Grants in Australia

71
Grants in Australia: Management and accountability made easy for not-for-profit organisations FEBRUARY 2007 NOT-FOR-PROFIT

Transcript of Grants in Australia

Page 1: Grants in Australia

Grants in Australia:Management and accountability made easy for not-for-profit organisationsFEBRUARY 2007

not-for-profit

CpA Australia Ltdcpaaustralia.com.auT 1300 73 73 73

CPA51790 05/2007

CPA Slate Blue5405(CMYK)

A4P RIM

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CPA Australia Ltd (“CPA Australia”) is the largest professional organisation in Australia with more than 112,000 members of the financial, accounting and business profession in Australia and overseas.

For information about CPA Australia, visit our website cpaaustralia.com.au

First published 2007CPA Australia LtdACN 008 392 452385 Bourke StreetMelbourne Victoria 3000Australia

ISBN 978 1 876874 391

Legal notice

Copyright CPA Australia Ltd (ABN 64 008 392 452) (“CPA Australia”), 2007. All rights reserved.

Save and except for third party content, all content in these materials is owned by or licensed to CPA Australia. All trade marks, service marks and trade names are proprietory to CPA Australia. For permission to reproduce any material, a request in writing is to be made to the Legal Business Unit, CPA Australia Ltd, 385 Bourke Street, Melbourne, Victoria 3000.

CPA Australia has used reasonable care and skill in compiling the content of this material. However, CPA Australia and the editors make no warranty as to the accuracy or completeness of any information in these materials. No part of these materials are intended to be advice, whether legal or professional. Further, as laws change frequently, you are advised to undertake your own research or to seek professional advice to keep abreast of any reforms and developments in the law.

To the extent permitted by applicable law, CPA Australia, its employees, agents and consultants exclude all liability for any loss or damage claims and expenses including but not limited to legal costs, indirect special or consequential loss or damage (including but not limited to, negligence) arising out of the information in the materials. Where any law prohibits the exclusion of such liability, CPA Australia limits its liability to the re-supply of the information.

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Grants in Australia:Management and accountability made easy for not-for-profit organisationsFEBRUARY 2007

not-for-profit

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Disclaimer

CPA Austral�a has used reasonable care and sk�ll �n comp�l�ng the content of th�s

mater�al. However, CPA Austral�a and the ed�tors make no warranty as to the accuracy or

completeness of any �nformat�on �n these mater�als.

Th�s mater�al �s �ntended to be a gu�de only, and no part of these mater�als �s �ntended

to be adv�ce, whether legal or profess�onal. You should act solely on the bas�s that the

�nformat�on conta�ned �n these mater�als may be general�sed and may apply d�fferently to

a w�de var�ety of people and c�rcumstances.

As laws change frequently, all pract�t�oners, readers, v�ewers and users are adv�sed to

undertake the�r own research or to seek profess�onal adv�ce to keep abreast of any reforms

and development �n the law.

To the extent perm�tted by appl�cable law, CPA Austral�a, �ts employees, agents and

consultants exclude all l�ab�l�ty for any loss or damage cla�ms and expenses �nclud�ng but

not l�m�ted to legal costs, �nd�rect spec�al or consequent�al loss or damage (�nclud�ng, but

not l�m�ted to, negl�gence) ar�s�ng out of the �nformat�on �n the mater�als.

Where any law proh�b�ts the exclus�on of such l�ab�l�ty, CPA Austral�a l�m�ts �ts l�ab�l�ty to the

resupply of the �nformat�on.

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Executive Summary

CPA Austral�a establ�shed the Publ�c Sector Centre of Excellence to prov�de the commun�ty,

government and the profess�on w�th adv�ce, gu�dance and comment on �ssues v�tal to the

sector.

The sector compr�ses the publ�c sector (�nclud�ng federal, state and local governments and

government bus�ness enterpr�ses) and the not-for-profit sector.

Areas of focus are broad rang�ng, and �nclude current concerns such as susta�nab�l�ty,

publ�c pr�vate partnersh�ps, r�sk management and corporate governance.

One of the �ssues �dent�fied by the Centre of Excellence was the lack of l�terature on grants

management �n Austral�a for not-for-profit bod�es, government agenc�es and CPA Austral�a

members work�ng �n the sector. Ind�v�dual programs had gu�del�nes, but there was no

document or publ�cat�on that prov�ded an overv�ew of the requ�rements and pr�nc�ples for

grants management �n Austral�a.

The manual Grants in Australia: Management and Accountability Made Easy for Not-for-

Profit Organisations has been wr�tten �n response to commun�ty and profess�onal calls for a

stra�ghtforward gu�de for not-for-profit bod�es to manage grants and sat�sfy accountab�l�ty

requ�rements.

The manual was developed follow�ng research of the ex�st�ng l�terature and consultat�on

w�th a w�de cross-sect�on of stakeholders, �nclud�ng not-for-profit peak bod�es,

aud�tors-general, parl�amentary account comm�ttees and members of the account�ng

profess�on.

The manual h�ghl�ghts the need to �dent�fy early �n the grants process the need to put �n

place sound adm�n�strat�ve pract�ces to ensure that grants are well managed, outcomes

ach�eved and grants are acqu�tted �n a t�mely and sat�sfactory manner.

The manual covers the key aspects of grants management, �nclud�ng apply�ng for a

grant, accept�ng a grant, financ�al management, report�ng and acqu�ttal, and aud�t and

ver�ficat�on. The manual prov�des a b�bl�ography to ass�st readers to access add�t�onal

reference mater�al, and checkl�sts to help readers eas�ly rev�ew the�r grants management

processes.

CPA Austral�a acknowledges the �nput of a w�de range of stakeholders and potent�al users

of the manual to del�ver a document that w�ll serve the not-for-profit sector, government,

and those work�ng �n the account�ng and aud�t profess�on.

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Acknowledgements

Grants in Australia was prepared w�th the �nput of a number of agenc�es, organ�sat�ons

and �nd�v�duals. In part�cular, the ass�stance of the follow�ng organ�sat�ons was espec�ally

valuable:

• Our Commun�ty Pty Ltd

• South Austral�an Government Treasury

• commun�tybu�lders.nsw.gov.au

• Centre for Ph�lanthropy and Nonprofit Stud�es, Queensland Un�vers�ty of

Technology.

A number of other government agenc�es and not-for-profit organ�sat�ons were also

consulted, and the�r ass�stance was very much apprec�ated.

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About the authors

Gerard Byrne fCpA has worked �n management and profess�onal roles �n state, local

and federal government agenc�es and he �s a member of the Publ�c Sector Centre of

Excellence. He spec�al�ses �n publ�c sector and not-for-profit organ�sat�ons �n rural and

reg�onal areas. Gerard �s a member of the Townsv�lle Branch Counc�l of CPA Austral�a and

he has been �nvolved �n a number of �ndustry and commun�ty organ�sat�ons.

Merridie Martin CpA �s the Reg�onal Conservator, Murraylands, Department for

Env�ronment and Her�tage, Berr�, South Austral�a. Merr�d�e has had extens�ve exper�ence

work�ng w�th governance and financ�al requ�rements �n the publ�c sector and not-for-profit

organ�sat�ons, and �s a member of the CPA Austral�a Publ�c Sector Centre of Excellence.

CPA Australia Public Sector Centre of Excellence

Dav�d Pendleton FCPA, Cha�r

Greg Brown FCPA

Gerard Byrne FCPA

Hon Roger Hallam FCPA

Geoff H�ne FCPA

Andrew Johnson CPA

Brett Kauffman FCPA

Merr�d�e Mart�n CPA

Anna D’Alessandro CPA, Pol�cy Adv�ser – Publ�c Sector, CPA Austral�a (to Jan 2006)

Just�n Naylor CPA, D�rector – Publ�c Sector, CPA Austral�a

Chee Ng FCPA, Pol�cy Adv�ser – Publ�c Sector, CPA Austral�a

The CPA Austral�a Publ�c Sector Centre of Excellence has been establ�shed to prov�de

leadersh�p �n the cons�derat�on of �ssues affect�ng publ�c sector and not-for-profit

organ�sat�ons. Grants in Australia: Management and Accountability Made Easy for Not-

for-Profit Organisations has been prepared by the CPA Austral�a Publ�c Sector Centre of

Excellence as a reference gu�de to ass�st not-for-profit organ�sat�ons manage grants.

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Introduction ........................................................................................................1

1 What is a grant? .................................................................................................3

2 Issues to consider when applying for a grant ...................................................4

3 What to consider when an organisation has been offered a grant ................9

4 Financial management of grants ....................................................................11

5 Grants and tax compliance ..............................................................................25

6 Reporting and acquittal ...................................................................................26

7 Audit and verification of grants ......................................................................32

Appendix 1 Transactions unique to not-for-profit organisations .................35

Appendix 2 Taxation ........................................................................................49

References ........................................................................................................54

Glossary .............................................................................................................56

Checklists ...........................................................................................................59

Table of contents

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Grants in Australia: Management and Accountability Made Easy for Not-for-Profit

Organisations �s a manual wr�tten �n response to commun�ty and profess�onal calls for

a stra�ghtforward gu�de for not-for-profit organ�sat�ons to manage grants and sat�sfy

accountab�l�ty requ�rements �n Austral�a.

What is the aim of this manual?

The a�m of the manual �s to act as a ready reference gu�de to not-for-profit organ�sat�ons,

and those work�ng w�th not-for-profit organ�sat�ons, on how to manage and acqu�t grants

�n a t�mely and sat�sfactory manner.

The manual can also be used as the bas�s for tra�n�ng staff, volunteers and commun�ty

members �n the successful management and acqu�ttal of grants.

CPA Austral�a’s purpose �n produc�ng Grants in Australia: Management and Accountability

Made Easy for Not-for-Profit Organisations �s to ass�st not-for-profit organ�sat�ons to more

eas�ly manage grants and sat�sfy accountab�l�ty requ�rements. The manual w�ll also be an

�nvaluable reference gu�de for all �nvolved �n the not-for-profit sector �n Austral�a, �nclud�ng

CPA Austral�a members employed �n the sector, espec�ally grant organ�sat�ons, aud�tors

and adv�sers.

Who is the target audience?

The target aud�ence of the manual �s Austral�an not-for-profit organ�sat�ons that are legal

ent�t�es, and have rece�ved government grants or are �ntend�ng to apply for government

grants. Other users of the manual may �nclude grant-makers, government departments,

accountants, aud�tors, researchers and those who tra�n people �n grants management.

How broad is the scope of the manual?

The scope of the manual �s to cover grants management from the t�me the appl�cant

commences plann�ng to apply for a grant, through the successful organ�sat�on rece�v�ng

not�ficat�on of the grant, the day-to-day management of the grant, to the acqu�ttal of

the grant.

Cons�derable reference mater�al already ex�sts on apply�ng for grants, and therefore th�s

manual does not address apply�ng for grants �n deta�l. However, organ�sat�ons need

to cons�der when apply�ng for grants the l�kely �mpact of a successful grant on the

organ�sat�on, espec�ally �ts management and report�ng requ�rements.

Introduction

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What is a not-for-profit organisation?

A not-for-profit organ�sat�on �ncludes a club, soc�ety or assoc�at�on organ�sed and operated

solely for soc�al welfare, c�v�c �mprovement, pleasure or recreat�on, or for any other

purpose except for profit. All �ncome must be d�rected to the purpose of the organ�sat�on,

and not d�str�buted by way of d�v�dend, bounty or profit to �ts controllers, members or

shareholders.

Not-for-profit organ�sat�ons ex�st �n Austral�an at federal, state and local levels.

Issues facing not-for-profit organisations

Issues fac�ng not-for-profit organ�sat�ons manag�ng and account�ng for grants �nclude:

• fa�lure to manage and acqu�t grants properly

• lack of gu�dance on the full extent of the grants process

• lack of understand�ng of report�ng requ�rements by not-for-profit organ�sat�ons

• need to have a spec�fic understand�ng of account�ng and financ�al requ�rements and

assoc�ated systems

• w�dely d�ffer�ng and often complex management and report�ng requ�rements among

grants bod�es at all levels of government

• confus�ng and �ncons�stent term�nology

• l�m�ted t�me and resources ava�lable to grants rec�p�ents to manage and report on

grants, part�cularly dur�ng a t�me of �ncreas�ng requ�rements

• lack of adequate gu�dance for aud�tors for ver�ficat�on of grants

• need for spec�fic sk�lls for sourc�ng and adm�n�strat�on of grants

• lack of spec�fic gu�del�nes and reference mater�al for not-for-profit organ�sat�ons

• lack of clar�ty on GST �mpl�cat�ons for not-for-profit organ�sat�ons.

The s�gn�ficance and �mportance of grants management and accountab�l�ty �n Austral�a

rece�ved nat�onal attent�on �n March 2005 w�th a cover story on not-for-profit

organ�sat�ons �n Australian Business Review.

The art�cle reported that Austral�a’s not-for-profit sector �s worth $70 b�ll�on, accounts for

�0 per cent of the economy, and employs more than 600,000 people. The art�cle asserted

that char�t�es, clubs and non-government organ�sat�ons play a major role �n Austral�an

soc�ety and commun�t�es.

Introduction

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A grant �s a sum of money g�ven to organ�sat�ons or �nd�v�duals for a spec�fied purpose

d�rected at ach�ev�ng goals and object�ves cons�stent w�th the a�ms and pol�c�es of the

grants body. Grants can be awarded by government and non-government bod�es. For the

purposes of th�s manual, the focus �s on grants from government bod�es.

In a str�ct legal sense, a grant �s a ‘g�ft’ that may, or may not, be subject to un�laterally

�mposed cond�t�ons. However, the term �s more generally used to �nclude any fund�ng

arrangement whereby the rec�p�ent �s selected on mer�t aga�nst a set of cr�ter�a. The term

‘grant’ does not �nclude fund�ng of act�v�t�es pr�mar�ly relat�ng to the prov�s�on of goods

and serv�ces d�rectly to a government agency.

In the case of government grants, grants and subs�d�es are made �n var�ous c�rcumstances

by government to support commun�ty act�v�t�es that ach�eve goals and object�ves

cons�stent w�th government pol�cy. Grants may be covered by leg�slat�on or regulat�on,

or be subject to cab�net, m�n�ster�al or adm�n�strat�ve d�scret�on. They range �n the�r

accountab�l�ty requ�rements from h�ghly complex arrangements to the relat�vely �nformal.

Nevertheless, all grant schemes �nvolve the use of publ�c money. Therefore, both grantors

and grant rec�p�ents are accountable for the value for money ach�eved from the allocat�on

of �nd�v�dual grants (Queensland Treasury Guidelines).

The power to g�ve a grant may be unfettered (such as the Commonwealth’s power to

grant financ�al ass�stance to the states under sect�on 96 of the federal Const�tut�on) or �t

may be governed by the spec�fic leg�slat�on or government pol�cy apply�ng to the program.

The grant-g�v�ng organ�sat�on may allocate funds d�rectly to �nd�v�dual appl�cants or to

organ�sat�ons on an �nd�v�dual project bas�s, or make bulk payments to �ntermed�ary

organ�sat�ons. In th�s latter case, arrangements can be made to allow the �ntermed�ary

organ�sat�on to make dec�s�ons regard�ng spec�fic allocat�on of fund�ng (ANAO Better

Practice Guidelines 2002).

1. What is a grant?

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Many organ�sat�ons that apply for grants cons�der �t as an easy opt�on to obta�n fund�ng,

w�thout fully cons�der�ng the organ�sat�on’s requ�rements and opt�ons. As a result, they can

be successful �n w�nn�ng a grant, but then find �t d�fficult to manage �t.

