financial reporting
monthly reporting
Financial reports
On a monthly basis, the treasurer should prepare the following two reports for their management committee or board (governing body):
- statement of financial performance (profit and loss) showing income and expenditure
- statement of financial position (balance sheet) showing assets, liabilities and equity.
These reports are for the month, however it is important to be reviewing the year-to-date position at the same time. A reputable computer accounting package will generate a range of reports automatically to give this information.
In preparing these reports you should ensure that all the balances in the statement of financial position are correct (e.g. all bank accounts reconcile, unspent grant balances are correct etc). Some balances will not be confirmed every month, but should be checked for reasonableness e.g. fixed assets might be reconciled yearly. Once they have been checked you can review the transactions in the statement of financial performance. Most accounting systems allow you to easily go back to view and check the coding of each transaction.
The statement of financial performance is best reviewed against the budget figures. Any significant difference between actual figures and the budget should be looked into. It is useful if you can add a commentary to the report to explain and bring to attention any differences that need to be addressed.
A sample monthly financial report, suitable for a small community organisation, is shown below.
Sample monthly financial report
XYZ Community Group Inc
Monthly Financial Report for the Month of February 2006
| Annual Budget |
|
Month (Feb) |
Year to Date |
| |
Receipts: |
|
|
| 8000 |
Grants |
4000.00 |
7000.00 |
| 1800 |
Donations |
125.00 |
1577.00 |
| 200 |
Other |
6.20 |
314.55 |
| 10,000 |
Total Receipts |
4131.20 |
8891.55 |
| |
Payments: |
|
|
| 2400 |
Rent |
200.00 |
2200.00 |
| 500 |
Power |
45.00 |
425.00 |
| 1000 |
Phone |
100.00 |
975.00 |
| 500 |
Office Supplies |
21.80 |
445.80 |
| 2400 |
Volunteer Expenses |
12.40 |
972.40 |
| 2000 |
Computer |
|
|
| 300 |
Postage/email |
20.00 |
350.00 |
| 200 |
Audit |
|
|
| 500 |
Other/misc. |
3.00 |
424.75 |
| 9,800 |
Total Payments |
402.20 |
5792.95 |
| 200 |
Surplus/(deficit) |
3729.00 |
3078.60 |
| 800 |
Add opening balance |
550.00 |
800.40 |
| 1000 |
Cash book balance
28 Feb 2006 |
4279.00 |
4279.00 |
| 2000 |
ADD: Savings/Deposit a/c |
2000 |
|
| |
Deduct:
Unspent Grants:
(Lottery Grant) |
4000.00 |
|
| 3000 |
Available Funds |
2279.00 |
|
Other reports
What other monthly reports may be generated depends on the organisation and what level of detail is required by the management committee or board e.g. some may require a breakdown of grants received (see 'Keeping track of grants' section) or details on a particular project etc. Most accounting systems should be able to accommodate different requests and therefore it is important to get reports set up so the least amount of manual reporting is required.
keeping track of grants
Strict accountability is demanded of organisations receiving grants. Once again, you can set up a computer accounting system to keep track of grants received and the expenditure against them (see following samples). It is better to use your accounting system to track grants as money is spent, rather than waiting until the report back is due.
Under a computerised accounting system:
- most systems have a project or job number that can be set up for each grant
- when the grant is received and processed, you add that job number to the transaction and, as the money is spent, you can add the same job number to the expense transactions
- at any time you should be able to print a report to show how much of the grant is spent, however, the person who is entering the data needs to know which grant the expenditure is coming from
- some organisations use a stamp or cover sheet for invoices that include the job number on them so it can be properly entered
- some organisations choose to code all grants to the liabilities as 'unspent grants'. Then each month they print off the job report to see how much was spent. They then transfer the amount spent out of 'unspent grants in liabilities' and into their income. This helps give a more accurate statement of financial performance.
Tip
Remember to check each grant to see if it is exempt (e.g. in the case of a donation) or if it has GST.
