Briefing for Council Members of The
British Academy’s Sponsored
Institutes and Societies
Ian Mathieson – Partner, PKF
Julia Poulter – Senior Manager, PKF
23 January 2013
www.pkf.co.uk
Introductions
www.pkf.co.uk
Ian Mathieson
Julia Poulter
Audit Partner
Senior Audit
Manager
Objective
To give an overview of:
•
•
•
•
•
•
www.pkf.co.uk
Duties and responsibilities of a charity trustee
The Hallmarks of an Effective Charity and Principles of Good
Governance
Relationship with the British Academy as a funder
Charity reporting and accounting requirements
Good financial management indicators for trustees in the
current economic environment
Keep on your radar
The Charity Sector – putting the numbers into perspective
Over 162,000 registered charities with total income
of just over £58 billion
*Charity Commission website (at December 2012)
www.pkf.co.uk
The Charity Sector – putting the numbers into perspective
Charities by Annual Income
Latest published figures at 31 December 2012
Annual income
bracket
%
Annual
income
£bn
%
£0 to £10,000
69,485
42.6
0.230
0.4
£10,001 to £100,000
53,056
32.6
1.877
3.2
£100,001 to £500,000
20,015
12.3
4.453
7.6
£500,001 to £5,000,000
8,115
5.0
12.217
20.9
£5,000,000 plus
1,831
1.1
39.703
67.9
SUB-TOTAL
152,502
93.6
58.480
100.0
Not yet known
10,413
6.4
0.000
0.0
162,915
100.0
58.480
100.0
TOTAL
www.pkf.co.uk
Number of
charities
Duties and Responsibilities
of a Charity Trustee
www.pkf.co.uk
A couple of maxims
Trustees should:
www.pkf.co.uk
•
Govern and not manage
•
Delegate but not abdicate
Trustee duties and responsibilities
What is a Charity Trustee?
•
www.pkf.co.uk
Charity Trustees are the people who have the general
control and management of a charity’s administration
Charity trustees’ duties
Responsible for:
•
•
•
Directing affairs of the charity
Ensuring its solvency
Delivering the charity’s objectives for the benefit of the public
Compliance
•
•
•
Charity law and regulation
Charitable objects; governing document
Other applicable law and regulation
Trustees must act with integrity, avoiding personal conflicts of interest
or misuse of charitable funds
•
www.pkf.co.uk
you should check the charity’s governing document for provisions
relating to conflicts of interest
Charity trustees’ duties (cont…)
Duty of prudence
•
•
•
•
Ensure continuing solvency of charity
Apply income to fulfil objects; using funds wisely
Avoid undue risk
Take special care when investing or borrowing funds
Duty of care
•
•
Use reasonable care and skill
Take professional advice
– (if material risk or breach of duty)
(CC3 - The Essential Trustee: What you need to know)
www.pkf.co.uk
Trustees’ duties and responsibilities
Summary:
•
•
•
•
•
•
•
•
•
•
•
www.pkf.co.uk
Charity’s assets are used only for charity’s purposes
Act reasonably and prudently
Act solely in the interests of the charity
Avoid conflicts of interest
Act collectively
Ensure good governance
Safeguard assets
Manage investments in accordance with the Trustee Act
2000
Set the policy and direction
Oversee implementation
Monitor outcomes
Trustees’ duties and responsibilities
Trustees must accept ultimate responsibility for
everything the charity does:
•
•
•
www.pkf.co.uk
Trustees are responsible for the vision, mission and overall
management of the charity. They are accountable if things
go wrong.
However, Trustees are able to and should delegate in certain
circumstances.
Trustees must comply with ground rules when delegating
power.
Trustees have a duty to act collectively
•
•
•
www.pkf.co.uk
Decisions and responsibilities are shared, so all Trustees
should take an active role
However, ALL Trustees are collectively responsible for
decisions made by the Trustees
Whilst Trustees may have different roles (e.g. Chair)
responsibility for decision-making still lies with the board as
a whole
Trustee duties and responsibilities
Trustees are responsible for the proper
administration of the charity.
