Chapter 5: Financial decision making

Officers are entrusted with guiding their organisations and a variety of financial decisions.

For any transaction there are standards of conduct expected of officers who make financial decisions. If you're an officer of an organisation, you must ensure that decisions involving your organisation’s finances, whether made individually or collectively, are in accordance with your organisation’s rules and the Fair Work (Registered Organisations) Act 2009 (the RO Act).

The RO Act requires organisations and their branches to develop and implement expenditure policies, including policies governing the proper use of credit cards. 

Expenditure policies are essential for good financial management in organisations and should set a clear framework for officers and employees to follow. They also provide critical oversight processes.

It's best practice to have multiple financial policies, as different items of expenditure can require different practices and approvals.

First consider how you'll break up different classes of spending as they should have different approvals. For example, a purchase of stationery may only require approval from a supervisor or manager, whereas signing a lease may require scrutiny and approval from the committee of management.

Good governance requires policies to spell out when they apply, who and what they apply to. 

Any policy should make it very clear who has the power to approve expenditure. Make sure when you write your policies that you use generic titles, or office names, rather than specific people’s names (say president instead of Jane), so that they remain relevant over time.

Your policies should require adequate record keeping and reconciliation processes so that a finance officer, or a more senior officer, can verify that purchases have been incurred for work related purposes.

Think through all possible options when designing your policies, for instance, officers should not be allowed to sign off on their own expenditure, even if they would ordinarily sign off on similar financial matters for everyone else. If an expense or financial decision hasn't been approved correctly this is a significant matter, regardless of how big the transaction was, and it must be taken seriously.

Review and publicise your policies regularly

Policies should be regularly reviewed and updated to ensure they're fit for purpose and are being followed by staff and officers. Your organisation’s practices may gradually change over time, and this will ensure your expenditure policies evolve with your organisation.

A policy should note how often it needs to be reviewed and who has the authority to approve the policy, such as the committee of management.

This is something that the Commission often sees when conducting its investigations and even during litigation. Having multiple people involved in drafting or reviewing policies can help minimise this confusion.

If you identify any unclear sections of your policies consider:

• including practical examples
• avoiding words like ‘reasonable’ or ‘appropriate’, as they can introduce discretion into how your officers use your policies (ideally you should review your policies to reduce discretion)
• use of plain language
• use of concrete amounts – for instance consider saying this policy is for expenses up to $500 instead of ‘small expenses’, or an officer can spend $40 for dinner, instead of ‘a reasonable amount’.

If you make a change or clarification – make sure you publish it and let everyone know.

How policies can influence expectations and spending

In this example, we'll be showcasing why it's important to ask questions and clarify concerns, rather than guess what's expected. 

Meet Jordan. Jordan is travelling on behalf of the organisation for the first time. He has been given a corporate credit card and told to stay overnight somewhere. A travel expenditure policy was provided to him and a quick read shows that:

• accommodation can cost a reasonable amount depending on the area
• dinner can be put on the corporate credit card, as can drinks and breakfast the next day.

Jordan has read every word of the policy and is quite confused as to how much can be spent. On returning to the organisation, his manager was upset to find out how much Jordan had spent on a few drinks, dinner at the hotel restaurant and room service for breakfast.

The policy was then updated to read:

• accommodation must be arranged in advance – see table for max. costing per city
• officers can spend
  • $15 on breakfast
  • $20 on lunch
  • $35 on dinner (with another $15 on drinks – no alcohol)
• officers can't spend the organisation’s money on room service or minibar items.

Jordan now knows exactly how much he can spend next time he travels.

Organisations should establish sufficient oversight to ensure that employees and officers comply with expenditure policies. Even if clear policies are in place, they can quickly become redundant if they're not followed by staff or enforced by senior leadership.

General Manager of Fair Work Australia v Health Services Union and Others

The Federal Court found that 3 senior officers breached their duty of care and diligence through a failure to follow appropriate financial procedures.

These officers provided the organisation’s bank PIN and pre-signed cheques to an office manager, who spent the organisation’s money without any further approval from the officers. This meant there was no oversight of the money spent by the office manager.

Although the officers argued the conduct was honest and didn't result in loss or damage to the organisation, the court still found it wasn't appropriate for officers to ignore rules and procedures even if they were inconvenient.

Many of the matters the Commission sees involve credit card use. Corporate credit cards are convenient but have additional risks.

Good governance around credit cards is a combination of culture and policies. 

Organisations should put extra precautions and clear policies in place to ensure that:

• officers and employees use credit cards appropriately
• everyone's aware that misuse of a credit card by an officer or an employee may also breach the officers’ duties owed under the RO Act, see chapter 6: Officers’ duties
• credit cards can only be used for business purposes, not for personal benefit
• expenses placed on credit cards are regulated and monitored
• receipts are routinely checked against credit cards
• limits are placed on how credit cards are used and for what amounts
• personal spending on credit cards is prohibited as well as requirements if any personal expenditure is incurred on the credit card, how the money must be repaid and explain the consequences that will arise if a person misuses their credit card.

Organisations and branches must keep financial records that correctly record and explain their transactions and financial position for a period of 7 years after the transaction is completed. 

For more information on record keeping, you can read the Records to be kept by registered organisations fact sheet.

Expenditure policies should require officers and staff to record how they spend the organisations’ money and have an approval process for all purchases.

Additionally, the policy should outline

• who the receipts should be provided to
• where they should be stored
• how long the individual has to submit their claims and associated records.

You should keep appropriate records of your spending in case your expenditure is ever questioned.

Financial decisions should be fully informed. Officers should ensure they have enough information and knowledge of the organisation’s financial reports, and the operations of the organisation or branch. 

It isn't sufficient to rely on other officers or employees of the organisation to review reports, an officer must personally inform themselves of key information before making decisions. For more information, you can read chapter 6: Officers’ duties for more information.

Undertaking financial training and proper induction also helps officers better understand their duties under the RO Act and the financial decisions they'll be making. Refer to chapter 3: Officer induction.