April 2014 Newsletter

This Issue

Council Cuts Community Funding – Is this the time to do it?

PAYE changes – Read this if your staff are paid by Automatic Payment!!!!!!!

Our Web Site – It’s not malicious!

Cheque Falacies – Unpresented cheques can give us headaches. Here’s how to state them properly.

Community Funding Reduction at Council?

Christchurch City Council’s annual City Plan 2014/15, being open for consultation at the moment, appears to cut the funding for its discretionary Strengthening Communities Fund by $2m to $5.7m – a rather big drop. The Fund is accessed predominantly by social service providers, neighbourhood groups and resident associations, and generally smaller community-based groups. Amongst the big three cities, Christchurch appears to be the only one where council has set aside a sizeable discretionary fund like this. Back in my Father & Child days, when I was managing offices in all three main centres, I noted that Christchurch seemed light-years ahead of the other two centres when it came to groups collaborating, and also with regards to the accessibility of support that was available to people. There appeared to be less competitive behaviour between groups here, and the Council seemed to have a vision which included the ‘third sector’ as an integral part of the city’s make up. It was something I was quite proud of on behalf of our city.

CCA made a submission criticising the drop and advocating for a CPI (inflation) adjustment of 1.5%. The City Plan includes ‘developing capacity amongst community groups and resident associations’ as a goal, which is difficult to achieve with reduced discretionary funding. The Council’s answer: ‘Engage with business associations around community issues.’

In accounting, the business answer to community needs has not worked very well. The accounting needs of a small or medium not-for-profit are much, much larger than for a business of the same size due to reporting and assurance requirements. Not only does this lead to very high fees, which drains the sector of a significant amount of money each year and is therefore unavailable for community needs – the business and taxation focus of accounting firms often means there is a lack of expertise in not-for-profit accounting and reporting, and the results may look ‘professional’, but are of poor quality and sometimes unintelligible to the intended audience.

CCA is advocating investment in not-for-profit ‘infrastructure’ as an effective means of developing capacity: supporting those entities that support the sector overall by meeting key needs of organisations. In our submission, we have asked the Council to put their money where their mouth is and create a separate capacity development fund. The earthquakes have shown quite convincingly that it is the not-for-profit sector who picks up the pieces of the destruction in the first place and helps people get through. This does not just refer to social and health services – sports, arts, music and other ‘recreational’ clubs paid a key part in keeping us all sane. A strong not-for-profit sector is not only something to be proud of, it is also the best disaster-response insurance a city can have.

To make a submission, go here. Deadline: 22 April.

Harald

2014/15 PAYE Deduction Changes

The ACC Earners Levy has been reduced from 1.7% to 1.45%, effective from 1 April. The levy is part of PAYE deductions, which means that all employee’s pay paid after this date must change.

We were caught a little unawares by this, as we have received no communication from IRD about this, hence the late notice.

What to do:

If paying a fixed salary by AP: You need to find out the new pay rate, using the online IRD calculator, deduction tables, or your payroll software, and adjust your employees’ pay.
If paying hourly wages: Make sure you use the right deduction tables or have entered the correct tax year in the IRD online calculator.
If using payroll software: Check whether your software applies the new rate automatically or whether some manual intervention is required. Make sure all recent updates have been installed.
If your payroll is with CCA: You will receive new pay slips for all salaried/regularly paid staff shortly, or may have received them already, incorporating the change.

Our Web Site is Safe!

In January this year our web site had been hacked into and a ‘phishing’ virus had been added to the ‘moodle’ subsection of our web site. The moodle section was not in use at the time, has since been uninstalled and any virus removed by our web hosting provider swiftly. However, not swiftly enough for most antivirus software providers to pick it up and blacklist it. As we found out, blacklisted sites are not necessarily being re-checked by anti-virus software providers and are only being removed if someone tells them. We have recently contacted antivirus software providers that we are aware of, as we were still getting many reports of people’s access being blocked, or their browser displaying warnings. Meanwhile, you can ignore any such warning and access our site – our web hosting provider (Hooplahosting) assures us that it is safe.

Harald’s email account had also been hacked into, and spam had been emailed from it. As a result our IP address had been blacklisted also, and this led to many email servers refusing our emails. This issue seems to have been largely resolved, however.

This sort of issue obviously creates a lot of work for everyone involved, and there was really very little we could have done to protect ourselves better. We do apologise for any problems this may have caused at your end.

Checking Cheques

While internet banking is more and more the accepted form of making payments, some organisations still make almost all their payments by cheque. Sometimes this is because people are unaware that the two-signature rule can be applied in internet banking, but there are also other reasons, such as concerns about online security.

It is fair to say that cheques give us more grief than most other accounting issues here at CCA. Firstly, almost all cheque books we see have pre-signed cheques in them, which casts a shadow over that organisation’s financial controls. Secondly, few organisations get the issue of unpresented cheques right in their annual accounts.

It is common practice to add unpresented cheques into the bank balance as though payment had already occurred. In auditing this presents problems: firstly, the bank balance stated in the Financial Statements does not match the bank statement, and the discrepancy is often not reconciled. At times we had to re-do an organisation’s cashbook for an entire year as there was no other way to find the discrepancy. Secondly, there are no guarantees that the cheques will ever be banked, or that they, in fact, have been written and sent off to the creditor. We noticed that in writers and arts organisations especially, small payments an organisation makes to artists or writers for contributions or royalties are sometimes never banked. Even some businesses don’t bank cheques as a form of making a ‘donation’ to the organisation. And thirdly: in the accounts of the organisation receiving the cheque it is not added into the bank balance before it has actually been received, which creates ‘phantom’ cash deficits: cash that has disappeared from the books on one side without having arrived anywhere..

Where the bank balance in the Financial Statements deviates from the real one, the Balance Sheet instantly becomes false. Furthermore, if the ‘cashbook’ bank balance is not reconciled with the real one, the organisation loses track of which cheques are still outstanding. Sometimes, organisations’ ‘bank’ balances include cheques that have been stale for years, or even re-issued (thus double-counting the expense).

Adding unpresented cheques into the bank balance is untidy accounting. A bill should never be marked as paid until the cash has left the organisation’s bank accounts. Therefore, unpresented cheques should be either disclosed as a separate liability in the Financial Statements, or added into the ‘Accounts Payable’ balance.