Monetary transactions in the association
This article discusses the basics of monetary transactions in the association. Making decisions on expenditures as transparently as possible and confirming the validity of the receipts are some of the most essential functions in the association's financial sector. Everybody new to association work - and why not those with more experience as well - should read through this article very carefully!
Each expenditure requires the board's decision
The first and foremost rule of thumb in the association is that every single expenditure must be approved by the association's executive board. This means that you shouldn't withdraw a cent from the association's account unless this has been determined and documented by the board. Expenditures must always be approved by the board.
The board may decide on how to use the allocated money in advance or later on, but in principle the expenditure should always be approved before it is carried out. Whenever the board decides to organize an activity, you should make a routine of determining how much money should be allocated (at most) for that purpose.
So, each decision that induces expenditures to the association should also involve an estimate of the amount of money that will be spent. In addition to tangible expenditures, at least the following should be referred to in the minutes:
- Budget proposal discussion by the board
- Departures from the budget (any significant departures should be brought up with the general meeting)
- Discussing and signing the financial statement
- Opening a bank account
- Closing a bank account
- User rights to the accounts (changing these is not possible in the bank unless you've brought an excerpt from the meeting minutes which contain the decision)
- Size of the association's petty cash
- Any grant applications submitted and grant decisions received
- Received grants and donations
- Hiring an employee and work conditions
Example of an entry in the minutes regarding opening of a bank account
8. New bank account
The treasurer of the association, Simo Salatieteilijä (social security number xxxx), was authorized to open a new bank account for the association as well as an online bank account in Neighbour Bank. He was granted extensive user rights to the bank account and the online bank.
This paragraph was scrutinized immediately and was confirmed as correspondent with the decision of the board meeting.
Decisions on expenditures in board meetings
Make the decision preferably in advance...
When the executive board makes a decision on upcoming expenditures beforehand, it allocates the money for a specific purpose. You may enter the exact sum (if it's known) in the minutes or give an estimate (maximum sum).
Example 1. The board decides to buy coffee and buns to be served at a staff and student meeting, to be arranged next month.
- If the exact price of coffee and cake is not known, mark down the maximum sum of money that you're prepared to spend for this purpose: “We decided to buy coffee and buns for the meeting and allocate 30 euros at most for the purchase.”
- If you know the exact price, it helps you make a better and more precise decision: “We decided to buy two packages of Fair Trade coffee to serve at the event (a 6 EUR x 2) and five buns (a EUR 2.50 x 5) which makes a total of EUR 24.50.”
...but it's possible to decide afterwards
You can also approve the expenditures afterwards, after the transaction has been carried out. However, we cannot really recommend this practice because it may put the board into an unpleasant position: if the event has already happened, the board can no longer decide not to pay.
For all practical purposes, it's possible to approve the expenses afterwards if they're minor and if this has been discussed beforehand. You may also have to approve unexpected expenditures that you couldn't originally predict.
Example 2. The board decides to print a new songbook at Sitsilaulu Oy and allocates EUR 350 for this purpose, in accordance with the printing press's offer. Unfortunately the board forgot to include value added tax (23%), so the final expenses amount to EUR 430,50. The expenses exceeded the initially allocated sum of money with EUR 80,50. That's why the board should approve this additional expenditure in afterthought.
All in all, it pays to predict and budget carefully, and not everything needs to be recompensed afterwards. If the board has decided that the association should acquire a new sofa for their student association facility and that board member John should go on a lookout for sofas and different prices and options,this doesn't yet give him the authority to purchase. If John makes a decision on his own and purchases a sofa which costs EUR 500, the board may yet decide that John can keep it for himself – they are not going to pay for it.
That's why all board members should understand the importance of mutual decision-making, especially with regard to finances. At least you should talk about them beforehand, so everybody is aware of the price range. If a board member gets an ex tempore idea, they should recall that possible expenditures may not be approved by the board and they may end up as the payer.
Delegating tasks may reduce bureaucracy
Should all minor acquisitions, all the way from paper to coffee milk, get the board's approval? Yes, they should. However, things become considerably easier if the board delegates the power of decision to several people in such matters.
The association board may, for example, decide that the treasurer (and possibly the chairperson) have the right to approve minor expenses (such as 20 euros) on the board's behalf for the whole term of office. This way you don't need to discuss such things with the entire board – it's enough that the treasurer (or chairperson) approves the receipts with their signature.
Such a decision should be worded carefully and entered accurately into the minutes. You may produce a separate document if you wish, according to the example below.
Example 3. The board decides that the chairperson and the treasurer may, with their signatures, approve minor expenses of 20 euros at most that relate to the association's typical activity.
However, delegation as such may not be necessary. You'll quickly get used to the fact that agendas for all meetings include the item “Finances”, which not only states the current financial situation of the association but also approves the expenses that occurred after the previous meeting.
