Financial Management (Accounts)

 

Financial Reporting to Health Board

The administrator should present monthly and quarterly financial statements to the health board for its consideration and endorsement. The information presented should be appropriate for the level of financial literacy (ie knowledge and understanding) of the board members.

It should include income and expenditure statements and a balance sheet. It should also provide an indication of whether the health service has overspent or underspent the total funds available for the year, and the allocation of amounts to particular budget lines. The administrator should highlight any issues requiring the health board’s consideration and decision. The health board may require other information to be provided. The board may also require that any expenditure over a certain amount receive specific board approval.

Back to Top

Audit

An annual audit of the organisation’s finances is part of the requirements of incorporation. The audit must certify whether the organisation’s income and expenditure statement and balance sheet are true representations of the organisation’s financial affairs. The audit should also comment on whether the methods of record keeping and systems in place are adequate and comply with standard accounting practices. The organisation’s auditor, appointed by the AGM, performs the audit.

Back to Top

Assets

Assets are any materials or equipment, eg computers, motor vehicles, medical equipment and furniture, that are purchased wholly or in part with the organisation’s funds. It is common to define assets as anything that cost over, say, $300. This is then used as a figure for depreciation purposes.

Assets Register

It is usual to maintain an assets register, which should record the item, brand name and model, any serial numbers, location, date of acquisition, value at time of acquisition, date of disposal and value at time of disposal. Once a year, check all assets on the register. Note any existing assets that are not on the register, and any assets in poor condition or in need of repair. Report the results of the asset check to the health board and have appropriate action authorised, such as organising repairs or scrapping assets.

Back to Top

Assets Disposal

Assets can be disposed of in a way determined by the health board, provided it is in accord with:

• the constitution of the health service, which usually requires that such actions are in the interests of the organisation; and
• contractual obligations with the funding body that provided the funds for the purchase of that asset.

It is usual to provide at least a local tender process that gives people an opportunity to acquire the asset.

Check funding body requirements.

1. Present proposal for disposal to health board, including justification for disposal.
2. Organise tender/bidding process according to the requirements of the board and the funding body that provided funds to buy that asset.
3. Inform insurance company of change, if necessary.
4. Record funds received from sale of asset as income.
5. Remove asset from Assets Register.

Writing Off Damaged, Destroyed or Stolen Assets

Assets should be written off when the asset has been lost, stolen or damaged. Prior approval may be required from the funding body, depending on the value of the asset.

1. Present the proposal for writing off assets (because they have been lost, stolen or damaged) to the health board.
2. Where necessary, obtain approval from the relevant funding body.
3. Organise for damaged asset to be disposed of, obtaining any possible scrap value, and record the receipt of any monies received.
4. Remove the asset from the Assets Register.

Back to Top

Bank Accounts

The health service should operate a bank account with a cheque book. If the health service has the status of a Public Benevolent Institution (PBI), then it should be exempt from government financial institution taxes and bank charges. Check with your bank about these details.

Cheques or electronic transfers should require two or three signatures. If two signatures are required, they should both be health board members. If three are required, two should be health board members, and one could be the administrator. Five or six people should be authorised signatories to increase the chance that signatories are available when needed.

Never sign a blank cheque.

Back to Top

Bookkeeping

Keeping the books requires three types of record:

• cash receipt book
• cash payments book
• wages book

Many computer programs incorporate these into an easy to use software that can also generate income and expenditure statements and balance sheets. They also facilitate reconciliation with bank statements. Such programs include Quicken, Mind Your Own Business(MYOB) and Money Story, which is useful for providing reports in graphic form. The health service’s accountant should be able to assist the service to develop a computerised system that facilitates the administrator’s work, reporting to the board, reporting to the funding body and the accountant’s responsibilities.

Back to Top

Budget

An annual budget should be developed by the accountant, treasurer and administrator in consultation with staff for presentation to the health board in the first month of the financial year. Common funding body guidelines separate capital funding from wages and salaries and from other recurrent expenditure. This means that monies provided for one area cannot be used for other areas without funding body approval. However, monies can be moved within these categories as is appropriate for the running of the health service.

