Finance for Directors: National Sports Associations
Last year witnessed a boom in popularity of sports, when Hong Kong athletes performed so impressively during the Tokyo Olympics. Their stellar successes could be attributed to the government’s increasing support and funding for National Sports Associations (NSAs) in recent years, in promotion of sports development in Hong Kong, with a view to achieving three policy objectives of sports development, namely to promote sports in the community, support elite sports and promote Hong Kong as a centre for major international sports events. To address the increasing aspirations of Hong Kong people for more integrity, transparency, fairness and accountability, it is imperative for NSAs to remain committed to living up to such aspirations.
The LCSD encourages NSAs to operate as registered companies. As far as a company is concerned, financial management, involving issues such as cash flow management, planning and cost control, is of particular importance. Only by optimising use of the funding and resources in hand can NSAs help further promote sports development in Hong Kong.
Directors’ Responsibilities for Preparation of Financial Reports
The board of directors must prepare relevant income and expenditure accounts, balance sheets or other relevant reports before the general meeting of NSAs. In addition, copies of financial statements, board reports and audit reports must be prepared and delivered to each member not less than 21 days before the general meeting.
The board of directors must also keep proper records of relevant accounts documents, which detail all incomes and expenditures of the NSA and matters involved, the NSA’s existing assets and liabilities, the NSA’s true financial position and information on all transactions involved. The board of directors must disclose and explain details of such transactions, while faithfully reflecting its financial performance and position over the financial year to members.
Relationship between Financial Reports and Corporate Governance
As NSAs receive government funding and public donations, the board of directors must optimise management and use of funding. Preparing a detailed financial report represents a commitment to the government and members of the public alike, which not only helps enhance NSAs’ credibility, but also mitigates the risk of fraud.
As far as financial governance is concerned, board members may perform the following main functions:
1. Review financial statements on a regular basis, thereby allowing ample time to discuss items and make decisions
2. Approve financial budget items according to the goals set by the NSA;
3. Oversee the NSA’s expenditure to ensure proper use of resources;
4. Oversee the NSA’s assets and liabilities; and
5. Approve annual reports.
Cash Flow Management
One of the important responsibilities of the board of directors is to ensure that the NSA has stable cash flow to meet its funding needs, including bill payments before due dates, payments of planned expenses, as well as provision of funding under plans or other contractual obligations. Other responsibilities include, inter alia, reviewing cash flow on a regular basis to identify any anomalies, if any, and assess their potential impacts on solvency.
There are varying reasons behind strained cash flow, such as a long “window period” between donations and allocation of funding, and the need to prepare for unplanned activities in response to emergencies. To avoid insufficient fund for payment, the board of directors must discuss and formulate feasible financial budget plans at an early stage, while cultivating good relationships with bankers and contractors.
NSAs are required to set annually clear and quantifiable performance targets in the following four major areas:
1. Plans and arrangements
2. Development and publicity of local sports
3. Athletes’ performance
4. Corporate governance performance
The board of directors must give an account of the NSA’s performance on all fronts over the past year to members, including the total funding granted, percentage change in the funding, efforts made to optimise use of the fund to achieve results, positive and negative impacts of a certain project on the NSA, partners’ view on the NSA, financial budget control, as well as revenue and expenditure control of the NSA.