Producer Handbook: Financial Reporting

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FINANCIAL CONSIDERATIONS REPORTING  

Production funds are provided by the Corporation for Public Broadcasting (CPB), a private corporation funded by the American people. CPB provides funds to public radio and public television organizations and also manages program funds of its own. CPB is a federally funded agency and therefore, every organization it funds is accountable for the expenditure of public money. In turn, all recipients of funds are responsible for the manner in which these public dollars are spent.

In this section you will find information on some of the issues that affect independent producers (the IRS, fiscal sponsors, payroll services, independent contractors, etc.), as well as budgeting, record keeping and other financial requirements.

This chapter is broken into two separate sections. The first is an overview of how you may want to set up your business, pay taxes and deal with staffing on your project. The second section deals with day-to-day financial record keeping and reporting.

*Information in this section is not a substitute for professional legal, accounting, and/or tax advice. We strongly recommend that you consult a lawyer and/or accountant to discuss individual needs and concerns.

The Internal Revenue Service

Incorporating

There are many things to consider when deciding whether to incorporate or not. You should consider issues of liability, transferability, taxes and capitalization of expenses to name a few. Forming a corporation can provide a shield for the individual against certain liabilities, and establishing a corporation is relatively easy and inexpensive. You may also wish to consider the advantages and disadvantages of incorporating as a not-for-profit entity.

Income and Expense Reporting and Capitalization
As required by the Internal Revenue Service (IRS), will issue a 1099 form (notification that an individual or non-incorporated entity has received income) to all funding recipients who are not corporations. The 1099 will declare the full amount paid to you in that calendar year. It is your responsibility to report this income and deduct related expenses on your income tax return. However, film and video projects may be subject to capitalization rules. This may have a significant effect on individual income tax liability from year to year.

We urge producers to seek advice from a tax accountant or tax attorney before deciding how, when and in what amounts you wish to receive production funds. Some producers may wish to engage a 501(c)(3) fiscal sponsor (read ahead) that is willing to administer the funds. Some producers may wish to form a corporation, either not-for profit or for-profit. Others may find that it is advantageous to receive the funds as an individual. All of these decisions will depend on your individual circumstances.

Paying Other People
You are responsible for issuing W-2s or 1099 forms (as appropriate) to employees or independent contractors. The IRS has specific definitions for independent contractors versus employees.

If you hire crew as employees, you must issue W-2s to them by January 31 following the end of the calendar year. You are responsible for following local, state and federal regulations. You are also subject to reporting requirements concerning withholding taxes, payment of Social Security, unemployment insurance and all of the other obligations of an employer. If you are unfamiliar with these regulations, you may find it useful to engage an accountant or payroll service to handle the payroll and related employer tax reporting. The use of a payroll service or payroll accountant as an appropriate and necessary production expense (more information on payroll services will follow.)

If you hire independent contractors (individuals who are not employees and not corporations), you must issue 1099 forms for payments made to them. At the time of publication, the IRS requires that if an individual has received $600 or more in the calendar year, you must send a 1099 to him/her by January 31 following the end of the calendar year in which you paid them, and you must also file a report of all 1099s with the IRS. Be sure to get Social Security or Federal I.D. numbers from anyone you contract as an independent contractor.

Who are Independent Contractors?

Basic characteristics include:
• Hired on a job-by-job basis
• Operate as a separate business
• Offer their services to the general public
• Hired to perform a specific task with no ongoing relationship or obligation to the employer

The key factor that determines whether a worker is an independent contractor is if the employer has “the right to control the worker as to how the work is accomplished.” If the employer controls the means by which work is done, the worker is automatically an employee and not an independent contractor. The government does not care if the employer exercised control over the worker. The key is whether the employer had the right to control the worker.

There are two important reasons why the government looks negatively at the misclassification of bona-fide employees as independent contractors:

• Independent contractors can more easily avoid paying taxes.

• The government wants to protect workers. The social security, disability and unemployment insurance programs were designed to protect average workers. The government does not want businesses to bypass these programs simply by classifying their workers as independent contractors.

If government agencies audit an employer, the employer must clearly show that the worker was really an independent contractor and not an employee, or face a large fine. Further, if independent contractors get into tax trouble and/or need unemployment and disability benefits, there is a large incentive for them to claim that they were employees, even if they agreed to be hired and paid as independent contractors. Government auditors presume that most workers are employees unless the hiring firms can clearly prove otherwise.

Although there are no government regulations that prohibit an employer from hiring or paying independent contractors, there can be substantial fines levied by state departments of labor. If it has been determined that you have misclassified an employee as an independent contractor then under certain circumstances in doing so is a violation of labor laws. It can also cost the employer a substantial amount of money in taxes, penalties and unemployment benefits if you are found to have misclassified.

