William Anderson: Charity accounts work needs more than faith and hope



William Anderson

William Anderson, audit, accounts and charity partner, Meston Reid & Co, highlights the need for responsible governance, transparency, accountability and a professional approach when it comes to charity finances.

Few charities will emerge from the pandemic unscathed. Like all organisations, they’ll be striving to weather the storm and mitigate the financial impact of the Covid-19 restrictions – so that they’re still around to help others in the long term.

When it comes to the financials of charitable organisations – and the trustees who in effect are managing other people’s money in the form of donations, funding and grants – there is, of course, a requirement for responsible governance, transparency and accountability.

And, as they negotiate their way through the difficulties posed by the pandemic, it’s probably more essential than ever that they’re adhering to these principles for professional administration and reputational management purposes.

A recent charity-focused seminar for accountants reaffirmed that the days of a volunteer ‘picking up’ accountancy duties at good causes are well and truly in the past. There are simply too many processes and hurdles to overcome, and these call for a robust and contemporary understanding of the modern accounting panoramic.

Given the strain that the pandemic will inevitably have put on charity finances, the knowledge, insight and expertise that stems from professional support will be key in seeing them through to better times.

Following the commencement of the Charities and Trustee Investment (Scotland) Act in 2005, OSCR came to the fore. OSCR is the independent regulator and registrar for more than 24,000 Scottish charities including community groups, religious organisations, schools, universities, grant-giving bodies and major care providers.

Its website provides useful guidance on relevant issues. It underlines the fact that full openness is required and applies to everyone – a Scottish charity that raised just £1 would still have to prepare a formal set of accounts. That’s why it’s important for organisations to keep accounting records up to date, especially if money has been received and is set aside for a restricted project.

In addition, donors may wish to know how their donation has been spent – Children in Need is a good example of this scenario – so it’s important to have this recorded in the accounts. Indeed there’s an ever-growing regulatory obligation to demonstrate how money is being used.

There are several key questions charities should be asking themselves – and their accountant. Does the adviser actually know and understand the charity? Can they apply their knowledge of the organisation to add value to the trustees’ annual report? Is the charity reviewing its reserves policy in the light of pandemic challenges? Do they need more reserves? Have rent waivers or deferrals been accounted for correctly? Are there any material uncertainties to disclose? If so, has OSCR been informed? Does the adviser know of their duties and what they may be required to report to OSCR?

They don’t necessarily stop there. Questions could also arise about any coronavirus job retention scheme (CJRS) grants being recorded correctly, about potential reputational damage arising from issues such as loss of data, about the possible impact of the reduced hospitality rate. These checks and balances inform just a few of the steps that need to be taken.

It’s also worth bearing in mind that the ‘soft period’ for making tax digital (MTD) for VAT is over, so systems need to be compliant. Then there’s the obligations and additional costs of an audit if the charity’s income exceeds £500,000, and the technicalities around special tax and VAT reliefs available for charities.

If OSCR is not satisfied with an annual return, they can request changes or further information. It can either independently, or following a complaint, investigate a charity and has powers to address misconduct.

There are several triggers that prompt closer scrutiny by OSCR. These include whether the charity has spent 50% of its income for the year – and if not, why not. Therefore, it’s worthwhile pre-empting any possible enquiries by explaining any potential flags in the trustees’ annual report.

This narrative in the trustees’ report is a key point to consider. For example, it’s highly useful to outline what the charity is doing; its successes and plans for the future. Word counts for grant applications are sometimes limited so attaching a detailed set of accounts can add value to the application. This report should be seen as an opportunity for the charity to ‘sell’ itself and highlight the work that it does.

One step to consider is having an accountancy firm offer training to anyone who is involved in looking after the finances at a charity. We have worked very closely with charities to help them with their governance or to set up internal procedures for best practice.

Supporting or setting up charities can be a minefield and requires specialist attention. That’s why we keep up to date through seminars and regular newsletters specific to the sector.

The bottom line is this: a professional approach, with the correct mix of advice and expertise, is likely to add value and save costs in the long run. It’s all about providing the right support for charities, so they can continue to support others.



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