Compliance with ACNC reporting is an important task, but the ACNC has identified that many NFPs struggle – especially with incorrect reporting types and incomplete statements. Good accounting advice can help ensure your NFP avoids the pitfalls.
As outlined in the 2020 ACNC review of reporting practices Reporting Statistics for the 2018 Reporting Period, many organisations in the NFP sector are experiencing problems meeting the ACNC’s requirements. The report highlights common errors picked up by the ACNC including incorrect reporting types, transposition errors, group reporting, incomplete statements and disclosure issues.
Selecting incorrect type of report
32% of charities did not select the correct type of financial report to submit with their Annual Information Statement (AIS).
The most common mistake these charities made was misclassifying General Purpose Financial Statements-Reduced Disclosure Requirement and Special Purpose Financial Statements as ‘General Purpose Financial Statements’.
21% incorrectly stated they were using transitional reporting arrangements, where the ACNC accepts reports prepared for and submitted to another regulator. In fact their charity was only required to submit a financial report to the ACNC.
17% incorrectly identified their financial report as a consolidated financial report when it was in fact a single charity report.
The report noted additional transposition errors, including those related to the Annual Financial Report (AFR) that medium to large charities are required to submit :
- 5% of charities incorrectly transposed information from the AFR to their AIS for the Total Revenue category.
- 3% of charities made transposition errors for Total Revenue and Total Assets.
Group rather than individual reporting
Of those charities that submitted a consolidated financial report, some 42% provided AIS income statement and balance sheet figures for the consolidated group as a whole rather than financial information on an individual charity basis.
25% of the AFRs examined provided an incomplete set of financial statements, the most common omission was financial statements for changes in equity and for cash flow.
Some common disclosure issues were:
- No disclosure on whether the charity was a for-profit or not-for-profit entity for financial reporting purposes.
- The legislative framework under which the financial report was prepared did not mention compliance with the ACNC Act.
Why reporting errors cause damage
There is obvious harm caused by NFPs not reporting correctly. The ACNC review of the 2018 reporting period alone found that the revenue errors requiring correction covered $195m in revenue and $614m in assets.
However unintended, making reporting errors is detrimental to organisations themselves, as well as the charity sector. While some errors can harm an organisation’s reputation, serious breaches might lead, for example, to the ACNC removing the NFP from the ACNC register.
NFPs that lose their ACNC charity registration are not entitled to a range of Commonwealth charity tax concessions.
What to do
The fact that many NFPs are getting their reporting processes wrong indicates the need for more targeted assistance.
A qualified accountant will be able to put your NFP back on the right track.
Accounting services include:
- Review of existing financial reporting procedures
- Specific recommendations to ensure ACNC compliance
- Preparation of annual /ACNC reports
- Preparation of reports to the board with specific evidence of good governance and ACNC compliance
- Access to real-time reporting.
At Hopscotch we provide outsourced accounting services for NFPs of different sizes. Having expertise in the NFP sector makes it easier for us to streamline NFP client processes and ensure that sound reporting practices meet the requirements of the ACNC.
Outsourced accounting services furnish NFPs with accurate financial reporting that is robust enough for the ACNC, ATO and the NFP’s stakeholders – including donors and sponsors.
Contact Hopscotch Accounting to learn more.