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Financial control

What financial controls can help manage risk and how?

Sound finance and transparency in financial management are essential to effective sports organisations. Financial control measures help ensure that your organisation maintains a strong financial basis for the delivery of the sport and other services and operations. Good financial control also helps manage risk in your organisation.

Financial probity dictates that organisations must exhibit undeviating honesty, integrity and competence in financial matters. Organisations must be fully accountable to their public funders for the management and use of funding, demonstrating how they have applied it to achieve the purposes for which it was given. They must therefore account for every public penny, with annual accounts including sufficient disclosure of public income and expenditure. Larger organisations (including NGBs, national partners and others) must make independently audited accounts available to stakeholders and the public.

All accounting designations are the culmination of years of study and rigorous examinations, combined with a minimum number of years of practical accounting experience. There are regulatory bodies that set accounting standards.

Basic accounting principles are understood and accepted by practising accountants. The major principles applied by accountants are:

  • prudence
  • accruals
  • going concern
  • consistency
  • substance over form
  • separate determination

Accounting policies are concerned with:

  1. recognising;
  2. selecting measurement bases for; and
  3. presenting assets, liabilities, gains, losses and changes to shareholders’ funds.

Put simply, accounting policies determine which facts about an organisation are to be presented in financial statements and how those facts are to be presented, while estimation techniques are used to establish what those facts are. In the UK, all private limited companies, at the end of their financial year, must prepare full statutory annual accounts and a company tax return in line with the accounting policies outlined above. There are exemptions to this if a company is classed as ‘dormant’ or ‘small’ or is registered as a charity. However, even companies such as this still have to file information relating to financial performance through an annual return, abbreviated accounts or, at the very least, provide a breakdown of income and funding streams. This information also has to be consistent with the relevant accounting policies and standards.

Financial controls

Financial controls are formal processes, policies and procedures that are implemented to manage finances. They are crucial to achieving your organisation’s financial goals and meeting obligations of corporate governance, fiduciary duty and due diligence. Controls may be implemented with accountabilities, responsibilities and automation. The following are illustrative examples of financial controls with supporting information.

Adopting an accounting standard, with knowledgeable staff who are accountable and responsible for its implementation, is particularly important when considering the different types of organisations across different sectors (public, private and voluntary) and different sizes (small, medium and large) of organisations. Despite the influence of accounting standards, not every standard will fit with each organisation, so it is important that staff are knowledgeable about each one and can align them with best practice within their organisation.

FRS 102 is a single financial reporting standard that applies to the financial statements that are intended to give a true and fair account of the entity’s financial position and profit or loss for a period.

The standard sets out the principles to be followed in selecting accounting policies and the disclosures needed to help users to understand the accounting policies adopted and how they have been applied. An organisation must also consider the appropriateness of accounting policies to its particular circumstances against the objectives of relevance, reliability, comparability and understandability. All material items should be categorised and conform with giving a true and fair view. Policies adopted should be reviewed regularly to ensure they remain appropriate and that the financial statements and the information disclosed enable users to understand the accounting policies adopted and how they have been implemented.

For more on UK accounting standards, visit

Executive leadership such as the CEO and chief financial officer (CFO) are accountable to deliver timely and accurate financial statements such as statements of comprehensive income (income statements), cash flow statements, statements of financial position (balance sheets) and statement of changes in equity.

Effective financial reporting can enable effective decision making in line with business objectives. A not-for-profit organisation, for example, might focus purely on balancing the books and making sure that expenditure is covered by income and funding each year. A larger commercial organisation might use effective financial information to fund realistic expansion through methods such as borrowing, while even larger, major organisations may attempt to stretch their profit margins as far as possible to reinvest in future business strategies.

Executive leadership such as the CEO, CFO and chief operating officer are also accountable for delivering timely and accurate operating metrics such as profit margins. Defining the appropriate metrics for your sports organisation is important. There are many indicators of financial performance, including:

  • profit before and after-tax
  • how much cash is available to an organisation
  • what money is owed to creditors
  • donor and donation growth
  • fundraising ROI

Depending on the type and size of the organisation you are involved in, you should choose financial performance measures that offer meaningful indicators by which to monitor and measure your financial situation.