The insurance coverage on an independent contractor is often a gray area.

Payroll Services

Some payroll services specialize in film/video production and can serve as an employer-ofrecord, thereby relieving you of many reporting burdens for a reasonable cost. You provide the payroll service with contracts and tax forms (W-4s filled out by each employee) on each employee. Each pay period you write one check to the payroll service which then provides checks and W-2s for each employee as well as checks to the government bodies that receive tax withholdings, employer taxes, and state mandated insurance such as worker's compensation and unemployment. The payroll service fee is generally a small percentage of total payrolls. We do not require the use of a payroll service.

If you choose to use a payroll service you should use one with a track record of providing quality service to independent productions (for narrative productions, the Screen Actors Guild may require you to use a payroll service to pay SAG actors). In many cases, a production accountant, bookkeeper or a fiscal sponsor can also do your payroll. We do not endorse any of these agencies, nor is it responsible for their performance.

You should also inform your employees if you do choose to use a payroll service as the employer-of-record. If, following the completion of production, employees file for unemployment, they must claim the payroll service as their former employer—not your production company. If your employees list your production company as the employer, you could be embroiled in a bureaucratic nightmare.

One way to encourage employees to claim against the payroll company is to enclose a slip of paper with the final paycheck that gives all the information needed by the unemployment office: name of the payroll company, address, Federal ID # and contact person. The payroll service should help you prepare this.
 

Fiscal Sponsors

A fiscal sponsor is a 501(c)(3), non-profit entity that acts as a guardian of grants and the like. Ideally a fiscal sponsor will take expenditure responsibility, directly paying expenses, including payments to you. The fiscal sponsor would then be responsible for issuing you a 1099 for the amount actually paid directly to you (or any individual paid on your behalf who is not an employee). This may be a better alternative rather than trying to get a 501(c)(3) status of your own.

Fiscal sponsors usually charge a fee based on a percentage of the funding they are handling. Fees should not exceed 5-7% of your total budget and the percentage should be less for projects with larger budgets. A 5-7% fee should include significant services, such as bookkeeping, paying bills, budget tracking, and/or other fiscal services. These fees vary from organization to organization so you may want to shop around.

If you engage a fiscal sponsor, select an organization that has a solid track record of experience and expertise. Agreements between producers and fiscal sponsors should clearly spell out the arrangements and responsibilities of each party. Agreements with fiscal sponsors must allow for the producer’s retention of copyright and for the producer’s editorial and financial control of the project. Copies of fiscal sponsor agreements must be sent for approval prior to payments being made to a fiscal sponsor.

For additional information about fiscal sponsorship, check with production staff, your colleagues and other producers who have used fiscal sponsors for their recommendation, and contact the sponsors themselves to review their services.

Budgets and Financial Matters

A production budget is an effective start to controlling expenses. The final negotiated production budget is an integral part of the Production Agreement. Producers are expected to complete their program within the confines of the agreed-upon production budget.

Your financial records should be well organized and maintained whether you are personally financing your production or are funded by and thus  accountable to another person or organization. You are required to use a recognized accounting software such as Quicken or Quick Books. We strongly recommend that someone on your staff be assigned to enter income and expenses into your accounting software, and that a bookkeeper is hired to oversee this, reconcile your books and generate reports for your various deliverables.

We have the following mandatory financial requirements:
• Use only one bank account for the entire project. All income and expenses should go through this account. No other production company or personal expenses not directly related to this project should be put through this account.
• You must have financial records computerized in a recognized accounting software. Excel is not acceptable.
• Your records must include all transactions since the beginning of the production.

The following information includes financial reporting requirements. Consider this a template for what other funders may expect. The level of funding typically drives the reporting requirements: less funding means less reporting; more funding, more reporting. Since production funds are provided by the Corporation for Public Broadcasting (CPB), producers are accountable for the expenditure of public money. Thus reporting requirements may be somewhat greater than other funders.

A significant variance in a budget may indicate a shift in the scope or nature of the production. This may affect the look or content of the program, delivery dates or cash requirements. Overages beyond the budgeted amount are the producer’s responsibility and cannot affect the contracted delivery dates. If there is some concern that a program may not be completed within budget, our staff will consult with you on how to best remedy the situation.

The Contracted Budget
You are expected to produce your program within the confines of your production budget as specified in your Production Agreement. The final negotiated budget for your production cannot change unless both you and NAPT agree to amend it.

Producer Fee
As producer, you are responsible for the budget of the production. NAPT requires that all personnel fees to be paid to the producer be grouped under one category: Producer Fee. For example, if you are producing, directing and editing, all of these line items should be grouped under this category. You will need to create a new category called “Producer Fee” within your budget and ledger. This is your Producer Fee for the project regardless of whether the project is delayed or goes over budget. This fee is flat and cannot be increased.

