New Trustee: Introduction to charity finance

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New TrusteeIntroduction to charity finance

• Judith Miller

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Agenda

• Overview of key responsibilities
• Including
• Characteristics of charity accounting and
  reporting
• Budget setting, performance monitoring and
  reporting to trustees
• Internal controls
• Key financial policies
• What to expect from your auditor

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Collective financial responsibilities
Apply funds per donor requirements
Maintain solvency
Current future beneficiaries
Safeguard assets
Charitable IMPACT
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Delegation

• Permitted
• Establish clear guidelines
• Report back
• Responsibility
• Remains with trustees whether delegation is to
  staff or other trustees e.g. chair or subcommittee

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Responsibilities

• Trustees are ultimately responsible for
• Everything the charity does
• How it does it
• Overriding duty to act in good faith (i.e. in the
  belief that what you are doing is
  correct) within charity law.
• You must make sure the charity
• Pursues its aims
• Uses its assets exclusively for those aims
• Acts in the interests of its beneficiaries

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Structures for undertaking responsibilities

• Treasurer interpreter
• Finance sub-committee
• Examples see www.cash-online.org.uk
• www.treasurersforum.org.uk
• www.ncvo-vol.org.uk/askncvo/trusteegovernance
• Support with
• Role description
• Terms of reference for sub-committee to include
  regular formal reporting to full board
• Skills audit, induction, refreshers
• Delegations policy and authorisation levels
• Documented policies and procedures
• Agenda calendar

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Agenda

• Characteristics of
• Charity Accounting
• Reporting

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Regulatory framework

• Statement of Recommended Practice or SORP
• Sets out the way that charities should account
  for various types of income and expenditure,
  assets and liabilities see CC15b - Charity
  Reporting and Accounting The essentials
• Companies Acts and Generally Accepted Accounting
  Principles
• These will also apply to charities but are not
  specific to charities
• Recent changes audit threshold has gone up to
  500,000

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Charity accounts are different

• Account for restricted and unrestricted funds
• Restricted funds spend in accordance with
  donors wishes
• Focus is on resources made available to you
• Include gifts in kind and donated services
• More about total funds at year end than result
  for year
• Reserves policy and use of designated funds
• Explain your current and future position in
  Trustees Annual Report
• Public Benefit reporting required 31 March 2009
• Best practice/ideas see CAF/ICAEW Charities
  Online Accounts awards also Charity Commission
  website example accounts

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Funds of a charity

• Restricted
• Funds have to be spent on
• specified purpose
• Restriction imposed by donor
• Restricted funds may be for a
• specified project, specific
• geographical area or raised in an
• appeal

• Unrestricted
• Funds received for any purpose
• within your charitable objects
• General donations
• General legacies
• Self-generated income

• Designated
• Funds earmarked by trustees
• to be used for particular
• purposes in the future

General Unrestricted, undesignated funds
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What are accounts?

• Income and expenditure/SOFA
• 1 April 2008 31 March 2009
• Balance sheet

Results over a period of time Takes you from
one B/S to the next
Snapshot of worth at point in time
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Characteristics of charity accounts
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Agenda

• Budget setting,
• Performance monitoring
• Reporting to trustees

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The planning cycle
Mission
Mission
Mission
Mission
Mission
SWOT PEST
SWOT Resources
Internal review
External review
Internal review
External review
Internal review
External review
Internal review
External review
Internal review
Review of options
Review of options
Review of options
Risk assessment Scenario planning
Strategy
Strategy
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The planning cycle
Strategy
Strategy
Strategy
Strategy
Strategy
Strategy
Strategy
Annual Plan
Annual Plan
Annual plan
Annual plan
Annual Plan
Annual Plan
Evaluation Revisions
Evaluation Revisions
Evaluation Revisions
Evaluation Revisions
Evaluation Revisions
Monitoring
Monitoring
Monitoring
Monitoring

• More info
• NCVO/Cass Tools for tomorrow
• Financial Stewardship of Charities
• Boards that Work

• To include budget, contribution analysis
  cashflow, sensitivity analysis
• ask what ifs
• SMART objectives

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Questions Planning budgeting

• Does budget link clearly to annual plan and back
  to strategy?
• Do you approve the budget?
• Does it look realistic?
• Do you understand the key assumptions?
• What do you have on your agendas and when?
• Do you have an annual cycle?
• Does planning happen at the right time?
• Has a risk assessment? Are you satisfied that all
  procedures and controls are in place to mitigate
  risks?