Policies are useful to clarify areas such as general ledgers, chart of accounts, recognition of revenue, reconciliations, invoicing, payment processing, inventory and asset management. Knowledgeable accounting staff, managed by the executive team, are responsible for implementing policy and should also make sure that policies are aligned with business objectives.

Segregation of duties is the principle that no single individual is given authority to execute two conflicting duties. It is a basic type of internal control that is used to manage risk. In many cases, segregation of duties is required by law or standards in areas such as accounting, corporate governance and information security. There are numerous examples of segregation of duties including purchase orders and approvals, payments and bank reconciliation, and expenses and expense approvals. It is also of vital importance that there are clear responsibilities such as a person who is responsible for sending account statements to customers each month.

Audit trails are created and retained for events such as approvals, financial transactions and updates to financial documents.

Access to financial software and documentation should be restricted to authorised personnel. Such access should be used only for its intended purpose and for appropriate reasons.

Role of an external auditor

All company accounts must be audited unless the company is:

  • a small company as defined in s. 382 of the Companies Act;
  • a dormant company as defined in s. 1169 of the Companies Act; or
  • a subsidiary company fulfilling certain criteria in s. 479A of the Companies Act.

Auditors are appointed by an ordinary resolution of the members or shareholders or the organisation’s directors may appoint auditors in certain circumstances and there is no limit on the length of an auditor’s appointment. In private companies, where no alternative auditor is appointed at the end of each financial year, the auditor in office is deemed to be reappointed. However, in public companies, auditors need to be reappointed every financial year.

The UK Corporate Governance Code currently stipulates that FTSE 350 companies should put the external audit contract out to tender at least every 10 years. The Competition and Markets Authority also published in September 2014 a final order requiring FTSE 350 companies to put their audit contracts out to tender every 10 years and to give more powers to audit committees in relation to the appointment of the auditor (for example, it must be the audit committee which initiates and supervises the competitive tender process). The order applies to financial years commencing on or after 1 January 2015.

Who can be an external auditor?

Due to the sensitive nature of the auditing role, there are some restrictions as to who can be an auditor for particular companies. The auditors of a company must be:

  • appropriately qualified; and
  • members of a recognised supervisory body and eligible for appointment under the rules of that body.

The audit committee should explain to the board how auditor objectivity and independence are safeguarded.

Importance of effective financial reporting

Financial reporting is about deciding how to monitor, evaluate and control income and expenditure. In doing this the evaluation of sponsorship programs (public, private and voluntary) and their respective objectives (to make a profit, to increase participation) is crucial, as is recognition that a large number of sports services are provided to achieve social objectives, which may operate at a loss and which will normally require a government subsidy.

It is important that the financial performance of the organisation is communicated effectively to the appropriate audiences. Financial information will be useful to a wide variety of stakeholders, who will often span several sectors and each will have slightly different needs for the information. For example, the Glazer family (the owners of Manchester United FC) will want to know how much profit their company has made, to ensure that they can afford the necessary interest payments on the loans taken out to finance the takeover in 2005. Sheffield City Council, on the other hand, will want to know how much subsidy it has to provide in order to keep all of its leisure services running across the city, so that council taxpayers get value for money.

Effective decision making

Decision making has a profound impact on business performance, but it is a difficult process that involves many risks and uncertainties. Accurate financial information is essential to effective decision making and to informing planning for the organisation. As such, it is vital that the financial information recorded is both correct and accessible. At management level, an effective decision can only be made with an appropriate grasp on the financial position and performance of the organisation.

Budgeting effectively

Budgeting is an ongoing process rather than a time-limited one-off event. The actual mechanics of drawing up the numbers involved in a budget are just a small part of the overall budgeting process. By bearing in mind that budgeting is designed to help an organisation with planning, decision making and control, it is possible to appreciate that budgeting is a continuous part of business life.

The budget planning process, aligned with your organisation’s strategy, includes the following steps.

