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Community Development Resource Kit

SECTION A: Community Development Practice

SECTION B1: Setting Up A Community Group - Introduction

SECTION B2: Setting Up A Community Group - Legal Structures

SECTION B3: Setting Up a Community Group - Incorporated Societies

SECTION B4: Setting Up a Community Group - Charitable Trusts

SECTION C: Planning and Managing

SECTION D1: Employment Matters - Agreements

SECTION D3: Employment Matters - Support

SECTION D2: Employment Matters - Recruitment

SECTION E: Running Meetings

SECTION F: Project Management

SECTION G: Financial Management

SECTION H: Funding

SECTION I: Keeping Good Records

SECTION J: Technology - The Internet

SECTION K: Political Processes and Submissions

SECTION L: Legislation

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SECTION G: Financial Management




The Role of the Treasurer

Basic Duties and Responsibilities

Any group that receives or spends money needs to have a financial management system.

Financial information can be used by management, workers, taxation authorities, funding agencies and the general public to assess that the finances are being used efficiently and effectively to meet the objectives of the organisation. It also is a check that the financial systems meet all legal requirements and that the cost of the service is reflected accurately, so that future planning can be undertaken. Financial information can also reflect concern for social issues. For instance it may well reflect funding allocated for meeting responsibilities under Te Tiriti o Waitangi, or for the needs of women.

The Role of the Treasurer

The treasurer's role - a position of trust - is an opportunity to use and further develop valuable accounting and organisational skills. A treasurer takes responsibility for the financial management of the organisation. The treasurer carries out the following duties:

  • sets up accounts on behalf of the organisation (most organisations get by with a cheque account, a savings account, and term deposits)
  • ensures money received is receipted and banked promptly
  • invoices anyone who has purchased goods or services (rentals, use of equipment, membership fees etc) from the organisation.
  • signs cheques on behalf of the organisation (at least one other person should co-sign the cheques)
  • maintains accurate records of income and expenditure
  • files GST and tax returns, and makes PAYE payments as required
  • (where there are paid employees) keeps an accurate wages book
  • prepares annual budgets for the forthcoming year
  • manages a cash flow record, and also the organisation's investments e.g. term deposits and property management (in association with the committee)
  • maintains an appropriate accountability system for grants received by the organisation
  • prepares and presents monthly financial reports for management meetings
  • prepares accounts for auditing and provides information for the auditor as required
  • prepares and presents the Annual Financial Report to the Annual General Meeting/Hui -a-Tau.

The volume of work for a treasurer will depend on the size of the organisation and whether there are staff who have responsibility for some of these duties.

The Effective Treasurer

To be effective as a treasurer you need to be well organised and have a systematic approach to the task. You should:

  • set aside regular and specific periods of time for your work when you are unlikely to be interrupted
  • keep a careful record of all cash, cheques and other financial transactions
  • have good oral and written communication skills
  • follow the organisation's financial plan
  • be willing to learn new skills (e.g. computer cashbook systems)
  • ask for help when you need it

Recruiting people to undertake roles such as treasurer in an organisation can sometimes be difficult because of the amount of time required. Organisations may need to consider options such as making it a paid position, incorporating it into the job description of a staff member or securing donated services.

The duties of the treasurer should be outlined in the job description for the position - whether or not the position is paid a wage, an honorarium, or out-of-pocket expenses. The job description should also include the standards of work expected of the treasurer (e.g. how often financial reports are required by the management committee).

An incoming treasurer can ask for the books to be audited or for a written statement about their current state before taking over. This affords some protection against earlier mishandling or mistakes.

Cash and Banking Systems

To operate a manual cash and banking system you will need:

  • cheque, savings and (where appropriate) term deposits accounts with a bank
  • cheque and deposit books with butts
  • a 14- or 16-column cash book
  • ring-binders or folders for
- invoices that have been paid
- details of receipts
- bank statements and reconciliations.

Writing Receipts

You should write a receipt for all money received - include the amount, the date it was received, who it was received by, and the source (e.g. membership fee, donation, or specific fundraising venture).

Bank all money received into the cheque account as soon as possible (interest may be paid on money held in your account).

Write the receipt number on any advice that came with the cheque, and file it in the cash receipt file or folder.

Remember to write thank-you letters for all donations received.

Making Payments

All payments should be made on invoice. Keep the invoice itself for filing - send only the tear-off portion with the payment. If there isn't one, send a copy of the invoice details with the payment.

