Having a committee to run the organisation gives it separation from whomever set it up: the committee can make independent decisions about its future and it doesn’t become a financial and administrative burden on the person starting it. Financial responsibility for an organisation rests with the Board or Management Committee, and is generally led by a Treasurer/Accountant. Regardless of whether a Treasurer is appointed, the treasury function needs to be assigned to someone.
Each Management Committee will have its own way of doing things. The way in which work is shared out can also depend on the skills, interests or amount of time that each person has to offer. Always ensure that the role and expectations of your Treasurer matches the current dynamics of your organisation.
In general, the Treasurer is responsible for:
- General financial oversight
- Administration of funding, fundraising and sales
- Financial planning and budgeting
- Financial reporting
- Banking, book keeping and record keeping
- Control of fixed assets and stock
The following are typical responsibilities of a Treasurer under each of the above headings, however the size and complexity of your organisation should dictate which of these functions are actually necessary. Those items in bold are basic for most small organisations.
- General financial oversight
- Oversee and present budgets, accounts and financial statements to the management committee at each committee meeting
- Liaise with other organisation members about financial matters, as necessary
- Ensure that appropriate financial systems and controls are in place
- Ensure that record-keeping and accounts meet the requirements of funders or statutory bodies (e.g. Charities Services, Registrar of Incorporated Societies.)
- Ensure compliance with relevant legislation.
- Administration of funding, fundraising and sales
This is only relevant if your organisation undertakes fundraising or sales activities, as opposed to just collecting membership fees. Fundraising and sales may be the main responsibility of others in the management committee or of a fundraising sub-committee. The Treasurer’s role may be to support that from a financial and compliance perspective if not done by others.
- Advise on the organisation’s fundraising strategy
- Ensure use of funds complies with any conditions set by funding bodies
- Ensure fundraising and sales complies with relevant legislation (e.g. Unsolicited Electronic Messages Act 2007) and is bound by effective financial systems and controls (e.g. around fairs, workshops, sausage sizzles, etc)
- Ensure effective monitoring and reporting around any fundraising and sales initiatives
- Financial planning and budgeting
- Prepare and present budgets for the financial year, and any new or ongoing work (e.g. for a fundraising activity such as a workshop or retreat)
- Advise on the financial implications of any plans/projects
- Present revised financial forecasts (of surplus/loss) based on actual spend
- Financial reporting
- Present regular reports on the organisation’s financial position
- Prepare accounts for audit and liaising with the auditor, as required
- Present accounts at the AGM
- Advise on the organisation’s reserves (e.g. Bank Accounts, investments)
- Banking, book-keeping and record-keeping
- Manage bank accounts
- Set up appropriate systems for book-keeping, payments, banking lodgements & petty cash
- Ensure everyone handling money keeps proper records and documentation
- Control of fixed assets and stock
- Ensure proper asset records are kept
- Ensure required insurances are in place, if appropriate
1. Own Bank Account
Generally an organisation will need its own bank account so its transactions are kept separate and can be easily tracked. If combined with someone’s private bank transactions, it can be difficult to see how well the organisation is doing financially and the person may unintentionally end up financially supporting the organisation without the formal recognition of having given a loan or donation (or visa versa).
2. Proof of Entity
Most banks require you to be set up as a legal entity before they will open a bank account in your organisation’s own name. That might be a charity, incorporated society, trust, partnership or company, for example. For Church-like groups, they are usually set up as charities or incorporated societies or both, because of the protection and advantages those structures offer the members. Charities are generally exempt from bank fees & income tax.
3. Multiple signatories
Most churches require 2 people to sign payments / cheques for their own protection (so someone can’t write themselves a cheque and then “take off”). This is so important, that it is usually stated in the organisation Constitution or founding Rules. Today many payments are done on-line via internet banking but only some banks are set up allow organisations requiring 2 signatures / approvals to pay this way. Those that don’t, require you to still use cheques. If processing payments on-line is important to you (e.g. for convenience), then check it out with the bank first. The signatories have to be pre-arranged with the bank. This usually requires the signatories to visit the bank in person with proof of their identities. It is better to have more signatories than the minimum number agreed with the bank, in case one of your signatories is unavailable and an urgent payment needs to be made.