Before apply�ng for a grant, �t �s �mportant to spend some t�me develop�ng a fundra�s�ng

strategy for the organ�sat�on. The Our Commun�ty webs�te (ourcommun�ty.com.au)

conta�ns a s�mple model for develop�ng a fundra�s�ng strategy, and the steps are deta�led

below.

Establish a fundraising strategy

A fundra�s�ng strategy �s an ongo�ng exerc�se w�th an annual rev�s�on and act�on plan. A

fundra�s�ng strategy needs to have the flex�b�l�ty to be able to react to new opportun�t�es

or to curta�l act�v�t�es that are ne�ther pract�cal nor profitable.

The first steps to be followed are:

• Establ�sh your goals. What do you hope to ach�eve?

• What are the d�fferent levels of fundra�s�ng requ�red?

• Research past fundra�s�ng act�v�t�es. What worked? Just as �mportantly,

what d�dn’t?

• Work out who your fr�ends and potent�al fr�ends are and who �s w�ll�ng to support

your organ�sat�on: bus�nesses, government departments, �nd�v�duals, fam�l�es,

ph�lanthrop�c trusts and foundat�ons.

• Conduct market research w�th members, fr�ends and other �nterested people to

d�scover the�r good �deas or those that have worked �n the�r groups to ra�se money.

• Deta�l a case to support each prospect�ve fundra�s�ng act�v�ty.

• Descr�be and dec�de on the method �n wh�ch you plan to ra�se funds.

• Set an est�mated target for each method.

• Set a t�mel�ne. Set up a year planner not�ng good t�mes for the organ�sat�on to ra�se

funds. Pay attent�on to grant deadl�nes.

• Document your progress so that, �f you are struggl�ng, the bells start r�ng�ng early

enough for you to change tack.

• Ensure you have an evaluat�on strategy �n place.

Remember: �f you are ask�ng for money, �t �s eas�er to ra�se money for a spec�fic project

or act�v�ty rather than for the organ�sat�on as a whole. Most people would rather know

exactly where the�r money �s be�ng spent.

2. Issues to consider when applying for a grant

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For further �nformat�on on grants wr�t�ng, refer to the Our Commun�ty webs�te,

Government agency webs�tes, and the webs�tes of �nd�v�dual grants bod�es. The Our

Commun�ty webs�te (ourcommun�ty.com.au) prov�des a ser�es of fact sheets and add�t�onal

valuable �nformat�on on grants wr�t�ng.

What are the options for fundraising?

There are potent�ally numerous sources of funds, and may �nclude one or more of the

follow�ng:

• grants

• sponsorsh�p

• membersh�p fees

• bequests

• �n-k�nd support

• donat�ons

• spec�al events

• raffles, compet�t�ons

• merchand�s�ng

• sales of goods and serv�ces.

What impact will the grant have on your organisation?

Many organ�sat�ons look just for the dollars, and then are surpr�sed at the requ�rements

and obl�gat�ons that are attached. The grant rec�p�ent could get trapped w�th un�ntended

consequences once the grant �s g�ven. Therefore, before apply�ng for a grant, your

organ�sat�on needs to undertake an assessment of the l�kely �mpact of the grant on the

organ�sat�on.

Quest�ons your organ�sat�on should cons�der are:

• Does the grant al�gn w�th your m�ss�on d�rect�on – that �s, even though you rece�ve

more dollars, w�ll rece�v�ng the grant take key human and other resources away from

the core bus�ness?

• What are the l�nks and/or partnersh�ps �t w�ll prov�de?

• What �mpacts w�ll �t have on the bus�ness?

• Do you have the capac�ty and expert�se to carry out the task for wh�ch you are

rece�v�ng the grant, e�ther �n-house or �n partnersh�p w�th another organ�sat�on?

2. Issues to consider when applying for a grant

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• Do you have the necessary processes to carry out the terms of the grant, or do

these need to be bu�lt up? Such processes and requ�rements may �nclude legal and

governance structures, management and superv�s�on requ�rements, account�ng,

aud�t�ng, record-keep�ng, performance measures, �nsurance, reg�strat�ons, taxat�on,

Austral�an Bus�ness Number and goods and serv�ces tax.

• How w�ll you manage the poss�b�l�ty that fund�ng �s not l�kely to be ongo�ng?

• W�ll you have to comprom�se the values of your organ�sat�on – for example, �f you

accept a Commonwealth grant, does th�s mean you have to accept some values or

pr�nc�ples that do not accord w�th those of your group?

• What are the r�sks and emerg�ng �ssues that may affect your ab�l�ty to fulfil your

obl�gat�ons under the grant? Are you confident that you can manage these r�sks?

Cons�derable mater�al has been wr�tten on how to apply for a grant, and extens�ve

resources are also ava�lable on the �nternet, and from grants bod�es. The follow�ng

suggest�ons are conta�ned on the Our Commun�ty webs�te (ourcommun�ty.com.au) and

apply to most grant appl�cat�ons s�tuat�ons.

Bas�cally, grant bod�es need to be conv�nced of two ma�n th�ngs: that a genu�ne need and

project ex�sts, and that the appl�cant has the capac�ty to meet the need �n a creat�ve and

fiscally respons�ble manner.

But more spec�fically, what are they after?

Before you wr�te, do your research:

• Many appl�cants don’t do the bas�c research to check whether the�r appl�cat�on fits

w�th�n somet�mes qu�te t�ght el�g�b�l�ty gu�del�nes.

• Spend the t�me to find grants whose target aud�ences and areas of �nterest match the

project for wh�ch you are seek�ng fund�ng.

Parties involved in grants

The part�es �ncluded �n grants may �nclude the follow�ng:

• grantor/grants body: the organ�sat�on mak�ng the grant

• grantee: the organ�sat�on rece�v�ng the grant

• th�rd part�es: other organ�sat�ons that partner and work w�th the grantee to fulfil the

requ�rements of the grant. These part�es may contr�bute to the requ�rements of the

grant cond�t�ons, or be formally engaged through contract arrangements to fulfil

some requ�rements d�rectly (for example, prov�de a survey or consultat�on process) or

undertake spec�al�st work (such as ed�t�ng, des�gn and publ�sh�ng of a report).

2. Issues to consider when applying for a grant

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The proposal

Most grants bod�es seek subm�ss�ons that are structured around the follow�ng:

� A br�ef descr�pt�on of your organ�sat�on

2 A descr�pt�on of the proposed project

� A case for support

� A budget.

Appl�cants may also be requ�red to establ�sh the�r financ�al v�ab�l�ty, and any other sources

of fund�ng for the project, espec�ally from other government departments.

A brief description of the organisation

Grant evaluators want your organ�sat�on to establ�sh cred�b�l�ty and qual�ficat�ons for fund�ng,

and how your ex�st�ng programs were developed to meet �dent�fied commun�ty needs.

Include short relevant descr�pt�ons of the qual�ficat�ons and exper�ence that your organ�sat�on

and �ts key staff have �n the area for wh�ch program funds are be�ng sought.

The project proposal

The project proposal should show that the appl�cant has developed a clearly defined,

ach�evable and measurable strategy to address the �ssue or �ssues prev�ously descr�bed.

The project proposal generally should address key quest�ons such as how, what, why and

for whom the project �s be�ng developed.

The proposed project may need to �nclude the follow�ng elements:

• clearly defined a�ms and object�ves

• how the object�ves are to be ach�eved

• outputs and outcomes

• how the success of the project w�ll be measured

• the t�meframe �n wh�ch the project w�ll be completed.

Requ�rements vary from agency to agency. Other requ�rements may be spec�fied, and may

form part of the select�on cr�ter�a. For example, the grants body may requ�re deta�ls on

who w�th�n the organ�sat�on has been nom�nated to work on the project, and where the

project w�ll be conducted.

2. Issues to consider when applying for a grant

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The case for support

It �s v�tal to establ�sh a spec�fic problem or �ssue �n a geograph�cally �dent�fiable area, w�th

the d�mens�on of the problem able to be addressed real�st�cally by your organ�sat�on.

• Produce ev�dence: use up-to-date and accurate data based on object�ve research,

wh�le a relevant and evocat�ve case study �llustrat�ng the �ssue may also dr�ve your

po�nts home.

• Commun�ty support: ev�dence of commun�ty support �s often requ�red, and make

sure that support �s spec�fic to the project for wh�ch your group �s seek�ng fund�ng,

rather than a general one for your organ�sat�on.

The budget

The project budget can vary from a s�mple one-page statement of �ncome and expenses

to a more complex set of budget papers, �nclud�ng explanatory notes and var�ous �tems

of revenue or expense. Appl�cants need to be honest, open and real�st�c about proposed

expend�ture.

Appl�cants need to be part�cularly careful to check the purposes for wh�ch funds can and

can’t be used. Some have restr�ct�ons on cap�tal expend�ture.

Fa�lure to take adequate care �n apply�ng for grants can lead to problems �n manag�ng and

acqu�tt�ng the grant.

2. Issues to consider when applying for a grant

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Successful grant appl�cants are normally not�fied �n wr�t�ng of the�r success, and an

�nformat�on pack �s prov�ded to the appl�cant, w�th the grants agreement enclosed for the

appl�cant to s�gn and return.

It �s essent�al to read the correspondence and attachments carefully, �n order to fully

understand what the requ�rements and expectat�ons are. Exper�enced appl�cants usually

contact the grants body at th�s stage to ensure that they have a clear understand�ng of the

var�ous aspects of the grant, espec�ally report�ng requ�rements.

One of the most �mportant aspects of grants management �s to ensure that the appl�cant

pays part�cular care �n rev�ew�ng the grant agreement before s�gn�ng the agreement.

Tak�ng part�cular care at th�s stage w�ll m�n�m�se the r�sk of �ssues and problems ar�s�ng

later �n the del�very of the grants program.

Some of the adm�n�strat�ve quest�ons that need to be answered before s�gn�ng the grants

agreement �nclude:

• Are all the deta�ls (such as names, addresses and phone numbers) correct?

• Is the grant for the same amount as that appl�ed for?

• Is the grant for the same outcomes as deta�led �n the or�g�nal subm�ss�on?

• Do any spec�al cond�t�ons apply?

• Can assets be purchased? If yes, what are the cond�t�ons apply�ng to the�r

acqu�s�t�on and treatment at the end of the grant per�od?

• When and how w�ll the money be pa�d?

• What are the report�ng requ�rements?

• What are the acqu�ttal requ�rements?

• By what date does the project need to be completed?

• What are the contact deta�ls for the fund�ng agency?

• Are there requ�rements to be met �mmed�ately once the grant �s awarded?

• How can the terms of the agreement be var�ed?

• What are the d�spute resolut�on procedures?

• How �s �ntellectual property �dent�fied and dealt w�th?

• Are there clear gu�del�nes for the ownersh�p of any assets created by a grant?

• How w�ll unspent funds be treated?

• What are the requ�rements for recogn�s�ng the fund�ng body, such as the use of

logos?

3. What to consider when an organisation has been offered a grant

Page 18: Grants in Australia

�0

• What are the �nsurance requ�rements?

• Wh�ch �ndemn�t�es and �nsurance pol�cy apply?

• Are there any confident�al�ty or pr�vacy requ�rements?

• What are the l�ab�l�t�es and consequences �f there �s a breach of cond�t�ons?

• What are the m�lestones?

• How w�ll you demonstrate that you have ach�eved the grant object�ves?

• Can the organ�sat�on st�ll del�ver on the project; for example, have key staff left

s�nce the appl�cat�on was lodged?

• Are there other requ�rements that have to be met before the grant can be entered

�nto?

• What aud�t arrangements are there?

Intellectual property

Intellectual property represents the property of your m�nd or �ntellect. Types of �ntellectual

property �nclude patents, trademarks, des�gns, confident�al �nformat�on or trade secrets,

and copyr�ght.

Some grants may result �n the creat�on of �ntellectual property. The ownersh�p of

�ntellectual property �s part�cularly relevant for research grants.

Signing the agreement

Organ�sat�ons need to make sure that the person s�gn�ng the agreement on behalf of the

organ�sat�on �s author�sed to do so. Also, the person w�tness�ng the agreement should

be author�sed to do so. In most c�rcumstances, the govern�ng body �s g�ven �n-pr�nc�ple

approval to apply and the act�on �s duly tabled at the next comm�ttee meet�ng, and noted

�n the organ�sat�on’s m�nutes.

The agreement should then be returned to the fund�ng body by reg�stered post. A copy of

the s�gned agreement should be reta�ned, and stored �n a secure place.

Where the organ�sat�on has a contracts reg�ster, the reg�ster should be noted w�th the

deta�ls of the agreement. If the organ�sat�on does not have a contracts reg�ster, now m�ght

be an appropr�ate t�me to create one.

3. What to consider when an organisation has been offered a grant

Page 19: Grants in Australia

��

Once the grantee has accepted the terms and cond�t�ons of the grant, then the grantee

w�ll need to �mplement su�table adm�n�strat�ve systems to manage the grant on a day-to-

day bas�s, and prov�de a final report and financ�al acqu�ttal.

The actual arrangements w�ll vary from organ�sat�on to organ�sat�on, depend�ng on the

s�ze of the organ�sat�on, the organ�sat�on’s resources, fund�ng body requ�rements and the

env�ronment the organ�sat�on operates �n.

QUT Chart of Accounts

Not-for-profit organ�sat�ons can refer to a Standard Chart of Accounts, wh�ch has been

developed by Queensland Un�vers�ty of Technology, �n collaborat�on w�th Queensland

Treasury and government departments. The chart prov�des a common approach to the

capture of account�ng �nformat�on by not-for-profit organ�sat�ons. By us�ng standard

terms and categor�es, such as wages and salar�es, to refer to the same act�v�t�es, th�s

chart w�ll s�mpl�fy the work of not-for-profit organ�sat�ons when acqu�tt�ng government

grants. Government departments and not-for-profit organ�sat�ons w�ll be talk�ng the same

language. Th�s chart of accounts can be accessed on http://bus�ness.qut.edu.au.

Types of contributions

Contr�but�ons are generally non-rec�procal transfers of assets to an ent�ty, for example,

donat�ons and certa�n types of grants.

The term ‘non-rec�procal’ refers to transact�ons where an ent�ty rece�ves assets or serv�ces

or has l�ab�l�t�es ext�ngu�shed w�thout d�rectly g�v�ng approx�mately equal value �n exchange

to the other party. However, �t �s acknowledged that the donor or grantor may rece�ve an

�nd�rect benefit from the transact�on.

Not-for-profit ent�t�es frequently rece�ve contr�but�ons to acqu�re assets or prov�de spec�fic

goods and serv�ces. In add�t�on, donors or grantors may �mpose cond�t�ons �n respect of

the manner or t�m�ng �n wh�ch the assets may be used.

Contr�but�ons are often �n the form of:

Cash

An uncond�t�onal cash contr�but�on �s recogn�sed as revenue when the ent�ty obta�ns

control of the contr�but�on or the r�ght to rece�ve the contr�but�on.

4. Financial management of grants

Page 20: Grants in Australia

�2

A cond�t�onal cash contr�but�on �s recogn�sed as revenue when the cond�t�ons are met.

When an ent�ty fa�ls to meet the spec�fic cond�t�ons attached to a cash contr�but�on and

the amount �s requ�red to be repa�d, the ent�ty would need to recogn�se a l�ab�l�ty.

In-kind

An �n-k�nd contr�but�on generally means a contr�but�on other than cash. Th�s generally

occurs when a comm�tment has been made by a grantee to comm�t �ts resources towards

the grant act�v�ty or project.

In-k�nd contr�but�ons may �nclude:

• labour donated by the grantee, where the project �s labour �ntens�ve, such as

project management and office support

• donated serv�ces or �nd�rect costs prov�ded by the grantee such as the prov�s�on of

accommodat�on and the use of personal computers.

