Key financial responsibilities
Trustees of voluntary organisations have a significant range...
of financial responsibilities and support for execution of these responsibilities will vary according to the size of the organisation. Larger charities are likely to have significant resources available, whilst smaller charities will often rely on a ‘one-stop shop’ service from their auditor for overall finance advice.
Figure 1 below summarises the core financial responsibilities, indicating the relevant Charity Commission guidance (downloadable from www.charity-commission.gov.uk) where available.
Charity finance professionals
Larger charities will usually employ the services of a finance director who will report into a CEO and be responsible for finance and other back office
operations of the charity. The FD also shares responsibility with the CEO for the strategic direction and long-term financial viability of the charity although the ultimate strategic
direction will need the approval of the board of trustees as they are ultimately responsible.
The specific responsibilities set out in the generic job specification they publish serves as a useful checklist of what actually has to be done.
In the current economic climate there is an increasing need to review the level and format of information to ensure that it is appropriate to the charities’ needs and enables the decision-makers to understand the current position and the financial implications of any decision. In particular the following areas should be reconsidered:
- Strategic plan – where a three to five year plan was in place prior to the economic conditions changing, it would be wise to reconsider the assumptions and ultimate goals of the charity to ensure that it continues to have the resources, staff, and finances to achieve the objectives. Where this is not the case, or there is some uncertainty, sensitivity analysis should be carried out on the assumptions and represented to the board. The impacts and outcomes of the charities’ activities should then be monitored against the revised strategic plan on a regular basis.
- Future cashflow projections. Cashflow projections should be produced for at least a year ahead, as far as practical, to provide comfort that the charity is able to meet its ongoing liabilities.The cashflows, for those charities which face liquidity concerns, should be prepared on a rolling twelve month basis with clear explanations for the assumptions that underlie the key income and expenditure streams.
- The reserves policy of the charity should be linked into the revised strategic plan and the cashflow/liquidity of the charity. Many charities express their reserves in terms of a number of months expenditure. Experience suggests that three months expenditure is insufficient for most charities in the event of a closure of activities. A clear reserves/working capital requirement should be identified and monitored closely.
- Investment strategy. Depending on the charities’ need for income, your investment managers should be approached for advice in the current climate to ensure that your income needs continue to be met, particularly where the charity has commitments that it must meet, whether that be grant commitments, or general expenditure. In the short term a revised strategy to maintain capital values may be more appropriate to your organisations.
- Reporting to trustees. The real danger in the current climate is that unrestricted reserves are depleted to the extent that restricted funds are used to help cross finance operations.
- Review your internal controls. Charities, by their very nature, are trustworthy organisations and it is unfortunate that there are those in society that will take advantage of this particularly in current economic times.Reviewing the extent to which you have segregation of duties between key internal controls i.e. initiating an expense and writing/ authorising a cheque, receiving, posting and banking incoming receipts etc will provide comfort that the finances are being monitored and controlled effectively.
Management should be asked to confirm every year that appropriate internal controls have been in operation for the comfort of the trustees. - Governance structures. For many larger charities, financial considerations are devolved to a separate finance committee. For smaller charities, the board often deal with all matters. Finding trustees or volunteers for sub committees with the appropriate expertise or experience in a particular area, not least finance, can be difficult. However, every charity should have at least one member of the board who understands finances and has a grasp of charity financial regulations. The frequency of meetings held to consider financial matters will depend on the charities economic position, but where cashflow is tight, it would be wise to consider increasing the number of meetings in the short term to keep trustees informed, after all they are ultimately responsible (CC3). This can be carried out informally with a nominated trustee or via a small group of trustees who could act as a sounding board for the board as a whole. Where critical decisions need to be made, consider calling an additional meeting.
- Convey your message. Increasing use is now made of a charity’s annual report and accounts by funders and others who engage with charities.
The availability of your accounts on the Charity Commission website, and through other web portals mean that you do not know who reads your accounts. They are an important document for many, not least funders, so convey your message and seize the PR opportunity particularly in relation to your financial position and reserves policy.
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
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