They must make sure that:
•
•
www.pkf.co.uk
the charity’s assets and resources are used only for the
purposes of the charity
the charity is run in accordance with its constitution, charity
law and all other laws and regulations which affect its
activities
Trustees’ duties and responsibilities
Trustees to act reasonably and prudently in all
matters relating to their charity:
•
•
www.pkf.co.uk
Trustees must “exercise such care and skill as is
reasonable in the circumstances”
The duty will be greater if a Trustee has (or claims to
have) any special knowledge or experience, or if their
business or profession means they can reasonably be
expected to have special knowledge or experience
Safeguard the assets of the charity
•
•
•
www.pkf.co.uk
Reputation: A charity must recognise that its name and
reputation are valuable
Risk management: Trustees are expected to identify risks
and decide how they should be managed
Guard against fraud and mismanagement: Trustees should
put proper financial procedures in place
Trustees and payment
•
•
•
Trustees can recover reasonable out of pocket expenses
Except in certain specified circumstances - Trustees can’t
receive any benefit from a charity
Exceptions:- Charities Act 2006
- Authorisation from the Charity Commission or the court
•
www.pkf.co.uk
CC 11 - Trustee expenses and payments
Trustees’ expenses and payments
•
www.pkf.co.uk
Recommendations:
– Written policy for expenses
– Complete expense claims with receipts
– Clarify any fixed payments
– Set caps for e.g. hotels, travel
– Include senior employees and volunteers
– Ensure communicated and part of induction
– Set authorisation limits and rules
– Minimise use of cash
– Mileage – use HMRC rates to avoid tax / NI issues
Trustees must act in the best interests of the charity
•
•
Trustees should not allow their personal interests or views to
override this: they must exercise independent judgment
Conflict of interest rules mean that charity Trustees have:
- A duty to avoid a conflict of interest situation
- A duty to disclose a potential conflict of interest
- A duty to manage an actual conflict of interest
www.pkf.co.uk
Managing conflicts
www.pkf.co.uk
•
Declaration Form on appointment
•
Annual Review
•
Maintaining a register of potential conflicts of interest
•
Declaration at meeting
•
Quorum
•
Remaining and speaking
•
Voting
Liabilities of Trustees – Breach of Trust
•
•
•
www.pkf.co.uk
Any liabilities that they incur as trustees can normally be
met out of the charity’s resources if trustees act
• Prudently
• Lawfully
• In accordance with the governing document
If trustees act imprudently, or are otherwise in breach of the
law or the governing document, trustees may be personally
responsible for liabilities of the charity or for making good
any loss
The Charity Commission has powers to take proceedings in
court for the recovery, from trustees personally, of funds
lost to charity as a result of a breach of trust by the trustees
Trustee indemnity insurance
•
•
•
•
www.pkf.co.uk
Protects Trustees against claims made against them
personally
Can cover
-
breach of trust;
breach of duty; or
negligence committed in capacity as trustee
Policy cannot cover
- For criminal fines or penalties;
- Trustees costs in defending criminal proceedings if he
or she is convicted of fraud, dishonesty or reckless
conduct; or
- Where the liability results from a deliberate disregard
of the interests of the charity
CC49 Charities and insurance
Charity Commission guidance
•
•
www.pkf.co.uk
Charity Commission : www.charitycommission.gov.uk
CC3 – The Essential Trustee : What you need to know
•
•
•
•
CC10 – Hallmarks of an effective charity
•
•
CC30 – Finding new Trustees
•
•
•
Easy Read guidance – Being a Trustee
CC11 – Trustees expenses and payments
CC19 – Charities and reserves
CC26 – Charities and Risk Management: A guide for trustees
CC36 – Changing your Charity's Governing Document
Protecting charities from harm – an online trustee toolkit
Reporting Serious Incidents – Revised guidance for trustees
(December 2012)
Useful websites
•
NCVO : www.ncvo-vol.org.uk
:www.ncvo-vol.org.uk/governanceandleadership
www.pkf.co.uk
•
ACEVO : www.acevo.org.uk
•
Charity Finance Group : www.cfg.org.uk
What are the hallmarks of an effective charity?