Matching

Th�s may be �n the form of cash or �n-k�nd contr�but�on. A grantee may ‘match’ a grantor’s

contr�but�on to meet a grant appl�cat�on requ�rement or s�mply make �ts grant proposal

more compet�t�ve.

Where a grantee matches a contr�but�on:

• the contr�but�on should be spent or consumed w�th�n the project per�od and be

w�th�n the spec�fied terms of the agreement

• every effort should be made to measure rel�ably �nd�rect costs such as accommodat�on,

electr�c�ty, �nternet usage and other overheads.

4. Financial management of grants

Page 21: Grants in Australia

��

Accounting for grants

The follow�ng �nformat�on �s offered for gu�dance only. For spec�fic adv�ce, please refer to

your accountant. The procedures relate to the processes that the grant rec�p�ent needs to

follow.

Generally Accepted Accounting Principles (GAAP)

Revenue

Revenue would be recogn�sed when the grant funds are rece�ved or rece�vable, for

example, where the control of the future econom�c benefits have been obta�ned and

agreement �s enforceable. Th�s would ar�se for:

a Non-cond�t�onal grants, when the grant funds are rece�ved or when the grant

agreement becomes enforceable; for example, the grantee �s formally adv�sed that

the grant appl�cat�on has been approved or the contract or agreement �s executed.

The journal entry would be Cred�t Revenue and Deb�t Cash at Bank / Rece�vables.

b Cond�t�onal grants, when the grantee meets the enforceable cond�t�ons*.

Enforceable cond�t�ons generally means ‘hard’ cond�t�ons, and w�ll tr�gger a

repayment �f these cond�t�ons are not met.

Where cond�t�onal grant funds are rece�ved �n:

� advance: a l�ab�l�ty would be recogn�sed unt�l the cond�t�ons are met.* The journal

entry would be Cred�t Revenue Rece�ved �n Advance and Deb�t Cash at Bank.

�� arrears: revenue would be recogn�sed once the cond�t�ons are met. The journal

entry would be Cred�t Revenue and Deb�t Rece�vables unt�l rece�pt.

Expense

An expense would be recogn�sed when the grant funds are pa�d or payable; that �s, there

�s an obl�gat�on to pay. Th�s would ar�se for:

a non-cond�t�onal grants, when the grant �s pa�d or when the grant agreement

becomes enforceable; for example, the grantor has adv�sed the grantee that the�r

appl�cat�on has been approved or the contract or agreement has been executed.

The journal entry would be Deb�t Expense and Cred�t Cash at Bank / Payables.

* Where the not-for-profit ent�ty �s a local government ent�ty or a government department, Austral�an

Account�ng Standard 27 F�nanc�al Report�ng by Local Governments and Austral�an Account�ng Standard 29

F�nanc�al Report�ng by Government Departments create a s�tuat�on where cond�t�onal grant revenues are

effect�vely treated on a cash bas�s (that �s, the earl�er on rece�pt or when cond�t�ons are met).

4. Financial management of grants

Page 22: Grants in Australia

��

b Cond�t�onal grants, when the grantee meets the enforceable cond�t�ons.

Enforceable cond�t�ons generally means ‘hard’ cond�t�ons, and w�ll tr�gger a

repayment by the grantee to the grantor �f these cond�t�ons are not met.

Where cond�t�onal grant funds are pa�d �n:

� advance: a prepayment would be recogn�sed unt�l the cond�t�ons are met.

The journal entry would be Deb�t Prepayment and Cred�t Cash at Bank.

�� arrears: an expense would be recogn�sed upon the cond�t�ons be�ng met.

The journal entry would be Deb�t Expense and Cred�t Payables.

What are conditions?

If a grant �s cond�t�onal, �t generally means the grantee needs to meet certa�n m�lestones

or cr�ter�a before rece�v�ng the grant funds, or where the grantee does not meet those

m�lestones or cr�ter�a, funds shall be repa�d to the grantor.

Grants may be subject to terms and cond�t�ons that may need to be met before the

rece�pt of the funds, determ�n�ng the way that the grant funds are used or requ�r�ng the

repayment of grant funds �f m�lestones and cr�ter�a are not met.

Examples of cond�t�ons may �nclude:

• subm�ss�ons of per�od�c progress reports

• subm�ss�ons of deta�led plans and strateg�es

• m�lestones be�ng ach�eved

• expend�ture �n accordance w�th the grant purpose.

Generally, cond�t�ons reflect tang�ble and concrete events that occur to tr�gger the

obl�gat�on to take an act�on that �s outl�ned �n the grant agreement.

What are restrictions?

Grant agreements may �mpose restr�ct�ons �n respect of the manner, purpose or t�m�ng

�n wh�ch the grant may be used. It could be argued that, wh�le the manner, purpose or

t�m�ng rema�ns und�scharged, a l�ab�l�ty ex�sts – however, the restr�ct�on does not create a

present obl�gat�on.

4. Financial management of grants

Page 23: Grants in Australia

�5

A restr�ct�on �mposes a fiduc�ary respons�b�l�ty on the not-for-profit ent�ty’s management

to use the grant effic�ently and effect�vely �n pursu�ng the grant’s purpose and object�ves.

Th�s fiduc�ary respons�b�l�ty perta�ns to all of the ent�ty’s assets, and does not, of �tself,

const�tute a legal, equ�table or construct�ve obl�gat�on.

Therefore, a grant w�th restr�ct�ons would be recogn�sed as revenue or expense upon the

r�ght to rece�ve or pay or upon actual rece�pt or payment.

Generally, cond�t�ons reflect tang�ble and concrete events that occur to tr�gger the

obl�gat�on to take an act�on that �s outl�ned �n the grant agreement.

Australian equivalents to International Financial Reporting Standards

Informat�on on Account�ng Standards �s ava�lable from CPA Austral�a

(cpaaustral�a.com.au), and the Austral�an Account�ng Standards Board (aasb.com.au).

The Append�x conta�ns further d�scuss�ons on grants, donat�ons, sponsorsh�ps, membersh�p

fees and res�dent�al rent (taken from part � of QUT MYOB Training Manual, 2006.)

4. Financial management of grants

Page 24: Grants in Australia

�6

Typ

es o

f fi

nan

cial

rep

ort

ing

Co

mp

aris

on

bet

wee

n e

xter

nal

an

d in

tern

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equ

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inte

rnal

rep

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rpo

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nan

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sG

ran

t fi

nan

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rep

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s

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re

qu

irem

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• Re

qu�re

d by

Aus

tral

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Acc

ount

�ng

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s fo

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repo

rt�n

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r�od

• F�

nanc

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epor

t �n

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ed t

o m

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the

�nfo

rmat

�on

need

s

com

mon

to

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s w

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nabl

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man

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prep

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epor

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, spe

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�nfo

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• Re

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rant

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eem

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elat

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to f

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and

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as

�mpo

sed

by g

rant

or, w

ho �s

�n a

pos

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to c

omm

and

the

prep

arat

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of r

epor

ts t

a�lo

red

to s

at�s

fy

spec

�fica

lly �t

s �n

form

at�o

n ne

eds

freq

uen

cy

and

bas

is o

f re

po

rtin

g

• A

s�n

gle

set

of r

epor

ts e

ach

repo

rt�n

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r�od

(gen

eral

ly o

nce

a ye

ar) p

repa

red

on a

n ac

crua

l bas

�s

• D

epen

ds o

n fu

nd�n

g ag

reem

ent.

May

be:

– on

e pe

r qu

arte

r or

one

eve

ry s

�x m

onth

s; o

r

– on

e ea

ch r

epor

t�ng

per�o

d; o

r

– on

e at

the

end

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t, a

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• G

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nder

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AP

• St

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t�on,

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Flow

s an

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otes

to

the

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ount

s

• Re

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ts a

s sp

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emen

t –

may

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�mpl

y a

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emen

t of

Rec

e�pt

s an

d Pa

ymen

ts

4. Financial management of grants

Page 25: Grants in Australia

�7

Co

nte

nt

of

rep

ort

s (c

ont.

)

Und

er A

IFRS

• In

com

e St

atem

ent,

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ance

She

et, S

tate

men

t of

Cha

nges

�n

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ty o

r a

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emen

t of

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ogn�

sed

Inco

me

and

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nse,

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h Fl

ow S

tate

men

t an

d N

otes

to

the

Acc

ount

s

no

tes

to t

he

acco

un

ts•

Whe

re c

ontr

�but

�ons

or

gran

ts a

re m

ater

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y th

e�r

natu

re,

amou

nt a

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r re

leva

nce

to t

he n

atur

e of

the

ent

�ty, a

sepa

rate

l�ne

�tem

may

be

�ncl

uded

on

the

face

of

the

Stat

emen

t of

F�n

anc�

al P

erfo

rman

ce (k

now

n as

an

Inco

me

Stat

emen

t un

der

AIF

RS).

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dd�t�

on, s

uppo

rt�v

e no

te

d�sc

losu

re m

ay b

e re

qu�re

d to

exp

la�n

the

bre

akdo

wn

of

cont

r�but

�ons

or

gran

ts a

nd a

ny m

ater

�al g

rant

ter

ms

and

cond

�t�on

s

• S�

gn�fi

cant

acc

ount

�ng

pol�c

�es

• F�

nanc

�al r

ev�e

w t

hat

desc

r�bes

and

exp

la�n

s th

e m

a�n

feat

ures

of

the

ent�t

y’s

finan

c�al

per

form

ance

and

fina

nc�a

l

pos�

t�on

and

the

pr�n

c�pa

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erta

�nt�e

s �t

face

s

• C

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enta

ry o

n an

y en

v�ro

nmen

tal o

r so

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ct o

f th

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ent�t

y’s

act�v

�t�es

and

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ther

key

per

form

ance

�nd�

cato

rs

have

bee

n ac

h�ev

ed

• W

r�tte

n co

mm

enta

ry t

o re

�nfo

rce

and

expl

a�n

the

num

bers

rep

orte

d. P

rov�

des

unde

rsta

nd�n

g to

the

gran

tor

whe

ther

the

obj

ect�v

es o

f th

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ant

w�ll

be

met

and

whe

ther

fun

d�ng

sho

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a�d

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arr

ears

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cont

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up

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• C

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nmen

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mes

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h�ev

ed

4. Financial management of grants

Page 26: Grants in Australia

��

Internal reporting: illustrative example only

Report�ng on the financ�al act�v�t�es of a grant may be along the follow�ng l�nes. Please

note that a grant agreement may requ�re a spec�fic format or spec�fic �nformat�on to be

c�ted; for example, expend�ture on cap�tal �tems.

Statement of Receipts and Payments

Entity

Rec�p�ent ent�ty: ..................................................................................................................

Address: .............................................................................................................................

Contact name: ....................................................Office held: ............................................

Contact phone: .......................................

Purpose of grant: ...............................................................................................................

� Nature of grant (one-off/ongo�ng)

�� Statement of Rece�pts and Payments

Grant amount (rece�pt) (a)

Grant payments (b)

Funds rema�n�ng (a – b)

(Funds rema�n�ng are to be repa�d to the grantor unless the grantor has g�ven spec�fic

approval for the funds to be reta�ned.)

We cert�fy that the grant was used for the purpose for wh�ch the grant was prov�ded.

Finance Manager / Treasurer Executive Officer / Secretary / President

S�gnature: ....................................................... S�gnature: ............................................

Name: ............................................................. Name: ..................................................

Date: .............................................................. Date: ....................................................

4. Financial management of grants

Page 27: Grants in Australia

�9

Grants and the internal control environment

General control environment

Controls over grants (�nclud�ng the use of funds, project performance, �nternal report�ng

requ�rements and acqu�ttal process) w�ll vary from ent�ty to ent�ty, depend�ng on the s�ze,

nature and complex�ty of the project. All controls should reflect both the r�sk they are

des�gned to prevent and the relevant cost or benefit of the �mplementat�on of the �nternal

control.

When ass�gn�ng respons�b�l�ty and accountab�l�ty to part�cular officers for grants act�v�t�es,

these roles should be documented to ma�nta�n an adequate aud�t tra�l.

Some �nternal controls that a not-for-profit ent�ty may benefit from are:

• ass�gn�ng respons�b�l�ty and accountab�l�ty to appropr�ate officers for all grant

act�v�t�es: th�s may depend upon the exper�ence and sk�lls requ�red; the relevance

of the delegat�on to the role of the �nd�v�dual; and the ab�l�ty to �nfluence the

performance of the act�v�ty

• segregat�ng those who keep the records from those who have the respons�b�l�ty for

do�ng the work, where pract�cable, to reduce the r�sk of fraud

• segregat�ng separate but related transact�ons where pract�cable

• prepar�ng reconc�l�at�ons where necessary to ensure �ntegr�ty of data and

�nformat�on

• ensur�ng appropr�ate author�sat�on of transact�ons and act�v�t�es; that �s, approval

of grant expend�ture should be �n accordance w�th the delegat�ons of author�ty

establ�shed by an ent�ty’s board or comm�ttee, and funds should be used �n

accordance w�th the grant’s purpose. Where author�ty for grant expend�ture �s

not spec�fically prov�ded for �n the �nstrument of delegat�ons, the ent�ty’s general

expend�ture author�t�es should be followed. It �s �mportant to note that, wh�le the

author�ty to approve expend�ture may l�e w�th a part�cular officer or officers, the

officer respons�ble for adm�n�strat�on of the grant or project may be a d�fferent

officer. Th�s does not rel�eve the author�s�ng officer from h�s or her respons�b�l�ty,

but rather �t places extra emphas�s on the�r need to ver�fy the leg�t�macy of work or

expend�ture �ncurred, pr�or to approv�ng the grant payment

• prepar�ng adequate documentat�on and records of act�v�t�es undertaken on a t�mely

bas�s

• ma�nta�n�ng a well-organ�sed chart of accounts

4. Financial management of grants

Page 28: Grants in Australia

20

• ma�nta�n�ng an adequate aud�t tra�l

• establ�sh�ng phys�cal controls over access to and use of assets and records

• develop�ng and preserv�ng the �ntegr�ty, accuracy and rel�ab�l�ty of �nformat�on

systems to ensure transact�ons are completely and accurately recorded �n the correct

per�od w�th correct author�sat�on and �n a manner that perm�ts development of

necessary financ�al reports

On complet�on of the grant, the grantee or rec�p�ent should prov�de an acqu�ttal to the

grantor or prov�der as assurance that the funds have been spent for the�r �ntended purpose

and �n accordance w�th the terms and cond�t�ons of the grant agreement.

Internal reporting

The object�ve of �nternal report�ng �s to prov�de relevant and appropr�ate �nformat�on to

management so as to enable �t to �dent�fy and assess performance aga�nst targets and

object�ves. It should allow a not-for-profit ent�ty to plan future grant programs, measure

and evaluate performance, control and account for grants and opt�m�se use of resources.

Internal report�ng may �nclude budget reports; mon�tor�ng reports (actual versus budget);

financ�al report�ng; act�v�ty progress and performance reports; and except�on report�ng.

Internal report�ng of grants requ�res a structured approach to ensure that adequate and

appropr�ate documentat�on of act�v�t�es and transact�ons �s captured and ma�nta�ned on a

t�mely bas�s. Th�s may �nclude:

• processes �n place to capture and report data �nternally al�gned w�th external

report�ng requ�rements deta�led �n grant agreements so that external reports can be

produced w�th m�n�mal effort and �n a t�mely manner

• financ�al and non-financ�al elements of �nput, output and other measures �n

d�ffer�ng levels of deta�l. Data should be l�nked �n order to prov�de all relevant

�nformat�on on a part�cular �ssue

• presentat�on of reports �n a graph�cal format ass�st�ng w�th analys�s compared w�th

predeterm�ned grant m�lestones

• cons�derat�on of mater�al�ty and the costs �nvolved �n obta�n�ng, prepar�ng and

d�ssem�nat�ng the �nformat�on

• evaluat�on as to the effect�veness of the grant program

The �nformat�on conta�ned �n �nternal reports prov�des a bas�s for external reports such as

statutory and acqu�ttal report�ng. The record�ng and ma�ntenance of grant act�v�t�es and

transact�ons also prov�des an adequate aud�t tra�l.

