August 2014 Newsletter
Training – Urban or rural-based, we’re here to help you up-skill.
CCA News – Enrolments re-opened; more letters after Harald’s name; interns; NFP course at Hagley?
Accounting Standards Update – Understanding the Tier system is paramount to limit compliance costs.
Board Members Needed – Yes, us too!
More on GST – Government contracts, grants and rental property.
Grants and Xero – Your tracking reports may not show you what you think they do.
Train Me Up, Scotty.
My write-up about administrators in the last newsletter has hit a bit of a nerve with some, judging by the feedback I received afterwards. There appear to be a fair number of administrators out there who feel unacknowledged, and sometimes there is confusion about the exact responsibilities of the job.
It is important to acknowledge that accountabilities are a lot more complex in not-for-profits than they are in businesses of similar size. A fairly good understanding of accounting and financial matters in general is even more important for people involved in governance and management of not-for-profits than for comparable business owners. You can often get away with managing a small business on the basis of your bank balance (and leaving the tax returns to an accountant), but this approach will get you into hot water quite quickly once you are reliant on funding.
Which is where training comes in. This is the second year that CCA has run not-for-profit accounting workshops, and we will continue to do so, but people often get the biggest benefit from us where we can spend time with the organisation over their specific set of accounts and financial systems. We are often approached for training, and I have been doing several sessions for Board and Managing Committees this year, and a half-day training session with a group of not-for-profit managers in Christchurch North is on the horizon for next month. I spend many hours talking individuals through bookkeeping processes and the intricacies of grant tracking, GST or Payroll, and giving tips and advice via email.
One issue that I have become more aware of is the difficulty for rural organisations to access such support. Much, but not all, can be done over the phone. I have visited organisations in places such as Akaroa, Cheviot or Oxford predominantly for training purposes, and will do a workshop in Kaikoura later this year. Do approach us if you live in rural or small-town Canterbury and think there is something we can do for you.
- ENROLMENTS ARE OPEN AGAIN. Excellent student support at the moment and a slight increase in paid work hours (due to more full-paying organisations using our services) means that we can accommodate even more not-for-profit groups. At present 121 organisations are enrolled with us and we received a record 34 ‘jobs’ in the month of July, while managing to keep the turnaround time to under four weeks.
- Harald has become an Associate member of CPA Australia (CPA = ‘Certified Practising Accountants’). CPA is a professional accounting body, equivalent to (but larger than) the new CAANZ (Chartered Accountants Australia/New Zealand) and operates in a number of Asia-Pacific countries.
- Jessica is our first accounting student intern from the University of Canterbury (most of our other interns are CPIT students). She will do 100 hours with us. CPIT student Nick Hsu has completed his 200 hours with us, but continues to help two days a week and has been a key factor in staying on top of the workload. Another CPIT student, Piyush, is expected to start within the next two weeks.
- We are talking with Hagley Community College at the moment about the possibility of a full-year evening course on not-for-profit management, administration and finance, geared specifically at small to medium-sized groups, in 2015. As part of their after-3 community education programme it would be completely free. This looks very hopeful at the moment, and we will keep you posted.
Accounting Standards Update
Harald has written to Charities Services to ask that they make sure they explain the different options not-for-profits have under the Tier system of the new Financial Reporting Standards in their upcoming resources. Their General Manager Lesa Kalapu responded that the resources will include information about the Tiers but did not comment on the fact that a Statement of Service Performance (and some other aspects) will only be mandatory for organisations reporting under Tiers intended for smaller groups.
The Statement of Service Performance is a new statement, where organisations are asked to disclose outputs and outcomes, and quantify them where possible.
XRB, the government’s accounting and audit standard setting body, is at present developing a separate accounting standard for the Statement of Service Performance for larger organisations, however, under the just released new suite of Tier 1 and 2 accounting standards this will be mandatory only for those organisations who choose to do one (or who are required by other legislation to have one).
Kalapu also confirmed that a Statement of Service Performance will have to be included in any audit of that organisation, and that XRB is developing a separate audit standard just for that Statement. This has the potential to significantly increase audit bills.