What are the principles of good governance?
www.pkf.co.uk
An effective charity
•
Is clear about its purposes and direction
– Uses clear purposes, mission & values to direct its work
•
Has a strong board
– right balance of skills & experience; acts in the best interests of the
charity and beneficiaries; understands its responsibilities, with systems
allowing it to exercise them
•
Fit for purpose
– Structure, policies & procedures enable charity to achieve its purposes
& mission and to deliver its services efficiently
•
•
Learning and improving
Financially sound and prudent
– in a transparent and understandable way
•
Accountable and transparent
(CC10 - Hallmarks of an effective charity)
www.pkf.co.uk
Recruitment of Charity Trustees
•
•
www.pkf.co.uk
Consider balance of skills on the Trustee Board
Good practice for new Trustees to confirm that they are
legally qualified to be a Trustee (e.g. not convicted of an
offence involving dishonesty or deception, undischarged
bankrupt)
•
Proper induction
•
Sign Trustees Code of Conduct
What does a successful Board look like?
Some thoughts:
•
•
www.pkf.co.uk
Provide social forums for board members to get to know each
other
Make sure everyone has easy access to organisational
documents
•
Make processes transparent
•
Coach individuals to voice concerns in a constructive way
•
Distribute leadership across the board
•
Provide opportunities to share accomplishments
•
Provide opportunities to share concerns with the Chief Executive
•
Have ongoing communications
Engage your board members
•
•
•
•
•
www.pkf.co.uk
Mine the rich experience of your board members: utilise
strengths and skills
Encourage lively and challenging discussions
Clarify roles and responsibilities of the board collectively and
individually
Be clear about expectations associated with board
membership
Clarify the level of time commitment required for board
membership and take attendance at meetings seriously
Governance
“The systems and processes concerned with
ensuring the overall direction, effectiveness,
supervision and accountability of an
organisation.”
(Governance of Voluntary Organisations,)
www.pkf.co.uk
Key principles of good governance
•
•
Understanding of role
Ensuring delivery of
organisational purpose
•
Working effectively as
individuals and a team
•
•
•
www.pkf.co.uk
Exercising effective control
Behaving with integrity
Being open and accountable
Charity Commission Guidance
Big Board Talk – Updated December 2012
15 questions trustees need to ask
Checklist is organised into 4 broad areas:
• Strategy – opportunities and risks
• Financial health
• Governance
• Making best use of resources
www.pkf.co.uk
Relationship with The British
Academy as a funder
www.pkf.co.uk
The British Academy
Is:
•
•
established by Royal Charter and
a registered charity
– purposes: education/training, arts/culture
The Council Members/Trustees are therefore
subject to:
•
UK charity and trust law
The British Academy is governed by its Charter and Byelaws
www.pkf.co.uk
What is the British Academy for…?
The objects of the Academy are:
“… the promotion of the study of the
moral and political sciences,
including
history, philosophy, law, politics and economics,
archaeology and philology.”
For the benefit of the public
www.pkf.co.uk
How does it achieve this mission today?
“The
fundamental purpose of the Academy is: to inspire,
recognise and support excellence and high achievement in
the humanities and social sciences, throughout the UK and
internationally, and to champion their role and value”
Fellowship
– takes a lead in representing humanities and social sciences
Learned society
– fosters and promotes the full range of work that makes up the
humanities and social sciences
Funder
– supports excellent ideas, individuals and intellectual resources
in the humanities and social sciences
National forum
– supports a range of activities and publications which aim to
stimulate curiosity to inspire and develop future scholars,
encouraging appreciation of the value of these disciplines.