Production Fee
All equipment and office space, which the producer or producer’s production company will be renting to the production, should be grouped under one category: Production Fee. You will need to create a new category called “Production Fee” within your budget and ledger. This is your production fee for the project regardless of whether the project is delayed or goes over budget. Like your salary, it cannot be increased.

Purchasing Equipment
If you or your production company wish to purchase equipment specifically for this project (i.e. Mac G5, camera, tape decks), there are two ways you can deal with this. You may use funds to purchase the equipment, but we will require you to return the equipment to us at the end of the production. Alternatively, you can use non-NAPT funds to purchase the equipment and then rent it back to the production at up to 75% of its cost.

Budget Variances
Staff may inquire about the nature of any budget variances in order to remain informed about the status of the production.

Minor Budget Variances
NAPT does not generally require prior approval for minor variances between line items or categories, with the exception of key production personnel. Minor budget variances are variances under $1000, per line  item.

Major Budget Variances
Things that change the scope, look, or schedule of the production generally cause major budget variances. These changes include switching from video to film, switching standard definition to high definition, adding cast members, locations, shoots, etc. While it may seem like a good idea to add another location or shoot a few extra days, such major budget variances can ripple through the production thus affecting your budget and your schedule. You are required to get written approval from the production department in advance before making any unbudgeted or over budget expenditures.

Budget Overages
Overages beyond the budgeted amount are your responsibility and should not affect your delivery schedule. In the event that there is concern that your project may not be completed within budget, staff will consult with you on how to best remedy the situation.

Disallowable Expenses
A number of items are not allowable in production budgets. Other funders may have disallowable expenses as well. Check with them before you assume that a particular expense is allowable under their guidelines.

NAPT funds may not be used to pay for the following:

• Production activity or any expenses incurred prior to the time of notification of NAPT offering a Production Agreement.
• Costs of fundraising for the program or the cost of preparing materials for the NAPT application.
• Legal costs of contract negotiation with NAPT or business organization costs, such as incorporation.
• First class or business class travel expenses — airline and other travel expenses must be coach or economy class.
• Costs associated with producing a different version of the program, unless NAPT specifically requires such version.
• Over-scale payments to any union or guild member beyond the PBS or PTV scale pay rates.
• The cost of distributing or promoting the program in markets other than public television, such as festival entry fees or expenses, press kit preparation or educational distribution expenses. (These costs, however, are deductible as direct costs incurred by selfdistribution from gross income received through distribution.) Because NAPT funds are for producing television, NAPT does not allow the cost of release prints of work finished on film or video-to-film transfer prints of work finished on video to be paid for with NAPT funds.
• The cost of study guides or other printed viewer materials.
• The cost of litigation or any awards associated with lawsuits.
• IRS or other penalties for any legal non-compliance.

Reporting Requirements

Producers are required to submit financial and narrative reports as per your Production Agreement. Financial records must be kept during the production and for a period of at least three years following completion of the production. These records are to be available for examination by CPB and NAPT at any time during that period.

To ensure financial accountability, each year NAPT selects a percentage of projects to audit. Selection is random and any NAPT-funded production is eligible at any time. An NAPT audit consists of a detailed review of financial records and supporting documentation. Regardless of your funding source, the IRS may audit you as well. Any audit can be almost painless if you have kept good records and followed the law throughout your production.

Your final records should consist of:
• Progress reports, financial and narrative reports
• Bank statements related to accounts used for the project, including canceled checks and canceled deposit tickets
• Hard copies of the monthly bank reconciliation
• Invoices and receipts for all purchases and acquisitions.
• General Ledgers, check registers and other bookkeeping devices
• Contracts, agreements and/or releases for all cast, crew, consultants and other personnel
• Lease agreements (e.g., office space, equipment, etc.)
• Payroll and related tax records regarding employees

Financial Reports

Financial Reports are required to be submitted at regular intervals, according to your payment schedule in your Production Agreement. These reports must be accompanied with a general ledger, which is reconcilable to the Financial Report, itemizing expenses by account including date, payee, amount and purpose.

Narrative Progress Reports

Narrative Progress Reports are required to be submitted at regular intervals, according to your payment schedule in your Production Agreement. The Narrative Progress Report should be a simple description (2-4 pages) of what work has been accomplished to date, any creative issues and an explanation of actual or anticipated variances from the budget

Supporting Materials for Reports and Payments: (Scripts, Tapes)

Copies of rough cuts and fine cuts should be delivered to NAPT on DVD. Label your cuts. Include producer’s name, date, show title, length of cut, and stage (e.g. rough cut or fine cut). Include a transcript and screening notes that may be helpful to us as we screen your work, such as explanations of any missing footage, effects, etc. Rough and fine cuts are screened to NAPT staff.