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Questions Planning budgeting

• Individual activities and new projects will be
  costs covered? Do activities need to be
  subsidised? OK or not?
• Do you have a funding/fundraising strategy?
• Are you aware of any potential tax issues?
• Do you have key policies do you have in place?
  reserves, investment and cash management
• What do we have for a rainy day? How much do we
  need and when should we use it?

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The planning cycle
Strategy
Strategy
Strategy
Strategy
Strategy
Strategy
Strategy
Annual Plan
Annual Plan
Annual plan
Annual plan
Annual Plan
Annual Plan
Evaluation Revisions
Evaluation Revisions
Evaluation Revisions
Evaluation Revisions
Evaluation Revisions
Monitoring
Monitoring
Monitoring
Monitoring

• More info
• NCVO/Cass Tools for tomorrow
• Financial Stewardship of Charities
• Boards that Work

• To include budget, contribution analysis
  cashflow, sensitivity analysis
• ask what ifs
• SMART objectives

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Questions Monitoring reporting 1

• Internal management accounts
• What monitoring information do you receive?
• Is it what you need? Right level of detail?
• Jargon/plain English? graphics?
• Timely ?
• What is the basis of preparation cash only or
  accruals?
• Surplus or deficit? individual activities and
  organisation as a whole
• Are you happy to subsidise activities which make
  a deficit? What else could be done?
• Income expenditure compared to budget with
  variance analysis? Why did variances arise?
  Permanent or timing differences?
• Adequate non-financial information?
• Management accounts should have a narrative
  directing the board to key issues, potential
  problems, early warning signs and
  actions/decisions to be considered

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Questions Monitoring reporting 2

• Is you cashflow sufficient?
• How are you managing your working capital
  position ?
• Are you collecting cash from debtors on time? Any
  bad debtors?
• Are you paying creditors on time?
• Are you making the most of any cash balances you
  have?
• Are you minimising any interest charges?
• Need for overdraft facility? Adequate?
• Unrestricted vs restricted funds?
• How are your reserves?

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Agenda

• Internal controls

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CC8 Internal financial controls

• Trustees must ensure
• Proper books and records kept
• Follow SORP and other financial reporting
  standards
• Annual report and accounts prepared and approved
  by trustees
• Basic internal controls
• Segregation of duties
• Qualifications of staff and advisers
• Budgetary controls
• Authorisation
• Reconciliations
• Physical security

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Questions Systems controls, People skills

• What financial skills do you have on the board?
  Sufficient? Treasurer/sub committee?
• Are all trustees clear they are jointly
  responsible?
• Do you have clarity over day to day
  responsibilities for financial management?
• Have you got right level of resource and skill in
  staff team?
• What is covered in induction?
• What ongoing support is needed for trustees?
• Are your accounting records sufficient? Are key
  controls in place? (segregation of duties,
  authorisation, reconciliation, security see CC8
  - Internal Financial Controls for Charities)

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Agenda

• Key Financial Policies

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Key policies statements

• Risk assessment management
• Statement required in annual report
• Any risk not just finance
• Best practice to explain position on your major
  risks
• Reserves policy
• Policy relates to unrestricted, undesignated
  funds
• State level you require and actual amount you
  have
• Need to explain designated funds, why you have
  them and when they will be used
• Others policies investment, cash
  management/treasury, grant making

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Agenda

• What to expect from your auditor

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What to expect from your auditor

• Trustees
• responsible for true and fair accounts
• Auditors
• provide audit report on accounts
• advise on SORP and user friendly accounts
• provide management letter
• meet finance committee or trustees each year
• provide ad hoc advice in year

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CC10 Hallmarks of an effective charity

• Clear about its purpose and direction
• A strong board
• Fit for purpose
• Learning and improving
• Financially sound and prudent
• Accountable and transparent

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Induction checklist

• Statutory accounts
• Annual report
• The Essential Trustee
• Role description
• Governing documents
• Strategic plan
• Risk register

• Tour/programme
• Organisation chart
• Code of conduct
• Register of interests
• Copies of minutes
• Management information
• Committee terms of reference

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Signposting

• Good governance code for the voluntary and
  community sector www.governancehub.org.uk/GovHub/C
  ontent/Documents/Gd-Gov-FINAL.pdf
• Good Trustee Guide from NCVO
• CC3 The Essential Trustee what you need to
  know (February 2008)
• CC8 Internal financial controls for charities
• CC10 The Hallmarks of an Effective Charity
  (July 2008)
• CC15b Charity Reporting and Accounting The
  Essentials covers accounting years ending after 1
  April 2009
• www.charity-commission.gov.uk
• For Made Simple guides and other information go
  to
• www.sayervincent.co.uk
• 
  
• 
  

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Contact

• Judith Miller
• 020 7841 6360
• judith_at_sayervincent.co.uk