March 2014 Newsletter

This Issue

End of the Golden Age? – Starting and running not-for-profits will become harder. Why?.

CCA Fee changes – Some very slight adjustments to our fees.

Grant Accounting – Don’t turn it into a nightmare

 

End of a Golden Age?

With the passing of the Financial Reporting Act 2013, New Zealand may well have introduced the most stringent financial reporting law for very small not-for-profit organisations in the world, while in the same stroke removing similar red tape for small business. At the same time, law makers are working hard to reform the Incorporated Societies Act and the Charitable Trusts Act with the aim of regulating more closely how these are run and what officers serving in not-for-profit organisations are responsible for.

It seems the days where people could just get together and start a neighbourhood group, sports club, culture group or similar with little bureaucratic effort will be over soon. The new regime will require some professional skill even in the smallest not-for-profit to be able to negotiate the new legal environment, and I am a little worried that this will hit groups working in the neediest neighbourhoods the hardest.

The changes are made in the name of accountability, but it is not clear to me why so much more is asked of not-for-profits than of businesses, when fraudulent tax evasion of businesses is arguably a much, much bigger problem than fraud is in not-for-profits, and has a higher social impact, too. Do we really want to make it harder for people to do charitable work, do we really want to deter people from starting something in their communities, only so that every last dollar these organisations have received can be publicly reported and so that we have clear scapegoats we can prosecute if things go wrong even in the tiniest organisation?

The lion’s share of the not-for-profit sector consists of very small organisations. It cannot be any other way, as smaller organisations are infinitely more efficient in delivering what the community wants than larger ones: they are part of that community, which may be a neighbourhood, an ethnic community, a sports interest group, or people interested in preserving an environmental or historic feature. Not-for-profits are not only key to mitigating some of the social and health problems, they are also the backbone of culture, sports and the natural environment that we all enjoy when we’re not at work. Do we really have to shackle down every dollar passing hands fort his purposes? In the process, an ever-increasing share of those dollars goes into accounting for where they went.

 

Harald

2014/15 Fee Changes

Don’t panic, nothing much changes with our fees.

The fee regime introduced last year has worked well, and we have had sufficient funder support to continue at this pricing level. Fees account for about a third of our income, and funding for two thirds.

There will be an adjustment for the rise in Consumer Price Index (CPI), or inflation, of 2% for both, our fees and the income ranges they apply to. We don’t want to fall behind inflation, but avoid sudden, large fee increases.

Audit fees remain as they are, except for the minimum fee being raised to $100 (currently $50). Small organisations themselves have told us that they thought they should pay a bit more.

Here are the key rates again:

Organisation’s income	Audits	General Accounting	Annual Sub
< $10,000	$100	Free	Free
$10,000 – <$102,000	0.4% of income, min $100	Included in subscription	$ 51
$102,000 – <$204,000	0.4 % of income	$ 25 per hour	$ 102
$204,000 +	$ 51 per hour, min $800	$ 51 per hour	n/a

Our full list of fees can be found here.

Grant Liability

If you find grant accounting confusing, you’re in good company. Our student interns here are often quite shell-shocked when they first come across it, and it is not something that has been covered in their courses. The accounting behind it is not easy and can throw up some unexpected bombshells.

There have been a couple of particularly confusing (for us) ways of accounting for grants in Financial Statements we have come across recently, so here’s some rules how it should be done:

1. Be aware that you have a choice: you do not have to use liability accounting for grants in your Financial Statements – you can account for them as straight income. This applies to not-for-profit organisations of all sizes. Refer to accounting standard NZIAS 20 (Public Benefit Entities) if you don’t believe us.
2. The above does not exempt you from tracking grants, where this is a condition of the grantor. It only exempts you from having to report a liability in your Financial Statements.
3. If you do use the liability method, you will need to adjust your grant income at the end of the financial year (not your expenses!) by the difference between your unspent grants at the end versus the beginning of the year.
4. Your grant tracking system must be independent from your ‘normal’ income/expenditure accounting! The liability created from your grant tracking can only be entered into your income/expenditure reports (and Balance Sheet) through the accounting journal (debits and credits). Until then there should be no crossover between your financial reports (income/expenditure and balance sheet) and your grant tracking, otherwise you’ll get into serious problems. Accounting software (including CCA spreadsheets) keep tracking systems completely separate from your ‘normal’ accounts – if you use your own spreadsheets, make sure your grant tracking is kept separate as well.

For the liability method of grant accounting (including end-of-year journals) refer to our How-To resource GR1 on our web site (click here). Don’t forget, you can always ask us if you’re not sure.