All invoices should be checked for accuracy. If you are unclear about whether payment for any goods or services has been authorised, always check with the committee before the payment is made. Also check that the goods or services have been received (tick off items listed on the packing slip/invoice), and that they are satisfactory.

Volunteers' out-of-pocket expenses should always be paid promptly.

All payments should be made by cheque within a month of the date on the invoice, with the exception of small items that have been authorised to be paid out of petty cash. Never issue a blank cheque to anyone.

To make a payment:

1. Write out the cheque to the supplier, making sure it is crossed "Not Transferable". Most banks will issue "not transferable" chequebooks if requested, or you can buy a rubber stamp.

2. Fill out the details of the payment on the cheque butt

3. On the invoice you are filing write the date paid, cheque number, the amount paid and initials of the person paying the bill. File the invoice in cheque number sequence in the cash payments ring binder.

Petty Cash Systems

Petty cash is used for paying for small items such as stamps, milk, pens, or bus travel. A cheque for a small amount of money is drawn on the organisation's cheque account, Depending on the size of the organisation this may be between $20 and $100. When funds are getting low a new cheque is drawn to top it up.

Receipts are required for every petty cash purchase (for items for which receipts are not issued, such as parking meter expenses, the spender writes out the receipt). All receipts must include the date, the purchase, the amount spent, from where it was purchased, and the initials of the spender. The receipts need to be kept and the information recorded in a petty cash notebook. This notebook can be ruled into six columns:
date;cash into petty cashdescription of itemcash out (the cost of the item)name (or initials) of purchaser balance left in petty cash

The petty cash book should be balanced at regular intervals. The balance in the petty cash will be the previous balance, plus the amount put into petty cash, minus the receipts as listed. Check the actual receipts against the entries in the notebook. (Sometimes petty cash can be a few cents out with all cash in, cash out and receipts accounted for. This could be because the cents in the cost of a cash purchase have been rounded up or down.)

Reimbursements from petty cash are subject to audit along with the organisation's other financial systems.

Keeping Track of Grants

Strict accountability is demanded of organisations receiving grants.

It is particularly important to have a good system for recording the receipt of grants - especially when they have been received from several sources. One way of keeping track of both grant applications and any funding subsequently received is to keep a separate grants schedule:

  • When a grant is received, enter the grant name, the purpose for which it was given, the grant total minus GST and the GST itself, separately in the schedule
  • When the GST has been paid to IRD tick the box alongside the GST column
  • At the end of each month, enter the amount of the grant you have spent and, also the balance that is not yet spent
  • Add up the unspent balances of all the grants in the schedule and add this sum to your monthly financial report
  • When the grant is fully spent (OR at the end of the financial year) fill in a Certificate of Expenditure and send it to the organisation which gave the grant. It is a good idea also to send newsletters, annual reports and financial reports to funders to keep them informed about your organisation's work.

If you are registered for GST and the grant includes GST, you may only spend the grant minus the GST. You must pay the GST to the Department of Inland Revenue (refer to Goods and Services Tax).

Cashbooks

One of the most important reasons for maintaining proper financial records is to have funding accountability and to assist with management. A cashbook can either be paper-based or computer-based. If your cashbook is kept on a spreadsheet in a computer, you need a good backup system and regular printouts in case of a crash.

The cashbook records all financial transactions, keeps you financially up-to-date, and allows you to keep control over your finances. The cashbook keeps track of receipts and payments. It tells you:

  • how much money has been paid into the bank
  • where the money came from
  • what cheques have been paid out, to whom and for what
  • the total for the month or year for specific purposes, e.g. rent
  • the total for the month or year for all income and expenses, and
  • your current bank balance.

Sample cashbook
Date
Expenditure/ Income
Cheque Receipt No
Cash In
Cash Out
Expenditure
Income
Bank Balance
Rent
Power
DonationsGrants
2004Balance from previous page
1
2
3
4
5
67$550
Jan 1
Jan 4Power121$45$45
Phone122$100$100$405
Jan 7Mail donationsr/556$160$160
Lottery grantr/557$4000$4000$4565
Total$4160$145$100$45$160$4000


Balancing the cashbook will double-check your figures. The expenditure columns should add up to the “Cash Out” column and the income columns should add up to the “Cash In” column.

