Compliance is one of those words that sends a shiver down the spine of many people working in non-profit organisations. Recently adopted changes to the rules surrounding the reporting of financial accounts for non-profits has only exemplified these feelings of dread, however, after a few deep breaths and a little time considering the changes, we can see that the changes actually bring benefits.
First off, charities are now required by law to follow External Reporting Board (XRB) standards. There's too much detail to go into here, so if you'd like to see more, head to the XRB website. The changes themselves will generally hold non-profit organisations to a higher standard of financial reporting than what they've previously been required to. However, because of the way non-profits have been separated into four different tiers, these effects will be felt differently across the sector depending on the size of the operation. Smaller entities may well find the accounting process is now easier than what they were previously used to. Find a good summation of the tiers and how the changes affect each on the RSM Hayes Audit website.
Businesses operating to make profit, quite obviously, have a different set of drivers and goals, so it makes sense to treat non-profit groups differently. Donations are, after all, a major source of income for most non-profits. Non-profits are no longer treated in the same way as a profit-based business. The new rules take into account the different motivating factors behind the income generation of a non-profit organisation and as such are now able to more accurately measure the success of a non-profit beyond mere financial terms.
Until now, the stakeholders of a non-profit have had little in the way of hard data with which to base their funding decisions on. This is because non-profits had no legal compulsion to generate the kind of financial information related to their operation that would enlighten the various donors, funders and other interested parties. From this point of view, it may well increase the flow of funding simply because these external stakeholder have more transparency.
The new tier-based approach means small charities no longer have to produce the same level of financial reporting as large ones. The upshot of this being that the cost of compliance doesn't exceed the benefits of a compliant financial reporting process.
Even though the thought of increased compliance requirements isn't necessarily something we all look forward to, hopefully you can now see that these new rules are, in fact, as much about bringing new opportunities for success as anything. If you'd like to read more in depth thoughts on the change, click through the RSM Hayes Audit site.