4. All Money Through the Bank Account
As a general rule, all income should be deposited in the bank account and all payments made from the bank account so all transactions are visible and payments can be appropriately authorised. If cash is collected and debts are paid out of that cash before it is banked, neither the full income nor the payment of those debts is visible in the bank account – and the payment of those debts may not have been approved and authorised by the committee or signatories. There is little visibility and internal control over that cash system and it can be easily manipulated to perpetrate a fraud (giving someone/self money that is not warranted).
5. On-line Versus Paper Statements
Some banks charge extra for sending you paper statements whereas on-line statements are generally free. On-line access allows the treasurer to immediately check whether people have paid when due, what interest has been earned and to reconcile the bank statement to the accounts (to check that all money that has been received and is showing in the books is also showing in the bank account). The bank accounts can be checked on-line whenever it is convenient and necessary (like immediately before a Committee meeting) without having to wait for the monthly or 6-monthly bank statement.
Inland Revenue Department & Taxes
1. IRD Number
Once you have a bank account you can apply to IRD to get an IRD number which you then need to advise back to your bank. See www.ird.govt.nz/how-to/irdnumbers/organisations/#03
2. Tax Exemptions
If your organisation is registered as a charity with the Charities Commission, now known as Charities Services, your organisation will automatically be exempt from paying income tax. (You will need to provide your Charity number to the bank and IRD). If your Charity is deregistered, your organisation will no longer be exempt. Charities Services maintains a register of charitable entities which the public can view.
3. Donee Organisations
If you are a Charity, you might also want to apply to become a donee organisation so anyone donating money or goods to you can claim it on their tax return. IRD’s guide for Charities and Donee Organisations can be found at www.ird.govt.nz/forms-guides/keyword/notforprofitgroups/ir255-guide-charitable-organisations.html . It explains all taxes for which charities are exempt.
If your organisation’s income (before expenses) is over $60,000 per year, it will need to register for GST (Goods & Services Tax). Registration for GST is optional below that income threshold. GST registration means you will need to charge GST (15%) on all services and membership, which then has to be returned to IRD less any GST you have paid for goods and services you have purchased. (Done with a GST return). Generally if you are making a surplus, you will have to pay GST to IRD, however if you are making a loss, you can claim it back. Donations, koha, bequests, residential rent, interest and dividends are exempt from GST, so don’t include them in your income when you calculating whether your income is over $60,000. Details on how to register can be found at www.ird.govt.nz/gst/gst-registering/registering-for-gst/
Registered Charities are required to report to annually to Charities Services (DIA) on both their financial results and the service outcomes. Depending upon your organisation’s level of income, there are different reporting requirements. Your committee can elect to report at a higher level than your income dictates but that generally involves more complicated accounting, and at the highest levels may require an accountant involved. The options can be found at https://www.charities.govt.nz/new-reporting-standards/which-tier-will-i-use/.Most small charities elect to report at Tier 4 level which uses Cash Accounting – based on the money you receive and pay. You will find the reporting much easier if you make sure all money goes through your bank account and record all the money you receive and pay.
You must submit your reports within six months of your financial year end or your organisation risks being deregistered. If your Rules/Constitution states that your accounts need to be audited or reviewed, or your expenditure is greater than $500,000, then you must report your audited or reviewed accounts.