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Budget preparation

Grant fund�ng �mpacts on budgets at two levels: the �ncome rece�ved and the expend�ture

�ncurred.

Budgets are an �mportant tool for not-for-profit ent�t�es that rely on grant fund�ng as a

major source of revenue and would not be able to undertake many projects w�thout these

funds. Grant fund�ng and expend�ture are often �ncluded �n the not-for-profit annual

projected budgets. If th�s �s not done, budgets may requ�re adjustment when the grant

fund�ng �s confirmed.

Grant fund�ng �s often prov�ded for a spec�fic purpose and for the ach�evement of goals

and object�ves that al�gn w�th the pol�c�es or object�ves of the grant prov�der, whether a

government or pr�vate ent�ty. To ensure accountab�l�ty of the grant funds and to ensure

that object�ves of the grant program are met, �t �s �mportant that a comprehens�ve budget

be prepared.

The budget �s a plann�ng tool that reflects the financ�al and resourc�ng requ�rements

of a grant project, and should set out clearly defined target outputs and performance

�nd�cators, as well as ass�gn�ng clear accountab�l�t�es for the ach�evement of those outputs.

Although �nternal management may use a budget to assess v�ab�l�ty of projects or to

determ�ne wh�ch projects should be undertaken, �t �s l�kely that the budget w�ll form part

of a grant appl�cat�on, and w�ll need to be deta�led enough for external users to make an

assessment on the scope, v�ab�l�ty and components of the project.

A budget should �nclude a clear and deta�led breakdown of the projected rece�pts and

payments by major categor�es (for example, employee expenses, suppl�es and serv�ces)

over the l�fe of the grant. Budgets are a means of evaluat�ng performance, and should be

mon�tored on an ongo�ng bas�s to ensure any l�kely problems are �dent�fied and to ensure

the ongo�ng v�ab�l�ty of the project. Major cost var�at�ons that are not �dent�fied at an early

stage have the potent�al to erode the grant funds, leav�ng �nsuffic�ent funds to complete

the project. Potent�ally the funds spent to date may need to be returned �f poor financ�al

management �s �n breach of the contract.

Grants may be pa�d �n �nstalments based on the ach�evement of m�lestones, as defined �n

an agreed work plan, and therefore the mon�tor�ng process �s very �mportant to ensure

cash �s ava�lable when needed. The grant prov�der would assess progress and m�lestone

reports, and make payment only when sat�sfied that the m�lestone has been ach�eved.

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Other financial management matters

Payment of grants

The t�m�ng of grant payments �s usually spec�fied �n grant agreements agreed by both

the grantor and grantee. Predom�nantly the grantor prescr�bes the method and t�m�ng of

payment �n the grant agreement and the grantee must agree to these terms before any

grant payment w�ll be made.

T�m�ng can take on numerous forms. Payment can be offered �n advance at set �ntervals;

for example, monthly, quarterly, sem�-annually or annually. Payments may also be offered

�n arrears at s�m�lar �ntervals. Grant payments can also be �ntr�ns�cally t�ed to the cond�t�ons

�mposed by the grant, such as payment upon complet�on of assoc�ated serv�ce del�very for

wh�ch the grant was �ntended.

If payments are t�ed to the ach�evement of performance targets, then the frequency of

payments w�ll affect the type of performance measures a not-for-profit organ�sat�on should

use. For example, �f a not-for-profit organ�sat�on has to demonstrate ach�evement aga�nst

targets every quarter �n order to rece�ve payment, �t should not choose a performance

�nd�cator that can only be measured once or tw�ce a year.

On a purchase contract bas�s, the grantee needs to demonstrate that serv�ce outputs have

been regularly ach�eved by subm�tt�ng per�od�c grant acqu�ttal reports as prescr�bed by the

relevant grant agreement before progress�ve grant �nstalments w�ll be pa�d.

Serv�ce outputs requ�red to be progress�vely del�vered (m�lestones) w�ll depend upon the

nature and cond�t�ons of the spec�fic grant, and may �nclude several d�fferent measures

on several d�fferent reports to record the quant�ty, qual�ty, t�mel�ness and cost of outputs.

It �s also l�kely that the format of these measures and reports w�ll d�ffer from one grant

agreement to another.

Grantees need to ensure that they have the necessary ava�lable funds and cash flow to

fulfil grant requ�rements and expend�ture.

Reporting using non-financial performance indicators

An �mportant element of many grant arrangements �s the record�ng and report�ng on non-

financ�al �nd�cators.

In most cases, grant appl�cat�ons and acqu�ttal procedures are focused on the outcomes of

the program for wh�ch the grant was g�ven. As a result, the �nd�cator w�ll vary enormously

depend�ng on the nature of the program for wh�ch the fund�ng relates.

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Typ�cal non-performance �nd�cators w�ll �nclude (but are not l�m�ted to):

• number of cl�ents serv�ced and the outcomes (human serv�ces programs)

• amount and quant�ty of food purchased (commun�ty nutr�t�on programs)

• number of books or mater�als purchased (l�brary or l�teracy programs)

• length of roadway or footpath constructed (�nfrastructure development programs).

It �s �mportant that the requ�rement to collect non-performance �nd�cators �s understood at

the commencement of the program. Collect�ng th�s �nformat�on �s much more effic�ently

performed over the l�fe of the project, rather than try�ng to consol�date data at the end of

the year or conclus�on of the program.

In some cases, the data collect�on can be streaml�ned w�th the collect�on of financ�al data,

for example, record�ng deta�ls from �nvo�ces, or hav�ng staff document on t�mesheets

act�v�t�es such as cl�ent contacts each day.

Report�ng of non-financ�al data �n the annual report prov�des stakeholders w�th

�nformat�on about the outcome of the serv�ces of your ent�ty. Th�s can be framed �n a

balanced scorecard or tr�ple bottom l�ne report�ng framework, wh�ch �s cons�dered best

pract�ce report�ng.

Us�ng the same performance measures over the l�fe of the project can help the not-

for-profit organ�sat�on to measure trends over t�me, part�cularly to find out whether

or not there have been any �mprovements �n performance. Be�ng able to demonstrate

�mprovements can be useful �f the not-for-profit organ�sat�on �s plann�ng to apply for

ongo�ng fund�ng or other grants �n the future.

If the not-for-profit organ�sat�on dec�des to change �ts performance �nd�cators at any

stage, �t should keep a wr�tten record of why the dec�s�on was made to change. Th�s

change should be ment�oned �n the not-for-profit organ�sat�on’s next progress report to

the grantor. The not-for-profit organ�sat�on should keep a wr�tten record of any underly�ng

assumpt�ons and calculat�ons for performance �nformat�on.

Performance report�ng �n the annual report should be al�gned to the performance

�nd�cators, object�ves and outcomes that were set out �n the grant agreement. The

annual report should descr�be the performance targets that were set and the not-for-

profit organ�sat�on’s actual performance aga�nst these targets. Where these targets were

exceeded or not met, there should be some d�scuss�on of the reasons for th�s.

Case stud�es can be useful �n the annual report to demonstrate performance and

s�gn�ficant ach�evements, part�cularly for small not-for-profit organ�sat�ons.

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Cash flow, investment of funds and use of interest income

The proper management of cash flows w�th�n a not-for-profit ent�ty �s a key strateg�c

funct�on. Th�s �nvolves manag�ng r�sks, as h�gh-return �nvestments usually equals h�gh r�sks.

When cash management �s done properly, �t w�ll ensure that any surplus funds are

�nvested �n the appropr�ate r�sk-to-return fund, such as a cash management fund or s�m�lar

account. Frequently, �nterest w�ll be earned when grants are pa�d �n advance. Government

departments and author�t�es may be restr�cted to depos�t�ng mon�es �nto a spec�al depos�t

account spec�fied by the Treasurer, and/or may be requ�red to obta�n the Treasurer’s

approval before �nvest�ng funds, and/or be requ�red to use the state’s financ�ng author�ty

for the management of large cash hold�ngs.

The ab�l�ty of an ent�ty to use �nterest �ncome w�ll depend on the grant agreement. In th�s

regard, most agreements prov�de for any �nterest to be appl�ed only for the purposes of

the grant. In other words, any �nterest �s quarant�ned from the general operat�ons of the

ent�ty.

To the extent that any funds rema�n at the end of the grant per�od, the grantor w�ll generally

requ�re these funds to be repa�d. Or, depend�ng on the c�rcumstances and the grant

agreement an appl�cat�on may be made to the grantor for approval to reta�n the funds.

When calculat�ng the amount of any unspent grant mon�es, the ent�ty should cons�der any

�nterest earned dur�ng the grant per�od.

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Many not-for-profit ent�t�es are exempt from �ncome tax. The Income Tax Assessment Act

1997, D�v�s�on 50 �dent�fies those ent�t�es whose ord�nary �ncome and statutory �ncome �s

exempt.

Where a not-for-profit ent�ty �s subject to �ncome tax, grant �ncome w�ll generally be

assessable �ncome.

Fringe benefits tax (FBT)

The fr�nge benefits tax �s a tax that �s �mposed on employers �n respect of benefits prov�ded

to employees.

Generally, there w�ll be no fr�nge benefits tax �mpl�cat�ons when a not-for-profit ent�ty

rece�ves or prov�des a grant unless there �s an employer–employee relat�onsh�p. In add�t�on,

where a not-for-profit ent�ty does prov�de a grant to an employee, the arrangements under

the pay-as-you-go tax system w�ll need to be cons�dered.

Goods and services tax (GST)

Not-for-profit ent�t�es must reg�ster for goods and serv�ces tax (GST) �f the�r annual

turnover �s $�00,000 or more. For other ent�t�es, the turnover threshold �s $50,000. The

grant may have an �mpact on the goods and serv�ces tax threshold of the organ�sat�on.

Input tax cred�ts w�ll not be ava�lable on payments made to unreg�stered ent�t�es.

Append�x 2 prov�des add�t�onal �nformat�on on the goods and serv�ces tax (GST)

arrangements for not-for-profit organ�sat�ons.

Please refer to the Austral�an Taxat�on Office webs�te, ato.gov.au, for the latest �nformat�on

on relevant taxat�on requ�rements.

5. Grants and tax compliance

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The grant agreement that the not-for-profit organ�sat�on enters �nto w�th the grants

body w�ll deta�l the report�ng and acqu�ttal requ�rements. It �s essent�al at the outset to

understand clearly what �s requ�red. Some agreements requ�re only a final report, whereas

others, espec�ally large grants, may requ�re progress reports dur�ng the l�fe of the grant.

Grant reporting

Grant report�ng requ�rements may vary form grant to grant, and may even vary between

grants rounds and years. Therefore, �t �s cr�t�cal to check the requ�rements thoroughly. Also,

d�fferent projects may requ�re alternat�ve report�ng formats and, �f so, these w�ll be agreed

w�th the grants body when the grant agreement �s negot�ated.

General requirements

Generally, grants bod�es w�ll requ�re a number of cop�es of the report, and they w�ll

spec�fy whether the report needs to be �n hard copy, electron�c form or both. The grants

requ�rement may also spec�fy what add�t�onal mater�al needs to be suppl�ed, such as

photographs and evaluat�on reports.

Formal certification

Depend�ng on the spec�fic grant, formal cert�ficat�on may be sought to confirm work

completed and/or the accuracy of the financ�al records. Formal cert�ficat�on may mean a

wr�tten report from a th�rd party that the work was done to the standard spec�fied. For

example, an organ�sat�on may rece�ve fund�ng to bu�ld a commun�ty centre. The grants

body may requ�re cert�ficat�on from the bu�lder or eng�neer that the work has been

undertaken to the appropr�ate standard.

Differences between progress and final reports

The major d�fference between progress and final reports �s usually �n the amount of deta�l

requ�red and the style of the report.

Progress reports prov�de deta�ls of the ach�evements and act�v�t�es undertaken on the project

for a fixed per�od of t�me s�nce the last report. In many cases, progress reports w�ll cover a

project per�od of, for example, three or four months. The reports may be less formal �n the�r

structure and style, as they are predom�nantly for the use of grantors to assess the progress

of the project aga�nst the object�ves and outcomes �n the project appl�cat�on.

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F�nal reports, however, are w�dely d�str�buted through the grants body, the �nternet and

by other methods, as appropr�ate. A more formal style, profess�onal presentat�on and

add�t�onal deta�ls are therefore expected.

Some suggested head�ngs for both progress and final reports and deta�ls of the

�nformat�on to be �ncluded are prov�ded below. The use of the head�ngs �s not mandatory;

however, the �nformat�on requested must be prov�ded somewhere �n both reports.

Progress reports

In most �nstances, grant payments w�ll only be made when sat�sfactory progress reports are

rece�ved and the agreed outcomes spec�fied �n the contract have been ach�eved.

Brief description of the project

Th�s descr�pt�on should summar�se:

• the object�ves of the project

• the methodology (how the project �s be�ng conducted)

• the expected outcomes.

Progress against project work plan

Report�ng progress aga�nst the project’s work plan should form the major�ty of the report.

The work plan w�ll:

• �dent�fy the major tasks necessary for the project

• l�st the act�ons to be undertaken to complete each of these major tasks

• prov�de performance measures that demonstrate that the var�ous tasks have been

successfully completed

• prov�de a t�mel�ne show�ng when each major task w�ll be started and completed.

Act�v�t�es undertaken to ach�eve each of the project’s major tasks should be documented

and outcomes aga�nst each task’s performance measures reported.

Th�s sect�on should document any d�fficult�es relat�ng to the progress of the project aga�nst

the work plan and cons�der the �mpact of these d�fficult�es on the object�ves of the project.

It �s part�cularly �mportant that grantors are made aware of any d�fficult�es as they ar�se, so

that they can offer add�t�onal adv�ce or ass�stance to the project where poss�ble.

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Progress against the implementation and marketing strategy

The project appl�cat�on prov�ded deta�ls of how the project w�ll be �mplemented and

marketed. Progress w�th the act�v�t�es to be undertaken and the t�meframe must be

�ncluded.

A commun�cat�on strategy �dent�fy�ng how the progress and outcomes of the project

w�ll be commun�cated to relevant aud�ences should also have been deta�led �n the grant

appl�cat�on. Progress should be reported, �nclud�ng any emerg�ng �deas for max�m�s�ng the

commun�cat�ons strategy.

Progress against the evaluation plan

An evaluat�on plan w�th performance measures for the project was deta�led �n the grant

appl�cat�on. A rev�ew of the progress of the project aga�nst the performance measures

should be reported �n th�s sect�on. It should �nclude �nformat�on on the collect�on of data

and the progress of processes for conduct�ng the final evaluat�on of the extent to wh�ch

the a�ms and object�ves of the project have been met.

Progress reports to grantors should expla�n any changes to performance �nd�cators s�nce

the last progress report.

Expenditure statement

A financ�al statement of the expend�ture of the project aga�nst the budget �s requ�red.

Final report

The final grant payment w�ll only be made upon the recept�on of a sat�sfactory final report

that shows that the agreed outcomes and performance measures for the project have

been ach�eved, w�th an aud�ted expend�ture statement.

Executive summary

The execut�ve summary should prov�de an overv�ew of the project’s a�m and object�ves,

methodology, outcomes, find�ngs, evaluat�on outcomes and recommendat�ons.

