Charity Commission accounts monitoring review – lessons to learn?

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On 3 September 2018 the Charity Commission for England and Wales (CCEW) published accounts monitoring updates. Jen Gerrard reports on the findings.

Read on for salient issues raised by the regulator’s review, together with my responses and some key recommendations for trustees.

Telling your story

Whilst the public benefit reporting requirement has been around since the inception of SORP 2005, I find it interesting to see that some organisations are still treating the reporting on public benefit (in their Trustees’ Annual Report (TAR)) as a ‘tick-box’, or compliance, exercise.

In a sample of 106 trustees’ annual reports reviewed by the CCEW, half “demonstrated a clear understanding of the public benefit reporting requirement. The other half did not consider what difference they had made to their beneficiaries and/ or did not include the required statement that the trustees had considered our guidance on public benefit reporting.”

In a difficult funding climate, taking the time to tell your story well - ie how the charity satisfies the public benefit requirement – can only be a good thing, surely?

Whilst the old saying goes “you can lead a horse to water….” does indeed carry truth, I feel strongly that charity accountants should be encouraging their trustee clients to present a TAR which is more than a statutorily compliant regurgitation of last year’s TAR – albeit with dates changed and a few new bits.

See my recommendations below for help and guidance in this area.

Annual reports and accounts

All charities (registered in England and Wales) with incoming resources of more than £25,000 must submit a TAR and accounts to the CCEW each year, detailing basic information about the charity’s activities. Said financial statements must be audited or independently examined. Charitable Incorporated Organisations must submit a TAR and accounts, irrespective of their income levels.

Approximately 38% (64,000) of the charities on the CCEW’s register have incomes over £25,000 and they account for 99% of the sector’s total income.

So why did the CCEW have this to say about their sample?

“74% of the accounts that we reviewed were of acceptable quality, in other words they met the basic standard that we had set. However, a quarter of charities failed to provide this basic information and fell well short of the standard the public has every right to expect.”

Here we come full circle to the TAR and its shortcomings around public benefit reporting (see above). However, rather startling, is the number of submissions which seem to have ‘failed’ on the basics associated with annual reporting process.

Highlights from the CCEW’s findings include:

  • “the annual report was inadequate, mainly because it provided little or no information on the charitable activities carried out” (11% of charities)
  • “one of the required documents was missing” (5% of charities)
  • “the independent scrutiny report was inadequate, mainly because the wording of the report demonstrated that the person carrying out the scrutiny was not familiar with the independent examination requirements” (5% of charities)
  • “the accounts were inadequate, mainly because they were incomplete or did not balance (5% of charities) In some instances, the inadequacies may have been the result of an incomplete submission, for example where page numbers were missing from the sequence”

Getting the basics right with your charity’s annual filing is imperative. Missing or inadequate documents simply reflect badly on your charity and the trustees, suggesting a lack of internal organisation or robust financial and/or governance-related processes.

It is ultimately the trustees’ responsibility to ensure that filings are complete and meet the expectations of the regulator concerned and associated statute.

Again, see my recommendations below for help and guidance in this area.

Smaller charity reporting

The remaining 1% of charities registered with CCEW comprise 104,000 charities with income of less than £25,000. Of their 110 charities sample, the CCEW said;

“Many trustees of small charities remain unaware of their legal duty to prepare a trustees’ annual report and accounts, with a quarter of the charities providing either just one of the two required documents or none at all.”

The CCEW goes on to say: “We remind trustees that all registered charities must prepare an annual report and accounts and make them publicly available, even if they are not required to file them with us. More positively, the annual report and accounts provide an important opportunity for the trustees to take stock of what the charity has achieved over the last year and to demonstrate to its supporters, potential funders and the public that they have managed its resources effectively and are meeting its objectives.”

What can we do about it?

My key recommendations to any trustees who find themselves striving for improvement in this area would be:

  • Your TAR – take your time over it and start early: See the links below for previous articles covering this area:
  • Always take your time to appoint an experienced Independent Examiner – for charities with income of less than £250,000 it can be all too tempting to accept the offer of a ‘pro bono’ Examination from someone who has little experience of the sector and/ or their duties – as set out in CC32.           
  • Professional adviser filing – for finance teams, ask your accountant to file your accounts for you via a special adviser filing portal. See a previous article here for a note around how this works in practice, following the CCEW’s release of a guidance document on this topic in October 2017.
  • Trustee induction and training – ensure that existing trustees stay up to date and that new trustees are made fully aware of their legal and fiduciary responsibilities and how your charity demonstrates public benefit upon joining. The below references may be useful to you:

Whilst things continue to move in the right direction, I’d like to read the next accounts monitoring report and see that the sector is getting the basics right. In my experience, sound financial governance brings you one step closer to winning that key bid. Get it right and demonstrating sustainability, impact and direction suddenly become less challenging.

About Jen Gerrard

Jen Gerrard

Jen is a Fellow of the Association of Chartered Certified Accountants (FCCA) and the founder and managing director of Gerrard Financial Consulting, a specialist accounting firm for the charitable sector. She has over 17 years’ experience working in accounting and finance and has also worked as an accountancy tutor for a leading training provider.

Jen has been a trustee of the Southville Community Development Association (2014 to 2017), Self Injury Self Help (SISH) (2013-2016), the Oswestry Food & Drink Festival and Impact AAS (2007 to 2010). In addition to being a current Trustee of Women’s Aid Federation of England, Jen has been a registered volunteer with Volunteer Bristol for four years and is a Member of the ICAEW Charity & Voluntary Sector Specialist Group.

Jen sits on the South West & Wales Regional Engagement Forum of the Charity Finance Group and makes regular contributions to articles in national publications – most recently AccountingWEB and Charity Finance Focus (produced by the CFG). She is also a regular speaker on charity finance and governance matters.

Her firm is a corporate member of the Charity Finance Group and was shortlisted in two categories for the AccountingWEB Practice Excellence Awards 2016. This is in recognition of the company’s innovative work with charities and NFPs to streamline their finance functions through adoption of new technology.

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