Charities Services require your income and expenditure to be reported in certain categories. Make sure you understand these requirements (accessed from the link above) so you can set your books/accounts up to record your financial transactions in similar categories – it will make it a lot easier at the end of the financial year. For example, Tier 4 charities are required to report their Statement of Receipts and Payments split as follows:
- Operating receipts categories
- Donations, fundraising and other similar receipts
- Fees, subscriptions and other receipts from members
- Receipts from providing goods or services
- Interest, dividends and other investment income receipts
- Other operating receipts
- Operating payments categories
- Payments related to public fundraising
- Volunteer and employee related payments
- Payments related to providing goods or services
- Grants and donations paid
- Other operating payments
Tier 4 charities must report any assets and liabilities at the end of the year in a Statement of Resources and Commitments split as follows:
- Schedule of resources
- Bank accounts and cash
- Money held on behalf of others
- Money owed to the entity
- Other resources
- Schedule of commitments
- Money payable by the entity
- Other commitments
- Schedule of other information
- Grants or donations with conditions attached (where conditions are not fully met at balance date)
- Resources used as security for borrowings
Charities Services also require charities to separate income from members and non-members when reporting. Obviously any joining fees are from members so that is straight forward but church service collections may be from a mixture of members and non-members. You and your committee will need to agree how to allocate the collection between the two categories – for example, you may take sample counts of members and attendees at some church services and at the end of the financial year prorate the collection takings on that basis.
Incorporated Societies need to submit their annual financial reports within one month after their AGM. An Incorporated Society that is also a Registered Charity does not need to file their annual financial statements with the Registrar of Incorporated Societies, just with Charities Services as above. All incorporated societies, however, must advise the Registrar of other changes in the society’s details (e.g. changes to rules, name, addresses), regardless of whether they’re registered with Charities Services.
The Registrar of Incorporated Societies requires that an organisation’s annual financial statements should include:
- the society’s full name
- the financial year that the financial statement has been prepared for
- the society’s income and expenditure for that financial year
- the assets and liabilities, as at the close of the financial year
- all mortgages, charges, and securities of any description affecting any of the society’s property at the close of that year
- an audit or review report (where a society’s rules specify that an auditor or reviewer must be appointed)
- a certificate signed by an officer of the society confirming that the statement has been submitted to and approved by the members at a general meeting.
The categories used within each of those reports is not prescribed, unlike those for Charities Services. Further details about Incorporated Society reporting requirements can be found at http://www.societies.govt.nz/cms/incorporated-societies/financial-statements.
Any cash or payments handed to the Treasurer or other officer of the organisation should be receipted (by the Treasurer) immediately and the receipt handed to the payee as proof of payment. Receipts should also be written out immediately for any money received in the post. Many people don’t require their receipts (so you can save on postage if that’s the case). Receipts used to be the first record of having received some money but today many people deposit directly into the bank account so the bank statements are the first record for those payments.
People paying directly into your bank account (either through internet banking or into your account via an ATM or teller) don’t generally require written receipts to prove they have paid you – their bank statement shows the payment or they can get a receipt from the ATM or teller).
2. All Money Through the Bank Account
As a general rule, all money received should be deposited in the bank account so all transactions are visible. Any money received in cash or cheque (& therefore receipted) should be totalled up and deposited regularly into the bank. If you run weekly services and/or meetings for which you receive money, the banking should be done at least weekly – the longer the banking is left, the more likelihood some money might be lost or misplaced so auditors look for regular banking and a short time period between the money being receipted and banked. Do not pay bills or reimburse people directly from the cash received but write them out a cheque or pay them from petty cash. That way, what ever money is received should be showing in the bank statement as having been deposited in the bank. The auditors also look for that correlation.
3. Recording Money Received
All money received, either recorded as receipts or as bank deposits in your bank statement, should be recorded in a Receipts Journal. This may be hand written into a “money book” (14-column Analysis Books are good as you can record your receipts in the left columns, payments in the right columns and keep a running total of the bank balance at the far right), a computer spreadsheet (e.g. Excel) or entered into a computer program such as MYOB or Xero. They should be entered in date order and totalled whenever you do the banking – the total of the recorded cash and cheques received should be sub-totalled and checked that this is the banking amount.
