Charity Accounting
&
Resource Maximisation
Presentation by
Robin Middleton
Agenda
• Introduction to Charity Commission Requirements for Charities
– Below £25,000
– Between £25,001 and £500,000
– Difference between and audit and independent examination
• Guidance to good financial information and reporting
• Ways to maximise resources in small organisations (pros & cons) of
the following areas:
– Outsourcing
– Group purchasing
– Collaboration or services
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About Charity Business
Our mission = To have the maximum positive impact on the charity sector,
improving efficiency and effectiveness by reducing administration costs
specifically in the area of the finance function.
Formed in 1999 by Chief Executive, Mark Freeman
Part owned by and work solely with the not for profit sector.
Leading provider of outsourced financial back office services
192 clients – 30% of which are small charities
34 staff of which 30 are dedicated to client servicing
Streamline processes to improve efficient and ensure resource
maximisation
Save Clients 40 – 80% on finance costs
Saved £10 million over past 11 years
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Our Services
Consultancy
Efficiency & effective
process reviews
Shared Services
Strategic financial
planning
Business planning
Full cost recovery
Collaborative
Services
Payroll
Purchase Ledger
Sales Ledger
Debtor Management
Treasury Management
Credit Card &
Debit Card processing
Management accounts
Direct Debits
Annual accounts
Feasibility studies
Sharing experience through market seminars
ACEVO / EPC / A4A / NCVO
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Commercial in Confidence
Transition
Management
Education
& Training
Investment
Advisory
Investment Manager
Reviews
Performance
monitoring and
reporting
Reserves and
Investment policy
reviews
Tendering
Investments
Meeting the Charity’s
financial aims
CASS Business School – guest lecture on
Financial Management and Outsourcing
Client Views
Client Survey
100% of the respondents indicated that we
meet or exceed their requirements :
Partnership approach / personal touch
Individuals that are extremely efficient
and deliver quickly and reliably
Staff are positive, pleasant and responsive
Excellent account managers
Payroll is excellent, and queries are raised
from our contact if something looks
unusual
Why Charity Business
Specialists in the unique requirements of
Charity and Not-for-Profit finance
Transparency in all we do
Giving back to the sector through
knowledge sharing
Shared Service efficiencies – Significant
cost reduction
Focused on supporting our clients to
achieve their charitable objectives
Owned by the sector & Working for the
sector
Wholly UK based service teams –
accessible / responsive / pro-active
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Commercial in Confidence
Current Pressures on Charities
• The triple whammy that has hit:
– Recession – 3 years of the belts being tight
– Government Grants cut – 5 years to recovery
– Trust Funding reduced due to the equity and bond markets being
impacted by the global recession
• Pressure to merge or work collaboratively
• Tough decisions needing to be made in short order
Reporting Requirements
• All charities must prepare accounts and make them available on
request.
• The framework for accounting by charities sets out different
requirements for different sizes and types of charity. To understand
how it applies to your charity, you need to check:
– whether or not your charity is also a company;
– its income for the current financial year;
– the value of its assets; and
– whether or not it is required to be registered as a charity.
Reporting Requirements Continued
• You should then establish:
– what type of accounts must be prepared;
– what information is needed in the Trustees’ Annual Report;
– whether the accounts need an independent examination, or audit;
and
– what information must be sent to the Charity Commission.
Levels of Reporting
Revenue
Part A –
Charity
Info
Trustee
Accts &
Report
Report’g Financial Standard
of
Info
Info
Serious
Return
Incidents
< £10k
J
£10k – £25k
J
J
£25k - £500k
J
J
J
£500k - £1m
J
J
J
J
>£1m
J
J
J
J
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Min
Opinion
IE
IE
IE
Audit
J
Audit
Audit vs Independent Examination
Audit
Independent Examination
• Higher level of assurance
provided
• Auditor has to be registered with
the ICAEW
• Regulated in how they undertake
the work
• Undertake more checks and
work to provide assurance
• Costs more
• Provides an external check on the
accounts
• Can be carried out by any person
with the relevant ability and
experience
• Is a less onerous form of scrutiny
• Provides less
• Is only required to confirm that
no evidence has been found that
suggests certain things have not
been done by the charity.
• Costs less than an audit
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What goes into the
Annual Report?
• Reference and administrative details of the charity, its trustees and
advisers
• Structure, governance and management
• Financial Review
• Public Benefit Statement
• Objectives and Activities
• Achievements and Performance
• Plans for Future Periods
Financial Review
• Reserves policy
• Investment policy
• Risk statement
• Analysis of incoming and outgoing resources for the year
• Future financial plans
Public Benefit Test
• 2 stage test
• First stage is that your objects are charitable – one of 13 criteria set
by the Charity Commission in the 2006 Act
• Second stage is that you are operating for the public benefit
• What does this all mean to you and your organisation….