Closing Financial Report

When you have reached the completion of your program and begin submitting final deliverables, a Closing Financial Report is required. The Closing Financial Report is the same report form used throughout the completion of your production and should be accompanied by a general ledger, which is reconcilable to the Closing Financial Report, itemizing expenses by account including date, payee, amount and purpose.

Final Narrative Progress Report

Like the Closing Financial Report, the Final Narrative Progress Report is required when you’ve reached the completion of your program and begin submitting final deliverables. It is slightly more extensive than the Narrative Progress Report mentioned earlier. It should be a typed formal overview of your production, which includes an explanation of any budgetary variances, production challenges, distribution plans, experience with the process, any helpful suggestions or ideas for other filmmakers, etc.

Sample Financial Report Form (PDF)

Sample Chart of Accounts (PDF)

How to Print a General Ledger on Quicken 2000
In Quicken 2000, a General Ledger is called an “Category Detail Report”.

After you have entered all your transactions (expenses and income) in the register (checkbook), follow the steps below.
• Under Edit, choose Preferences
• On the vertical row of boxes, click Reporting
• Show account: Name and Description
• Show category/class: Name and Description
• On the horizontal row of tabs on the top of the screen click Reporting
• On the horizontal row of tabs, select Standard
• Highlight Category Detail
• Click on the Customize button at the bottom to enter the Layout tab
• In the Layout tab, when the options are displayed, select the following:
• Report on Transactions

Date: ALL TRANSACTIONS

Report Layout

X Show Split Detail

Transaction Sorting

Subtotal by CATEGORY

Then, within Category sort by CHECK #
• Leave the Content tab as is
• Click on the Organization tab and select:
• INCOME & EXPENSES
• ALL TRANSFERS
• Click OK and your report will appear on the screen and can be printed by selecting Print Report under the FILE menu on the far left of menu bar.

Category Detail Report (PDF)

Record Keeping Tips

• Keep a separate bank account for your project. You do not need to keep a separate bank account for NAPT funds and non-NAPT funds, but you must keep a separate bank account for the production itself. You cannot keep funds in an account used for any other purpose—the account must be for the making of the program.
• If one check is being divided between two or more expense categories, document the breakdown of the coding (In Quicken you use the "split check" feature). For example, your Camera Operator sends an invoice for services as a camera operator ($500 rate) and for rental of a camera ($200 rate). You send her one check for $700. 
• A check request or purchase order should accompany all payments, especially for series or projects with a team or staff, along with invoices/receipts, approval signature and the appropriate coding. If you are the sole person incurring costs, getting billed and writing checks, you do not need to use the form to approve expenses to yourself. You should keep a record of costs you incur so there are no surprise bills. If you do not use check requests or purchase order forms, then the same expense category information should be broken down on the invoice.
• Have duplicate checks. Attach the duplicate check to the check request and invoice. When the original checks are returned from the bank, file them numerically.
• File invoices alphabetically by individual vendor name for easy access.
• Code petty cash advances and all other advances as an ADVANCE. When an expense report is submitted, recode the ADVANCE as an EXPENSE.
• Classify all deposits (e.g., equipment rental deposits) as an ADVANCE. This is not an expense because you will receive the money back at a later date. If you lose the deposit, it then becomes an expense, such as Loss and Damage.
• The ADVANCE category will quickly identify any money that is due to you. You may scan the ADVANCE category for any amount outstanding at the end of your project. When you complete your production and close your books, the total for the ADVANCE category should be zero.
• Keep a clear trail of all transactions by maintaining as much relevant information as possible.
• 3rd Party Rule: An outside party should be able to understand your records if you are not present to explain them.

Computerizing Your Records
NAPT highly encourages you to computerize your financial records, if you haven’t already. Some of the most frustrating moments in producing a program are spent trying to figure out finances using a hand calculator and a piece of paper. From our experience, trying to deal with the financial aspects of your project without computerizing your records can be an agonizing experience for everyone involved. Listed below are types of software available to help you save time and money.

Accounting Software
A spreadsheet for budgeting as described above is usually not adequate to account for each check you write or each dollar you spend. Accounting software provides accurate and easy bookkeeping. There are many computer programs, including Quicken (available for PC and Macintosh computers) and “electronic checkbook” systems available and user friendly. The software must accept a sufficient number of expense categories (your Chart of Accounts) and have the capacity to handle the number of checks you’ll be writing. Reports that can be generated from accounting software such as Quicken include the Register Listing (“Electronic Checkbook”) and the Itemized Category Report and the Category Detail Report (“General Ledger”).