Robust financial management is vital so charities can protect themselves against financial difficulties or abuse, and meet the needs of their beneficiaries.
There’s no better time than the start of the new financial year to assess your charity’s financial situation and financial controls, to see how you can improve them. Doing this is key to making sure that your trustees are able to protect the charity’s assets and resources.
The Charity Commission has recently updated their Charity finances: trustee essentials (CC25) guidance to help trustees and charity staff get to grips with the basic areas of financial management. It also links to more detailed guidance on a number of areas.
What Are Reserves?
Reserves are that part of a charity’s unrestricted funds that is freely available to spend on any of the charity’s purposes. This definition excludes restricted income funds and endowment funds, although holding such funds may influence a charity’s reserves policy. Reserves will also normally exclude tangible fixed assets such as land, buildings and other assets held for the charity’s use. It also excludes amounts designated for essential future spending.
Reserves also exclude funds which have particular restrictions on how they can be used. Trustees should consider for what purpose restricted funds are held and how they are being used in order to identify those resources that are freely available to spend.
You can find out much more about Reserves here
Our Spring Newsletter has arrived, and should be with you very soon. If you have not received your copy by 27th April 2017, please let us know here, and we will send one out to you as soon as possible.
Read our online version by clicking here
Rules for Charity Meetings
Your charity’s governing document should say how and when you should organise meetings and how to vote on decisions. You must do these things exactly as the governing document says. If you don’t, any decision you make during a meeting could be invalid.
If your governing document isn’t clear about meetings, you should think about adding to it (or agreeing extra rules). For example:
- who can attend the meetings (most meetings are just for the trustees)
- how often and when you should hold meetings
- the minimum number that must attend a meeting so that decisions can be made properly (called the quorum)
- how you deal with charity trustees who have a conflict of interest
Having the right rules in place for meetings will help you to make decisions effectively, manage conflicts of interest appropriately and deal with problems.
Your charity’s objects or purposes, and the rules for how it should operate are set out in its Governing Document.
Only change your governing document if it’s in your charity’s best interest to do so. For example, if:
- your charity’s purposes aren’t a practical or appropriate way to meet the need it was set up for any more
- your governing document doesn’t say who your charity’s trustees are or how they are appointed
- provisions explaining how you must run the charity (for example, how to arrange meetings) are no longer relevant or practical
As trustees, you’ll need to decide that the change is necessary and what it should be. You can make some changes yourself but others need Charity Commission permission.
More detailed information can be found here
About Charity Trustees’ Annual Reports
Your trustees’ annual report helps people understand what your charity does, particularly potential funders and beneficiaries.
You need to write a trustees’ annual report if your charity is registered in England or Wales. Along with your accounts, the report tells people:
- about your charity’s work
- where your money comes from
- how you’ve spent your money in the past year
More information and examples of Trustees’ Reports can be found here
We are often asked how long organisations should retain their financial records, so here is some short guidance:
What are the requirements for all charities?
All charities must:
- keep accounting records – these records (eg cash books, invoices, receipts, Gift Aid records etc) must be retained for at least 6 years (or at least 3 years in the case of charitable companies) – where Gift Aid payments are received records will need to be maintained for 6 years with details of any substantial donors and to identify ‘tainted charity donations’ in accordance with HMRC guidance
More details can be found here
Another useful document can be found here – this also includes details of payroll document retention, employee details etc
Closing a Charity – The Law
Charities can close for a number of reasons, such as:
- a merger with another charity
- the original purpose has been met or is no longer relevant, for example treating a disease that has since been eradicated in the area the charity serves
- losing funds or funding
- a lack of members
- becoming a company or charitable incorporated organisation (CIO), which means creating a separate charity
If you do decide to close your charity, you’ll need to tell the Charity Commission if it is a Registered Charity, and clear all its debts and liabilities before you spend its remaining assets on your charity’s purposes. This will include checking if you have any:
- unspent grant money – if so, check if there is any specific agreement with the grantmaker about what to do with it where you are closing the charity
- money from fundraising appeals that haven’t reached their target – if so, check the commission’s guidance on failed appeals to see if you need to return any donations to donors
Further detailed guidance can be found here: https://www.gov.uk/guidance/how-to-close-a-charity
The Charitable Incorporated Organisation – CIO – is a relatively new form of incorporated legal structure that is designed to meet the particular needs of a charity and is only available to charities. A CIO is a corporate body which is not a company incorporated under the Companies Acts; it is therefore not subject to company regulation. Neither its existence nor any charges it creates have to be registered at Companies House.
The corporate structure provided by the CIO meets a demand from the charitable sector for a structure which gives a charity a legal personality of its own, enabling it to conduct business in its own name, rather than in the names of its trustees.
More information can be found on the Government website: https://www.gov.uk/guidance/charity-types-how-to-choose-a-structure
Well, your final accounts have been successfully examined, now you need to send your Annual Return to the Charity Commission. You are required by law to submit these within 10 months of the end of your Financial Year.
It is very easy to complete. You will need the:
Total Income and Expenditure for the Year
Names of your Trustees
If you need any help, give Derby CAS a call on 01332364784, or you can go to the Government Website for guidance