September 2015 Newsletter
What Funders Want – Whatever it is should not dictate how you run things.
Jobs Wanted – Need a hand with something?
Uniforms and Toys – How to get an accurate figure for then for your Balance Sheet.
What Funders Want
It is not a little ironic that much of the community-based social service system we have depends on people playing Lotto or the pokies. Lottery funding in particular plays a big role in providing services for the most disadvantaged, such as ethnic minorities, those with disabilities, the unemployed, parents who are struggling and many more. Social service organisations are often unable to raise any significant funds through user fees or general donations – if their clients could afford such fees the service would likely be obsolete. As such they are very dependent on the goodwill of funders, be that Lottery, the government or others. This dependency can result in overly cautious and restrictive thinking by those managing such organisations.
The question of what funders want is often foremost in the minds of many of our clients. In my workshops I am sometimes asked questions like ‘Do funders allow that?’ or ‘Wouldn’t that look bad for funders?’, indicating that perceived funder wishes often take priority over what the organisation or their clients need. There is a fairly widely held perception, for example, that the new financial reporting standards for Charities are mostly intended to give funders (mostly the government) better ‘bums on seats’ measures and to increase competition in the sector to drive down cost (for government).
Not-for-profits are about users or beneficiaries of a service, not about generating revenue; they aren’t businesses. Revenue-driven thinking has great corruptive power, and while in the business sector it drives innovation, it has the opposite effect in the NFP sector. Where it is dominant it drives organisational processes, governance and ultimately service delivery through delivering what is ‘fundable’ rather than what needs to happen. ‘Success’ then is creating a large organisation generating lots of revenue and having lots of clients who give positive feedback – not whether the service has actually met a social or other need.
Chances are that many perceptions about funders are wrong. There’s no denying the pervasiveness of asking for ‘measurable outcomes’, but there are many outcomes for which there are no really suitable measures. For example, the number of resources printed and distributed is not an indicator for how many (if any) people have been helped by this resource. Much of community work is necessarily based on values and ethics, or ‘doing the right thing’, with outcomes that are not reliably measurable (or not at reasonable cost), and that are far from certain. Non-government funders generally share these values, and they are in the happy position to give out money to see them in action. While accountability is always required, I am seeing some signs that non-government funders (which includes funds administered by the Department of Internal Affairs) are keen to reduce the compliance burden on not-for-profits and that they see themselves as partners of community organisations rather than purchasers of their services for their own ends.
I think it’s a real skill to remain focused on the identified need and the way the organisation believes it can best be addressed, and not to be taken over by ‘What do the Funders Want?’ thinking. It’s a juggling act at the best of times.
- An administrator with 10 years’ experience in not-for-profit administration, including spreadsheets and MYOB essentials, is looking for paid work, either part-time or on an hourly charge-out basis. Let us know if you are looking for someone and we’ll pass her details on.
- A new graduate from CPIT with a Bachelor in Applied Management (major in accounting) would like to do some voluntary work for community organisations who want help with their business processes, accounting (including software) or similar. He is interested in project/set-up work rather than ongoing administrative or management tasks. His name is Kit Nelson and he can be contacted at firstname.lastname@example.org or 027 437 5429.
Sports Uniforms, Toys and similar – are they Fixed Assets?
Generally speaking: yes. Uniforms or equipment held by a sports club for use by their members, toys or other resources held by a community library for hire, or similar items are fixed assets and not just expenditure.
The exception is if the item’s useful life is less than a year, or if the item purchases are insignificant compared to the overall economic activity of the organisation. In that case they can be included in expenditure in the current year.
This provides a bit of an administrative headache as organisations usually do not run a detailed inventory system which lists the purchase price of each item and its depreciation. Keeping track of each individual team shirt, or every donated book, would be a nightmare and the cost and effort of doing so would far outweigh the benefits in most cases.
But clearly, these items have value to the organisation and cannot simply be omitted from the Balance Sheet. It would be a strange-looking toy library that had no toys in its list of assets.
Does the cost of the individual items matter?
No. If the total value of your toys, uniforms or similar is significant then items should not be omitted just because individually they may not have cost much. The idea is to give a reasonably true picture of what you have in your Balance Sheet. IRD’s $500 rule does not apply to non-taxable not-for-profits.
What if the items have no re-sale value?
They still have value to you and your clients or members, and may even be central to your organisation, such as the books in a library. They are assets because you get service or economic benefit from them which is not directly related to their market value.
So how do we do this?
This will have to be an estimate, and there are various ways of doing it. Whatever method you use needs to be disclosed in the Notes to your accounts.
If the items are all quite similar (such as sports uniforms) the organisation can estimate how long these items on average last: sports clubs will usually know how often they need to replace their club shirts, for example. This gives you your depreciation rate: shirts that are being used for four years depreciate at 1/4th, or 25%, each year.
To get the best approximate value for all your items you should add all purchases during the year to your existing stock value, then depreciate the whole stock by the rate you arrived at. If the value you arrive at is lower than last year’s, your stock has aged overall and you likely need to spend more next year to replace old stock. If it is higher you will have invested in new stock during the year and may not need to purchase as much in the next.
A tennis club has 100 club shirts of various sizes which are replaced on average every five years. The book value at the beginning of the year is $500.
During the year the club buys 30 new shirts at a price of $600. These are added to the existing $500 to give $1100, then depreciated by 20% (five years) to give a book value of $880.
The increase from $500 to $880 reflects the fact that the club has much newer stock on hand now.
If items are dissimilar, and especially if they age differently, you may have to put them in classes. For example you may have some large resources for hire which you expect to last five or more years, while most of your smaller and cheaper ones would be lucky to make three. All the smaller ones can be treated as above, while the larger ones could either be treated individually (i.e. you make an estimate for each toy on how long you think it will last) or grouped together as well. However, for expensive resources it is in your own interest to have them in a register which lists their purchase date and price.
What if we’ll be reporting under Tier 4 and don’t do depreciation? (Charities only)
Technically Tier 4 would require you to keep track of each item purchased and its purchase price, and deleting any that you no longer use from that register, so you can report the purchase price of all items on hand in your Asset schedule. This is a situation you most likely want to avoid for simplicity’s sake.
Tier 4 allows you to report assets at valuation. The method described above provides a suitable valuation method for such items and can be used, provided you describe in the Notes how you did it.