Financial reporting

Monthly reporting

Financial reports

On a monthly basis, the treasurer should prepare the following two reports for his or her 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, but it is important to review the year-to-date position at the same time. 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, e.g. fixed assets might be reconciled yearly. Check that these balances look reasonable, then 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. If there are discrepancies, it will be useful to add a commentary to the report so these matters can be addressed by the governing body.

A sample monthly financial report, typical of a small community organisation, is shown below:

Sample monthly financial report

XYZ Community Group Inc.

Monthly Financial Report for the Month of February 2010  

Annual Budget

 

Month (Feb)

Year to Date

 

8000

1800

200

10,000

Receipts:

Grants

Donations

Other

Total Receipts

 

4000.00

125.00

6.20

4131.20

 

7000.00

1577.00

314.55

8891.55

 

2400

500

1000

500

2400

2000

300

200

500

9,800

Payments:

Rent

Power

Phone

Office Supplies

Volunteer Expenses

Computer

Postage/email

Audit

Other/misc.

Total Payments

 

200.00

45.00

100.00

21.80

12.40

 

20.00

 

3.00

402.20

 

2200.00

425.00

975.00

445.80

972.40

 

350.00

 

424.75

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

Other monthly reports may need to be generated depending on the organisation and the level of detail the management committee or board require, e.g. some may require a breakdown of grants received 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 any organisation that receives a grant. Once again, you can set up a computerised accounting system to keep track of grants received and the expenditure against them (see the following samples). It is better to use your accounting system to track grants as the money is spent, rather than having to go back and account for it when the report is due.

With 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 has been 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 has GST added or is exempt (e.g. in the case of a donation). See the Inland Revenue booklet Grants and subsidies IR249.

 Sample grants register

XYZ Community Group Inc.

Grantee

 

Purpose

 

Opening Balance

Grants Received

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 (tracking)

Sample schedules of expenditure against grants tracking

(This table is also included as a supporting file)

 * non-government grants are GST-exempt.

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 in 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 (From Community Accounts Mentoring Service (CAMS) http://www.cams.org.nz/ )

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 Resident withholding tax (RWT)? If not, can you apply for an exemption?

 

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 expenditure)?

 

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 $60,000 (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 tax been deducted from those contractors that fall within the schedular payments regulations?

 

If no tax on schedular payments 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?

 

Is a copy of your constitution available, in case the auditor requests it?

 

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:

 

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).

The annual financial accounts you will need to produce are:

  • Statement of financial performance (profit and loss) this shows the revenue and expenses of the organisation 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 any risks associated with this should be noted.
  • Statement of financial position (balance sheet) this 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 operations 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 that year. 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:

  1. 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.
  2. Audit by an accountant without a certificate of public practice e.g. a retired accountant or accounting technician.
  3. A review engagement by a qualified accountant. This is less than a full audit, but provides a degree of independent assurance to the accounts.
  4. 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 the Lottery Grants Board or the Community Organisation Grants Scheme) require this for smaller groups.

If your rules or constitution don't specify the audit requirements, independent verification (audit level 4) will be sufficient for smaller community groups (i.e. less than $60,000 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 (this is generally beyond the scope of this kit).

Tip: For more information on auditing, visit the NZ Institute of Chartered Accountants website – http://www.nzica.com/ .

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/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.

 

Next page: Annual returns and financial statements

Previous page: Computerised accounting systems

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