Jan. 29, 2009 - Writing the Financial Policy

   Writing An Association Financial Policy (Reprint)


By Judith Lindenau, CAE, RCE
May 30, 2003


Many AE's spend a great deal of time writing and revising association
personnel manuals, and checking for the complicated compliance issues
that surround this subject area.  Associations spend significant
resources on legal opinions and frequent updates to this high profile
area of association management, even though significantly few of us have
more than a dozen employees-a small number of positions by the standards
of most businesses.

However, no single policy area is more important to an association's
long-term success than the development of a financial policy and its
acceptance by the organization's leadership and staff.  A financial
policy addresses not only the governance issues associated with an
association's assets and liabilities, but also it identifies strategic
goals and objectives and translates these into daily action.  A
financial policy assures "that over time an association will put its
money where its mouth is."

Contents of a financial policy. A policy is a distinct document,
separate from the association's bylaws or charter.  Policies contain the
action expectations of the group, the specific 'how-tos' of the more
general statements of the bylaws. If the bylaws state that the
association will collect annual dues, the policies will describe
amounts, deadlines, and penalties. Policies are more easily modified
than are by-laws, and they should be reviewed annually by leadership and
staff and kept current.  But no less than by-laws, policies represent a
written understanding between members, leaders, and staff regarding
practices of the association.

Here are some areas that an association financial policy should contain:

a.      General organizational operations.  What is the corporate
structure? What is the fiscal year? What are the general financial
responsibilities of the treasurer, staff, and other key players in the
association structure?  
b.      Dues.  Amounts and collection procedures.  Penalties for late
payment.
c.      Cash Receipt and Disbursement Policies. Who pays bills?  When?
Who signs checks? Credit policies and late charges?
d.      Checking, Savings, and Investment Accounts.  Where are they
maintained?  Who can add or withdraw funds, or make changes to the
investments?  Who signs checks?
e.      Budget. Who develops the budget? Who reviews and/or approves it?
What is the timeframe? What types of budgets does the association
expect? (zero-based, programmatic, capital budgets?).  
f.      Reserves. What is the association's policy regarding amounts and
types of reserves?  Is depreciation funded? Is there a percentage of the
budget allocated to general reserves-for instance, an amount equal to
50% of the annual operating budget?  Some common reserve funds are
'rainy day', legal liability, research and development, equipment and
software acquisition, building maintenance or acquisition. How should
the association fund these reserves?  (Direct contribution as a budgeted
line item? Percent of dues? Allocation of a certain type of income?)
What limitations are there in approving expenditures from any of these
funds?
g.      Employees.  What is the association's financial commitment to
its employee program (not to specific employees). Does it provide
insurance? Pension plans?  Certainly specifics of these programs can be
examined more closely in the personnel manual, but general financial
obligations to the personnel program should be articulated here.
h.      Association Operational Expenses.  Here the financial policies
are stated which relate to expense reimbursements for leadership and
staff, financial commitments to ongoing programs such as scholarship
funds or charitable programs which last over a period of time,
association insurance coverage, honoraria for association staff or
leadership, Board or other leadership position reimbursements, other
special paid positions. What is the procedure for committees to gain
approval for funds for programs?
i.      Non-Dues Income. What is the target percentage of the
Association's income that is not from annual dues?  Particularly now,
associations are looking at developing alternative income, and need to
develop targeted specific goals.
j.      Financial audit procedures. How often is a full audit performed,
as opposed to a review? What are the accountability expectations and
reporting procedures to which staff and leadership are held?

The key point in all of this is that the leadership and staff have a
written agreement by which financial activities are addressed, and that
these are in writing and consistently performed.  An organization that
has made this kind of advanced preparation and understanding will
operate with a greater level of consistency actions and open
communication than one that is constantly re-inventing itself in
reaction to each new event.

It is important, too, to make sure that the leadership and staff is
informed of these policies. This education is by necessity ongoing: the
association policy manual should be reviewed and readopted annually, and
brought to the attention of each new Board of Directors and leadership
team.  In addition, an association may wish to consider the
establishment of some standing committees, preferably with longer terms
of service in order to ensure consistency of philosophy.
Budget/Finance, Investment, and Policy Review are a few possibilities
where members can make valuable contributions to the financial
management and encourage a system of checks and balances.  In addition,
an organization should periodically revise its overall financial plan to
keep in sync with its changing strategies and assure its membership that
the financial management is thoughtful, reasoned, and consistent.



References:

Financial Operations Checklist.  Lindenau, Stinton. http://www.judithlindenau.com/financial_checklist.pdf

Sample  association financial statement: http://www.wla.org/finance.pdf
        
http://www.asee.org/welcome/financial.cfm


Management Guide for Real Estate Associations. Judith Lindenau.
International Real Property Foundation, 2002.