Monthly Reconciliation

At the end of each month you will receive a bank statement, and you should reconcile it with your cashbook.

1. Go through bank statements and tick off transactions against the cheque book and cash book. Take note of any unpresented cheques or deposits and reconcile them using the back of the bank statement by entering any cheques and deposits that don't appear on the bank statement. Follow the instructions on the bank statement to arrive at the cash balance;

2. Carefully look at any items that appear on the statement but not in the cash book. If they are legitimate, e.g. interest or bank charges, enter them in the cash book. If not, query them with the bank

3. Make sure that the subtotals in the details of receipts and payments add up to the totals for receipts or payments.


The bank balance of the cashbook will equal the bank statement total plus any uncashed cheques. If it doesn't, you will need to go back over the cheque books and deposit books and check all entries and additions to make sure you have not missed anything out.

Remember to use a cashbook with enough columns to provide you with detailed analysis of all your receipts and payments (a minimum of 14 columns).

Smaller organisations can have both receipts and payments on one page.

Monthly Financial Reporting

All the information for providing a monthly report is available in the cashbook.

To complete the report enter:

1. the figures from the total in the cash book

2. the bank balance at the beginning of the month

3. the receipts during the month. Show the grants separately if you have received more than one

4. the total of the payment columns for the month

5. the summary to give your totals of receipts, payments and closing balance in the bank.


Carefully check that the figures add up.

If you have any money on investment deposit, add this to the bank balance to give total funds held.

Copy the grants unspent balance figure from the grant schedule. The 'unspent grants' balance represents funds held that must be spent according to the criteria of the grant.

Copy the financial report and written comments and send to the committee members so they can look at it before the monthly meeting where any queries can be discussed.

Have the committee sign the monthly report at the committee meeting, and include a signed copy in the minute book.

Sample Monthly Financial Report

Monthly Financial Report for the Month of ...........................

Bank balance at the beginning of the month: $
Receipts for month:
Grants received:
                      Total Receipts $
Payments for month:
Rent
Travel
Postage/stationery
Maintenance
Petty cash expenses
Wages
                      Total Payments $
Summary
Bank balance (opening)
Add receipts
Deduct payments
Bank balance as at
Balance in Investment Account
Total Funds
Untagged funds available


Tax Matters

Different Types of Tax, ACC and Working With Auditors


There are a number of tax payments that community organisations may have to make to the Inland Revenue Department (IRD).

Unless a group gains an exemption from the Inland Revenue Department, it may be liable for income tax on its earnings (i.e. the profit it makes). There are several areas of exemption including Charitable Status, Non-profit Status, Donee Status and District Improvement Status, so it is important that groups contact IRD to ascertain which options are most appropriate for them. In order to gain final approval for exemptions, community organisations must meet certain criteria under the Income Tax Act 1994 (for more information on how groups can obtain tax exemptions refer to Section B: Setting Up a Community Organisation).

Employment-related Tax

Once registered as an employer (i.e. of paid employees) you undertake to:

  • deduct all relevant tax from wages to employees
  • pay the tax deducted to IRD
  • tell IRD of new employees or when an employee ceases to work for you

PAYE & Student Loan Repayments

Organisations employing staff must deduct PAYE and Student Loan Repayment tax from wages and salaries before the workers are paid, and every month the total PAYE and Student Loan Repayments for the organisation is forwarded to the Inland Revenue Department.

As soon as you begin to employ paid staff you need to register as an employer with IRD, using form IR334. Further guidance is available, including the First Time Employers Guide IR333.

IRD will send you a copy of the tax tables so you can work out your tax, together with IR330 Tax Code Declarations for the employees to fill out. For first-time employees you should ensure they see a copy of IR723, Information for Salary and Wage Earners.

You will also need a wages book and timesheets so you can keep a record of all wages paid.

Workers need to be paid on a regular basis, weekly, fortnightly or monthly. To work out an employees' wages:

1. Calculate the gross pay (ie before tax), for the work period by adding up the hours the employee has worked and multiplying them by the hourly rate; or if by salary

2. Look up the tax tables and find the weekly or fortnightly tax table (whichever corresponds with the pay period of the employee) that shows the amount of tax that needs to be paid on the gross pay, and subtract that from the gross pay

3. Pay them the difference.


You are required to record all wage payments and all tax deductions in the wages book at the time the worker is paid.

