On 16 March 2017, the Charity Commission released news of the updates to their guidance, “Charity Finances: Trustee Essentials (CC25)”. The update came as a drive to push trustees to better manage their financial duties and responsibilities. As a result, the guide has been made more readable and accessible for trustees and senior management. The updated guidance will cover “most common areas of managing charity resources, including internal financial controls, charity reserves and staff and volunteers, signposting further reading”. But for charities and not-for profits, what constitutes as an effective financial management process?
Financial Management Processes
Having a financial management process in place is a priority for all charities, particularly those larger charities that file accounts, submit annual returns and regularly hold fundraisers. Having a process in place should make your organisation more:
Accountable - Both the charity sector and the public are advocates for transparency in charity accounts and finances. Effective processes can help to retain the public’s confidence in the charity sector. Consequently, failure to have financial best practice in place can lead to substantial problems for the organisation, such as fraud and misconduct.
Compliant – Depending on a charity’s audit threshold, it is mandatory to submit a set of accounts. Often, the Charity Commission will request further information to be submitted in the trustees’ annual report. Your financial management process and any practices that your organisations has encouraged to protect funds will also need to be submitted. Failure to file the correct documentation is a criminal offence and repeat offences can lead to charities being faced with a statutory inquiry by the Commission.
Financial Controls
Your organisation should have a set of processes in place in order to ensure funds are protected and the aims and objectives of the charity are being met. Although this does not need to be an extensive guide, there are a several methodologies and software that charities and not-for-profits can implement to stay on top of responsibility:
- Be aware of high risk areas: Your charity should pay particular attention to high risk departments, such as payroll and areas, such as fundraising, as charities tend to be more sensitive and susceptible to crimes. Having an effective charity specific risk management process in place should help this.
- Protection: Protecting your charity’s resources and assets comes as a priority for all trustees on the board. Therefore, you should introduce policies and processes that employees should be aware of as a form of good practice.
- Internal control systems: Introducing an internal control system will help employees recognise their personal responsibility and minimise human error. This way it is easier to recognise and manage problems before they grow and become uncontrollable.
- Carry out appropriate checks: Whether you are receiving a grant from a funder or allowing your organisations building to be used for hire, carrying out careful checks is a must. This will protect you from any misconduct and allow you to identify problems quickly before they manifest. It is important for this to always be documented for reference purposes.
- Technology: Accounting and bookkeeping software such as Xero can help to simplify record keeping, accounting and transaction processes. For charities, it is particularly important as it provides an extra layer of protection to funds and significantly decreases the chances of fraud occurring. Furthermore, having access to independent professional financial advice to guide you on bookkeeping and accounts can ensure that you are operating effectively.