Organising your finances
Organising your finances from the beginning in a structured approach will help with managing and reporting on your finances internally and to other organisations or stakeholders.
Charity accounts may be prepared either on the receipts and payments basis or the accruals basis. The accruals basis is an accounting method that records income and expenses when they are incurred, regardless of when cash is exchanged.
Receipts and Payments basis applies to:
- a non-company Charity with a gross income of less than £250,000 in the financial year.
Accruals basis applies to:
- a non-company Charity with a gross income of more the £250,000 in the financial year
- a Charitable Company regardless of turnover.
With the introduction of the Charity Commission for Northern Ireland, financial reporting for Charities must now follow the SORP – Statement of Recommended Practice. SORP provides a comprehensive framework for charity accounting that all charities that prepare accrual accounts must follow. The new SORPs apply to financial years beginning on or after 1 January 2015.
- If your charity has a gross annual income of £250,000 or less, it must, at a minimum, organise an independent examination that is carried out by an independent person who the committee members/trustees believe has the ability and experience to carry out a competent review.
- If your charity has a gross annual income between £250,001 and £500,000, you must, at a minimum, organise an independent examination by an independent examiner who is a member of one of the list of professional bodies noted in section 65 of the Charities Act.
- If your charity has a gross annual income of over 500,00 then you need to organise a full audit of the accounts.
The members of the Management Committee, Trustees and Directors are responsible for how all money is used, accounted for and reported on. It is good practice to put together a system of internal financial controls that will give assurance to the Management Committee, funders and the Charity Commission.
Here’s some tips to consider for putting internal financial controls together:
- Consider a ‘double check’ approach to authorising payments e.g. when signing cheques – cheques might be prepared by the administrator but signed by the manager or co-signed with a member of the Management Committee or Board.
- Carry out an annual review of the internal financial controls.
- Prepare an annual budget of income and expenditure is prepared and approved by the Trustees or members of your Management Committee.
- Check the books at regular intervals and be able to provide an explanation if there is a difference between what was planned in the budget and what is actually happening.
- Consider if you need to appoint an internal auditor or set up an audit committee to look at your finances and how they are being managed. Also, depending on the legal structure of your group, you many need to appoint an auditor or an independent examiner to report on your finances.
- Provide the Trustees or members of the Management Committee with regular information about the financial performance of the group.
- Have a discussion about the finances of your group at each of your meetings.
- Write the ‘terms of reference’ for any finance sub-committee, or a similar sub-group of the Trustee Board or Management Committee. These ‘terms of reference’ should include who is on the sub-committee, the purpose of the sub-committee, the Chair, how often it will meet.
- Make sure that everyone is clear about who makes the final decisions relating to finance – does the finance sub-committee report to the full Board of Trustees or the Management Committee for final decision making?
- Examine what records are kept for all transactions – are they good enough?
- Review your accounts and check that they comply with legal requirements in line with the Statement of Recommended Practice (SORP).
- Make sure to include an agenda item to formally approve the accounts at the annual meeting.
- Give newly appointed Trustees or members of the Management Committee a copy of the latest accounts.
- File the annual report and accounts and annual return on time and within the deadlines set by Companies House and the Charity Commission.