Trustees urged to keep robust records after charity probe
Melanie May | 5 July 2023 | News
Following the opening of a compliance case into an armed forces charity for its failure to provide records on spending and income, charities are being urged to make sure they are keeping robust records.
Portsmouth-based Forgotten Veterans UK is being looked into by the Charity Commission after an independent examiner found no records to account for £89,000 in expenditure and £151,000 in donations.
Nick Sladden, Head of Charities and Audit Partner at RSM UK is advising charities to make sure they are following the recently updated Charity Commission guidance, ‘Internal financial controls for charities’, known as CC8, to ensure finances are properly managed and documented.
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The CC8 guidance covers:
- managing corruption and bribery risks by maintaining a register of interest for trustees and having hospitality policies
- regularly checking tax exemptions are still relevant
- checking required controls are in place when making payments to related parties
- ensuring appropriate capitalisation, recording and monitoring of fixed assets, including intangible assets, such as intellectual property and software
- checking procedures for spending, managing and accounting for restricted and endowment funds
- recording decisions when approving any loans, including assessments of recipients’ ability to repay.
RSM recommends trustees should review their charity’s financial controls annually as a minimum, using the downloadable checklist provided on the Government’s website, and to be familiar with the Charity Commission’s CC3 guidance, ‘The essential trustee: what you need to know, what you need to do.’
RSM also highlights the importance of ensuring no one person is responsible for financial transactions. CC8 recommends the use of dual authorisation systems in any setup or changes to bank mandates, with key recommendations including:
- maintaining a central list of all charity bank accounts
- closing any unused bank accounts
- checking costs and interest rates
- ensuring your bank is regulated by the Prudential Regulation Authority
- seeking adequate approval of bank transfers and payments
- preparing and checking monthly bank reconciliations.
Sladden says:
“Administering a charity’s finances and assets is one of the fundamental responsibilities of a trustee. Having robust internal financial controls means charities can be confident they won’t end up the subject of regulatory action including the potential for trustees to be held personally liable for any losses they have caused or helped to cause. Understanding a charity’s financial position is vital for trustees, and this is acknowledged in the updated CC8 guidance. Financial position and performance should be a standing item at trustee meetings, with all being provided the relevant information beforehand. This needs to be accurate and up-to-date, including the latest management accounts, explanations of differences between forecasts and the current financial position, and details of cash flows and bank balances.
“Critics have argued that some of the guidance is overly simplistic and too obvious. However, when controls fail, are overridden, when fraud occurs, or the accounting simply goes wrong, it is usually due to a simple weakness in the system that has been overlooked. Following the CC8 and CC3 guidance can go a long way to eliminating risks.”
About Melanie May
Melanie May is a journalist and copywriter specialising in writing both for and about the charity and marketing services sectors since 2001. She can be reached via thepurplepim.com.