However, take into account that if, for example, a decision on some expenditure was made last year, you don't need to make the decision anew. Former decisions still bind the association. For example, the association committed itself to pay a specific sum in rent while signing the tenancy agreement, and this decision remains valid until the tenancy period expires.
All expenses necessitate a receipt
The receipt should always contain
- The income or expense that the receipt concerns
- The date and number of the receipt
- The recipient or the payer of the money
- The amount of received or paid money
- Information on where and when the money has been received
All expenditures necessitate not only the executive board's decision but also a receipt. A receipt is proof that a certain sum of money has been used for a certain purpose. A receipt proves that whatever has been entered into the association's accounting books really holds water.
Receipts are delivered to the treasurer after purchasing an item or service for the association. Check that the receipt contains all necessary information – what has been bought and where – as you make the purchase. The treasurer subsequently attaches the receipt to the accounts and marks it with a running number. The receipts should be kept in a single file and, by law, retained for six years.
The treasurer should attach the receipt to an A4 size paper, for example, and add some clarifications: what has been purchased (especially if the receipt itself doesn't disclose this), the date of purchase, the receipt number and a note of approval. Things are easier from the treasurer's point of view if the association provides an A4 template that everybody can use to account for their receipts.
What if you lose your receipt? First of all, that shouldn't happen. The treasurer should insist on compensating for expenses only if there's a receipt at hand. They should also make it clear that acquisitions made in the year 2010 won't be compensated in 2011, let alone in 2012. Bring receipts on time!
If absolutely necessary, a written account of expenses incurred can be accepted as a receipt. The person who spent the money should sign the document.
Transactions and receipts
Monetary transactions in the association are usually carried out in one of the following ways:
1. A board member first pays for the expense from their own pocket and then, against a receipt, receives the corresponding amount of money from the association (after the board has approved the expense).
2. A board member brings the invoice to the treasurer who then transfers the money from the association's own account (after the board has approved the expense).
In the first case, the board member who carried out the payment brings the receipt to the treasurer. Moreover, the treasurer needs a voucher that proves that the association has recompensed some expenses for a board member. Such a voucher may be a bank statement of the association (if the treasurer has transferred the money to the board member's bank account) or a receipt written by the treasurer (if the compensation has been taken from the association's petty cash).
In the second case, the invoice (which confirms the expense) and bank statement (which verifies that the money has been used for the exact purpose) function as vouchers.
All financial matters should be be dealt with through a bank, because transactions, income and expenses are displayed in the bank statement. That is not always possible, however. The association may, for example, organize an event where the entrance fees and other sales bring money to the cash register.
Payments should come with receipts, if possible. Copies are then delivered to the treasurer along with the money. All income (such as entrance and cloakroom fees) don't necessarily require a written receipt. For money received this way, you should write a receipt that the person in charge of the process verifies with their signature. The treasurer may then attach this receipt to the accounts.
Travel allowances, payments and recompenses
Paying for travel allowances, recompenses, user allowances and work allowances tends to be problematic because these are regulated by multiple laws and it's often very difficult to interpret the regulations. Mistakes may be costly, because the entity responsible for correct interpretation of tax laws and other regulations is either the association or any other payer of wages, recompenses, work allowances or travel allowances.
The following examples illustrate the problematics:
- The association may pay certain allowances (such as for phone calls) to those in its employ and, as a rule, to persons in positions of trust as long as the allowances are based on receipts or other vouchers and correspond with the real expenses. They should also adhere to the current regulations set by the National Board of Taxes. As far as persons in positions of trust are concerned, these allowances may be regarded as earned income if tax authorities regard them as undercover payment of wages.
- The association may allocate travel allowances and day allowances for its active members. One has the right to obtain a daily allowance if the destination is located at a 15 km distance. A day allowance of EUR 36,00 is paid if the trip takes more than 10 hours. Partial allowance of EUR 16,00 is paid for a trip that takes more than six hours. The organization may naturally pay smaller recompenses as well.
- If the association pays wages to an employee, taxes must be withheld (income tax, employment pension contribution, unemployment insurance contribution). One must also carry out the employer's accident insurance premium, group life assurance payment and social security payment.
- The following incur income tax and social security payments: meeting recompenses, individual lecture and presentation remunerations, recompense for membership of governing bodies or positions of trust.
- Rewards for scientific or artistic endeavours or activity for the public good are exempt from taxation. Therefore, no taxes are withheld from such income.
- Taxes are withheld from natural persons in accordance with their tax deduction card. If you don't display one, 60% taxes are withheld.
- Any side payments resulting from the salary must be paid by the due date. If the payments are overdue, it may incur additional expenses for the association.
More information on payments is available in the article "Bookkeeping”.