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calling charity independent examiners

I have just taken over acting for a charity. Whilst the bottom of the balance sheet is not in deficit overall, there is a deficit on unrestricted funds. No mention of this is made anywhere in the accounts.

The trustees are of the opinion that this will right itself over 2-3 years, as they are currently making an annual surplus on the unrestricted activities.

Is it OK to follow this approach? Should it be disclosed in the accounts, I am thinking maybe in the trustee report, where they talk about availability of 3 months funding etc?

I am interested in the thoughts of any independent examiners on here.

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Same Situation

I had the same situation with one of the charities I act for, and over 2-3 years we did disclose in the trustees report the reason for the deficit and the actions the trustees had taken to try and recity it. We did this because funders will be very reluctant to provide grants etc to an organisation that has negative unrestricted funds as they are nervous that any funding they give may be used to reduce the deficit. We also made it clear that the organiation was able to meet its liabilities as they fell due.

As it happens in my case the building they where occupying was subject to a Compulsory Purchase Order and they received compensation for them having to move which cleared the deficit.

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Overdrawn unrestricted funds

If the charity has overdrawn restricted funds then in essence they are borrowing restricted funds to finance their general activities. This is generally frowned upon.

The charity should really dislose the issue in their reserves policy along with an explanation of the steps they intend to take to achieve their target reserves level.

From a professional indemnity point of view, I would also include mention of this in writing to the trustee board.

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08th Feb 2011 11:40

Please read the SORP and the Ch Com Guidance

Here

Especially Sec 55(b)

 

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By jpcc1
08th Feb 2011 15:27

Breach of Trust

Effectively the expenditure on the unrestricted fund is actually restricted funds. This would be acceptable if the expenditure happened to fall within the restrictions applying to the fund from which it came.

If not then the trustees are in breach of trust! If it is reasonably possible to rectify the problem in the (relatively) short term and full disclosure is made, then there shouldn't be an issue with the Charity Commission but donors may be unhappy as their funds may not be spent as wished

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