CCA remains concerned that the tier system is too complex to be properly understood by registered Charities, and that many will end up with excessive, but partly avoidable, compliance costs.
Board Members Needed!
Susan Wallace, Legal Advisor with Community Law Canterbury, had to leave the CCA Board due to a potential conflict of interest arising from our present lease situation. She is much missed and her input in getting us to this stage has been invaluable. This also means that, like so many community organisations, we need new Board members.
At the moment the Board meets every two months. You do not need to be an accountant to be on our Board, it is more important for us to have people who understand not-for-profits and/or their particular sector.
It would be great to haverepresentation from different community sectors on our Board to complement Sharon Torstonson (Council of Social Services) and our other Trustees, accountant Teresa Kiddell and Michael Gray. Our client base at present is made up like this:
Social Services: 26%
Health Services 9%
We find that the way organisations operate is often sector-specific, and the sectors can have quite different funding streams and needs. As we move into a more prescriptive financial reporting environment we would welcome any help in finding the best way to prepare organisations for those changes. If you are interested, please contact Harald at the office (669 0542) – or be prepared to be approached anyway.
More GST confusions
The biggest GST errors we come across tend to revolve around grants and government contracts or subsidies, and they are usually costly ones.
To recap: All contracts, grants and subsidies from government ministries and departments have GST on them. This includes any subsidies for wages and salaries (such as Work & Income employment subsidies), and grants administered by the Department of Internal Affairs (Lottery, COGS and others). Grants from philanthropic funders, local government and distributors of gaming proceeds are GST-exempt, regardless of whether they have conditions on them or not. Do not try to understand the logic behind this – there is none.
Private sponsorship may or may not have GST on it, depending on whether it is an advertising agreement in nature, or a genuine donation without anything provided in return. In the first instance you would issue a tax invoice, in the second a donation receipt.
Occasionally not-for-profits have property that is rented out to private tenants. This is fairly common in churches or, of course, housing trusts providing accommodation for disadvantaged people. GST cannot be charged on residential rent, and likewise GST cannot be claimed on any expenditure to do with residential rent, even if the organisation renting out the property as well as the supplier are GST registered. ‘Residential’ refers to the normal use of the property: if a building is designed, zoned and usually occupied by private residents, then residential rules apply even if the current tenant is an organisation or business.
If you have become aware of a significant GST error, it is usually best to tell Inland Revenue as soon as possible by making a voluntary disclosure (see here for the form). Inland Revenue will charge Use of Money Interest from the date of the erroneous GST return(s), which will only accumulate the longer you wait.
Grant Tracking in Xero
Xero may well have become the most popular accounting software with small or medium not-for-profits. It is designed for business, however, and typical not-for-profit tasks such as keeping track of grant expenditure is not an intended purpose of the in-built tracking functionality.
It is easy enough to set up: under ‘Settings’ – ‘General Settings’ – ‘Tracking’ a specific tracking category can be set up for grants. Once done, you will have the option to allocate any payment or receipt to a grant when you enter your transactions.
However, Xero has no function that allows you to see a ‘balance’ for any of those grants. Under ‘Reports’ you can run a ‘Tracking Summary’, but you will have to choose an ‘Account Group’ to run it from. None of the options available will give you the complete, GST-exclusive amounts. If you are not GST-registered, you can choose ‘bank accounts’ as your tracking option and this will usually give you the right result; however if you are registered, your expenditure from this grant will seem higher than it is.
You can also choose ‘Expenses’ as the Account Group, in which case you will get the GST-exclusive amounts, but miss the actual grant (income) or any asset purchases. Another possibility is to filter your Profit & Loss Report by a grant (a little hidden in ‘Show Date Range’ – ‘More Options’), but again you will miss any asset purchases. What’s more, if your grant balance is exactly 0 (you have spent all money), it will disappear from the tracking report altogether.
This is not really good enough and perhaps shows some complacency by accounting software firms when it comes to the not-for-profit market. Meanwhile, grant tracking is a key accountability of many not-for-profits, and you may have to pull figures from more than one report in Xero to get the complete picture about the status of a particular grant.