Remember if you are a registered Charity, you are required to separate money received from members from money received from others.
See the attached example of an Excel Receipts and Payments Journal
1. All Payments From the Bank Account
As mentioned earlier, best practice is to have all payments being made out of the bank account by cheque or on-line banking. That way, all transactions are visible. If they need to be approved and ratified by the Committee, that can be done.
2. Petty Cash
To cater for very small payments (like for milk for church services) for which writing a cheque would be time consuming and inconvenient, some organisations hold a petty cash float. Small items are paid for with this cash, the receipts kept and the payments recorded in a petty cash journal. When the petty cash float gets low, a cheque for cash is written out to replenish it.
Like other payments, petty cash payments need to be ratified at Committee meetings so there is visibility of what the money is spent upon and their approval is given for what’s been spent. The petty cash float amount is usually set at a level that will allow people to purchase small items from it between Committee Meetings, where it will be approved to be replenished. The receipts for the petty cash spend are filed to support the entries in the petty cash journal – they are usually filed separately to payments made by cheque or bank transfer. See the attached example of an Excel Petty Cash Journal.
Alternatively, whoever regularly purchases small items can accumulate their receipts and then be reimbursed when the amount becomes significant. This can be recorded in the Receipts and Payments Journal just like any other payment.
3. Petrol Vouchers
If petrol vouchers are purchased to reimburse travel expenses for visiting mediums or members attending Church business, they can also be treated like petty cash. Petrol vouchers are purchased in bulk and recorded in a Petrol Voucher Journal. Any issued are recorded (receipts aren’t generally expected for these, but an auditor might find proof that the medium took the service that week or there might be minutes from a meeting attended, etc). When they start to get low, a cheque/payment is authorised at the next Committee meeting to purchase some more.
4. All Payments Authorised
All payments should be approved and authorised by the controlling body. This is usually done at a committee meeting.
- Payments yet to be made should be listed by the Treasurer and the Treasurer move that the payments be made.
- Sometimes other payments need to be made between meetings because that’s when they fall due. Any such payments that weren’t pre-approved should be listed by the Treasurer and the Treasurer move that the payments be ratified. Payments between meetings should only be for regular/expected payments (like milk, premise rental, etc) that would normally be approved for payment. Anything unusual or contentious, should be left to be discussed at a meeting before paying but advise the creditor that will be the process, so they understand the delay.
Late payments negatively affect an organisation’s credit rating and many organisations will refer to this before advancing credit, doing major business or giving a grant.
5. Supporting Documentation
All payments should be supported by invoices or receipts from the person/organisation being paid. This is considered independent proof of the debt or payment. When reimbursing someone for something they have purchased for the organisation, the original invoices/receipts from the selling organisation should be supplied for filing (e.g. Till receipt from the supermarket.) Any personal items should be removed (crossed out) from the invoice/receipt and the church/organisation only pays the portion purchased for it. If a quote has been received, the Treasurer should check the bill against the quote before paying, to ensure the correct amount(s) has been charged.
The invoices/receipts for any petty cash expenditure (recorded in a Petty Cash Journal) are usually kept separate from those for payments made by cheque or bank transfer (recorded in a Receipts and Payments Journal).
For some payments, like an honorarium to a voluntary auditor or travel contributions to voluntary mediums, you might not receive a receipt or invoice. Just file as many as you can. If shopping on-line or in a shop, always ask for a receipt and get other members of your organisation purchasing things to do the same.
6. Proof of Receipt of Goods
The Treasurer or other independent person should also check that the goods/services have been received before the invoice is paid (unless the payment is a deposit for something to be delivered in the future or a payment in advance such as rental). This ensures the organisation is paying only it’s valid debts (e.g. not paying for private purchases, not paying scam invoices).
