Don Bawtree: Trust report outlines financial pressures on charities

Plus: implications of the new governance code

Don Bawtree
Don Bawtree

The latest edition of Trust and Confidence in the Charity Commission reports consistent levels of trust, both in the sector as a whole and in the role of the regulator. Although this is the main theme, there is an interesting comment on the financial pressures facing the sector. The report cites the following as headline financial pressures for charities: a decline in public trust and confidence, and the impact on donations; uncertainty relating to Brexit; how new government policies will affect charity funding; the challenges of adapting to new technology; and, generally, the lack of resources faced by both the sector and the Charity Commission.

This makes for a useful, if depressing, little checklist when considering budgets and other financial plans.

The lack of resources is especially apparent in Okehampton, where the local press reports that West Devon Borough Council has cut business rate relief for local museum charities, reducing their 20 per cent discretionary business rates relief by half. Charities comment that this represents a real cost to them and that local councils are often not consistent with each other. For charities operating around the country, this adds an additional element of uncertainty into financial planning.

In this environment, charities need to take advantage of every financial opportunity, so they might want to take note of new guidance from HM Revenue & Customs. It relates to charities and social enterprises using the social investment tax relief scheme in order to raise money to support their trading activity. The guidance sets out the eligibility criteria for organisations looking to apply: the main threshold is fewer than 500 employees, and the maximum amount a charity can raise is currently £250,000 over three years.

The Charity Commission’s annual report has also been issued and, among other things, it reminds trustees that charity accounts are indeed looked at by the regulator. The report says that during the year the commission’s team of "accountancy experts" looked at 894 sets of accounts covering 607 charities. Of these, 380 were as part of proactive monitoring activities, and the rest related to regulatory casework.

Governance code

The revised charity governance code has also at last been published. Although the focus is on governance generally, it has some specific financial implications. Looking at the requirements for larger charities, some of these financial aspects are highlighted below under the relevant section.

First, organisational purpose: charities need to have clear strategic plans, achieve financial sustainability and use resources to deliver public benefit.

Second, under the leadership section, charities should ensure there are appropriate remuneration policies and practices, and relationships with subsidiary companies should be properly established.

Third, integrity: that conflicts of interest are handled properly and registers of interests, gifts and hospitality are maintained.

Fourth, as part of the code’s section on decision-making, risk and control, the board should manage financial and other risk, suppliers should operate in line with the charity’s values, reserves and other financial policies should be kept under review, and budgets and management accounts should be put in place and monitored. The board describes the charity’s approach to risk in its annual report and oversees an effective process for appointing auditors. Where the charity has an audit committee, its chair has recent and relevant financial experience and the committee includes at least two trustees. The board, or audit committee, has the opportunity to meet the auditors without paid staff present at least once a year.

Fifth, under board effectiveness, the code says that the board should have the right skill mix and the annual report should explain how the charity reviews or evaluates the board in a governance statement. The board can access independent professional advice, such as legal or financial advice, at the charity’s expense if needed.

Sixth, under diversity, the code says there should be a budget to encourage board diversity, for instance by making sure that reasonable expenses are paid to all trustees.

Finally, in the openness and accountability section, trustees should publish the process for setting the remuneration of senior staff, and their remuneration levels, on the charity’s websites and in its annual report. There is also an expectation that charities will make a statement in the annual report about how the code is applied.

Don Bawtree is lead partner for charities at accountants BDO LLP

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