Back to Top

Receipts

Generally the following steps should be made on receiving monies.

Step 1.

Write a receipt and give/send to whoever provided the money.

step 2.

Enter details into a Cash Receipt Book.

step 3.

Deposit money into bank account.

step 4.

Reconcile the Cash Receipt Book with the monthly bank statement.

Some funding bodies suggest that their funds should be deposited in a separate bank account. However, if the health service has the capacity to separately account for all incoming and outgoing funds for that project, the funding body may allow the one account to be used for all grants.

Back to Top

Purchases

All purchases (other than small items through petty cash) must be organised through a purchase order book that is usually held by the administrator. The purpose of the purchase order system is to ensure some control of purchasing that prevents duplication of purchases, and ensures that purchasing remains within the service’s budget. Thus the administrator must finally approve any order that has been initiated by other staff. The original of the purchase order is provided to the supplier of the goods or services being purchased. A copy is kept by the health service as their record.

Purchase orders are numbered and this number is quoted on invoices for payment and other correspondence relating to that particular purchase.

Purchase orders should include the price of the goods or services to be supplied. For items over a certain amount, eg $500, two or three quotes should be obtained where possible. Funding bodies usually have guidelines as to when particular procedures must apply.

The administrator’s role is to:

• co-ordinate purchases
• manage purchase documentation including the Assets Register
• obtain quotes for capital items over a designated value (eg $500)
• manage the purchase order system
• negotiate purchases with funding body when necessary.

Back to Top

Payments

All payments (except wages and petty cash) are:

1. Made by cheque or electronic transfer.
2. Made in accordance with the approved budget and funding agreements.
3. Authorised in writing.
4. Made on presentation of an invoice consistent with purchase order or other contractual arrangement.
5. Made only after the goods or services have been satisfactorily delivered.

Steps to be taken are:

Step 1. Check received invoice with purchase order or contract.

Step 2. Check that goods or services have been delivered and are satisfactory.

Step 3. Complete a payment voucher – include the date, payee, purchase order number or contract reference, goods or services delivered, cheque details and budget line to charge against.

Step 4. Fill out a cheque and attach with invoice and payment voucher.

Step 5. Present to cheque signatories for signing.

Step 6. Send cheque with copy of invoice or payment advice to payee.

Step 7. Enter details of the payment in the cash payments book.

The cash payments book is reconciled with the bank statements each month.

A financial statement needs to be put together using information from the cash receipt and cash payment books and presented to the health board.

Back to Top

Petty Cash

Petty cash systems are to allow for the purchase of small items, such as tea, coffee, stamps, and small items of stationery. This can be achieved through either an imprest system involving a petty cash float, or a reimbursement system where staff are reimbursed for monies spent. It is advisable for health services to operate an imprest system as this provides more control over purchases, and less argument with staff about reimbursements.

An imprest system can be set up with

• a small lockable petty cash tin
• petty cash vouchers
• petty cash book.

It is advisable that only one person has access to the petty cash tin, and that a list of acceptable purchases from petty cash is kept and adhered to. Petty cash should not be used to lend money to staff, or assist people in need (eg for meals or clothes). If the health service is to provide such support to the needy, then a separate system should be established and maintained.

An amount of, say, $100 is advanced to petty cash and held by the administrator.

Access to petty cash is as follows:

Step 1. Request access through the administrator, stating what the purchase is for.

Step 2. Complete a petty cash voucher including date, amount and the category of item purchased (as per the cash payment book categories).

Step 3. Receive cash required and make purchase.

Step 4. After purchase, attach receipts to the voucher, and return any change to the petty cash float.

At all times the amount of cash plus the total amount on vouchers in the tin should equal the total amount of the float.

Purchase items from stores that include the GST on their receipts otherwise GST inputs cannot be claimed.

When the petty cash float is regenerated, all details on petty cash vouchers must be recorded in the petty cash book, and transferred to the cash payments book.

Back to Top

Records

Financial records must be kept for five years and include:

• receipts for money received
• cheque butts and invoices for payments made
• receipts for petty cash items
• records of bank accounts
• bank statements and correspondence
• monthly financial reports
• annual financial statements and reports from auditors
• annual budgets
• taxation records
• Business Activity Statements
• personnel records
• funding submissions
• official correspondence
• insurance policies and claims.