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Background

Th�s sect�on should summar�se background �nformat�on relevant to the project, �nclud�ng

how the need for the project was �dent�fied and the development of the methodology.

Where appropr�ate (for example �n pr�mary research) a l�terature rev�ew may be �ncluded.

Methodology

Th�s sect�on should descr�be the methodology employed �n the project and d�scuss act�v�t�es

and progress of the project aga�nst the work plan. Act�v�t�es undertaken to ach�eve each

of the project’s major tasks should be documented, and outcomes aga�nst each task’s

performance measures reported.

Explanat�ons for dev�at�ons from the work plan should be prov�ded, �n part�cular, where

they reflect problems w�th any parts of the methodology used for the project. Other

problems encountered (such as w�th the external env�ronment) should also be reported,

�n order to help avo�d s�m�lar problems for future projects.

Outcomes and findings

Th�s sect�on should prov�de deta�l on the project outcomes measured aga�nst each task’s

performance measures, and how these relate to pract�cal use �n the workplace and

contr�bute to long-term change.

Variations and any action taken

It �s not uncommon for organ�sat�ons to have to vary the cond�t�ons of the grant to allow for

unexpected delays, or add�t�onal expend�tures. Where such changes occur, the report should

outl�ne the changes made and the act�on taken to address any �ssues that may ar�se.

Evaluation

Th�s sect�on should report and prov�de d�scuss�on on the evaluat�on of the project �nclud�ng

assessment of:

• the extent to wh�ch the stated a�ms and object�ves of the project have been met

• the qual�ty of project management

• the ach�evement of project performance measures

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• the qual�ty of outcomes

• the �mpact of the project

• var�at�ons and any act�ons to be taken.

Communication

Th�s sect�on should outl�ne how the outcomes and results of the project have been

commun�cated to key stakeholders or other relevant groups, and any feedback rece�ved.

Extension of results

Th�s sect�on should outl�ne how the find�ngs of the project and any resources developed

w�ll cont�nue to be ma�nta�ned and used �n the future.

Recommendations

Th�s sect�on should deta�l recommendat�ons ar�s�ng from the project.

Audited expenditure statement

Under the grants contract, an aud�ted expend�ture statement must accompany the final

report. The statement should show expend�ture aga�nst the budget prov�ded �n the grant

appl�cat�on, and should be prepared by a reg�stered company aud�tor or CPA (hold�ng a

Publ�c Pract�ce Cert�ficate). Th�s �s not requ�red for consultancy agreements.

Grant acquittal

The grants body w�ll spec�fy how the grant w�ll be acqu�tted. The process normally �nvolves

two stages:

• financ�al acqu�ttal; and

• performance report.

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Financial acquittal

The financ�al acqu�ttal date �s normally spec�fied �n the grants agreement. A set of financ�al

statements �s normally requ�red, and these may be �ndependently aud�ted.

Part�cular �ssues that may have to be addressed dur�ng the acqu�ttal are the treatment of

excess funds (usually cannot be reta�ned), ownersh�p of any assets ar�s�ng, and records

reta�ned.

Performance report

The performance report deta�ls the extent to wh�ch the not-for-profit organ�sat�on has met

the outcomes spec�fied �n the grants agreement. There are many ways to evaluate your

event, program or act�v�ty, and how well �t meets the outcomes spec�fied �n the grants

agreement.

One method �s to use evaluat�on forms for part�c�pants:

• stat�st�cs: how many part�c�pants? wh�ch organ�sat�ons? how many flyers were

handed out?

• quest�onna�res, wh�ch could be g�ven out beforehand to determ�ne the �mpact of

your event, program or act�v�ty

• one-to-one or group �nterv�ews of part�c�pants or volunteers

• a suggest�on box

• a cost–benefit analys�s of the promot�on and advert�s�ng: how much coverage d�d

you rece�ve? what was the cost of promot�on and advert�s�ng?

Another way to do th�s �s to make sure that the act�v�ty’s performance measures closely

reflect the outcome of the fund�ng agreement – �f there �s a log�cal flow from the broad

outcome to the lower-level performance �nd�cators, then �t �s eas�er to demonstrate that

the act�v�ty has met the outcomes.

The performance report should d�st�ngu�sh between outputs and outcomes.

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The aud�t and ver�ficat�on of grants �s becom�ng more commonplace, as accountab�l�ty and

governance cons�derat�ons for grants bod�es �ncrease.

An aud�t �s an �ndependent rev�ew and exam�nat�on of records and act�v�t�es to assess the

adequacy of system controls, ensure compl�ance w�th establ�shed pol�c�es and operat�onal

procedures, and enable the recommendat�on of necessary changes �n controls, pol�c�es or

procedures.

Types of audit

There are potent�ally five types of aud�ts that a not-for-profit organ�sat�on may face relat�ng

to �ts grants:

• not-for-profit organ�sat�on external aud�t

• not-for-profit organ�sat�on �nternal aud�t

• grants body aud�t

• aud�tor-general’s aud�t

• spec�al aud�t

• performance aud�t.

Not-for-profit organisation external audit

An external aud�t �s the most common form of aud�t. The aud�t �s conducted by

an �ndependent, su�tably qual�fied person. The aud�tor typ�cally would belong to a

profess�onal account�ng body.

Not-for-profit organisation internal audit

Larger not-for-profit organ�sat�ons may have the�r own �nternal aud�t funct�on to undertake

aud�ts of the organ�sat�on’s grants.

Grants body audit

The grants body undertakes an aud�t of the grants records, and the aud�t may be

performed by a su�tably qual�fied staff member from the grants organ�sat�on.

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Auditor-general’s audit

For large grants, the grant may be �ncluded �n the annual work program for the relevant

state or federal aud�tor-general.

Special audit

In some c�rcumstances, a spec�al aud�t may be conducted, and the aud�t may be performed

by the grants body or an aud�tor-general.

Performance audit

More and more, grants bod�es are seek�ng confirmat�on that the grant has del�vered the

outcomes expected. Performance aud�ts are undertaken by grants bod�es to measure the

extent to wh�ch grants outcomes are ach�eved. For example, surveys may be conducted of

the project’s cl�ents to determ�ne the extent to wh�ch outcomes have been ach�eved.

What the grantee can expect

Any aud�t, no matter what type �t �s, w�ll assess what �s spec�fied �n the fund�ng agreement

aga�nst what has occurred. Aud�tors w�ll always look at the terms of the fund�ng

agreement when conduct�ng an aud�t. Therefore, not-for-profit organs�at�ons should

structure the�r controls and report�ng mechan�sms around the terms of the fund�ng

agreement. It �s the fund�ng agreement that w�ll determ�ne what the grantee can expect to

be exam�ned dur�ng an aud�t.

The performance of aud�ts follows an establ�shed set of steps: the scope of the aud�t

outl�ned; the start and complet�on date of the aud�t; records requ�red for �nspect�on; and

the report�ng arrangements. You also need to determ�ne the fees for the aud�t and �f these

can be pa�d out of the grants funds.

The poss�ble outcomes of an aud�t �nclude confirmat�on of the procedures and financ�al

reports; recommendat�ons for changes �n procedures or adjustments to reports; and

adv�s�ng of return of funds where the grant cond�t�ons have not been properly fulfilled.

Where fraud or other �llegal�ty has occurred, adv�ce should be g�ven to the relevant

author�t�es for �n�t�at�on of appropr�ate act�on, �nclud�ng poss�ble cr�m�nal proceed�ngs.

7. Audit and verification of grants

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What the auditor needs to do

The aud�tor’s dut�es are covered by the relevant account�ng and aud�t�ng standards. In

perform�ng an aud�t, the aud�tor w�ll probably need to cons�der the follow�ng:

• aud�t engagement terms

• qual�ficat�ons requ�red to conduct the aud�t

• confl�ct of �nterest

• requ�rements of the grant and grant�ng body

• work�ng papers

• grants documents: dec�s�on-mak�ng processes, agreement, assets, l�ab�l�t�es

• compl�ance

• management representat�ons

• s�gn-off: standards of assert�ons; ‘true and fa�r’

• general recommendat�ons to the organ�sat�on.

Aud�t engagement terms are the cond�t�ons set out at the commencement of the aud�t to

�nform the grantee what the scope of the aud�t w�ll cover, what the aud�tor w�ll exam�ne,

and the adm�n�strat�ve arrangements for the aud�t. The aud�t engagement terms w�ll

usually al�gn to the fund�ng agreement.

7. Audit and verification of grants

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Th�s sect�on prov�des corroborat�ng deta�l to back up the more general po�nts made �n

the earl�er sect�ons of the manual. Much of the follow�ng mater�al �s based on the the

Queensland Un�vers�ty of Technology MYOB Training Manual, by Stephen Marsden.

Account numbers used �n th�s append�x are from the Standard Chart of Accounts for small

nonprofit organ�sat�ons ava�lable at qut.edu.au.

What is a grant?

A grant �s typ�cally prov�ded from one party (referred to as ‘the grantor’) to another party

(referred to as ‘the grantee’), whereby the supply of a serv�ce �s prov�ded under the grant

agreement. The grant agreement usually spec�fies the var�ous r�ghts and obl�gat�ons

between the part�es and the cond�t�ons attached to the serv�ce agreement. Often the grant

agreement w�ll prov�de that the grantee prov�de certa�n serv�ces to th�rd part�es, rather

than the grantor.

In the case of the Queensland Department of Commun�t�es, grants are usually prov�ded

to commun�ty organ�sat�ons throughout Queensland to fund a range of serv�ce �n�t�at�ves

and programs that a�m to strengthen fam�ly or commun�ty l�fe, promote the d�gn�ty and

�ndependence of �nd�v�duals or ass�st people �n need.

A serv�ce agreement entered �nto between the department and the not-for-profit

organ�sat�on typ�cally outl�nes the roles and respons�b�l�t�es of each party and what

serv�ces w�ll be del�vered by the not-for-profit organ�sat�on. In return, the not-for-profit

organ�sat�on w�ll usually be requ�red under the serv�ce agreement to prov�de appropr�ate

account�ng records and per�od�c returns d�sclos�ng how the grant has been acqu�tted.

Aud�ted financ�al statements are usually also requ�red to be prov�ded to the department at

the end of the financ�al year.

The Queensland Department of Commun�t�es has publ�shed a standard fund�ng agreement

on �ts webs�te at commun�t�es.qld.gov.au.

Is a grant subject to GST?

If a not-for-profit organ�sat�on rece�ves a grant, �t �s usually cons�dered a taxable supply

for goods and serv�ces taxt (GST) purposes. Hence, one-eleventh of the amount of the

grant needs to be rem�tted to the Austral�an Taxat�on Office on the bus�ness act�v�ty

statement (BAS).

In l�m�ted c�rcumstances, a grant from a char�table foundat�on w�ll not be subject to GST.

A copy of the grant format that the Austral�an Taxat�on Office w�ll accept as not be�ng

subject to GST can be found at the Ph�lanthropy Austral�a webs�te at ph�lanthropy.org.au.

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In the case of grants rece�ved from government departments, they w�ll usually be subject

to GST. In some cases, the government department prov�des a tax �nvo�ce to the not-for-

profit organ�sat�on. Th�s �s referred to as a ‘rec�p�ent-created tax �nvo�ce’. Th�s means that

the not-for-profit organ�sat�on does not need to send the government department a tax

�nvo�ce. If the government department does not �ssue the non-profit organ�sat�on w�th a

rec�p�ent created tax �nvo�ce, then the not-for-profit organ�sat�on w�ll be requ�red to ra�se

and send the government department a tax �nvo�ce for the GST �nclus�ve value of the grant

rece�ved.

The ATO has released a fact sheet ent�tled ‘Grants and GST: Rec�p�ent-created Tax Invo�ces’,

wh�ch d�scusses the cr�ter�a for rec�p�ent-created tax �nvo�ces. Th�s fact sheet can be

downloaded from the ATO webs�te ato.gov.au.

A grant �s not a ‘g�ft’ for taxat�on purposes. A grant conta�ns spec�fic cond�t�ons as to how

that grantee �s to spend the money. As such, �t w�ll not const�tute a g�ft. Th�s �s confirmed

�n Sect�on 9–�0(2)(d) of the Goods and Services Tax Act 1999, as amended, wh�ch states

that a taxable supply �ncludes ‘a grant, ass�gnment or surrender of real property’.

The ATO has �ssued a GST rul�ng deal�ng w�th grants ent�tled GSTR 2000/�� Grants of

Financial Assistance. Th�s document can be downloaded at ato.gov.au. The ATO has also

�ssued a booklet ent�tled GST and Grants, wh�ch outl�nes the GST treatment of grants. Th�s

booklet can be also downloaded from the ATO webs�te.

Accounting for grants

As far as the not-for-profit organ�sat�on �s concerned, the ma�n �ssue w�th account�ng for

grants �s determ�n�ng the po�nt at wh�ch these grants are recogn�sed as revenue �n the

profit and loss statement. Generally, �f a grant �s rece�ved that relates exclus�vely to the

current per�od, the grant �s recorded as revenue �n the profit and loss statement.

However, a part�cular problem ar�ses where grants are rece�ved �n advance of the per�od �n

wh�ch they are expected to be used – where the per�od of the grant spans more than one

financ�al year.

The �ssue �s whether the total amount of the grant should be treated as revenue upon

rece�pt or recogn�sed progress�vely as revenue �n the per�od �n wh�ch the grant �s expected

to be used. If the latter �s chosen, a subsequent �ssue �s whether the grant should be

class�fied as a l�ab�l�ty.

The answer to th�s quest�on depends on whether the grant �s rec�procal or non-rec�procal,

and whether the grant has been rece�ved by a for-profit or a not-for-profit organ�sat�on.

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Reciprocal transfer

A rec�procal transfer �s a transfer �n wh�ch the ent�ty rece�ves assets (that �s, money) or

serv�ces and d�rectly g�ves approx�mately equal value �n exchange to the prov�der of the

money. In other words, a rec�procal transfer �s one �n wh�ch the rec�p�ent �s obl�ged to

prov�de goods or serv�ces of approx�mately the same value back to the contr�butor.

In the case of not-for-profit organ�sat�ons, such transact�ons are often descr�bed as

membersh�p fees, t�ckets to fundra�s�ng events, or sales of fundra�s�ng goods such as

chocolates or loll�es.

Non-reciprocal transfer

A non-rec�procal transfer (or contr�but�on) �s a transfer �n wh�ch the ent�ty rece�ves assets

(that �s, money) or serv�ces w�thout d�rectly g�v�ng approx�mately equal value back to the

contr�butor.

In other words, a non-rec�procal transfer �s one �n wh�ch the rec�p�ent �s not obl�ged to

prov�de goods or serv�ces of approx�mately the same value back to the contr�butor. In

the case of not-for-profit organ�sat�ons, such contr�but�ons are often descr�bed as g�fts

or donat�ons. The not-for-profit organ�sat�on �s not requ�red to g�ve back to the donor

approx�mately the same value prov�ded.

Hav�ng confirmed that a grant �s, from an account�ng v�ewpo�nt, regarded as a non-

rec�procal transfer, the next cons�derat�on �s whether the grant should be accounted for

as revenue upon rece�pt or �n�t�ally recogn�sed as a l�ab�l�ty and transferred to revenue over

the per�od of the grant. The answer to th�s quest�on depends on whether the ent�ty �s a

for-profit or not-for-profit ent�ty.

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a Accounting for grants in the books of for-profit organisations

Where a for-profit ent�ty rece�ves a government grant, AASB �20 Accounting

for Government Grants and Disclosure of Government Assistance appl�es. Th�s

account�ng standard requ�res that grants should be recogn�sed as revenue �n the

profit and loss statement over the period during which the grant relates.

