David Porter has started a series of monthly information to all those involved in charities. Here is July 2015's edition.                                                                     

CHARITY CHAT

Edition 4

The aim of Charity Chat is to make Trustees, Directors, Governors and Committee Members aware of their obligations and the processes that have to be followed to run the Charity correctly. The references I make are to the Charities Act 2011 (the Act) unless stated to the contrary. If there are matters they wish to raise please let me know.

Trustees' Duties

The Trustees have, and must accept, ultimate responsibility for the running of the Charity.

Solvency

One of those responsibilities is to ensure that the charity is and remains solvent. How they do that will depend on the size of the charity. In smaller charities, this will inevitably be done by the person who set the charity up and thereafter by one of those who subsequently continue to run it as a small charity. In larger charities, some processes will be needed to ensure that the Trustees are aware of the charity’s financial position from month to month. In all charities where cheques are used and two trustees are to sign, no one should hold the cheque book already signed by one of those trustees!

Cash processes

With the use of spread sheets, it is simple enough to set out the likely income and expenditure of the trust and then to extrapolate the information across the year. That way the Trustees can be presented with the cash flow projection, which will show the anticipated position as against the actual position month on month. Trustees must understand the finances of their charity if they are to function properly. If Trustees want to prepare such a cash flow for themselves (or to check their own charity’s figures) I have designed an appropriate menu and spread sheet(s), which I'm happy to send you if you contact me.

The processes may involve a finance sub-committee of two of the Trustees and the charity account/bookkeeper. Those Trustees are to authorise the signing of cheques, checking the reconciliation of the bank account and accounts and reporting the position to the rest of the Trustees on a regular basis.

Accounts

Annual accounts have to be prepared and lodged both with Companies House, if the charity is a Company Limited by Guarantee, and with the Charity Commission with the charity return. If your charity is a Charitable Incorporated Organisation (CIO) then accounts need only be lodged with the Charity Commission. The Charity Commission is currently pursuing some larger charities, which have failed to lodge their accounts and returns on time. You can check your position by accessing your charities register with the Charity Commission, utilising your charity number.

There are complex rules as to the content of the accounts for the larger charities dictated by the various Statements of‘ Recommended Practice, ‘SORPS’ issued by the Charity Commission from time to time. The most current ‘SORPS’ require substantial changes to be brought into effect by 31 December 2015.

Reserves

I shall deal with this in a later note, but as a rule of thumb the reserves should be no more than 6 months running costs. Individuals have not given money to your charity for you to put it in a bank and not use it. In fact it is a breach of your objects to hold more money than is reasonably necessary to run the charity. The object of the exercise is to look after the charitable beneficiaries, not to make a profit!