Back to Top

Wages

Employees usually record the time they have worked on time sheets, or through punch cards. Wages are generally calculated using this information, including rostered on-call, approved overtime and call-outs.

No wage advances should be allowed. If some staff are unable to manage their money from one pay day to the next, the service may consider more frequent pay periods. However, amounts paid should be only those amounts earned.

Only make deductions from wages if properly authorised either by the employee or a court order (see below). The health service should not deduct amounts that are owed to the community store, motor vehicle payments or anything else, unless properly approved by the employee.

Common authorised deductions may include union fees, rent, motor vehicle repayments, electricity bills etc. The health service should co-operate with community attempts to encourage better budgeting and financial responsibility amongst community members.

Wages are calculated and entered into the wages book either weekly or fortnightly depending on how often wages are paid. Income tax is also calculated at this time and is usually paid to the tax office every three months through Pay As You Go (PAYG).

A payment voucher must be completed for the total net wages to be paid, and must include how much each staff member is being paid and any out of the ordinary payments, such as annual leave loading. These details must also be entered into the cash payment book.

The preferred method of paying wages is electronic transfer. Every effort should be made to avoid cash payments.

All employers covered by WorkChoices must keep written records in English which must be retained for seven years, and be made available for inspection by workplace inspectors if required.

Back to Top

Payroll Deductions

Payroll deductions must be authorised by the employee signing a Payroll Deduction Authority form for each separate item that specifies the amount to be paid and the frequency, or number of payments. Any variation requires a new authorisation. Hold one copy in the personnel record and give one copy to the employee.

Attempts by debtors to garnish an employee’s wages must be either accompanied by a court order, or voluntarily authorised by the employee.

Back to Top

Superannuation

Superannuation legislation requires that all employers must pay a superannuation contribution on behalf of their employees who are full-time, part-time and casual. The employer must pay 9% of employees’ gross salary into an approved superannuation fund. This amount is on top of the gross salary, not deducted from it. Superannuation does not have to be paid on behalf of employees who are:

• under 18 years of age and working less than 30 hrs a week
• paid wages from CDEP grants
• earning less than $450 a month.

Contributions are based on ordinary earnings of wages not including:

• annual leave loading
• overtime
• lump sum payments on termination for accrued leave
• payments in lieu of notice.

Superannuation Payments

Superannuation guarantee contributions must be paid at least once each quarter, as follows:

Cut-off dates for superannuation guarantee contributions

Quarter dates		Cut-off date
1 July – 30 September		28 October
1 October – 31 December		28 January
1 January – 31 March		28 April
1 April – 30 June		28 July

Choice of Superannuation Fund Legislation

The Federal Government’s Choice of Fund legislation came into effect 1 July 2005, and means certain employees can choose which fund their superannuation contributions are paid into.

Employers must:

• Provide a Standard Choice form to:

• eligible employees employed at 1 July 2005 – before 29 July 2005
• new eligible employees – within 28 days of their start date.

• Act on the employees’ choice by paying their superannuation guarantee contributions to their chosen fund two months after an employee has made a choice to the chosen fund.

• Nominate a workplace ‘default fund’ into which the employee’s superannuation guarantee contributions will be made if they do not return a completed standard choice form.

• Keep records for five years after cessation of employment that show:

• payments have been made
• eligible employees have been offered choice of superannuation fund and been provided with a Standard choice form
• the employees’ choice of superannuation fund has been acted on and
• contain information about the employer fund.

Eligible employees

Employees in the NT are covered by the federal workplace relations system. Thus employers must offer a choice to:

• an employee engaged under a federal award whether or not that award requires contributions to be made to a specific superannuation fund
• staff not covered by an award or registered agreement (subject to some exceptions).

Ineligible employees

Those receiving superannuation contributions under:

• a certified agreement or an Australian workplace agreement made under the Federal Workplace Relations Act 1996 or the Industrial Relations Act 1988
• a state award or industrial agreement
• certain defined benefit funds.