Where your members/mediums travel on the organisation’s behalf, the organisation should have a travel reimbursement policy stating clearly what will and won’t be reimbursed and at what rates. For example, will meals away be reimbursed or is that considered a private expense because the person would have been having meals wherever they were? What about telephone calls home? Does the organisation pay the travel expenses for visiting mediums or give petrol vouchers/money as a contribution towards their expenses? If the organisation is paying for road travel, it could pay the IRD reimbursement rate for the distance travelled (covering petrol, wear and tear – See www.ird.govt.nz/business-income-tax/expenses/mileage-rates/emp-deductions-allowances-mileage.html) or get the person to fill their car with gas before travelling and then fill it up on their return and supply that receipt. If you need to reimburse someone expenses that aren’t covered by your policy, agree is in writing before the travel commences so all parties are clear about what your organisation is paying.
Recording Money Paid
All money paid, either through the bank account or petty cash, should be recorded in a Payments or Petty Cash Journal. Payments may be hand written into a “money book” (14-column Analysis Books are good as you can record your receipts in the left columns, payments in the right columns and keep a running total of the bank balance at the far right), entered into a computer spreadsheet (e.g. Excel) or entered into a computer program such as MYOB or Xero. They should be entered in date order. See the example of an Excel Receipts and Payments Journal mentioned under Receiving Money.
Keeping Financial Records
IRD requires you “to keep sufficient records to calculate the income, expenses and GST liability of your charitable organisation, and to enable us to confirm your accounts if necessary.
The records you must keep are:
- receipt and payment account books
- bank statements
- invoices (including GST tax invoices)
- any other necessary documents to confirm entries in your accounts
- stocktake figures for the end of the financial year
- wage records for all employees, including KiwiSaver records
- interest and dividend payment records.”
Even if exempt from paying tax or not registered for GST,it is still advisable to keep all such records as a matter of good practice and in case your exemption is investigated. An auditor or financial reviewer will expect this same level of record keeping. IRD requires you to keep all financial records for at least seven tax years.
You may keep physical (paper) copies of the financial records or digital copies (on your computer) or a combination of both, as long as you can retrieve the information if needed. Remember to make regular back-ups if storing your financial records electronically. If you are voluntary treasurer using your own computer, give consideration how to store the information so it can be easily collated and passed to any future Treasurer.
Your financial reports form part of your financial records and the Treasurer or your accountant should compile them annually. These are what your auditor or financial reviewer checks against your financial records and systems. They are then presented at your Annual General Meeting (AGM) or equivalent. Your management financial reports will probably be slightly different from any tax reports which also take into account your tax exemptions and prescribed IRD depreciation rules. Here we are concentrating on your management reports which will be reported to your organisation’s management/committee/ board and owners/members/shareholders.
Generally, your financial reports will summarise your transactions made throughout the year and show your financial position at the end of the year. They may be accompanied by a written management report describing the organisation’s successes, contributions and future plans.
Cash versus Accrual Reporting: Smaller, simpler organisations generally report on a cash basis (money received and paid, as recorded in your Receipts and Payments Journal). Bigger, more sophisticated organisations will report on an accrual basis (which also includes money owed/earned at the end of the year, other obligations at the end of the year and assets depreciated over their useful lives).
If your organisation is a registered charity, some of these decisions are dictated by the size of your organisation and its level of public accountability. (see Registered Charities above). Only charities with annual operating expenditure consistently under $125,000 and whose main activities do not including holding funds for others (like banks, insurance providers do), can report on a cash basis.
Types of reports:
Standard cashed based reports include:
- Statement of Receipts and Payments
- Statement of Commitment and Resources.
Basic accrual reports include:
- Statement of Financial Performance (or Statement of Income & Expenditure)
- Statement of Financial Position
- Statement of Cash Flows
Charities Services also requires a Statement of Service Performance and Statement of Accounting Policies, whether reporting on a cash or accrual basis. Its website has templates and guidelines to help you prepare both types of reports. If you are not a registered charity you can use your own categories but the principles for preparing the reports are the same. See the examples of Cash Reports and Accrual Reports.