Define your business objectives

The first question to ask when involved with any financial business planning is: ‘in monetary terms, what are we trying to achieve?’ Organisational objectives will vary according to the nature of the business. A community sports club that exists for the benefit of its members may desire nothing more than to break even or to make a small surplus to maintain its existing facilities.

Whatever the objectives of an organisation, they need to have certain qualities that enable them to be measured. These qualities are contained within the mnemonic ‘MASTER’:

  • Measurable – for example, making a profit of £3 million in the financial year, or simply to break even.
  • Achievable – the organisation must have the capability (staff, other resources and competitive advantage) to attain its objectives.
  • Specific – objectives must be specific (£3 million profit), not just ‘to do well this year’.
  • Time-limited – objectives must have a stated date for being achieved.
  • Ends related – objectives must relate to achieving outputs (ends) rather than describing means (how).
  • Ranked – ideally, objectives should be ranked in order of priority.

Operationalise strategies

Having defined what you want to achieve and confirmed that you have the resources to deliver the objectives, the budgeting process evolves to consider the day-to-day tactics to meet the objectives (‘how’ we plan to achieve them). This could include marketing plans, pricing policies, customer care protocols, opening hours.

Allocate responsibility

The successful achievement of objectives does not occur by chance, or as a result of a mechanical exercise. Sport is primarily a service industry and the most important people in determining the extent to which objectives are met are an organisation’s staff. If it is known and clearly stated ‘who is going to do what and by when’, then there is the basis for a meaningful comparison of actual performance with planned or expected performance.

Incorporating the principles outlined above and treating budgeting as a continual process that is aligned with organisational objectives also allows for a clearer understanding when comparing budgeted performance to actual performance.

Financial reporting – potential problems

While a key part of budgeting is planning, it is also important to compare planned to actual financial performance. This can be done through analysis of variance.

Analysis of variance

Variance analysis allows managers to see whether or not they are likely to achieve their objectives and to react more quickly to external changes in the marketplace. For example:

  • ‘Actual’ income and expenditure refers to entries made to an organisation’s accounting system which are supportable by documentary evidence such as invoices, receipts, staff timesheets and so on. ‘Actual’ figures are drawn from the financial accounting systems and can be supported by an audit trail of evidence.
  • ‘Incurred’ (or ‘committed’) expenditure refers to expenditure that relates to the financial period in question that we know has been made, but as yet has not been billed for. This sort of data can be picked up from documentation such as purchase order forms. In order to produce timely budget reports, it is sometimes not possible to wait until all of the paperwork relating to expenditure in a period has been received. Thus, in order to reflect a more realistic picture of events, the ‘incurred’ column is used to log known expenditure that is not formally in the books of account. The ‘incurred’ column tends to be used for expenditure only – it would be unusual to have incurred income.

Funding for sports bodies

A wide range of funds are accessible to sports organisations. It is less risky to have a balance of funding from a variety of sources than to rely on a limited number of sources. For example, if your organisation largely relies on funding from sports councils and the public sector, or relies too heavily on private sector/sponsorship funding, then it is exposed to high financial risk if that source of funding is lost. It is therefore good management practice to be aware of and seek funds from a variety of sources and to employ a fundraising strategy for projects.

Sources of funding & strategy

Developing a fundraising strategy for projects can help your organisation diversify its income and thus mitigate its financial risk as well as maximise the amount of funds you attract to deliver high quality services. A strategy asks the following questions:

  • What do we need money for? – schemes, equipment, facilities, education, and so on.
  • Who benefits? – be specific, describe the number of people and their demographic.
  • Where can we get the money? – using a variety of sources from public, private and voluntary sectors.
  • Who will be responsible for applications for funds and implementation of the strategy? – good governance means transparency and responsibility for work is integrated.

Aside from reducing risk, and promoting good governance, a fundraising strategy utilises a variety of funding sources because quite often, funders do not fund the entirety of any project (too risky for them) and like to see that you can attract and manage funds from other sources, including self-funding as well.

Funding for sport organisations can come from the public, private and voluntary sectors. In a way, they are not as interested in funding ‘sport’, as they are in funding what you can achieve through sport, and each sector has different priorities and values that you should be aware of in preparing funding applications. Let’s briefly explain what each category might expect if it is to fund projects in your sports organisation.