www.pkf.co.uk
Your relationship with The Academy
www.pkf.co.uk
•
Compliance within the terms and conditions of the grant
•
Funds spent on the purposes given for
•
Effective stewardship of those funds
Charity reporting and accounting
requirements
www.pkf.co.uk
Charity reporting by trustees
•
•
•
Legal framework: SORP 2005, Charities Act 2011, Companies Act
2006, your governing document
Administrative details
Structure, governance and management
–
–
–
–
•
•
•
•
•
•
www.pkf.co.uk
recruitment/appointment of trustees
induction/training
how decisions are made
risk statement
Objectives and activities
Activities described linked to Statement of Financial Activities
Policies (for reserves, investment and grants) and linkage to risk
statement
Achievements and future plans
Give good news, and bad
Public benefit
Public benefit
Charity trustees public benefit duties
Charity trustees must:
• Ensure that they carry out their charity’s aims for the
public benefit
• Have regard to guidance published by the charity
commission on public benefit; and
• Report on their charity’s public benefit in their Trustees
Annual Report.
•
www.pkf.co.uk
Revised guidance expected early 2013
Serious incident reporting – Dec 2012
• Serious incident reporting
– Updated guidance from the Charity Commission
– Trustees have a legal duty to report
– Trustees should report on a timely basis (i.e. not wait
until annual return)
– Updated summary of what is a “serious incident”
• Significant financial loss
• Serious harm to beneficiaries
• Misuse of charity funds
• Illegal activity involving the charity
• Other “significant” non-compliance
– If in doubt, trustees should report
– Often CC/OSCR take no additional action where
trustees can demonstrate resolution
www.pkf.co.uk
Charity accounting
•
•
•
•
•
•
www.pkf.co.uk
Legal framework: SORP 2005
Statement of Financial Activities (SoFA)
Charitable income and expenditure linked through activities
(and linked to trustees’ report)
Balance sheet
Accounting policies
Transactions with trustees (related party transactions)
Heritage assets –Financial Reporting Standard 30
•
•
•
•
•
www.pkf.co.uk
Applicable for years ending after 31 March 2011
Greatly increased disclosure
– Five year summary
– Management of assets
Assets should be capitalised where possible
– Donated assets
– Relaxed valuation requirements
Where assets are excluded:
– Must be able to justify it
– Obtain justification for audit file
– Explain in financial statements
Currently capitalised assets must remain on balance sheet
Heritage assets – five year summary
2011
2010
2009
2008
2007
£'000
£'000
£'000
£'000
£'000
Additions
Purchases
20
100
15
1,205
340
Donations
100
40
-
12
-
Total
120
140
15
1,217
340
Carrying value of sold
assets
-
30
-
-
605
Sales proceeds
-
47
-
-
1,350
Impairment recognised in
period
-
-
-
68
-
Distinguish between transactions reported in balance sheet and
those not included
If earlier information not available, give current and prior year.
Build up to five years by 2014.
www.pkf.co.uk
Taxation
•
Charities do pay tax – or do they??
– Direct tax
• Non primary purpose activities, including trading
– VAT
– Property transactions
•
•
•
www.pkf.co.uk
Trading subsidiary
Tax emerging issues
– Real time information
– Updated Gift Aid forms
– Small Charitable Donations Bill
– Charities Online
Ask your professional advisors if you have any queries
Future of UK GAAP – common questions
• “I’ve heard that charities will be adopting
IFRS in the near future. When is this
happening?”
• Key point: Only entities currently required to
adopt IFRS will (continue) to be required to do
so in the future.
• Other entities will use FRS 100, 101, 102 (new
UK accounting standards) or FRSSE (where
currently permitted)
– FRS 102 broadly based on IFRS for SMEs but is not an
international standard
• Effective date is periods commencing on or
after 1 January 2015
www.pkf.co.uk
Future of UK GAAP – common questions
• “Will there still be a charities SORP?”
• Yes, the FRC have stated that there will be a
continuing need for SORPs in the NFP sectors
(charities, RSLs, education)
• All SORPs are undergoing or about to
undergo a redraft to take account of the new
requirements
• Expected consultations in 2013
www.pkf.co.uk
Future of UK GAAP – common questions
• “What are the changes?”
