Reporting of public organizations in Ukraine: how to receive funding?
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Public organizations (POs) are non-profit organizations widely recognized in fields such as culture, ecology, media, sports, human rights advocacy, and more.
The key distinction between a commercial enterprise and a public organization lies in the fact that the latter focuses on bringing creative ideas and social projects to life without aiming for financial gain. While the absence of profit doesn't imply that individuals working in public organizations should work for free or fund project activities from their own pockets.
In this article, we will delve into the unique aspects of financing public organizations.
If your query pertains not to organizing financial reporting within a PO, but rather to identifying those capable of undertaking this task, please don't hesitate to reach out to our specialists. Today, we offer a range of service packages tailored to Ukrainian and foreign organizations, as well as charitable foundations operating in Ukraine.
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Primary sources of funding for Public Organizations
Public organizations, being non-profit entities, do not generate profits from their work, making them heavily reliant on external funding sources.
The main avenues of financing are as follows:
- Fundraising events and programs.
- Government funding.
- Corporate donors.
- Membership fees.
Each of these funding sources has its own unique aspects and intricacies. Nevertheless, the process of securing funding still necessitates the principles of financial planning, budgeting, and reporting.
Please note! Public organizations, like any regular business, must maintain proper accounting records and document all financial transactions, while also carrying out annual reporting. Neglecting the accounting documentation and reporting may result in the following consequences:
- Loss of non-profit status and removal from the register of non-profit organizations.
- Liability to pay an 18% tax on profits from operations lacking proper documentation and/or not aligned with the organization's stated objectives.
- Breach of funding agreements and potential blacklisting by donors (in cases where information is not provided to the donor or false/incomplete information is provided).
Our team of experts can assist you in mitigating the aforementioned risks and offer the following services:
- Streamlining the document management process for your public organization, including the development of customized documents, creating a roadmap, and facilitating document exchange efficiently.
- Providing comprehensive accounting and legal support for the operations of your public organization.
What initiates the funding stage for a public organization?
To secure funding, it is crucial for a public organization to clearly identify its financial requirements.
Please note! Funding is typically granted for specific projects, accompanied by a detailed description of the organization's needs and a well-justified budget.
A project description encompasses various key elements, including but not limited to:
- Project objectives
- Target audience
- Strategies to achieve desired outcomes
- Benefits from the project
- Monetary expression of funding
Our specialists will assist you in developing a project budget and providing legal support throughout the funding process. By availing our services, you can effectively address the expertise of three professionals concurrently: a lawyer, an accountant, and a financial specialist.
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Documentation for the financial management of a public organization's fundraising efforts
1) Fundraising events and programs
These encompass a variety of charitable evenings, offline events, auctions, fairs, and more.
The funds received by the public organization through these activities are considered donations.
If the organization intends to raise funds through a specific fundraising event, it is crucial to prepare the following documentation (not limited to):
- Notice of intention to participate in the designated event/program.
- Plan outlining the utilization of funds generated from the event to support a specific project (including expenditure breakdown).
- Official order recognizing the targeted financing of a particular project through funds received from donors.
- Report detailing the utilization of funds in accordance with the approved plan.
Note. While the precise amount of funds to be raised cannot be determined with certainty before the event commences, it is essential to establish a plan. Once the actual funds raised are evaluated, the organization may make necessary adjustments to the expenditure plan, including increasing or decreasing the budget or reallocating funds across different expense categories. However, it is crucial to ensure that the expenses remain within the scope of the same project.
Important! The organization's charter must incorporate provisions that enable fundraising activities and facilitate the acquisition of funds through such events.
2) Grants (domestic and international)
Grants are specialized funding that a public organization can receive from both domestic and international donors. One key aspect of grants is that they must be used within the approved budget.
If the organization plans to participate in a competitive grant program, it is necessary to prepare the following documentation (not limited to):
- Notice of intent to participate in a specific grant program.
- Development of a project description.
- Creation of a project budget (itemizing expenses).