Exchequer funds, raised through taxes, and National Lottery funding are awarded to sports through each of the respective home country government departments for sport. In all cases, non-departmental or government-sponsored bodies (the sports councils) were established to invest public money into sports.

The five sports councils, in delivering sports policy through this investment, set out investment principles or eligibility criteria that must be met for organisations to receive funds. These are subject to change, particularly as governments and sports policies shift.

All publicly funded programmes, whether they are exchequer or lottery funds, require organisations to apply in some way. This may be done online, via a dedicated panel or through a comprehensive submission. It is always useful for sports bodies to be able to simply articulate their vision or mission and priority goals and to be able to evidence their impact. The production of an application will likely be led by a staff member or senior volunteer but, for the most strategically significant awards, the board should retain oversight.

The key to obtaining public funds is to demonstrate that you are helping to achieve their objectives through your project. If the government funding program indicates their objective is to decrease barriers to physical activity for minorities, this must be your focus. Therefore, understanding government policy and its objectives can help you maximise attracting money from this sector. Government objectives may not be the primary reason for your programs but if you can relate your activities to their objectives – increasing health, reducing crime, increasing social inclusion, for example – you are a vehicle through which widespread implementation of national and regional policies can become successful.

The private sector is ‘the general public’, so includes your membership and sponsors in the commercial or private sector businesses. Here, you want to focus on meeting their needs, through a business relationship. You are providing a service, for which there must be a ‘value’ and if you can communicate what this value is and that it is consistent with their objectives, you are more likely to be successful in obtaining funds. A private sector organisation’s objectives may primarily be related to profits, target markets, growth in sales, brand awareness, or some combination of these.

Sponsorship is an industry in itself and is fundamentally a partnership between your sports organisation and an investor. There are a number of databases, consultants and resources to help you find sponsors, including:

Aside from sponsorship, private sector funds come from ‘the public’, through fundraising events, donations, and membership fees. Creating sustainable events that are valued by your community year after year is an efficient and effective way to lower financial risk and raising funds. To retain a healthy membership or participation base, creating an attractive member value proposition should be a key focus of your business model. No sport can afford to take its participants for granted.

Voluntary and charitable organisations also fund sport but do so for different reasons than public or private organisations. The key to attracting funds from this sector is to demonstrate that you are working towards the same goals, or have the same values. There are a variety of ways to find trusts and charities that will fund part of your project. The following resources are a great place to start:

The Guide to Major Trusts

Charity Connect

Funding for all

Just remember it is not ‘sport’ they want to fund but the values and impact that sport can impart through events and programs. This is what will attract funding to the sport.


Companies can get into financial difficulty for a number of reasons. If this happens to your organisation, it is important that the board and other executives are aware of the laws on insolvency and comply strictly with them. Otherwise those individuals could face both civil and criminal liability.

The principal law in the UK dealing with this issue is the Insolvency Act 1986. The Act does not define the term ‘insolvency’ itself, but embodies the concept in the phrase ‘unable to pay its debts’, which can mean one of four things:

  1. failing to comply with a statutory demand for a debt of over £750;
  2. failing to satisfy enforcement of a judgement debt;
  3. the court being satisfied that the company is unable to pay its debts as they fall due (the ‘cash flow’ test); or
  4. the court being satisfied that the liabilities of the company (including contingent and prospective liabilities) exceed the assets of the company (the ‘balance sheet’ test).

If a company is ‘unable to pay its debts’ under any of the tests set out above, any creditor (a person your organisation owes money to), among other potential stakeholders, may petition for the company to be placed into compulsory liquidation. The latter two tests are the most common grounds for a business being liquidated/wound-up (closed down).

A board must be aware that a seemingly successful and stable organisation can go out of business due to the cash flow of the business being neglected.

Therefore, the finance director or treasurer (this position is more common for the majority of sports organisations being run by volunteers) must, for example, not just issue invoices, but ensure they are paid promptly so that the organisation can pay any people to whom it owes money.