13 Finance

13.5. Budgeting, control and financial administration

The decision-making bodies of the ABC must ensure proper financial planning, control and administration of the operations of the organization.

As any legal entity, the ABC should have a yearly budget of operations and investment.

The operations budget must cover all the activity of the organization for the given year. I strongly advice any new ABC to be very careful in budgeting, and never plan for deficits! If at the end of the budget period you will have unexpected, surplus revenues (more members and publications joining the ABC and the audit), you can easily reinvest this money in the next year’s budget. (For example you can lower the membership fee, and every member will be happy). If you are careless and incur a loss, someone has to finance it – in the end, the members will have to do it. Plan for a slight surplus, but make sure it is a plus.

In accordance with the not-for-profit principle, the net gain of the execution of a given financial year cannot be paid back to the members (no divident payments). Given the financial laws of its country, the ABC may decide to create a reserve (for safety reasons, or for funding product development), or reinvest the gain in the next financial year’s budget, by eihter lowering the fees, or extending the scope or scale of the ABC activity.

The net gain or surplus may help the ABC to finance its product development. As stated in other chapters of this handbook, ABCs around the globe are providing a wide array of services, beyond the circulations audits. None of these ABCs started with the whole range of services – they built them step by step.

Such progressive development needs resources, which can come only from members’ contributions. My experiences tell me that it is much easier to finance product development from small acummulated surpluses of each year, rather than asking suddenly for larger fees from members. Last, but not least, an ABC can always seek out external project funding available in the given country, should it need to bridge a gap or loss for a given year.

Once the ABC starts its operations, one must ensure the proper administration of the contracts, incoming and outgoing invoices, debt collection from members, timely payment of the bills, accounting services, etc. The administration of the ABC must run as smooth as possible, since the focus is on providing the audit services at the highest standards.

The control over the operations of the ABC must be as strong as possible, regardeless of the given legislation. (In many countries, it is compulsory to have an independent financial control – financial audit and/or an elected control body over the ABC).

The manager of the ABC must present financial reports to the superior ABC bodies on a regular basis. Overall, all the activity of the ABC – including finance – must be totally transparent to all members.

Send your comment to the author