If the net pay is to be the same every pay period, you can obtain an automatic payment authority from the organisation's bank and make a direct credit into the employee's account.

Monthly PAYE Reconciliation
Each month IRD requires you to do an employer monthly schedule. Once registered you will be automatically forwarded an IR348 (the employer monthly schedule) and an IR345 (the pay-in slip). On the schedule you need to enter monthly gross earnings, PAYE deductions and Student Loan Deductions for all your employees. This information along with a cheque covering the monthly PAYE deductions must reach the IRD before the 20th of each month.


Yearly PAYE Reconciliation
Before March 31 each year, IRD will send you an IR63 form. This form is for reconciling the total yearly amount of PAYE tax you have deducted from wages. This form should balance with your wages book and your Monthly Reconciliation payment forms. It is also used for calculating the yearly Accident Compensation levy you will need to pay (refer to Accident Compensation).

The workers need to get IR12 forms as soon as possible after you have completed your yearly reconciliation.

Goods and Services Tax (GST)

GST is a tax on consumption of most goods in New Zealand. At the time of writing, GST is charged at 12.5% of the value of the goods or services provided.

Any person or organisation that carries on a taxable activity, or who intends to do so from a definite date, may register for GST by completing a 'GST Application for Registration' form (available from the Inland Revenue Department).

If an organisation's annual income for taxable activities (ie supply of goods or services to someone else for a reward) was over $40,000 for the past twelve months, it must register for GST.

People and organisations registered for GST must:

  • charge and collect GST on behalf of the Government
  • file GST returns
  • account for GST to the Inland Revenue Department.

They can also claim deductions for GST payments made on goods and services they use.

You may register for GST if your annual income is less than $40,000. There can be advantages in doing so for some voluntary organisations because you will be able to claim back the GST you have paid on goods and services the organisation has used. However, you should remember that if you decide to cancel your registration you will have to pay GST on the assessed value of your assets at the time of cancellation.

Payments on which you do not generally pay GST (i.e. they are not taxable) are:
  • wages and PAYE
  • interest, dividends and rentals from houses
  • bank charges and interest
  • grants, koha and donations, where the donor receives no service, or otherwise gets no benefit (unless it is a government grant)
  • money received from the sale of donated goods
  • bequests (money left to your organisation by someone who has died).

Note: certain koha may be classed as an annual income. For more information about gifts and payments made in the form of koha refer to the booklet 'Koha" (IR 278, August 1991) available from the IRD.

Obligations When Registered for GST

It is very important that you are aware of what you need to do as a GST-registered organisation (there are hefty penalties if you do not comply with the regulations). Note that:

  • income received is liable for GST
  • goods and services supplied must have GST added to them
  • assets sold must have GST added
  • tax invoices must be supplied when charging or selling
  • to claim GST on expenditure, a tax invoice (a legal document) must be obtained for all amounts over $50. Invoice forms should be designed to meet the GST tax invoice requirements
  • GST returns must be filed every two or every six months (you choose how often)
  • if more GST has been collected than paid, the difference must be paid to Inland Revenue
  • if more GST has been paid than collected, Inland Revenue will refund the difference
  • all GST records and documents must be kept for seven years.

Every GST-registered organisation is open to being audited by Inland Revenue staff from time to time.

Calculating GST

To calculate GST:

1. add up the total receipts which include GST

2. divide this total by 9 to give the GST on the receipts (output tax).

This should be equal to the total GST received in the cashbook. Then:

3. add the total payments to GST registered people/organisations; and

4. divide by 9 to give GST on payments (input tax).

This should equal the total GST paid.

The net GST payable for the month is output tax minus input tax.

Remember

You cannot spend GST: you must pay all GST you receive to the IRD. Grants paid to organisations may include a GST component - whether or not the organisation is registered for GST. An organisation paying out a $20,000 grant inclusive of GST will add an additional $2,222.22 (12.5%) to the grant figure it is paying out. The $2,222.22 must be paid to the IRD.

Obtain a copy of the GST Guide from your local IRD.

Seek assistance from the IRD if you need help to fill out forms or in understanding any GST requirements.

Residents Withholding tax (RWT)

Money held in the bank or a financial institution is taxed on the interest it earns before payment. An organisation that is fully exempt from income tax (i.e. it has Charitable Status approved by the IRD) is generally eligible for a Certificate of Exemption from RWT.