The Role of the Treasurer
“The Treasurer will ensure that proper accounts are kept, and help set
financial and investment policies” Charity Commission
What support should the Treasurer be giving the Director/CEO and the
finance team?
What should he/she expect from them in terms of reports/information.
Sample Internal Reports
Management reports to the board of trustees should be clear, easy to
understand, accurate and useful. We would suggest using a
combination of narrative, graph and numbers.
• Summary of the period
• Quarterly and Monthly Statements
• Comparison to budget
• Balance Sheet
• Cash flow Statement
• Project Breakdown
• Notes of any unusual transactions
Good Practice in Budgeting
• Forgotten costs
Many a failed project is based on an under-costed budget. Here are some
of the most often overlooked costs:
– Staff related costs (e.g. recruitment costs, training, benefits and
statutory payments)
– Start-up costs (e.g. publicity)
– Overhead or core costs (e.g. rent, insurance, utilities)
– Vehicle running costs
– Equipment maintenance (e.g. for photocopiers and computers)
– Governance costs (e.g. board meetings, AGM)
– Audit fees
Cost Control & Assessment
 Understand the major costs of the charity including salaries and process
of increases, recruitment and related staff costs;
 Look to simplifying the expenditure streams
suppliers, cycles of payments;
- Reduce numbers of
 For one-off expenditure understanding how to best ring fence them and
how they will be cut at the end of the project;
 Project budgeting for areas of new expenditure;
 Understand where you are making an investment and how this is going
to be funded; and
 Understand long term commitments.
Cash Flow Management
 Needs to be detailed not summary;
 Needs to take account of cyclical factors;
 Needs to be understood by management - especially the implications
of it;
 Needs to be conservative; and
 Should not take account of positive items that will improve the
bottom line when there are a number of unknowns.
Resource management
• In public companies finance is based on the assumption of maximising
the market value of the company
• In the not-for-profit sector the aim is the optimisation of resources to
ensure the organisation is delivering as effectively as possible. This
means focusing on:
– Smoothly financing current operations by making the most efficient use of
current and liquid funds
– Maximising available and obtaining resources by enhancing the total
return on the invested resources
– Economising on the use of resources (reducing waste)
– Channelling resources to facilitate priority activities
Ways of maximising resources
• Competitive pricing for all purchases
• Assessing the cost of the service being provided to the outcomes and
deciding when to stop (80/20 rule)
• Benchmarking costs of running functions or processes against peers
and third parties
• Outsourcing services to a third party
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Why Outsource to a Third party
• Transfer of risk
• Cost assurance
• Immediate savings or better information for decision making
• Partner to assist you in decline and in growth
• Provide insight into what others are doing to solve issues and
problems
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Checklist for Outsourcing – Part 1
1. Reason for outsourcing
2. What to outsource
3. Where to outsource (remember the implications this might have on 1 and 2 above)
1.
Type of service delivery model
4. Have you secured agreed commitment to the decision making process and timeframes involved
5. Unanimous commitment to proceed if “Why” and “What” are achieved
If “NO” at 5 then you are not ready - do not proceed without agreed commitment,
if “YES” then continue
6. How to outsource
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1.
Have you defined the why and what
2.
Have you defined the decision process and timeframe
3.
Is your current finance process and cost understood and defined
4.
What is your preferred fee approach
Checklist for Outsourcing – Part 2
7.
Choosing the right partner
1. Right chemistry
2. Right quality
3. Candid and open/transparent
4. Understand the sector and the pressures it is facing
5. Can offer more at a later stage
6. Understand TUPE (staff transfer and employment) implications
7. Can assist with TUPE
8. Has a dedicated implementation team
8.
Implementation considerations
1. TUPE considerations dealt with or there is a process to deal with them
2. Partner has a defined process of implementation
3. Communication plans are understood
4. Responsibilities understood
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Summary
• Financial reporting requirements are becoming more important with
the current economic climate
• Transparency in what you do and how you set this out is more
important than ever
• Decisions can only be made by having good and timely information
• Maximising resources is critical for Trustees to be considering all the
time but even more so than now as questions are being asked and
you need to be about to respond to them
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Thank You
Charity Business
Suite 37- 40 Cherry Orchard North
Kembrey Park
Swindon
SN2 8UH
Email: robin.middleton@charitybusiness.com
Website: www.charitybusiness.com
Phone: 01793 554204
General Enquiries: marketing@charitybusiness.com
Copyright Charity Business 2011
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