pexels-photo-106344Financial reporting isn’t just a legal requirement that NFPs must meet. It also serves to spur on boards and directors to provide greater oversight of their NFP’s activities. When financial reporting is accurate and open, it increases transparency into the decisions that the nonprofit makes and the actions that it takes. This is especially beneficial when it comes to understanding the financial arrangements of the nonprofit, and how it relates to essential activities such as fundraising, acquiring and disposing of assets, the handling of cash and so forth.

Deadlines Count – Lodge the Correct Reports with the Correct Entity

Reporting requirements for charities, associations, and other nonprofits vary, and some NFPs are required to file reports with more than one entity. Fines and other penalties can be costly for your nonprofit if you don’t submit on time. The first measurement of whether your reporting is effective is to make sure that you are lodging the correct reports with the proper entities by the deadlines.

If your NFP is a registered charity, you can follow up with the Australian Charities and Not-for-Profits Commision (ACNC) to discover the reporting requirements for your nonprofit based on its size and other criteria. Most ACNC registered nonprofits must file an Annual Information Statement (AIS). Depending on their size, some will need to file an annual financial report as well. Some ACNC registered nonprofits have additional requirements to fulfil, such as regular, independent audits.

While it may seem like a lot of work for your board and treasurer, becoming an ACNC registered nonprofit comes with a host of benefits, such as tax concessions and other incentives. Registering with the ACNC can help build your nonprofit’s reputation as a valid and financially responsible organisation.

If your NFP is also a company, you may have additional reporting requirements. One of the more common ways this can occur is if your organisation is a registered nonprofit, but is also a public company that is limited by guarantee. If this, or a similar situation, applies to your NFP, you can learn more about your reporting requirements at the Australian Securities and Investment Commission (ASIC).

Your NFP may also fall under the jurisdiction of the state or territory where it was incorporated, and so will need to lodge reports with the state or territory regulator as well.

Regular Reports Improve Financial Performance

In addition to filing the correct financial statements on time, treasurers should prepare periodic financial reports to the nonprofit’s board. Reporting on a regular basis, such as at the monthly board meeting, is associated with improved financial performance over time. This is because reporting helps boards, directors and others to take make adjustments to their planned expenditures, and take corrective action if fundraising performance and other sources of income happens to unexpectedly fall.

Regular reporting can also tip off supervisors and others in supervisory roles of issues that might indicate that theft and fraud are occurring. Not only can reporting help to reduce losses, but it can provide insight into areas where control and accountability need to be improved.

Improve Accountability

In addition to lodging reports and regular reporting at board meetings, you can further increase accountability by posting your nonprofit’s financial reports on your website. You can also take steps to establish a whistleblower program. This will allow those who work within your nonprofit, as well as the general public, to alert your nonprofit to undisclosed conflicts of interest that may affect your nonprofit’s financial performance and governance.

Take Steps to Increase Understanding

It’s important to remember that not everyone that will view your financials has a background in accounting and bookkeeping. Improve how you communicate your NFP’s actual financial condition by taking steps to make information clear, and easy to comprehend. For example, you can make a financial report easier to understand by avoiding jargon, and grouping related notes and disclosures together with your financial statements.

Make Full Disclosures

Make sure that viewers have all of the information that they need to evaluate whether your financial statements are accurate and present a precise picture of your organisation’s financial stability. Try to ensure that your statements offer full disclosures of your method of valuation and assumptions that are made, as well as any material changes that occur between reporting periods, especially when changes affect income.

It’s not enough to simply total everything up by category and include it in your financial statements. Not everything is cut and dried when it comes to reporting, especially when it comes to determining the value of certain assets and the cost of certain expenses.

This is especially true when it comes to determining value, which requires certain assumptions to be made. Unfortunately, despite everyone’s best effort, errors can be made that dramatically affect value and cost.

For example, if the assumptions that you have used to value your NFP’s assets have changed, make certain that you have thoroughly disclosed this in your financial reports. If any of your NFP’s internal policies have changed and they affect the accounting methods that you use, this should be revealed as well.