full financial reports in their Annual Report will need to have two audit reports;

  • One for the ACFID Code-compliant financial statements in the Annual Report
  • One for the full financial reports.

The auditor will be, at a minimum, a qualified accountant who is a Member of the CPA Australia, Chartered Accountants Australia and New Zealand, or the National Institute of Accountants, or be a registered company auditor.

Guidance

ACFID’s Mandatory Guidance on Financial Reporting can be found in the Resources Section below.

8.2.5 Members undertake due diligence assessments of partners who manage funds on behalf of the Member.

Verifier

A documented due diligence process which:

  • Assesses the partner’s capacity to apply funds or resources in accordance with the promise to the donor, the Member’s strategy, and the specific instructions of the Member.
  • Includes reference to prohibited entities listings.
  • Assesses the partner’s capacity to manage and control funds.

Guidance

Undertaking due diligence and capacity assessments is a mechanism that enables Members to identify potential risks and inform their approach to working with partners. An example assessment can be found in the resources section.

Good Practice Indicators

The following Good Practice Indicators describe a higher standard of practice than that set out in the Compliance Indicators. While Members do not need to meet the Good Practice Indicators to be considered compliant with the Code, they will self-assess against these indicators once every three years. This provides a clear pathway for Members to strengthen and improve practice over time.

  • Qualified staff with responsibility for financial management and oversight are in place.
  • Regular analysis of internal systems is undertaken to identify areas that need to be monitored and updated.
  • Regular training is provided to partners and staff on financial policies, in particular financial wrongdoing prevention.
  • Organisation governing body formally reviews income and expenditure on at least a quarterly basis.
  • Adequate funding reserves exist to protect staff and partners in the event of a reduction in funding, and a policy is in place to reflect this.

GUIDANCE AND RESOURCES

Good Practice Guidance

Here are some practical suggestions for your organisation to further deepen and improve practice over time.

Accounting Systems

  • All signatory organisations must have accounting records and systems that are capable of reliably producing the required reporting, and supporting the controls and other requirements of this Code. Within this requirement, develop accounting records and systems that suit your operational, legal and structural requirements, and are adequate to the scale, capacities, and risks of the organisation.
  • Undertake a risk analysis of internal systems to identify areas of your organisation that need to be monitored and protected. Determine where possible risks to these areas exist, and implement controls to manage these risks.

Managing funds

  • Put appropriate controls, policies and procedures in place to ensure funds are managed and invested well and to protect the value of funds or resources that have been donated or provided to your organisation.
  • In some states of Australia, charitable collections legislation requires that funds that are not immediately applied to the purpose or object of an appeal must be held or invested in the manner of a trust fund. This has the effect of requiring those responsible for holding or investing the funds (for example the directors of the signatory organisation company) to act as if they were trustees of such funds.
  • There are some requirements for signatory organisations that operate a gift fund that is endorsed by the Australian Taxation Office. The requirements for Overseas Aid Gift Deductibility are outlined in Tax Ruling 95/2, available on the Australian Taxation Office’s website.

Financial Controls

  • Internal financial controls are systems of policies and procedures that safeguard assets, ensure accurate and reliable financial reporting, promote compliance with laws and regulations, and achieve effective and efficient operations.
  • These systems relate not only to accounting and reporting but also to internal and external communication processes, staff management and error handling.
  • Create and document a policy and procedures manual that may cover the following:
    • Handling receipts and expenditure of funds
    • Budgeting and forecasting of activities
    • Preparing appropriate and timely financial reporting to board members and senior management
    • Conducting the annual external audit of your financial statements and Annual Report
    • Evaluating your organisation’s performance
    • Evaluating staff and programs
    • Maintaining inventory records of property (including fixed assets and stock)
    • Implementing personnel and conflict of interest policies.

Financial management

  • Develop budgets appropriate to your organisation’s activities
  • Undertake regular financial reporting against budgets including budget variance analysis
  • Undertake regular financial reconciliations and corrective action to resolve differences and to ensure the accuracy and completeness of transactions
  • Regularly review financial information against budgets, forecasts, prior periods or other benchmarks
  • Implement systems that allow accurate cost analyses of your activities
  • Segregate financial management duties among different people to reduce the risk of error or inappropriate action
  • Create and document a procurement policy
  • Provide training and build the financial management capacity of staff
  • Undertake periodic internal audits that focus on efficiency.