In other words, the �n�t�al amount of the grant should be shown as a current l�ab�l�ty

ent�tled Grants Rece�ved �n Advance �n the balance sheet, and transferred to the profit

and loss statement on a progress�ve bas�s as revenue over the per�od of the grant. On th�s

bas�s, the standard regards the government grant as a rec�procal transfer.

b Accounting for grants in the books of not-for-profit organisations

The defin�t�on of a ‘not-for-profit’ ent�ty �s conta�ned �n paragraph Aus. 6.2 of AASB ��6

Impairment of Assets: ‘A not-for-profit ent�ty �s an ent�ty whose pr�nc�pal object�ve �s not

the generat�on of profit.’

Where a not-for-profit ent�ty rece�ves a government grant, AASB �00� Contributions

appl�es, not AASB �20. AASB �00� requ�res that the ent�re amount of the grant be

recogn�sed as revenue �n the �ncome statement �n the year of rece�pt, regardless of the

per�od of the grant.

Divergent treatment

As can be seen, the current way that for-profit organ�sat�ons account for the�r grants �s

d�fferent from the way that not-for-profit organ�sat�ons are requ�red to account for grants.

Several not-for-profit organ�sat�ons have compla�ned about th�s d�vergent treatment to the

Austral�an Account�ng Standards Board (AASB). The AASB �s the government body that

sets account�ng standards �n Austral�a.

Based on these concerns, �n February 2006, the AASB released a document ent�tled ED ��7

Revenue from Non-Exchange Transactions. Th�s document proposes to amend AASB �00�

Contributions to allow not-for-profit organ�sat�ons to record grants rece�ved �n advance as

a l�ab�l�ty s�m�lar to for-profit organ�sat�ons. The grant would be progress�vely brought to

account as revenue �n the profit and loss statement over the per�od of the grant.

Th�s amendment would br�ng the account�ng treatment for grants for both for-profit

organ�sat�ons and not-for-profit organ�sat�ons �nto l�ne.

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Example

Assume that on � January 2006 a not-for-profit organ�sat�on rece�ves a recurr�ng

grant from the Department of Commun�t�es of $55,000 �nclud�ng GST. Th�s grant �s

for a twelve-month per�od. The not-for-profit organ�sat�on w�ll be requ�red to rem�t

one-eleventh of th�s amount to the ATO (that �s, $5000). Th�s w�ll be coded to the

l�ab�l�ty ‘Account�ng 2��50 GST Payable’.

Assume that the financ�al year-end of the not-for-profit organ�sat�on �s �� March.

Desp�te the fact that only three months have passed from the date of the rece�pt of

the grant to the end of the financ�al year, under AASB �00� Contributions the not-

for-profit organ�sat�on w�ll record the ent�re $50,000 as revenue upon rece�pt of the

grant (Account �-�0�0 State Grants – Recurring).

Th�s �s desp�te the fact that n�ne-twelfths of the grant relates to the subsequent

financ�al year.

However, once AASB �00� Contr�but�ons �s amended, not-for-profit organ�sat�ons

w�ll recogn�se $�2,500 as grant revenue (�/�2 × $50,000) �n the profit and loss

statement and $�7,500 (represent�ng 9/�2 × $50,000 relat�ng to the next financ�al

year) as Grants Rece�ved �n Advance �n the balance sheet.

tip

For not-for-profit organ�sat�ons, grants are recorded as revenue at the t�me the

grant �s rece�ved, regardless of the per�od to wh�ch the grant relates. Grants are

subject to GST, hence the not-for-profit organ�sat�on must rem�t one-eleventh of the

gross amount of the grant to the ATO.

In many cases, the government department w�ll prov�de the not-for-profit

organ�sat�on w�th a rec�p�ent-created tax �nvo�ce. Th�s means that the not-for-profit

organ�sat�on does not need to send the government department a tax �nvo�ce.

Appendix 1: Transactions unique to not-for-profit organisations

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Accounting for donations and donated assets

In some �nstances, a person may make a donat�on of cash, trad�ng stock or property to a

not-for-profit organ�sat�on. To be a bona fide g�ft or donat�on, �t must have the follow�ng

character�st�cs:

• there �s a transfer of the benefic�al �nterest �n property

• the transfer �s made voluntar�ly

• the transfer ar�ses by way of benefact�on

• no mater�al benefit or advantage �s rece�ved by the g�ver by way of return.

Generally, for a payment to be cons�dered a g�ft, �t must be unfettered, that �s, there must

be no obl�gat�on to do anyth�ng mater�al �n recogn�t�on of the g�ft and no expectat�on on

the part of the donor to rece�ve anyth�ng mater�al �n return for the donat�on; that �s, no

str�ngs attached.

Hence, the follow�ng are not usually cons�dered g�fts:

• purchase of raffle or art un�on t�ckets

• cl�ent contr�but�ons towards serv�ces or act�v�t�es; for example, contr�but�on towards

a bus tr�p

• purchase of an �tem such as a mug, key r�ng or pen that �s not merely a token that

promotes the commun�ty organ�sat�on or �ts act�v�t�es. Such tokens commonly g�ven

dur�ng fundra�s�ng dr�ves �nclude lapel badges, bumper st�ckers, red noses, Legacy

p�ns and daffod�ls on Daffod�l Day

• the cost of attend�ng a fundra�s�ng d�nner, even �f the cost exceeds the value of the

d�nner

• sponsorsh�ps or advert�s�ng prov�ded to the donor �n exchange for the donat�on

• membersh�ps and reg�strat�on fees

• payments where the person has an understand�ng w�th the rec�p�ent that the

payment w�ll be used to prov�de a benefit to the donor.

On 20 July 2005, the Austral�an Taxat�on Office released Taxat�on Rul�ng TR 2005/�� Tax

Deductible Gifts: What is a Gift? Th�s taxat�on rul�ng supersedes several other taxat�on

rul�ngs and taxat�on determ�nat�ons, and represents the most comprehens�ve taxat�on

rul�ng �ssued by the Austral�an Taxat�on Office on the subject of tax-deduct�ble g�fts. TR

2005/�� conta�ns 2�0 paragraphs, �� worked examples and spans �7 pages. It can be

found at ato.gov.au.

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The donor w�ll be able to cla�m a tax deduct�on for the g�ft made, prov�ded �t was made

to a tax-deduct�ble g�ft rec�p�ent (DGR) that has been endorsed by the comm�ss�oner of

taxat�on.

The complete l�st of deduct�ble g�ft rec�p�ents can be found by search�ng the name or ABN

of the organ�sat�on at abr.bus�ness.gov.au.

There are two ways a person can make a donat�on to a not-for-profit organ�sat�on:

• monetary donat�ons; and/or

• non-monetary donat�ons.

The respect�ve account�ng treatment of each of these transact�ons �s d�scussed below.

Monetary donations

A person may make a monetary (that �s, cash) donat�on to a not-for-profit organ�sat�on.

In th�s case, �f the donat�on meets the cr�ter�a for a tax-deduct�ble g�ft and the not-for-

profit organ�sat�on �s a DGR, the relevant cash at bank account �s deb�ted, and the revenue

‘Account �-20�0 Donat�ons Rece�ved’ cred�ted. If the donat�on does not meet the cr�ter�a

for a tax-deduct�ble g�ft, then the ‘Account �-20�0 Non-Tax Deduct�ble G�fts’ �s cred�ted.

All g�fts should be depos�ted �nto a separate g�ft account.

For more �nformat�on on the requ�rements of a g�ft fund, refer to the ATO Fact Sheet

ent�tled Gift Fund Requirements for Deductible Gift Recipients at the ATO webs�te.

Reference should also be made to TR 2000/�2 Deductible Gift Recipients: The Gift Fund

Requirements. Th�s tax rul�ng can be downloaded at: law.ato.gov.au.

Regardless of whether the donat�on �s a tax-deduct�ble g�ft or not for �ncome tax purposes,

a g�ft (or donat�on) �s not cons�dered a taxable supply for the purposes of the Goods and

Services Tax Act 1999 as amended.

As �t �s not cons�dered a GST-free supply or �nput-taxed supply, �t falls outs�de the scope of

the GST Act. Hence, �t should be coded to ‘N-T’ or no-tax �n both MYOB and Qu�ckBooks.

G�fts or donat�ons are not reported on the bus�ness act�v�ty statement.

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Non-monetary donations

In some �nstances, a person may donate non-monetary �tems, for example, electr�cal

equ�pment. Desp�te the fact that the donated �tem �s non-monetary �n nature, �t must

st�ll be recorded �n the account�ng system. The account�ng treatment of non-monetary

donat�ons depends on whether the fa�r value of the donated �tem �s greater or less than

$5000. Th�s amount �s the threshold adopted �n the QUT Model Chart of Accounts to

determ�ne whether an �tem should be recorded as an asset or expense.

a Donated asset valued at less than $5000

If a not-for-profit organ�sat�on rece�ves a donated asset that �s valued by the not-for-profit

organ�sat�on at less than $5000, the donated asset should be expensed to the profit and

loss statement for the est�mated fa�r market value of the donated asset.

There �s no need for the not-for-profit organ�sat�on to obta�n a formal valuat�on of the

�tem �n quest�on �f �t �s less than $5000. However, the �tem must be valued on a reasonable

bas�s.

For example, �f a person donates a new Sony 5� cm telev�s�on set to a not-for-profit

organ�sat�on, then a comparable pr�ce for th�s telev�s�on set can be obta�ned by check�ng

the pr�ce at a reta�l store, such as B�g W, Target, Myer or JB H� F�. Many stores have

webpages where �t �s poss�ble to electron�cally search for the �tem.

The d�fficulty l�es where the �tem be�ng donated �s not new; that �s, secondhand. In th�s

case, an est�mate needs to be made of the value of a secondhand �tem that �s donated. For

example, a person may donate a secondhand Sony 5� cm telev�s�on set to a not-for-profit

organ�sat�on. In th�s case, cons�derat�on may be g�ven to search�ng the �tem on E-bay (ebay.

com.au) and typ�ng �n the name of the relevant �tem.

It �s not essent�al that the donated �tem be valued prec�sely. As long as there has been a

reasonable attempt to value the donated asset, the aud�tor should be sat�sfied.

It �s �mportant that you keep a record of where you found the comparable �tem and pr�ce.

For example, you should pr�nt out the webpage show�ng the comparable �tem and the

pr�ce, and keep th�s pr�ntout w�th your asset �nformat�on.

Let us assume that the secondhand Sony 5� cm telev�s�on set has been valued at $�00.

In th�s case, the expense ‘Account 6-00�0 Asset Purchases < $5000’ w�ll be deb�ted and

the revenue account ent�tled ‘�-20�0 Donat�ons Rece�ved’ cred�ted (�f �t �s a tax-deduct�ble

g�ft). If the �tem donated �s not a tax-deduct�ble g�ft, then the ‘Account �-20�0 Non-Tax

Deduct�ble G�fts’ should be cred�ted.

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In the case of donated non-monetary �tems, no �nput tax cred�t can be cla�med, as no

money was actually spent to acqu�re the �tem. S�m�larly, no GST �s payable, as there was no

sale. Hence, the tax code to be used �n both MYOB and Qu�ckBooks �s N-T (No Tax).

b Donated asset valued at more than $5000

If a not-for-profit organ�sat�on rece�ves a donated asset that �s valued at more than $5000,

the donated asset should be recorded �n the appropr�ate asset account �n the balance

sheet. Th�s asset should also be added to the asset reg�ster.

If the property �s valued by the Austral�an Valuat�on Office, the donor w�ll be not�fied of

the value of the donated �tem by way of a valuat�on cert�ficate. In some cases, the donor

w�ll prov�de the not-for-profit organ�sat�on w�th a copy of the valuat�on cert�ficate. Th�s w�ll

prov�de the value of the asset to be recorded �n the accounts.

Th�s t�me, let us assume that a person has donated to a not-for-profit organ�sat�on a

w�descreen plasma telev�s�on that has been valued by the comm�ss�oner at $7500. In th�s

case, the asset ‘Account �-7�20 Plant and Equ�pment’ w�ll be deb�ted, and the revenue

‘Account �-20�0 Donat�ons Rece�ved’ should be cred�ted �f �t �s a tax-deduct�ble g�ft. If the

�tem donated �s not a tax-deduct�ble g�ft, then the ‘Account �-20�0 Non-Tax Deduct�ble

G�fts’ should be cred�ted.

Once aga�n, no �nput tax cred�t can be cla�med by the not-for-profit organ�sat�on on the

$7500, as no money was actually spent to acqu�re the plasma telev�s�on. S�m�larly, no GST

�s payable, as there was no sale. Hence, the tax code to be used �n both MYOB and Qu�ck

Books �s N-T (No Tax).

Accounting for sponsorships and fundraising events

Many not-for-profit organ�sat�ons undertake a range of fundra�s�ng act�v�t�es �nclud�ng

fetes, auct�ons, char�ty balls, lunches and d�nners. In add�t�on, a not-for-profit organ�sat�on

may also approach a corporate partner to be �nvolved �n sponsor�ng certa�n events or

funct�ons.

In terms of the account�ng treatment for fundra�s�ng events, the relevant cash at bank

account �s deb�ted w�th the appropr�ate revenue account cred�ted (�-2000 or �-�000).

S�m�larly, where sponsorsh�ps are obta�ned, the relevant cash at bank account �s deb�ted,

w�th the revenue ‘Account �-�050 Sponsorsh�ps & L�cens�ng Fees’ cred�ted.

The GST treatment of sponsorsh�ps �s relat�vely clear. Sponsorsh�ps are normally subject to

GST, as they are prov�ded �n return for advert�s�ng serv�ces. Hence, ensure that the tax code

�s GST.

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When rece�v�ng mon�es from sponsorsh�ps, the not-for-profit organ�sat�on must rem�t

one-eleventh of the gross amount rece�ved to the Austral�an Taxat�on Office on the next

bus�ness act�v�ty statement.

Most fundra�s�ng events are subject to GST. Although genu�ne g�fts or donat�ons w�th no

str�ngs attached are not subject to GST, most other fundra�s�ng events const�tute taxable

suppl�es for GST purposes. Hence, they are subject to GST.

In other words, a not-for-profit organ�sat�on that charges $��0 to attend a black t�e char�ty

fundra�s�ng d�nner w�ll be requ�red to rem�t one-eleventh of th�s amount to the ATO. Of

course, the not-for-profit organ�sat�on �s ent�tled to cla�m back one-eleventh of all costs

assoc�ated w�th th�s event as an �nput tax cred�t.

However, there �s a spec�al �nput taxed concess�on prov�ded to char�table �nst�tut�ons �n

D�v�s�on �0-F of the Goods and Services Tax Act 1999 as amended. Accord�ng to Sect�on

�0-�60, a char�table �nst�tut�on may elect for a fundra�s�ng event to be �nput taxed rather

than be regarded as a taxable supply. Th�s elect�on �s opt�onal under the act, and appl�es to

each fundra�s�ng event.

The ma�n advantage of nom�nat�ng that the fundra�s�ng event be �nput taxed �s that,

although no �nput tax cred�ts are allowed �n respect of outgo�ngs assoc�ated w�th the

fundra�s�ng event, no GST �s requ�red to be rem�tted on the proceeds rece�ved.

A fundra�s�ng event �s defined as one that �s conducted for the purpose of fundra�s�ng and

does not form any part of a ser�es or regular run of s�m�lar events. Sect�on �0-�65 (�) (a)

class�fies a fundra�s�ng event as a fete, ball, gala, d�nner performance or s�m�lar event.