- Compilation of a document package tailored to the requirements of the grant provider.
- Grant agreement (or relevant document).
- Order acknowledging the targeted financing of a particular project through the grant funds received.
- Report on the utilization of funds, adhering to the approved plan.
We have provided more details on obtaining international grants here.
3) Government funding for Public Organizations
Public organizations have the opportunity to receive financial support from the government to implement their projects. While the chances of obtaining and the amount of government funding are typically lower compared to other funding sources, this form of financing is available.
If an organization plans to participate in a competitive program to secure government funding, the following documentation should be prepared (but not limited to):
- Notice of intent to participate in a specific competitive program.
- Development of a project description.
- Creation of a project budget (itemizing expenses).
- Preparation of a document package for the donor (customized to meet the specific requirements of each donor).
- Government funding agreement (or any other relevant document).
- Order acknowledging the targeted financing of a specific project through the government funding received.
Report on the utilization of funds, in accordance with the approved plan.
4) Corporate donors (domestic and international)
In recent times, many businesses have set aside budgets for social initiatives. One prominent aspect of these initiatives is corporate philanthropy, where businesses provide financial support to projects undertaken by public organizations.
Funding from corporate donors is typically in the form of voluntary donations or non-repayable financial assistance.
To secure funding from corporate donors, the following documentation is generally required (but not limited to):
- Letter requesting assistance from the public organization.
- Acknowledgment order recognizing the targeted financing of a specific project through the funds received from the donor.
- Plan outlining the utilization of funds received from the donor for the implementation of the specific project (categorized by expenses).
- Report on the utilization of funds in accordance with the approved plan.
5) Membership fees
Membership dues are a fixed monetary amount paid annually by members of a public organization. In essence, membership dues serve as a form of guarantee payment that the organization can rely on, unlike other funding sources.
Membership in the public organization is open to both residents and non-residents of Ukraine who are legally present and have reached the age of 18.
Please note! The procedures for attaining membership status, the amount of dues, payment deadlines, and other details are outlined in the Membership and Membership Fees Regulations of the organization or in its bylaws.
To fulfill the payment of membership dues or receive dues from the public organization, the following documents may be required (but not limited to):
- Notification letter regarding the payment of membership dues.
- Membership agreement (for legal entities).
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Financial reporting for Public Organizations in Ukraine
Public organizations in Ukraine, despite their non-profit nature, are still required to maintain accurate financial records and submit reports to regulatory bodies and authorities.
Let's take a closer look at the different types of financial reporting they need to fulfill:
1. Management reporting.
Management reporting involves budgeting and planning for both revenue and expenses.
The primary document for management reporting is a budget (or another internal document that serves its purpose).
The budget is prepared for each project and contains information about:
- Planned funding amount
- Planned expenses (broken down by expense categories)
2. Donor reporting
Donor reporting is prepared in a discretionary format and serves as confirmation of the targeted use of funds received from donors.
3. Tax and financial reporting
This type of reporting is mandatory and must be submitted by public organizations within the timeframe specified by the legislation, which is 60 calendar days after the end of the reporting period.
The annual tax and financial reports for public organizations for the year 2022 must be submitted by March 1, 2023.
The annual financial reporting for a Public Organization includes:
- Report on the use of income (profits) by the Public Organization.
- Cash statement (simplified balance sheet and statement of cash flows).
Please note! The financial reporting is an integral part of the Report on the Use of Income (Profits) of the Nonprofit Organization and must be submitted to the regulatory bodies as a mandatory requirement.
Managing the financial reporting of a public organization is a continuous and responsible process. If your organization has a large number of participants, is actively growing, and plans to expand its operations, it's crucial to take proactive measures to protect the organization. Our legal experts offer the following services:
- Legal assistance in attracting funds to the public organization or association, as well as guidance on their expenditure.
- Tax consultation on all operations of the organization.
- Accounting and legal support.
- Assistance in developing contracts and other necessary documents required for the organization's operations and reporting.
The cost of services for public organizations.