Organisational management

  • Regularly review finances by the governing body and management
  • Undertake organisational and program level risk assessments
  • Benchmark administration and remuneration costs against other organisations in the sector
  • Undertake staff performance reviews
  • Develop, document and implement policies on:
    • Whistle-blowing
    • Fraud prevention
    • Travel and accommodation
    • Remuneration
    • Conflict of interest
    • Value for money

Related Party Transactions

  • Avoid internal loans or other financial transactions with related parties in general as they are difficult to justify to external stakeholders and invite criticism and suspicion.
  • A ‘related party’ may include your governing body members and staff, and their immediate families, and companies that they control. A ‘related party transaction’ is therefore a transaction with someone who has a close, and possibly privileged, relationship with the signatory organisation. For a more precise definition of related parties, refer to Australian Accounting Standard AASB 124 Related Party Disclosures.
  • Where there may be justifications to permit these transactions, there must be clear policies allowing them, and processes to record them. Full disclosure of these transactions should be provided in the Annual Report.
  • All signatory organisations are expected to reach the same standard of implementation, irrespective of their size.

Corruption, fraud and bribery

  • The governing body and executive should establish a high-level commitment to a zero tolerance approach to fraud and corruption
  • Create and document an anti-fraud and anti-corruption policy or separate policies, approved by the governing body.
  • Create and document procedures for implementing the policy and ensure that governing body members, staff and partners are familiar with them. The procedures should include the following:
    • Recruitment practices which include due diligence on prospective employees
    • Due diligence assessment of partners and key third party suppliers
    • Regular training for staff and partners to raise awareness of the risks associated with fraud and corruption, mitigation strategies and the organisation’s relevant policy and procedures
    • Risk analyses in each country of operation including Australia
    • Reporting procedures, including the requirement to report without delay all cases of alleged, suspected or detected fraud or corruption
    • All cases of alleged fraud or corruption to be handled in a confidential, prompt and professional manner
    • The requirement for independent audits, delegations, financial management, internal controls, accounting and cash handling procedures to minimise the risk of fraud
    • Ongoing monitoring to ensure compliance with anti-fraud / anti-corruption policies and any related procedures
    • The prohibition of undocumented transactions or loans to governing body members or staff
    • The process to deal with allegations of wrongdoing
    • Procedures to pursue the recovery of proceeds of fraud and apply prosecutorial or administrative action
  • Create and document a policy that facilitates complaints and whistle blowing in cases of fraud and corruption, with a clear referral procedure that allows reporting to a member of the governing body, and a confidential and independent review process.
  • Undertake a thorough risk analysis in each country of operation (including Australia) so that your analysis is context-specific.
  • Document the assessment and identification of risk and risk mitigation strategies in a risk framework or equivalent.
  • Ensure risk assessments explicitly consider the risks associated with wrongdoing, corruption, fraud, bribery or other financial impropriety and consider the specific procedures that your organisation has in place regarding decision-making, financial management and reporting.
  • Communicate your organisation’s zero tolerance approach to fraud and corruption and all relevant policies and procedures to internal and external stakeholders, through orientation for staff and partners and promotion through publicly available materials such as websites.
  • Undertake training and awareness programs to ensure staff and partners are aware of potential risks, policies and procedures to prevent and mitigate risks, and reporting procedures.
  • Undertake periodic reviews of anti-fraud and anti-corruption policy and procedures and report outcomes to the governing body. Organisations that are exposed to higher risks should consider external verification and assurance of their anti-corruption procedures.
  • Identify and appoint a senior staff member with whom other staff can discuss issues and situations when they arise. Or you may choose an external contactor to address corruption, such as the ACFID Code Secretariat Management Team, or an organisation such as STOPline that specialises in whistle-blower protection services.
  • Undertake comprehensive due diligence assessments of all current and potential partners and key third party suppliers to assess the robustness of their practices and operations, their policies and general approaches to anti-fraud and anti-corruption, internal financial management, procurement and reporting procedures
  • Include anti-fraud and anti-corruption clauses in all partnership and third party supplier contracts
  • Provide training for partners where necessary to ensure their awareness of the risks associated with fraud and corruption and local legal and regulatory obligations
  • Undertake periodic reviews of partners’ internal financial management, procurement and reporting procedures and, where possible, those of key third parties which your organisation engages with.

Cost consciousness

  • Cost consciousness is a term that relates to an awareness of costs and how they can be contained or reduced. Consider the most effective use of resources in all organisational practices including planning, operations, evaluation, finances and program management
  • Define what an effective use of resources means for your organisation and context. Examples of practices that demonstrate cost consciousness include:
    • Using pro bono corporate services
    • Travel policies that encourage fare comparisons and early bookings
    • Accommodation policies that specify reasonable rates
    • Employing local consultants and staff wherever appropriate
    • Minimising travel costs by using telephone and web conferencing where appropriate

Resources

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DAISI’s Commitment to Principle 8.2 We ensure that funds and resources entrusted to us are properly controlled and managed.