The comm�ss�oner of taxat�on made a determ�nat�on on �0 August 200�, c�ted as

Frequency of Fundraising Events Determination (No 1) 2001, that the frequency w�th

wh�ch fundra�s�ng events may be held w�thout form�ng part of a ser�es or regular run of

l�ke or s�m�lar events �s �5 �n any �ncome year.

Therefore, �n any �ncome year, a char�ty may hold up to:

• �5 fetes, �5 balls, �5 gala shows, �5 d�nners, �5 performances, �5 char�ty auct�ons,

�5 w�ne tast�ngs and �5 fash�on parades

• �5 nat�onal flower days; and

• �5 golf days, �5 nat�onal health promot�on days.

Where a char�table �nst�tut�on elects to have �ts fundra�s�ng event �nput taxed, �t �s requ�red

to treat all suppl�es made �n connect�on w�th �t as �nput taxed. Th�s appl�es to the t�cket

char�ty auct�on that may be held on the n�ght as well as raffles, wh�ch would ord�nar�ly be

cons�dered GST-free.

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�5

By elect�ng to treat the fundra�s�ng event as �nput taxed, the not-for-profit organ�sat�on

�s not requ�red to �ssue a tax �nvo�ce to each guest when the t�cket �s sent. Furthermore,

there �s no need to rem�t one-eleventh of the proceeds from the auct�on or other act�v�ty

conducted on the n�ght. However, the not-for-profit organ�sat�on �s unable to cla�m back

any �nput tax cred�ts �n respect of the event.

Accord�ng to the Austral�an Taxat�on Office, �f a char�table �nst�tut�on elects to treat �ts

fundra�s�ng events as �nput taxed, then the revenue and expenses for each event must

be separately accounted for �n the account�ng system. In other words, �f the �nput-taxed

elect�on �s made for a part�cular event, the ATO requ�res that all proceeds and costs

assoc�ated w�th that part�cular event be separately accounted for.

In order to sat�sfy these requ�rements, �f the organ�sat�on elects to treat the fundra�s�ng

event as �nput taxed, then the bookkeeper should set up a cost centre w�th�n e�ther MYOB

or Qu�ckBooks and job cost all revenues and expenses assoc�ated w�th fundra�s�ng event to

INP (�nput taxed).

The dec�s�on to elect that a fundra�s�ng event be treated as �nput taxed should be made �n

d�scuss�on w�th the board, CEO and external accountant.

Accounting for membership fees

Many not-for-profit organ�sat�ons are membersh�p-based. Hence, they charge fees to those

persons who jo�n the organ�sat�on as members.

Typ�cally, membersh�p fees w�ll be rece�ved by the not-for-profit organ�sat�on on an

annual bas�s. The member (or prospect�ve member) typ�cally completes a membersh�p or

reg�strat�on form and subm�ts th�s form w�th the nom�nated fee e�ther v�a cheque, cash or

EFT, or by prov�d�ng cred�t card deta�ls.

Usually, the not-for-profit organ�sat�on w�ll send out the membersh�p appl�cat�on form

requ�r�ng the appl�cant to complete a var�ety of deta�ls. The appl�cat�on �tself may be

accompan�ed by a tax �nvo�ce, prov�ded the document conta�ns all of the requ�rements for

a tax �nvo�ce.

Membersh�p fees are regarded as a rec�procal transfer, because the not-for-profit

organ�sat�on �s prov�d�ng the member w�th benefits of approx�mately equal value �n

exchange for the money rece�ved.

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Accord�ng to paragraph �2 of AASB �00� Contributions:

Where clubs and profess�onal assoc�at�ons charge fees �n return for contr�butors

be�ng able to enjoy the use of fac�l�t�es, rece�ve publ�cat�ons or pract�se �n a part�cular

vocat�on for a defined per�od, an exchange transact�on can be presumed and the

fees would not be treated as contr�but�ons.

Although the member’s benefit may exceed the current financ�al year, most not-for-profit

organ�sat�ons record the ent�re amount of membersh�p fees rece�ved as revenue. Hence,

when a member pays h�s or her membersh�p fees, the relevant cash at bank account

�s deb�ted for the amount of the membersh�p fee, w�th the revenue ‘Account �-�0�0

Contr�but�ons (Members)’cred�ted.

Some not-for-profit organ�sat�ons may elect to record the membersh�p fees by

apport�on�ng the fees between the current per�od and future per�ods. For example, �f

the membersh�p fees relate to one or more financ�al years, the port�on that relates to

the current financ�al year �s regarded as revenue, w�th the amount relat�ng to the future

financ�al year regarded as a l�ab�l�ty.

For example, �f on � January 2006, a member pays the�r membersh�p fees of $�20 for

twelve months, by �� March (three months later), the not-for-profit organ�sat�on may elect

to show only $�0 as revenue (three months), w�th the rema�n�ng n�ne months (or $90)

shown as a current l�ab�l�ty (‘Account # 2-�2�0 Revenue Rece�ved �n Advance’).

Regardless of wh�ch method the not-for-profit organ�sat�on adopts, membersh�p fees are

subject to GST. Hence, the tax code �s GST.

Residential rent

In some cases, organ�sat�ons funded by Department of Commun�t�es under the Supported

Accommodat�on Ass�stance Program (SAAP) rent the�r propert�es from the Department of

Hous�ng under the Cr�s�s Ass�stance Program (CAP). Propert�es can also be rented from the

pr�vate market and �n some cases also from the Department of Commun�t�es (�n the latter

case a peppercorn rent �s charged).

Accord�ng to sect�on �0-�5 of the Goods and Services Tax Act 1999, as amended, the

supply of res�dent�al rent �s �nput taxed. Th�s means that the landlord �s unable to charge

the GST to the tenant. Hence, the revenue account ‘�-50�0 Rental Income’ should be

coded to INP (�nput taxed). However, be�ng an �nput-taxed supply, th�s means that all

expenses assoc�ated w�th the rental property should also be coded to INP. Hence, the

follow�ng accounts have been ass�gned the GST tax code INP:

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• Account 6-0��0 Insurance: Rental Propert�es

• Account 6-0560 Rates: Rental Propert�es

• Account 6-05�0 Rent: Rental Propert�es

• Account 6-0590 Repa�rs and Ma�ntenance: Rental Propert�es

The landlord �s unable to cla�m back the GST on these �tems. In th�s case, the rental

�ncome would be coded to Item G� Input Taxed Sales �n the GST calculat�on worksheet for

the bus�ness act�v�ty statement. The assoc�ated rental expenses would be coded to G��

Purchases for Mak�ng Input Taxed Sales.

However, there �s a spec�al GST-free concess�on prov�ded to char�table �nst�tut�ons,

char�table funds and g�ft-deduct�ble ent�t�es conta�ned �n Sect�on ��-250 of the GST

Act. Th�s sect�on prov�des that, where these ent�t�es charge a pr�ce for accommodat�on

that �s less than 75 per cent of the GST-�nclus�ve market value of a comparable un�t of

accommodat�on, the supply �s regarded as GST-free, not �nput taxed.

Cod�ng the rental �ncome as GST-free �nstead of �nput taxed does not mean that the

landlord can charge the GST. There �s st�ll no GST on the rent. However, the benefit l�es

�n the expenses assoc�ated w�th the rental property. Instead of be�ng coded as INP, they

can be coded as GST, mean�ng that the landlord can cla�m back the GST on all of these

expenses.

Bookkeepers should consult w�th the�r accountant or aud�tor to see �f they are el�g�ble to

take advantage of the GST concess�on conta�ned �n Sect�on ��-250 of the GST Act. If the

concess�on appl�es, the bookkeeper should change the revenue account ‘�-50�0 Rental

Income’ from INP to GST. Furthermore, the GST tax codes for all of the follow�ng expenses

should be changed from INP to GST.

• Account 6-0��0 Insurance: Rental Propert�es

• Account 6-05�0 Rent: Rental Propert�es

• Account 6-0590 Repa�rs and Ma�ntenance: Rental Propert�es.

The expense ‘Account 6-0560 Rates: Rental Propert�es’ can only ever be ass�gned the GST

tax code N-T (never INP nor GST).

In th�s case, the rental �ncome would be coded to Item G� GST-Free Sales �n the GST

calculat�on worksheet for the bus�ness act�v�ty statement. The assoc�ated rental expenses

would be coded to ��� Non-Cap�tal Purchases.

For more �nformat�on on the rules relat�ng to the non-commerc�al act�v�t�es of char�t�es,

cost of supply and market value tests, refer to sect�on ��–250 of the Charities Consultative

Appendix 1: Transactions unique to not-for-profit organisations

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��

Committee Resolved Issues Document at ato.gov.au

The Resolved Issues document conta�ns a ser�es of tables outl�n�ng the benchmark market

values for accommodat�on that �t w�ll accept for c�t�es and reg�onal centres around

Austral�a. The benchmark values are effect�ve from � January 2006, and apply to suppl�es

made from that date. The benchmark market values were updated to operate from

� January 2007.

Th�s document prov�des benchmark market values for the follow�ng types of suppl�es:

• short-term accommodat�on (table �)

• meals (table �)

• board and quarters (table 5)

• long-term accommodat�on (table 5)

• employment serv�ces (table 6).

Example

Assume that a char�table �nst�tut�on prov�des cr�s�s accommodat�on to fam�l�es �n

need. Rent of $60 per week �s rece�ved by the char�table �nst�tut�on. As res�dent�al

rent �s �nput taxed, no GST �s charged on the $60. The char�table �nst�tut�on �s

unable to cla�m back the GST on expenses assoc�ated w�th the rental property.

The market value of comparable accommodat�on �s $�00 a week. As the char�table

�nst�tut�on’s rent of $60 per week �s less than 75 per cent of $�00 (that �s, $75),

the GST-free concess�on conta�ned �n sect�on ��-250 of the GST Act appl�es. In th�s

case, the bookkeeper should change GST tax code from INP to GST-free.

More �mportantly, as the rent rece�ved �s now GST free, the char�table �nst�tut�on

can cla�m back all the �nput tax cred�ts �n respect of the expenses assoc�ated w�th

the rental property. These expense codes should be changed to GST.

Appendix 1: Transactions unique to not-for-profit organisations

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Income tax

Many not-for-profit ent�t�es are exempt from �ncome tax. The Income Tax Assessment Act

1997, D�v�s�on 50 �dent�fies those ent�t�es whose ord�nary �ncome and statutory �ncome �s

exempt.

Where a not-for-profit ent�ty �s subject to �ncome tax, grant �ncome w�ll generally be

assessable �ncome.

Fringe benefits tax (FBT)

The fr�nge benefits tax �s a tax that �s �mposed on employers �n respect of benefits prov�ded

to employees.

Generally, there w�ll be no fr�nge benefits tax �mpl�cat�ons when a not-for-profit ent�ty

rece�ves or prov�des a grant unless there �s an employer–employee relat�onsh�p. In add�t�on,

where a not-for-profit ent�ty does prov�de a grant to an employee, the arrangements under

the pay-as-you-go tax system w�ll need to be cons�dered.

Goods and services tax (GST)

Not-for-profit ent�t�es must reg�ster for goods and serv�ces tax (GST) �f the�r annual

turnover �s $�00,000 or more. For other ent�t�es, the turnover threshold �s $50,000. The

grant may have an �mpact on the goods and serv�ces tax threshold of the organ�sat�on.

Input tax cred�ts w�ll not be ava�lable on payments made to unreg�stered ent�t�es.

It should be noted that some grants bod�es may requ�re goods and serv�ces tax reg�strat�on

even when the goods and serv�ces tax threshold �sn’t reached:

• Ident�fy whether or not the grantee �s carry�ng on an enterpr�se, and whether

someth�ng �s suppl�ed to the grantor �n return for the payment. If so, then the

grantor w�ll need to obta�n the ABN of the grantee, otherw�se ��.5 per cent

no-Austral�an Bus�ness Number Pay As You Go w�thhold�ng could apply. Th�s w�ll

const�tute a ‘supply’ whereby the grantee has entered �nto b�nd�ng obl�gat�ons �n

connect�on w�th the payment (see GSTR2000/�� Grants of Financial Assistance).

• The grantor should �dent�fy �f the grantee �s reg�stered for goods and serv�ces tax.

Th�s can be done by check�ng the Austral�an Bus�ness Reg�ster webs�te:

abr.bus�ness.gov.au

• If the grantee �s reg�stered for goods and serv�ces tax, cons�der whether or not the

goods and serv�ces tax �s appl�ed to the grant.

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50

• If the grantee �s not reg�stered for goods and serv�ces tax, cons�der whether the

amount of the grant w�ll cause the grantee to exceed the goods and serv�ces tax

reg�strat�on threshold.

• If the goods and serv�ces tax appl�es, the grantor may need to ‘gross up’ the grant

by an add�t�onal �0 per cent. A tax �nvo�ce should be requested from the grantee

pr�or to payment, to ensure that the grantor can cla�m �nput tax cred�ts.

GSTR 2000/�� Grants of Financial Assistance expla�ns that where a grantor rece�ves a

supply �n return for payment of money to the grantee, the payment w�ll be subject to

goods and serv�ces tax.

In most fund�ng s�tuat�ons, the ma�n supply often can be the grantee’s obl�gat�on to use

the funds �n a part�cular manner; other per�pheral or �nc�dental suppl�es, such as the

prov�s�on of report�ng, may also ex�st.

Goods and serv�ces tax w�ll apply �f the obl�gat�on const�tutes the substance of the grant,

and a b�nd�ng comm�tment ex�sts; for example, a contract, repayment prov�s�ons �n certa�n

c�rcumstances, guarantee or l�en over property of the grantee or an enforceable deed

(GSTR 2000/�� Grants of Financial Assistance, para. ��).

In most cases, grants to non-government ent�t�es that are reg�stered for goods and serv�ces

tax w�ll be subject to goods and serv�ces tax.

Is grant funding subject to goods and services tax?

The rul�ng GSTR 2000/�� Grants of Financial Assistance deals w�th the appl�cat�on of

goods and serv�ces tax to grants of financ�al ass�stance and fund�ng. GSTR 2000/�� appl�es

to grants made by governments and the pr�vate sector. It a�ms to ass�st grantees and

grantors �n determ�n�ng whether goods and serv�ces tax appl�es to a grant.

The grant w�ll be subject to Goods and Serv�ces Tax where �t sat�sfies all of the follow�ng

tests:

• the grant represents cons�derat�on for a supply

• the supply �s made �n the course of furtherance of an enterpr�se that �s carr�ed on

by the suppl�er

• the supply for wh�ch the grant �s cons�derat�on for �s connected w�th Austral�a

• the ent�ty mak�ng the supply that the grant relates to, �s reg�stered or requ�red to be

reg�stered, for goods and serv�ces tax.

Appendix 2: Taxation

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5�

What is a consideration for a supply?

The defin�t�on of a supply �s very w�de, and �ncludes suppl�es of:

• goods and serv�ces

• r�ghts

• obl�gat�ons

• �nformat�on.

The defin�t�on excludes most suppl�es of money.

For a supply to be a taxable supply, �t must be made for cons�derat�on. A payment w�ll be

cons�derat�on for a supply �f the payment �s ‘�n connect�on w�th’, ‘�n response to’ or ‘for

the �nducement’ of a supply. In determ�n�ng whether a payment �s �n connect�on w�th the

supply of an obl�gat�on, the test �s whether there �s a l�nk or nexus between the substance

of the obl�gat�on and the grant.

As an example (from GSTR 2000/��): A government agency makes a grant to a not-for-

profit ent�ty for the purpose of undertak�ng spec�fic research that w�ll be made publ�c.

