January 2016

January 2016 Newsletter

 

This Issue

More on Building Capacity Seems like Capacity Building needs refinement.

10 Alarm Bells for Financial Systems – Is your system broken?

The Road to 2016 – Cash Reporting may become the new headache.

 

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80/82 Fitzgerald Ave, PO Box 13 625; Ph. 669 0542;

Harald: harald@commaccounting.co.nz; Rhys: rhys@commaccounting.co.nz; Yvette: yvette@commaccounting.co.nz; Nick: nick@commaccounting.co.nz

Capacity Building – Take 2 

I received some interesting responses to my piece on capacity building in the December 2015 newsletter, both via email and when talking to people. A lot of it was critical about trying to run a small group like you would a big one, and becoming overloaded with the kind of planning, policies and formalities often suggested by consultants. It can take the fun out of doing what you are doing, which is not a small consideration in volunteer-run groups.

A couple of responses mentioned that follow-up happened too soon for them. If you are using an expert to help you with an organisational issue, this is going to take a while and needs some input for maybe a year or so, not a simple one-off after a few months.

One correspondent, who has been part of a funded capability project involving several organisations, said that it all ’came together’ in the end but that the process was a struggle and very challenging at times. Several participants resented the project because of the time it took away from the core business of the respective organisations. This is an important point for anyone considering such a project: if the organisation is funded only to hire external consultants or experts, but not for its own staff or volunteer hours spent on the project and its implementation, there will be extra stress and perhaps less service delivery.

A capability funder (through another correspondent) offered the opinion that the Ministry of Social Development model of capacity funding is flawed and this funder is actively trying to avoid those mistakes.

My point last month was not to criticise capacity building projects per se, but to draw attention to the fact that financial capability is at the heart of any organisation’s capacity, and that it is an area that must always be looked at when thinking about any sort of organisational growth or change.

Wellington Charity accountant Mark Vallance (Accounting for Charities) is an approved provider with MSD for capacity building projects that they fund, yet he says he gets very little demand for it. I believe that people confuse financial systems with accounting software and think that subscribing to Xero or MYOB takes care of this area. They are focused on recording transactions for accountability purposes, not reporting financial matters for decision-making purposes and the ability to understand and act on them. Many not-for-profit decision-makers do not have a good enough handle on their organisation’s financial position, yet they may not see this as a capacity issue and therefore do not think to include it in a capacity project.

It is also possible that organisations are simply very hesitant to ask advice from accountants, because they expect that such advice will lead to more paperwork, documentation and bean-counting, i.e. more cost with no benefit. This expectation may be driven by experiences with auditors, often the only experience that organisations have with professional accountants. CCA is here to help you make your systems work for you. With my financial systems workshop, for example, I want to try to get you to think outside the ‘accountability’ box and take a first step to really take control over your finances. Your financial systems really need to be your friends, not something that causes you discomfort whenever it is mentioned…

Happy New Year

Harald

Are Your Financial Systems up to Scratch? 

Financial Systems have two main purposes. A) They need to give you accurate financial reports when you need them, so you can plan and make decisions, and B) Enabling you to meet your financial compliance requirements with relative ease.

Here’s 10 indicators that your systems may be broken and need fixing:

  1. Board often does not receive timely financial reports.
  1. Board does not understand financial reports.
  1. The financial reports are inaccurate. This fact may even be known and perhaps verbal or handwritten adjustments are made for meetings.
  1. You do not know how much more funding you will need to apply for to make it through the year.
  1. You are unsure about financial position of organisation.
  1. Balance Sheets are not understood, and perhaps not even provided for meetings.
  1. Your cheques already have one signature on them.
  1. Your annual financial statements arrive more than three months or so after the end of the financial year.
  1. You are running a multitude of bank accounts to try to keep track of projects or accountabilities.
  1. Decisions are made on the basis of bank balances, not financial reports and forecasts.

The Road to 2016

Monthly feature to prepare for the new Financial Reporting Standards for Charities.

Software Reports for Cash Reporting

One of the biggest challenges of the new reporting standards will be Cash Flow reporting, now mandatory for all Tiers. Accounting software sometimes struggles with this, and you need to know what you are doing. An added complication is that many, perhaps most, accountants are unfamiliar with this Statements as it is not part of their day-to-day work.

The relevant report in Xero is called ‘Cash Summary’, and in MYOB Account Right ‘Profit & Loss – Cash’. They will give you the ‘Statement of Receipts and Payments’ for Tier 4, or the ‘Statement of Cash Flows’ in Tier 3 – provided you have done everything right up to this point.

The main purpose of a Statement of Cash Flows is to distinguish between ‘operational’ cash received and applied, and all other cash flows – usually the purchase and sale of fixed assets. This means you have to have made this distinction in your coding.

Once you make journal entries things get a lot more hairy. Tiers 1 – 3 will have to make journal entries to, for example, adjust their unspent grants liability, record holiday pay owing, accrue things like interest or audit fees and a variety of other reasons. Software does not know whether a journal entry is meant to affect cash classifications or not, so you have to tell it for each journal you make. Even in Tier 4 some journals may need to be made, for example to correct coding mistakes.

Both of the two main software packages accurately separate out unpaid invoices or bills that you have entered as such in the software. Most journals should not affect cash classifications, including all of the examples above. But many do.

Xero  

There is a checkbox under ‘Narration’ when you enter a new journal, asking ‘Show journal on cash reports’. By default this is ticked, but should be un-ticked for most situations.

MYOB Account Right

When making a journal entry there is a checkbox in the top right-hand corner saying ‘End-of-year adjustment’. By default this is not ticked, but should be for most situations. When running the ‘Profit & Loss – Cash’ report in MYOB you then need to choose ‘do not include end-of-year adjustments’ to get a proper Cash Flow report.

CCA Spreadsheets and some other accounting software such as Money Works do not include any journal entries in Cash Flow reports by default, and this will take care of most situations. For Reckon the situation is the reverse: by default journals are included in Cash Flow reports, which makes these messy and not useable for Charity reporting.

In many cases software-generated Cash Flow reports may not be useable not just because of journals but some other issues as well. This is especially the case if you have kept bank or other cash accounts outside of your software and bring these in as summary entries once a year. A conversion is then necessary from the accrual-based Profit & Loss software report.

CCA will run a workshop on the Cash Flow statement on 6 May.

 

Workshop: Financial Management 

Start the New Year becoming more confident with your organisation’s money. Aimed at managers and other decision-makers this is a high-level look at making financial systems work for you. More info and registration here.

Tuesday, 2 February 2016, 10 am – 12 pm

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Workshop: CCA Spreadsheets 

CCA spreadsheets are a free, not-for-profit-specific alternative to commercial accounting software. This workshop explains how they work. More info and registration here.

Tuesday, 16 February 2016, 10 – 11.30 am

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CCA/Hagley NFP Admin + Management Course.

Starting 8 February 

The full-year NFP Admin and Management course aimed at administrators, managers and board members for small to medium not-for-profits is back! Running as part of Hagley Community College’s After 3 community education programme it covers what you need to know to run a not-for-profit well – and this for only $40!

See here for more information.

Enrolment is through Hagley Community College. Phone 364 5156

Tuesdays during Term Time, 5.30 – 7.30 pm