• FRS 102 is based in principals consistent with
IFRS but significant accounting options currently
allowed under UK GAAP continue to be allowed
• Some debates on-going regarding:
– donated stock : likely to be permitted to account for
donated stock on sale of the stock and not on receipt
– restrictions vs performance conditions : some
conflicting information/confusion in current draft
– merger accounting : permitted for PBEs
– accounting for pension scheme arrangements : losses
and DB schemes
www.pkf.co.uk
New Annual Return
• New Annual Return
– Updated to reflect the results of a public consultation
– additionally will be asked
• if the charity is registered for Gift Aid;
• whether the charity owns or leases any land or
buildings; and
• whether any of the charity’s land or buildings are used
for the charity’s purposes.
– Meanwhile, previously voluntary questions are now
mandatory
• on overseas activities; and
• the number of volunteers.
www.pkf.co.uk
Good financial management
indicators for Trustees in the
current economic
environment
www.pkf.co.uk
Some wise advice
“It is not the strongest of species that
survives, nor the most intelligent, but the
one that is most responsive to change.”
Charles Darwin
www.pkf.co.uk
Good financial management indicators for trustees?
www.pkf.co.uk
•
Cashflow
•
Going concern
•
Scenario planning
•
Internal controls – fraud risk factors
•
Reserves policies
•
Signs of operational stretch
•
Changing risks
Cashflow
•
•
•
Organisations fail through lack of cash, not lack of operating
surplus / reserves
Also need to be aware of the unrestricted / restricted cash
split
What information are your trustees receiving on cashflow?
– How regularly?
– Period covered?
– Are the key variables and cashflow risks clear?
– Cashflow management processes?
•
www.pkf.co.uk
All organisations need a closer control over cash in difficult
times; ensure these basic processes are in place and under
control in your charity
Going concern issues
•
•
•
•
•
•
www.pkf.co.uk
Auditors looking very carefully at the robustness of going
concern assumptions, operational plans and supporting
evidence (at audit planning and completion)
Under auditing standards – duty lies first with the trustees to
satisfy themselves over the going concern basis
One year from the date of signing the accounts, not the year
end
Cashflow is key – minimum of 12 months from signing split
across restricted and unrestricted funds
Potential for trustees to be in breach of trust where using
restricted funds for unrestricted purposes. Review your net
asset funds note
Have you seen all the evidence you need? Letter of
Representation – are your senior management team happy for
you to sign it?
Scenario planning
•
www.pkf.co.uk
Questions for trustees:
– What scenario planning has taken place in your
organisation?
– Who was involved?
– How often is it renewed?
– Balance of external / internal information used?
– Conservative / wild and whacky scenarios?
– Is it clear what action needs to be taken and when in
each case?
– How will you know which scenario is panning out and
therefore when actions need to be triggered?
Internal controls – fraud risk factors
Risk of fraud is heightened in times of economic downturn:
•
•
•
•
•
•
Controls over company credit cards
Expenses policy – self certification at the top?
Access to internet banking and controls over payments
(including payroll)
Duplicate payments & dummy invoices
Fraudulent changes to supplier details (and collusion)
Controls over access to systems by leavers (watch your security
over data)
Many frauds are not complicated; they are perpetrated at a
basic transactional level and can be guarded against by good
controls and by all staff being alert for the signs of a potential
fraud
•
www.pkf.co.uk
And the typical fraudster is?
Fraud risk
•
www.pkf.co.uk
Questions for trustees:
– Do you have a clear strategy in place to reduce fraud
within your organisation?
– Do you measure and monitor the risk and the cost of
fraud in some way?
– Is there a clear counter fraud culture in place within the
organisation?
– Is there a clear whistle blowing policy in place?
– Are firm, rapid actions taken if fraud is discovered?
– Is detection and prevention of fraud built into controls,
systems and processes?
– Do fraud issues get discussed at board level?
– Do you periodically assess the effectiveness of your
approach to fraud?
Reserves policy
•
•
•
www.pkf.co.uk
Why do charities hold reserves?
– to fund working capital
– to fund unexpected expenditure, for example when
projects overrun or unplanned events occur
– to fund shortfalls in income, when income does not reach
expected levels
Current reserves level – what are your free reserves?
– Exclude those that cannot be turned into cash quickly
e.g. fixed assets
– Exclude restricted funds
What reserves does your charity need i.e. what are your
charity’s rainy days?