The Superannuation Guarantee Act imposes a charge on an employer not making sufficient contributions for their employees.

Assistance

Back to Top

Taxation

Health services may be entitled to various rebates or exemptions depending on their status. This is currently a confused area, with the government revising definitions of charities. It is important, therefore, that each health service checks with the Australian Taxation Office (ATO), bank and accountant about what specifically applies to them.

Income Tax

Income tax is deducted from employees’ wages and paid to the ATO on their behalf. This is known as PAYG Withholding. The ATO provides tax tables that show how much to withhold from people’s wages.

Employees must complete a Tax File Number (TFN) Declaration. Where the employee does not give a fully completed Tax File Number Declaration tax must be withheld at the highest marginal tax rate plus the Medicare levy (48.5%).

The employer must provide payment summaries to the ATO and to each employee at the end of the financial year.

The PAYG Withholding also binds the health service to withhold 48.5% of fees from organisations or individuals contracted to provide goods or services who do not quote an Australian Business Number (ABN). This also applies to people hired for short periods, for example, interpreters or community facilitators if they do not have an ABN.

Amounts withheld are paid to the ATO after adjustments are made for GST and fringe benefits liabilities/refunds every three months when a Business Activity Statement (BAS) is submitted to the ATO. So the BAS incorporates PAYG Withholding, fringe benefits tax and GST.

Zone Rebate

People residing in some remote or isolated areas can claim a zone rebate. These remote areas are called Zone A and Zone B. There are also ‘Special Areas’ within these zones. Contact the ATO to clarify which Zone or Special Area applies.

Back to Top

Fringe Benefits Tax (FBT)

Fringe benefits tax is a tax payable on any benefits an employer provides to an employee that are not subject to income tax. This may be part of a salary sacrifice or salary packaging exercise, or the provision of other benefits apart from the salary. The employer is responsible for paying this tax. All fringe benefits provided above $1,000 must be shown on the employee’s payment summary. The employee will not pay tax on the fringe benefits but they will be taken into account in working out entitlements to means tested benefits and liabilities for Medicare levy surcharges and superannuation. The amount to be shown on the payment summary is the grossed up taxable value of the fringe benefits.

Employers that have Public Benevolent Institution (PBI) tax-free status can provide fringe benefits of up to $30,000 ‘grossed-up taxable value’ per employee. Fringe benefits tax must be paid on benefits amounting to more than $30,000 ‘grossed-up taxable value’.

Not-for-profit incorporated organisations without PBI status must pay tax on the value of benefits but can claim a rebate. This is included on the fringe benefits tax return form submitted annually on 30th March. The FBT year runs from 1 April to 30 March.

FBT Exemptions

Tools of trade (including, for example, a mobile phone if used mainly for work) and housing provided by an employer in remote areas of Australia are exempt from fringe benefits tax.

For more information on fringe benefits tax contact the Fringe Benefit Tax Enquiry Service – 13 11 42 or 13 28 66.

Back to Top

Payroll Tax

Payroll tax is a NT tax assessed at 6.2% on the wages paid by an employer.

From 1 July 2005, an employer which is not a member of a group of businesses, will not be liable for payroll tax if its total Australian taxable wages are less than $1,000,000. If an employer is a member of a group, the total taxable wages paid by all members of the group determines whether the employer has a payroll tax liability. Types of wages excluded from payroll tax are CDEP wages, probationers and trainees, and graduates employed under trainee arrangements.

Most health services are, therefore, not subject to payroll tax. Applications for exemption should be made to the NT Commissioner of Taxes and should be accompanied by a copy of the organisation’s constitution.

See link for further details of the NT payroll tax scheme and responsibilities of employers.

Goods and Services Tax (GST)

The GST is a 10% tax charged on goods and services sold and consumed in Australia. However, health services are GST-free and do not have to charge GST for the delivery of health care services or pay GST on items such as pharmaceuticals.

Organisations can claim credit for the GST on goods and services they use in their business or organisation if they are registered for the GST. This is called an input tax credit and effectively means that the GST is not paid on the goods and services purchased for operations.