The object of the grant �s to �mprove the �nternat�onal compet�t�veness of ent�t�es �n the

transport �ndustry, and the agency �s obl�ged to undertake the relevant research and

publ�sh the find�ngs. Wh�le the agency does not der�ve a d�rect benefit from the mak�ng of

the grant, the prov�s�on of the �nformat�on �n the report goes to the purpose for wh�ch the

money �s granted, and the grant �s cons�derat�on for the obl�gat�on to supply �nformat�on

to the publ�c. Refer to GSTR 2000/�� for other examples.

Suppl�es that form part of the grant agreement, but are merely �nc�dental to the

object�ve or purpose of the grant, w�ll not be cons�derat�on for a supply; for example, the

requ�rement to prov�de financ�al reports to the grantor. The grantor uses th�s �nformat�on

to ma�nta�n accountab�l�ty over the funds d�sbursed and to ass�st �n evaluat�ng the

effect�veness of the program meet�ng �ts object�ves.

Rights

For example, does a r�ght to repayment ex�st when cond�t�ons are not met? A grant

agreement may spec�fy that the grant �s to be repa�d �f the grantee fa�ls to meet the

cond�t�ons attached to the grant. The r�ght to a repayment establ�shes that there �s a

supply for wh�ch the grant �s cons�derat�on.

Appendix 2: Taxation

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52

Obligations: does the grant agreement create an obligation?

Cond�t�onal grants requ�re the grantee to enter �nto an obl�gat�on, or make an undertak�ng

to do someth�ng, for the grantor. The grant �s then made ‘�n connect�on w�th’ such

an obl�gat�on or supply. The obl�gat�on may be to use the grant money for a spec�fied

purpose, or to prov�de part�cular serv�ces to the commun�ty. Many government grants are

prov�ded to not-for profit ent�t�es �n return for the prov�s�on of serv�ces or �nfrastructure to

the commun�ty.

It �s �mportant to note that the supply �s the enter�ng �nto the obl�gat�on to fulfil the

cond�t�ons attached to the grant, not the actual fulfilment of the cond�t�ons themselves.

It �s common for financ�al ass�stance grants to be documented �n an agreement that

establ�shes r�ghts and obl�gat�ons between the part�es. If the r�ghts or obl�gat�ons are

b�nd�ng, that would be a supply, and goods and serv�ces tax would apply. Where there �s

only an expectat�on and not a b�nd�ng comm�tment between the part�es, there would be

no supply and no goods and serv�ces tax.

Care needs to be taken to ensure there �s no confus�on between an obl�gat�on and a

legally b�nd�ng obl�gat�on. An obl�gat�on does not need to be legally b�nd�ng for there to

be a supply. The Austral�an Taxat�on Office cons�ders that, where grants cons�st of large

sums of money, normal ‘government accountab�l�ty’ would d�ctate formal obl�gat�ons

be�ng entered �nto, w�th the var�ous part�es expect�ng those obl�gat�ons to be fulfilled. Th�s

w�ll, �n the absence of anyth�ng else, create ‘b�nd�ng’ obl�gat�ons.

Grants that are ‘gifts’ to not-for-profit entities

A g�ft to a not-for-profit ent�ty �s not cons�derat�on for a supply. In order for a payment to

an ent�ty to be cons�dered a ‘g�ft’, �t must pass both of the follow�ng tests:

• the payment must be transferred voluntar�ly and not be the result of a pr�or

contractual obl�gat�on

• the maker of the payment must rece�ve no mater�al benefit �n return.

Even �f a g�ft has cond�t�ons attached to �t that flow from the payer’s r�ght to regulate the

d�sposal of the donat�on, �t may st�ll be a ‘g�ft’. Such cond�t�ons reflect the terms on wh�ch

the payer �ntends to make the g�ft, and the ent�ty’s understand�ng of the terms on wh�ch

the g�ft w�ll be made.

Appendix 2: Taxation

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5�

Unspent grant funds that are repaid

Often grant agreements requ�re funds not spent by the grantee to be repa�d to the

grantor. The grant repayment �s an adjustment to the or�g�nal cons�derat�on prov�ded to

enter �nto the grant obl�gat�on.

Upon repayment, the not-for-profit ent�ty w�ll have a ‘decreas�ng adjustment’ on �ts

bus�ness act�v�ty statement (BAS). Th�s means �t w�ll be seek�ng to reduce the amount of

goods and serv�ces tax �t pays to the Austral�an Taxat�on Office as a result of hav�ng to pay

some of the grant back.

GSTR 2000/� Adjustment Notes states that adjustment notes are to be held for decreas�ng

adjustments where the goods and serv�ces tax exclus�ve value of the taxable supply �s

greater than $50. Th�s respons�b�l�ty rests w�th the not-for-profit ent�ty, unless �t has �ssued

a rec�p�ent created tax �nvo�ce.

The grantor, on the other hand, w�ll have an ‘�ncreas�ng adjustment’ on �ts bus�ness act�v�ty

statement as a result of gett�ng some of the grant back. Th�s means that the goods and

serv�ces tax �nput tax cred�t or�g�nally cla�med back would need to be reduced.

Appendix 2: Taxation

Page 62: Grants in Australia

5�

CPA Australia

CPA Austral�a (200�). Sample Audit Program: the Audit of SIP Grants. Melbourne:

CPA Austral�a.

CPA Austral�a (200�). Incorporated Associations: Reporting and Auditing

Obligations. Melbourne: CPA Austral�a.

Flynne, S., Leo, K. and Add�son, P. (2000). Financial Reporting by Not-For-Profit

Entities. Melbourne: CPA Austral�a External Report�ng Centre of Excellence.

General

Aud�tor-General of South Austral�a (200�). Report of the Auditor-General on the

Basketball Association of South Australia Incorporated. Adela�de: Aud�tor-General of

South Austral�a.

Aud�tor-General of V�ctor�a (2000). Grants to Non-government Organsiations:

Improving Accountability. Melbourne: Aud�tor-General of V�ctor�a.

Aud�tor-General of Western Austral�a (2000). A Means to an End: Contracting Not-for-

profit Organisations for the Delivery of Community Services. Performance Evaluat�on

Report �. Perth: Aud�tor-General of Western Austral�a.

Austral�an Account�ng Standards Board (2000). Revenue Recognition: Conditional

Grants. Urgent Issues Group Issue Proposal 00-�0. Melbourne: Austral�an Account�ng

Standards Board.

Austral�an Nat�onal Aud�t Office (200�). Better Practice Guide: Contract Management.

Canberra: Austral�an Nat�onal Aud�t Office.

Austral�an Nat�onal Aud�t Office (2002). Better Practice Guide: Administration of

Grants. Canberra: Austral�an Nat�onal Aud�t Office.

Austral�an Taxat�on Office (2000). Income Tax Ruling 2000/12: Deductible Gift

Recipients. Canberra: Austral�an Taxat�on Office.

Austral�an Taxat�on Office (200�). Gift Pack for Deductible Gift Recipients and Donors.

Canberra: Austral�an Taxat�on Office.

Centre of Ph�lanthropy and Not-for-profit Stud�es (2005). Chart of Accounts for Not-for-

profit Organisations. Br�sbane: Queensland Un�vers�ty of Technology.

Creat�ve Volunteer�ng (200�). Develop Funds and Resources. Port Adela�de: Reg�onal

Arts Austral�a.

References

Page 63: Grants in Australia

55

Department of Treasury and F�nance (2005). Best Practice Guide for the Administration

of Grants. Hobart: Department of Treasury and F�nance.

Galbally, R. (200�). Guide for Community Treasurers. Adela�de: Westpac.

McGregor-Lowndes, M. (200�). The Secretary’s Handbook for Queensland

Incorporated Associations. Br�sbane: QUT.

Our Commun�ty (2005). Winning Grants Funding in Australia: The Step by Step

Guide. Melbourne: Our Commun�ty.

Queensland Treasury (�997). Guidelines for Grant Administration. Br�sbane:

Queensland Treasury.

Renton, N. (2005). Clubs and Non-Profits: Keeping the Books. Le�chhardt: Federat�on

Press.

Roberts, J. (200�). Managing Governance in Nonprofit Organisations in Australia.

Melbourne: Roberts Management Concepts.

Roberts, J. (2005). Successful Submission Writing for Business and Not-for-profit

Organisations. Melbourne: Enterpr�se Care Consult�ng.

Tonge, R. (2002). How to Prepare Effective Applications for Grants Funding. Coolum:

Gull Publ�sh�ng.

Websites

Webs�tes and the�r addresses change from t�me to t�me. Therefore, the follow�ng s�tes are

suggest�ons only, and the s�tes were act�ve at the t�me of the preparat�on of the manual.

CPA Austral�a does not endorse any of the s�tes l�sted.

anao.gov.au

ato.gov.au

commun�tybu�lders.nsw.gov.au

grantsl�nk.gov.au

grants.ord.sa.gov.au

ourcommun�ty.com.au

For those who don’t have �nternet access, cop�es of gu�des and references can be obta�ned

by contact�ng the relevant agency d�rectly.

References

Page 64: Grants in Australia

56

Appraisal criteria

The tests appl�ed to a grant appl�cat�on to ensure that �t meets the program’s a�ms and

object�ves.

Audit trail

The documentat�on of deta�led transact�ons support�ng summary ledger entr�es. Th�s

documentat�on may be on paper or �n electron�c records.

Conflict of interest

A confl�ct of �nterest ar�ses when a person makes a dec�s�on or exerc�ses a power �n a way

that may be, or may be perce�ved to be, �nfluenced by e�ther mater�al personal �nterests

(financ�al or non-financ�al) or mater�al personal assoc�at�ons.

Evaluation

The process of rev�ew�ng the overall effic�ency, effect�veness and economy, as well as

the appropr�ateness, of a grant program. Th�s can take place e�ther dur�ng rout�ne

management rev�ew or as the subject of a spec�fic program evaluat�on.

funding agreement

A legally enforceable agreement sett�ng out the terms and cond�t�ons govern�ng fund�ng

determ�ned by the grant-g�v�ng organ�sat�on. The form of the agreement w�ll depend

on the �ntent of the grant and the degree of control requ�red. The forms of enforceable

fund�ng agreements �nclude:

• deed

• contract

• exchange of letters.

In the case of grants to state governments or �n networked grant programs, Memoranda

of Understand�ng (MOUs) or a comb�nat�on of MOUs and legally enforceable agreements

may be necessary.

Glossary

Page 65: Grants in Australia

57

Grant

A grant �s a sum of money g�ven to organ�sat�ons or �nd�v�duals for a spec�fied purpose

d�rected at ach�ev�ng goals and object�ves cons�stent w�th government pol�cy. In a str�ct

legal sense, a grant �s a ‘g�ft’ from the Crown, wh�ch may or may not be subject to

un�laterally �mposed cond�t�ons. However, the term �s more generally used to �nclude any

fund�ng agreements where the rec�p�ent �s selected on mer�t aga�nst a set of cr�ter�a. The

term ‘grant’ does not �nclude fund�ng or act�v�t�es relat�ng pr�mar�ly to the prov�s�on of

goods and serv�ces d�rectly to a government agency.

Grantslink

A whole-of-government webs�te offer�ng d�rect l�nks to ex�st�ng �nformat�on on

Commonwealth Government grant programs. It �s access�ble at grantsl�nk.gov.au.

Monitoring

The process by wh�ch the grant-g�v�ng organ�sat�on establ�shes whether �nd�v�dual grants

made to a program have been expended as �ntended.

our Community

Our Commun�ty �s a Melbourne-based organ�sat�on that prov�des adv�ce and ass�stance to

not-for-profit organ�sat�ons through web-based serv�ces. The webs�te �s:

ourcommun�ty.com.au.

procedural fairness

A pr�nc�ple of adm�n�strat�ve law requ�r�ng that dec�s�on-makers act fa�rly; that �s:

• the person affected by the dec�s�on has a r�ght to be heard

• the dec�s�on should be made w�thout b�as or the appearance of b�as

• the dec�s�on must be l�nked to the ava�lable ev�dence.

Glossary

Page 66: Grants in Australia

5�

risk management

R�sk management can be descr�bed as the culture, processes and organ�sat�on that help

a bus�ness to evaluate r�sk, assess �ts potent�al �mpact and plan the appropr�ate act�on

to take �n order to avo�d or control r�sk by the most econom�cal means. It �s not poss�ble

or des�rable to el�m�nate all r�sks; the object�ve �s to �mplement cost-effect�ve processes

that reduce r�sks to an acceptable level, reject unacceptable r�sks, and transfer other r�sks

through �nsurance and other means.

Selection criteria

The tests appl�ed to a grant appl�cat�on to ensure that �t meets the program’s a�ms and

object�ves.

Strategic objective

A statement of the outcomes, at the strateg�c level, that the grant-g�v�ng organ�sat�on

seeks to ach�eve �n the short or long term.

Note

Readers should refer to the spec�fic terms for a part�cular grant, or seek profess�onal adv�ce

to ensure that they understand the term�nology �n use for any spec�fic grant.

Source: Austral�an Nat�onal Aud�t Office (2002). Better Practice Guide: Administration of

Grants. Canberra: Austral�an Nat�onal Aud�t Office.

Glossary

Page 67: Grants in Australia

59

1 What you should look for when you are accepting a grant

item Yes no CommentAre the cond�t�ons the same as

�n the or�g�nal appl�cat�on?

Are all organ�sat�onal deta�ls

correct and up to date?

Are contact deta�ls prov�ded for

the grants body clear?

What are the payment

cond�t�ons?

What are the report�ng

arrangements?

Are account�ng systems to

handle the grant �n place?

Is �t clear what funds can or

can’t be used for?

Has a person been nom�nated to

manage the grant?

Are staff tra�ned to handle the

grant?

How w�ll the grant be reported

on �nternally?

How w�ll d�sputes or

amendments be handled?

What aud�t�ng requ�rements

ex�st?

What are the requ�rements for

med�a coverage?

What are the acqu�ttal

arrangements?

Are there other requ�rements

to be met before the grant can

start?

Are there clear gu�del�nes for

ownersh�p of any assets created

by the grant?

Checklists

Page 68: Grants in Australia

60

2 What you should consider when you are reporting on a grant

item Yes no CommentAre the cond�t�ons the same as

�n the or�g�nal appl�cat�on?

Are all organ�sat�onal deta�ls

correct and up to date?

Are contact deta�ls prov�ded for

the grants body clear?

What are the report�ng

arrangements?

How are reports handled by the

comm�ttee?

Who has been appo�nted

respons�ble for report�ng on the

grant?

When do reports have to be

made?

How �s the end of financ�al year

to be treated?

How w�ll the grant be reported

on �nternally?

How w�ll d�sputes / amendments

be handled?

What aud�t�ng requ�rements

ex�st?

What are the requ�rements for

med�a coverage?

What are the acqu�ttal

arrangements?

Are press cl�pp�ng and

photograph�c records be�ng kept

for report�ng purposes?

Is �nternal report�ng al�gned to

external report�ng?

Are all reports s�gned off by the

correct respons�ble officer?

Are s�gned cop�es of all reports

kept?

Checklists

Page 69: Grants in Australia

6�

3 What you should bear in mind when working with auditors

item Yes no CommentCopy of the agreement?

Procedures to manage the

grant?

Endorsement of the

management comm�ttee?

Personnel appo�nted to manage

the grant?

Account�ng system to manage

the grant?

Records of grant progress

reflected �n comm�ttee m�nutes?

Payments only �n accordance

w�th the grant prov�s�ons?

Proper author�sat�on for all

payments?

Notes to the account as

requ�red?

Source document up to date and

complete?

Comm�ttee m�nutes up to date

and complete?

Checklists

Page 70: Grants in Australia

62

Notes

Page 71: Grants in Australia

Grants in Australia:Management and accountability made easy for not-for-profit organisationsFEBRUARY 2007

not-for-profit

CpA Australia Ltdcpaaustralia.com.auT 1300 73 73 73

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