Fringe Benefit Tax (FBT)

Fringe Benefit Tax is payable on any fringe benefits provided by the employer to the employee, e.g. motor vehicles; low-interest loans; free, subsidised or discounted goods and services; employer contributions to sickness, accident or death benefit funds, superannuation schemes, and specified insurance policies.

If you are a registered charitable organisation, you will get an exemption from paying FBT while the employees are carrying out work associated with the organisation's charitable activities.

Tax Free Allowances

Reimbursing allowances are tax free, and reimbursing workers for expenses they incur as part of their employment. They include meal allowance, tool allowance, mileage allowance and accommodation allowance.

While organisations are free to set their own rate for allowances, many use the Inland Revenue rates set for reimbursing public servants who use their personal vehicle for work purposes. This rate (which is subject to change from time to time) currently is:

  • for the first 3000 km in any year: 62 cents per km
  • after 3000 km in any year: 19 cents per km, or
  • an overall rate for the year of 28 cents per km.

Getting the Facts About Tax

Where to Find More Information:

Links

Inland Revenue Department – publications for non-profit bodies.
www.ird.govt.nz/library/pubilcations/nonprofitandother.html

The IRD has a number of useful booklets on tax and financial matters for small organisations available. Amongst them:

  • Charitable Organisations (IR 255)
  • Clubs and Societies (IR 254)
  • Education Centres (IR 253)
  • Employers Guide (IR 335)
  • Fringe Benefit Tax Guide (IR 409)
  • GST - Do you need to register? (IR 365)
  • GST for Non-Profit Bodies
  • GST Guide, Guide to working with GST (IR 375)
  • Koha
  • Running a Small Business.

Accident Compensation

All employers must ensure that they have ACC cover for work-related accidents. For further information, contact the ACC Business Service Centre. Contact details are provided below.

ACC's Earner Premium payments to the ACC (i.e. those made by the employee) are deducted by the employer from the wages of the employee as part of PAYE. This levy is used to cover non-work-related accidents.

Contacts:
ACC
Telephone: 0800 222 776
Website:
www.acc.govt.nz
IRD
Employer Enquiries
Telephone: 0800 377 772
Website: www.ird.govt.nz


Working with the Auditor
The term “audited accounts” means that the financial records have been checked by a chartered accountant and found to be a true and correct record of the financial operations and position of your organisation.

Some organisations, because of their rules, will be required to nominate the auditor at the AGM. If you are a registered Incorporated Society, and your rules state that the accounts must be audited, then you are required by law to have your accounts audited before being presented to the AGM and accepted by the membership. If possible, find an accountant who will audit your books on a voluntary basis, because auditing fees are considerable.

Auditing Standards

The following standards of auditing need to be applied:

  • the auditor must be a person with adequate technical training and qualifications (a chartered accountant with appropriate audit experience)
  • sufficient evidence must be provided to afford a reasonable basis for an opinion regarding the financial statements under examination
  • the financial management must conform to acceptable accounting principles and must determine that there has been a "true and fair presentation of information"
  • the auditors’ report must contain an expression of opinion regarding the truth and fairness of the financial statement. Where there are exceptions or the auditor is unable to express an opinion, they must state the reason.

In larger organisations, the statement of financial performance and the statement of the financial position are drawn up before they are sent to the auditor to check. Sometimes this is done by the treasurer, the finance committee or an accounts persons who has accounting technical skills, but is not a qualified auditor.

Information the Auditor will Need

For someone to prepare and/or audit your annual accounts, they will need information from the following:

  • the cash and petty-cash books
  • bank statements
  • suppliers’ invoices (in the order they were paid)
  • cheque butts
  • receipts
  • bank pay-in books
  • wages book and reconciliations
  • minute book (for the committee)
  • lists of amounts owed to the organisation
  • lists of amounts the organisation owes
  • list of any equipment purchased, its cost and when (in order to calculate depreciation)
  • the previous year's accounts and audit file.

Annual Accounts of Incorporated Societies

If your organisation is a registered Incorporated Society, you are required to lodge a set of annual accounts with the Registrar of Incorporated Societies at the Companies Office, Ministry of Economic Development each year, along with a statement that these have been presented to the annual meeting.

The Incorporated Societies Act does not require accounts to be audited, although this requirement is often contained in the Rules of Societies and in application procedures to funding bodies.

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Last updated: 13/05/2005