Non-profit organisations may have to charge a GST on things they sell (other than health services) if the goods and services are sold at more than 50% of commercial rates. In addition, government grants attract GST because they are classified as the government purchasing services from an organisation.

Concepts and Terminology

In order to understand the GST, it helps to understand some of the new terms used:

GST registered organisations: Non-profit organisation with income over $100,000 or profit-making organisations with income over $50,000 must be registered for the GST. Only registered organisations can receive input tax credits, that is, receive a credit on the GST paid on goods and services (eg equipment, stationery, electricity) for use in their operations. This means that all health services should be GST-registered.

Australian Business Number (ABN): The ABN is an identifier used for dealing with the ATO, other government departments and private businesses. An ABN is necessary whether or not the health hervice is registered for GST. If suppliers of goods and services do not provide an ABN on a tax invoice when seeking payment, 48.5% of their fees must be withheld and remitted to the ATO as part of the PAYG Withholding system.

Registration for an ABN and the GST can be done on the internet at: Australian Business Register

Input tax credits GST: Registered organisations will receive a credit for any GST paid on purchases incurred in the pursuit of their business. This credit is called an input tax credit and is offset against any GST collected on sales (including some grants) or that withheld from suppliers. Input tax credits are not allowed for goods and services that are for personal use.

Taxable goods or services: Goods and services subject to GST. The seller will charge GST on sales, and will be entitled to claim input tax credits for any GST paid on business purchases. Most goods and services will be taxable.

Input taxed: This means you do not have to charge GST on the things you sell but if you do, you can’t claim back the GST that you pay on goods and services related to your operations.

GST-free: GST will not be charged on the sale of goods or services that are GST-free. In general, health, education and childcare are services that are GST-free.

Pay-As-You-Go (PAYG) withholding: This is the tax withheld from salary or wages paid to an employee, or from payments for supply of goods or services to another business or individual that does not quote an ABN.

Tax Period: This is determined by the amount of PAYG withheld from the salary or wages of employees or from payments for the supply of goods and services when the service provider cannot provide an ABN. If more than $25,000 per annum is withheld it must be remitted to the ATO monthly. If $25,000 or less is withheld then quarterly remittances can be made.

Business Activity Statement (BAS): Most health services will be required to submit a BAS quarterly. This provides for the net amount owed to or by the ATO for ALL taxes – income tax (PAYG), fringe benefits tax and GST. If the health service must pay the ATO, a cheque for the amount should accompany the BAS. If the ATO owes the health service a refund, this amount is usually transferred to the health service account after the BAS has been processed by the ATO.

Instalment Activity Statement (IAS): Organisations not registered for GST use the Instalment Activity Statement to account for PAYG withholding at the end of each tax period.

Non-commercial Activities

Non-commercial activities of charities (see Income Tax Exemption for Organisations below, for a definition of a ‘charity’) will be GST-free. A ‘non- commercial’ activity includes:

• the sale of donated second-hand goods
• the sale of goods or services for less than 50% of their market value (GST included) or the sale of goods or services for less than 75% of the GST-excluded price paid for them
• goods that have been reprocessed lose their GST status. For example, clothing that has been cleaned and repaired before sale would be GST-free, while clothing that has been recycled into industrial rags would attract GST (unless sold at a nominal rate).

GST-Free Services

'Charitable activities' can be GST-free if they are:

1. non-commercial activities of a charity
2. specifically named in the legislation as GST free

Services funded under the Home and Community Care (HACC) Act, the Disability Services Act and the Aged Care Act are GST-free. Other services such as childcare, health care, education, medical and religious services are also GST-free. GST-free means service providers do not have to charge GST to clients purchasing the service.

Donations

Donations are not payments in return for goods and services and, therefore, GST is not payable.

Grants

When a grant is paid to the health service for a specific purpose or with any conditions, GST is payable on the grant if registered for GST. If there is no obligation tied to the grant and no other supply to be provided by the health service, there is no GST. In practice all grants to a health service are likely to attract the GST. The health service should invoice the funding body for the amount of the grant plus 10%. The quarterly BAS should then include this 10% as GST owing to the ATO (that is 1/11th of the total grant received).

