Regulation with Rosie: The need for financial controls

The Charity Commission's Rosie Chapman on the need for financial controls.

Difficult times can create opportunities for some. In rural areas, for example, thefts of domestic heating oil are apparently on the rise, aided by families buying the oil in bulk and the accessibility of the containers. Similiarly, when it comes to internal theft or fraud in organisations, much of it appears to be a result of opportunism.

Most trustees should be aware of the need for internal financial controls. But controls are effective only if they work as designed; problems often arise when trustees simply assume controls are operating. Hard cash offers temptation. One charity shop lost more than £50,000 to its treasurer. Controls over how the shop's takings should be deposited in the bank existed in theory, but were overridden by the shop treasurer, who often banked the money herself, and banked it late to avoid accurate monthly reconciliations.

The treasurer's apparent efficiency made it easy for her to take increasing responsibility. Too much responsibility ended up in her hands without her activities being adequately monitored. The fraud was eventually detected by the charity's finance manager, but not until seven months later.

Trustees should assume nothing. They need to segregate responsibility and ensure regular, independent monitoring of the controls. Reconciliations should be carried out monthly and discrepancies followed up. Old and new bank accounts should be checked regularly for movement.

We will be publishing an updated version of our Internal Financial Controls for Charities guidance early next year, but, with Christmas looming, don't leave it until then to check the rigour of your own controls.

- Rosie Chapman is executive director of policy and effectiveness at the commission.

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