This will come from two forms: internal financial reporting and published financial statements. Internal financial reporting in the form of management accounts is a vital tool for the effective internal financial management of an organisation. Published financial statements have a wider audience than the internal reports produced by a charity with a variety of users including: trustees; donors and sponsors, grant-makers, beneficiary stakeholders using the services of the charity, suppliers, lenders, regulators, and the public (now that financial statements are available on the Charity Commission website).

 

The following list is a summary of the minimum information that the trustees should be receiving from the finance director or equivalent:

It is vital that, alongside the numbers, there is a proper analysis and written commentary explaining the key issues. This commentary would include how the organisation is performing financially (e.g. what are the levels of voluntary income? What does cashflow look like?) and operationally (e.g. ‘are we on target for the number of animals rehomed?’) against its targets.
 

If the budgets show signs that they are likely to change during the year, then a revised forecast needs to be presented which will show the restated end-of year position and the impact this will have on future periods.
 

At least once a year, trustees should review the risk management plan, the reserves policy and the treasury and investment policy. Although these may be initially considered by a sub-committee of the main board, the recommendations should be presented to the full board for ratification.
 

It is also becoming increasingly popular for audit committees, or equivalent, to receive presentations from a budget holder or operational manager on their particular area of the business to inform the trustees about how, in practice, the department is operating and what the key risks associated with that particular area are. This enables the trustees to ask questions and be more informed about the various operations of the charity.  It can also provide a key link between the trustees of a charity and its staff.

 

See pages 5, 7 and 8 for further detail on the financial statements that voluntary organisations have to publish to be compliant with prevailing legislation and regulation.  As part of your annual audit cycle, you should ensure that:
a) A nominated committee or trustee is actively involved at the planning stage of the audit. This may not be in a face-to-face meeting, but should include a review of the audit planning letter which should disclose certain information on how an audit is carried out to inform the trustees and also highlight the risk areas that are the focus of the audit.  Where trustees have additional concerns or would like the auditors to place additional emphasis in their audit work, they then have the opportunity to feed in before any audit work commences. 
b) A post audit letter, referred to as a management letter or audit feedback letter, is now a requirement of auditing standards. Certain feedback information can be communicated orally, although it is now common to include this in a formal letter to the trustees, such as the intended audit opinion, judgements and estimates that were critical to the preparation of the accounts, any unadjusted errors identified as part of the audit etc.  The letter will also bring to the trustees’ attention any control issues that were identified as part of the external audit work and may provide additional sector information for the benefit of trustees.
c) Responses. Trustees should ensure that where control points have been raised that the letter also includes management responses to those points so that trustees can be assured that management have taken the points onboard and are dealing with them appropriately.
d) Letter of representation. This letter can cause much debate particularly in a charity environment, where the trustees who are asked to approve and sign the letter are not involved in the day-to-day management of the charity. For large companies or groups a senior accounting officer will now need to certify each year that the accounting systems in place are adequate for the purposes of accurate tax reporting. For charities, as well as incorporated charities, it would also be wise for trustees to seek management’s confirmation every year that the various mandatory statements within the letter, such as provision of financial information, post balance sheet events etc, are appropriate and accurate statements that should be approved and signed by the trustee board.
e) Approval of the accounts. In approving the accounts for a year end, this can be delegated to a sub-committee for liaison purposes with the auditor, however the formal approval of the annual report and accounts must be by the full trustee board.  It is important to liaise with your adviser to ensure that they attend or have representation at the more appropriate meeting for your charity’s  purposes.  Where they are important issues that need to be explained it may require attendance at both the sub-committee and the trustees board but given the heavy schedule of December and March year-end commitments, do ensure that these are in the diary at the earliest opportunity.

 

See also the Charity Commission’s guidance CC14: Charity Reporting and Accounting: The Essentials.

Author: Clarissa Dann

Clarissa Dann was the editor of Caritas as well as an HR and management online service,he People Bulletin until July 2011.

She is now the editor of the specialist trade finance magazine, Trade and Forfaiting Review which can be viewed at www.tfreview.com but does write on charity finance and investment from time to time.

Clarissa has a background in legal and professional publishing, as well as business journalism and holds an MBA from Cass Business School. She has been one of the judges for the non-profit category of the Chartered Institute of Marketing's Excellence in Marketing Awards for the second year running.

She has also acted as clerk to the trustees of a small almshouses charity and as a member nominated trustee to a pension scheme of a multinational publishing company.

 

Click here for other articles written by Clarissa Dann

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