Keeping GST Records

In order to be able to keep track of the GST paid to suppliers, or collected from clients detailed records need to be kept. Most basic computerised accounting systems can dthis, or it can be done manually. Work with the health service's accountant to ensure a satisfactory method is established and maintained.

How to Work Out GST on Taxable Supplies

The GST is always included in the price of goods and services supplied or bought but may not be shown separately. To work out how much GST to include in the price of something you are selling (taxable supply), divide the value by 10. To work out how much GST is included in the price of something bought (an acquisition), divide the price by 11.

Income

Income should be separated into the following categories:

• income subject to GST
• grants
• income not subject to GST
• income from non-commercial activities
• income from GST-free services such as child-care, health, education
• donations
• input taxed income
• residential rents

Expenditure

Input tax credits cannot be claimed on expenses that relate to items that are input taxed, such as residential rents, so you do not need to keep separate records. However, input tax credits can be claimed for operational expenses, such as office expenses, telephone, rent, power, equipment and advertising.

Tax Invoices

Tax invoices must be issued for all goods and services with a GST exclusive value of more than $50. A tax invoice must be obtained in order to claim an input tax credit. A tax invoice must be provided to the purchaser of goods and services attracting GST.

The following information must be shown on tax invoices:

• the words ‘Tax Invoice’
• the supplier’s ABN
• the GST-inclusive price of the goods or service
• the date of issue
• the supplier’s name
• a brief description of the goods or services
• the GST amount or a statement that the total price includes GST.

lf the goods or services are for over $1,000, the tax invoice must also include:

• the name of the recipient
• the address or ABN of the recipient
• the quantity or extent of services supplied.

Tax invoices must be supplied to funding bodies for them to be able to claim an input tax credit on their grants. In most cases the funding body will prepare the tax invoice.

GST Returns

GST-registered organisations claim GST credits and remit GST collected to the ATO on a monthly or quarterly basis (the ATO will advise). To do this a Business Activity Statement (BAS) is completed and submitted within 21 days of the end of each period. The BAS also includes PAYG Withholding and FBT.

For more information on the GST contact Australian Taxation Office - Tel 13 28 66

Back to Top

Insurances

Public Liability Insurance

Public liability covers the organisation for liability resulting from an incident (accident or injury) related to the activities of the organisation, or associated with property or premises under the ownership or control of the organisation.

Whilst public liability insurance is relatively expensive, the damages that may be awarded can run into many hundreds of thousands of dollars.

Most funding bodies require funded organisations to hold a public liability insurance policy.

Workers Compensation

All employers are legally required to purchase Workers Compensation insurance under the Work Health Act.

Professional Indemnity Insurance

Professional indemnity insurance covers the organisation for liability arising out of a ‘breach of professional duty’, or negligence on the part of professional staff employed by the organisation.

Professional indemnity relates to the organisation’s responsibility to ensure that professional staff provide appropriate services, including diagnoses, medical treatment and advice. This specifically covers the activities of Aboriginal Health Workers, nurses and doctors.

However, doctors will also need to have their own professional indemnity insurance. The level of cover that doctors require depends on the specific details of the policies held by the health service. Often this does not cover the doctors individually, and they may be sued separately from the health service for negligence.

OATSIH require funded services to have adequate professional indemnity insurance covering all professional staff.

Other insurance

The following insurance policies are normally required.

1. Property insurance: fire, theft and burglary for building and contents, such as office and medical equipment. The level of cover and precisely what eventualities are covered should be carefully considered. Many companies do not, for instance, provide cover automatically against flood, but with an increase in premium this can be covered if required.

2. Comprehensive motor vehicle insurance.

3. Income protection insurance for employees. This is included in many health service awards or employee agreements.

Other insurance policies that deserve consideration include:

• Directors’ and officers’ insurance provides cover to health board members for any detrimental consequences of their decisions for which they may be sued.

• Fidelity guarantee insurance provides cover against fraud, embezzlement or misappropriation of cash or cheques by workers, both paid and unpaid.

Insurance Register

It is worth establishing and maintaining an insurance register as a convenient reference when claims need to be made, and to ensure timely renewal of policies.

Back to Top

© Copyright 2008