Sample grants register
DEF Community Group Inc.
|
Grantee |
Purpose |
OPEN Balance |
GRANTS Rec’d |
Spent
|
Balance UNSPENT |
|
Lottery (1) |
Wage subsidy |
4000 |
|
4000 |
|
|
COGS (1) |
Admin costs |
2000 |
|
2000 |
|
|
Council |
Youth programme |
|
4000 |
3500 |
500 |
|
MSD |
Parent programme |
|
5000 |
5000 |
|
|
Community Trust |
Computer equipment |
|
4000 |
4000 |
|
|
JR McKenzie |
Newsletter/publicity |
|
2000 |
1700 |
300 |
|
Lottery (2) |
Wages |
|
10000 |
6200 |
3800 |
|
COGS (2) |
Admin |
|
3000 |
2000 |
1000 |
|
Total |
|
6000 |
28000 |
28400 |
5600 |
Sample schedule of expenditure against grants
Click to show larger version in a new window (JPG 93 KB).
Click to show largest version in a new window (JPG 107 KB).
year end financial statements
The year end process
Once you have completed your normal monthly processing and reconciliations, you are ready to move on to the year end process. During this process you are ensuring that all income and expenses for your financial year have been accounted for (regardless of whether you have paid or received money for them). You are also ensuring that both the statements of financial performance and position give a true and fair view of the financial year.
Tip
The checklist below will give you guidelines on what needs to be done as part of the year end process. This checklist can be used as both an internal record of what has been processed and can be useful to give to your auditor.
Year end checklist
NB: This checklist is intended as a guide only
Organisation’s name: ________________________________
Year ended: ________
| Question |
Comments |
General
- Have all the bank accounts been reconciled?
- Have all investments balances been reconciled?
- Have all loans balances been reconciled?
- Have all debtors and creditors been accounted for (copies of invoices made for auditor)?
- Have all comparatives for income and expenditure been made and accounted for significant changes?
- Are tax returns required to be filed, if yes have they been filed?
- Has the petty cash been reconciled?
- Has the opening retained earning been checked against last year’s closing retained earnings?
- Has the current year’s surplus/deficit transferred correctly from the profit and loss statement to the equity in the balance sheet?
- Does the balance sheet balance?
|
|
Income
- Has all interest received been recorded?
- Are you exempt from RWT, if no can you apply?
- Have any unusual types of income been received (e.g. insurance)?
- Have all grants been accounted for?
- Have all unspent grants been calculated and accounted for?
- Have all outstanding fees been accounted for?
- Have all bad debts been accounted for?
|
|
Expenditure
- Has the full year ACC Levy been recorded?
- Has entertainment expenditure been recorded (does the 50% deductible rule apply i.e. do you pay tax)?
- Have all legal and professional fees been checked for deductibility (e.g. non deductible if relates to capital exp)?
- Have all repairs and maintenance been checked for any capital items (e.g. over $200)?
- Have all depreciation rates been checked?
- Have all new assets been added correctly and the correct pro-rata amount of depreciation claimed (i.e. claimed from month purchased) – include a copy of any assets purchased for auditor?
- Have any assets been sold or scrapped this year, if so have they been corrected accounted for in balance sheet and for depreciation (i.e. no depreciation in year of sale)? Is there any loss or profit on sale?
- Are there any private adjustments needed in respect of assets/depreciation?
- Has a full year’s insurance been accounted for?
- Have 12 payments for power, phone and rent been accounted for?
|
|
GST
- Is the group registered for GST?
- If not registered has the gross turnover exceeded the $40,000 (compulsory level)?
- If registered is it a voluntary registration?
- Has the correct basis of GST been used (e.g. payments or invoice)?
- Are all returns up-to-date and accounted for to Inland Revenue?
- Has GST been paid on all fringe benefits other than GST exempt ones?
- Has the GST on the non deductible portion of entertainment been adjusted for?
- Has the correct amount of GST been accounted for in the balance sheet?
|
|
Wages and PAYE
- Have all allowances been checked as to whether or not PAYE was required to be deducted?
- Has the status of any independent contractor been checked to ensure that the person is not in fact an employee subject to PAYE?
- Do the wages reconcile with the total reported to Inland Revenue and wage book, and to the ACC calculation?
- Has the relevant withholding tax been deducted from those contractors that fall within the withholding tax regulations?
- If no withholding tax has been deducted from contractors, has a certificate of exemption been sighted?
|
|
Other
- Have you reconciled all items on the balance sheet?
- Have you reviewed all income and expense coding?
