How to write a Trustees’ Annual Report

Charities
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In the first of a two-part series, Jen Gerrard of Gerrard Consulting explores the key elements covered in the Trustees Annual Report (TAR), as required under the Charities SORP 2015.

For many charities, their first foray into SORP 2015 annual accounts took place last year with the preparation of the March 2016 year-ends but there’s nothing like a timely reminder (or gentle nudge in the right direction) where the TAR is concerned.

Usually left until the last minute and typically delegated to the chief executive or CFO to draft, the TAR is often the ‘proverbial elephant in the corner’. As with all things, often not half as bad as you think it is going to be once you get started.

Objectives and Activities

This section should help the reader understand the aims and objectives set by the charity, and the strategies and activities undertaken to achieve them. This will include longer term strategies and objectives. In particular:

  1. Summary of its objects as per the governing document
  2. An explanation of the charities aims and matching them to their activities
  3. An explanation of the main objectives for the year and how these will further the charity’s objects
  4. Charities strategies for achieving these objectives
  5. Details of the significant activities (including its main programmes, projects or services provided) to achieve the stated objectives.
    • Focus on those that the trustees consider significant to the charity as a whole
    • Details of the activities should explain the objectives, activities, projects or services as disclosed in the analysis of the SOFA
  6. Significant use of volunteers to be disclosed
    • Quantify hours or staff equivalents
    • Present an indicative value of this
  7. Investments – consider:
    • Written policy
    • State who is monitoring investments
    • Short & long term
    • Future capital and income needs
    • Possible changes in economic conditions
    • Possible changes in charity’s activities
    • Ethical/social investments
    • Programme related investments
  8. Grants paid out
    • State how grants relate to objects
    • Separate individual/institutional
    • Analyse by recipients, types of activity &/or project
  9. A Public Benefit statement confirming whether the charity trustees have complied with their duty to have due regard to the guidance on public benefit published by the Commission in exercising their powers or duties.

Charities not subject to a statutory audit requirement may limit their disclosures within this section to include:

  1. a summary description of the purpose of the charity (its objects)
  2. main activities undertaken by the charity to further its charitable purposes for public benefit
  3. A Public Benefit statement confirming whether the charity trustees have complied with their duty to have due regard to the guidance on public benefit published by the Commission in exercising their powers or duties.

Achievements and Performance

This section should enable the reader to understand the achievements of the charity and its subsidiaries during the year. Both qualitative and quantitative information to be provided, including any potential benchmarks, against which, the achievement of objectives is assessed by the charity. In particular:

  1. Provide a review of performance during the year compared to objectives set. How has the charity made a difference to its beneficiaries and were there wider benefits to society as a whole?
  2. Details of any material fundraising activities
  3. Details of material investment performance
  4. Comment on factors within and outside of the charity’s control which are relevant to the achievement of its objectives
  5. A review of the charity’s impact viewed in terms of the long-term effect of a charity’s activities on both individual beneficiaries and at a societal level, including a summary of the measures used to assess performance.

Charities that are not subject to a statutory audit requirement may limit their disclosures within this section to a brief summary of the achievements of the charity during the year in relation to its objects and the impact on its beneficiaries.

Financial Review

This is a review of the financial position of the charity and its subsidiaries and a statement of the principal financial management policies adopted in the year. This should include:

  • A review of the charity’s financial position as at the end of the reporting period and events which have affected the financial performance during the period.
  • Explanation of:
    1. Principal funding sources
    2. The impact, where relevant, of a material pension liability re a defined benefit pension scheme
    3. The extent to which the charity holds material investments and factors social, environmental and ethical considerations into its investment policy
  • Policy on reserves, stating the level & why held – consider:
    • Based on forecast income/expenditure
    • Analysis of needs/commitments/risks – level or range of reserves needed
    • Steps to attain/maintain level or range
    • Arrangements for monitoring/reviewing
    • Reserves currently over/under funded
  • Statement regarding the level of free reserves held at the end of the period and how this compares to the charity’s reserves policy
  • The nature of any uncertainties as to the going concern status of the charity
  • Explanation of any material fund in deficit and what steps are being taken to remedy the deficit

For more information around drafting a Reserves Policy or calculating your Free Reserves figure, why not re-visit last month’s article, Charity reserves: Not just an annual affair.

Plans for future periods

Actually only formally required by larger charities only, I tend to make this a permanent feature of all of my clients’ TARs, demonstrating best practise.

The report should explain the trustee’s view of the future direction of the charity (tied in to the charity’s strategic business plan), noting how experience gained or lessons learned have influenced future plans and the allocation of resources. Particularly important where perhaps the charity is not on track in terms of Reserves Policy and the trustees seek to demonstrate how they are planning to remedy this.

* * *

In part two we will be refreshing our memory about the following sections:

  • Structure, governance and management
  • Reference and administrative details
  • Funds held as custodian trustee on behalf of others

We will also consider group accounting and the impact on the disclosures needed in your TAR, together with highlighting some key tips for making the process less painful next year.

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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