External funders might also expect certain types of reports in support of a funding application or funding reconciliation.
The treasurer should present the annual reports (or a draft of them) to the governing management group (e.g. Committee / Board) before they are disseminated to the public, so management can review the results and prepare for any likely discussion at the AGM. A budget for the next year, based around the organisation’s strategic plan, might also be approved. This will help determine which plans are financially viable before the management group makes any commitments at the AGM.
At each management/Committee/Board meeting during the year, the Treasurer should present interim financial reports showing:
- The current financial position
- Any payments needing to be approved or ratified
- Progress against budget, if a budget was set
Each meeting allows the management team to review the money coming in and the expenditure being made, and to ask questions of the treasurer. All payments should either be approved (before being paid) or ratified (if not pre-approved but had to be paid between meetings). Seethe example of a basic Interim Report. Graphs of income, expenditure & bank balances by month can help non-financial members of the management team see the trends.
The management meeting also gives the management team an opportunity to take remedial action if the organisation’s financial situation is not going according to plan. Key financial indicators might be presented to help assess the health of the organisation and highlight any areas of concern:
- Net Equity Position – Do the organisation’s assets (what it owns and is owed) exceed its liabilities (what it owes)? If liabilities exceed assets the organisation is in a negative equity position which can be an indicator of insolvency or lack of sustainability in the longer term.
- Liquidity – This is measured by the ratio of current assets (e.g. bank, cash, debtor balances) against current liabilities (e.g. creditor balances) and is an indicator of cash flow and the ability of the organisation to meet its short-term obligations.
- Operating Reserves – The ratio of retained earnings against annual operating expenses is an indicator of how long the organisation could continue to operate in the event that all income streams ceased.
- Actual versus Budget Comparing actual income and expenditure against budget and identifying significant variances highlights areas of over or under spending, or over or underachieving of income targets.
Any potential projects to be funded by the organisation should also be costed and compared against the benefits. They should be approved (or otherwise) at the management/Committee/Board meeting.
Having your accounts audited gives the readers of your reports (e.g. Members, public, funders, Charities Services, etc) a high level of assurance about whether your financial statements as a whole are free from material errors or fraud. An audit does not give absolute assurance of this. Many organisations that have been established many years were established with a requirement in their Constitution or Rules to have their accounts audited. Where voluntary auditors were available to community organisations in the past, changes to the audit standards and requirements now mean that voluntary auditors are hard to find and a paid audit would be very expensive.
As an alternative, many organisations have changed their Constitution or Rules to require their accounts to have “financial review” instead. A review gives only limited assurance about whether your financial statements as a whole are free from material errors or fraud. The differences between an audit and review are described here: www.charities.govt.nz/new-reporting-standards/new-statutory-audit-and-review-requirements/. A financial review does not have to be performed by an auditor but, to increase the level of assurance, it would be best to have it performed by a qualified accounting professional (that is independent of your organisation). A review is less work than an audit and you are more likely to find someone willing to volunteer their time and skills to perform it.
When someone performs a voluntary audit or review, it is customary to give them an honorarium in recognition of the time and skills they have donated to your organisation.
Some organisations have neither audits or reviews, but unless other members of the management group are financially aware, they run the risk of any financial errors or fraud going undetected. The organisations may also attract unscrupulous treasurers willing to take advantage of this financial weakness.
Under some conditions an audit or review of your organisation’s financial statements may be required, even if it isn’t required in the Rules or Constitution. Some funders (e.g. organisations giving grants) may require your accounts to be audited. If your organisation is a registered charity with total operating expenditure for each of the previous two accounting periods of over $500,000, your financial statements must be either audited or reviewed by a qualified auditor. If that operating expenditure is over $1 million, your financial statements must be audited by a qualified auditor. Tier 3 charities (e.g. with annual operating payments over $125,000) that are required by statute to have an audit or review are also required to have their non-financial information (e.g. Statement of Service Performance) audited or reviewed.
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