- Have any notified bequests been recorded?
- Are all minutes up-to-date, signed and ready to give to the auditor?
- The auditor may ask for a copy of your constitution.
- Is your organisation liable for any fringe benefit tax (FBT)?
|
|
Reports Required
- Statement of financial position (balance sheet).
- Statement of financial performance (profit and loss).
- Statement of movements in equity (maybe incorporated in balance sheet).
- Notes to the accounts.
- General ledger.
- Trial balance.
|
|
| Checked by: |
|
| Signature: |
|
| Date: |
|
(From Community Accounts Mentoring Service (CAMS), Wellington).
Annual financial accounts
Every organisation should produce financial accounts each year. Often these will be for the year from 1 July to 30 June (in line with the Government’s financial year).
Key financial terms
Four key terms used in financial reports are:
- assets – what the business owns or monies due to it e.g. cash, equipment, accounts receivable, inventory
- liabilities – what the business owes e.g. bank overdraft, creditors, loans, staff leave not yet taken
- expenses – the costs incurred by running your business e.g. wages, rent, phones
- revenue or income– what you earn e.g. grants, membership subs.
The annual financial accounts you will need to produce are:
- Statement of financial performance (profit and loss) – which shows the revenue and expenses of the business over a certain period of time. If you subtract the expenses from the revenue you get the 'net profit' or 'net loss' at the bottom of the statement. Sometimes organisations carry a net loss over a period of time (e.g. when waiting for a large grant to come in) but you should ask the treasurer or financial officer if the organisation is running any risks associated with this.
- Statement of financial position (balance sheet)– which lists all the assets and liabilities at a certain point in time. The basic rule is that the total assets should equal the total liabilities. You should be sure that, if you wound up business tomorrow, you wouldn’t be left with any outstanding debts you couldn’t pay. In this way a balance sheet is a good financial 'health check'.
Depending on the size of the group, the annual accounts may also include additional notes and schedules that explain aspects of the accounts in more detail.
Tip
The annual accounts are often prepared by the treasurer (or financial administrator), possibly with the help or advice from an accountant or the auditor. It is important that the rest of the committee or board also understand what the accounts say. This may mean enrolling in a basic accounting course.
Auditing
Auditing is the process of independently reviewing and checking that the year end financial statements present a true and fair view of the financial activities for the year under review.
The requirement for an auditor will be determined by the rules (or constitution or trust deed) of your organisation. Some funding bodies may also require your financial statements to be audited.
Different levels of audit
There are several levels of audit and 'financial review' that might be appropriate for community groups (refer to NZ Institute of Chartered Accountants website – www.nzica.com):
- Audit by a chartered accountant with a certificate of public practice. This is generally a full audit that can be quite expensive. Some funders require this level of audit, or it may be set out in your rules. In general, most smaller and medium community organisations will not need this degree of audit.
- Audit by an accountant without a certificate of public practice e.g. a retired accountant or 'accounting technician'.
- A 'review engagement' by a qualified accountant. This is less than a full audit, but provides a degree of independent assurance to the accounts.
- Independent verification' by someone who is independent of the group and has a reasonable understanding of accounting, such as a bank manager. Some funders (such as Lottery grants or COGS) require this for smaller groups.
Tip
Where your rules/constitution don’t specify the audit requirements, independent verification (audit level 4) is sufficient for smaller community groups (i.e. less than $40,000 total annual turnover). For community groups over this level (i.e. needing to be GST registered and employing staff), it is preferable to get a 'review engagement' (audit level 3) or audit by an accountant (audit level 2). A full audit by a chartered accountant (audit level 1) is only recommended for larger organisations (which is generally beyond the scope of this kit).
What your auditor will require
Your auditor will need the following (but note that this list is not exhaustive so check with your auditor):
- copy of your draft accounts – statement of financial performance, statement of financial position and notes to the accounts
- cash book in the case of a manual/or spreadsheet-based system
- all invoices and receipts, bank statements
- all cheque, deposit and receipt books
- trial balance
- general ledger for all accounts for the whole year
- all work papers used in the preparation of the accounts
- all reconciliations of assets and liabilities
- fixed asset schedule.
Tip
Ensuring your auditor has a completed set of financial statements with well recorded and filed data, will help minimise the audit cost.
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