Reserves policy (continued)
Questions for trustees:
•
•
•
•
•
•
www.pkf.co.uk
When did you last revisit your reserves policy?
Does it remain appropriate to your charity’s changing needs?
Is it clear how you plan to manage any gap between current
reserves levels and reserves targets?
How often do reserves levels get discussed at trustee
meetings?
Are the links to the risk register and your strategic direction
clear and well understood?
Have a good look at your restricted funds – can you use
them better whilst complying with their terms and conditions?
Signs of operational stretch
•
•
•
Change management + keeping the show on the road =
potential operational stretch
Your senior management team are key; they need to be
supported and challenged – balance is important
How can you address operational overstretch?
– Just do the important stuff
– Postpone less important things
– Do things differently
– Get more resources
– Use trustees & volunteer skills and commitment
•
•
www.pkf.co.uk
Watch out for the warning signs
Discussions with auditors
Changing Risks
•
www.pkf.co.uk
Questions for trustees:
– When did you last see your risk register?
– Does it reflect the key risks the organisation now faces?
– Is it clear what the key risks are, how they are being
managed and how they are being monitored?
– How often do trustees receive a report on organisational
risk?
– What actions are taken when a heightened risk is
identified?
– Who is scanning the horizon – is anyone looking across
sectors?
Risks and the current Economic
Environment
PKF/CFG 2012 Annual Risk Survey
•
•
•
•
•
•
•
•
www.pkf.co.uk
Assessments of value for money are changing
Sector improvements are being held back by resource
limitations
There is opportunity for better performance management
processes
Significant change is planned in premises holdings
Improvements in procurement are being sought
Investment return remain a major concern
Fraud detection is increasing but could be improved
Concerns over funding are still being identified as charities
biggest risk
Keep on your radar
www.pkf.co.uk
•
Potential Conflicts of Interest
•
Regulatory requirements
•
Cashflow forecasts – split between funds
•
Robustness of budgets, forward strategic plans
•
Signs of Management stretch
•
Use of restricted funds- are you using them effectively?
•
Bribery Act – Compliance Toolkit updated
•
Local Laws and Regulations
•
Foreign Exchange Rates
•
Stock and property values
Keep on your radar
•
www.pkf.co.uk
Strength of the internal control environment and risk
management procedures. When things change the routine
can be overlooked and internal controls weaken
•
Fraud risk – proven fact that the likelihood of a fraud increases
during a recession (internally and externally)
•
Ensure your tax planning is as effective as possible – new
changes all the time – especially on the VAT front. Increase in
PAYE Inspections
•
Charity Commission website, sector umbrella groups and
charity specific publications
•
Remember there are lots of opportunities out there (even if it
is not always easy to find)
Keep on your radar
www.pkf.co.uk
•
Changing operational and regulatory environment – are
opportunities as well as challenges
(VAT, Real Time Information, auto - enrolment are good
examples)
•
When things change – the routine can be overlooked and
internal controls can weaken
•
Are our gift aid claims up to date? – easy money sitting there
for you to reclaim
•
•
What are others doing across sector(s) – can this benefit us?
Remember there are a lot of opportunities out there for your
organisation (even if not always easy to find)
To sum up – some key messages
www.pkf.co.uk
•
•
Ask the right questions – even if they are difficult ones
•
Take advice if you need it – use someone as a sounding
board
•
Be aware of the risk of management stretch – remember
somewhere along the line it will always impact on the finance
team
•
•
Identify the “must do’s” and get those right
Trustees may need to challenge the sacred cows and
previously accepted wisdoms from management
Keep asking – is there a way we can use the assets and
resources currently employed in a better way?
A final thought…
“If you do what you’ve always done,
you’ll always get what you’ve always got.”
Anthony Robbins
www.pkf.co.uk
Breakfast seminar
It's never too early to get technical
The London office will be holding a breakfast seminar on
Tuesday 29th January 2013. The seminar will provide a
legal and technical update on topics including UK GAAP
and speakers will include myself, Sarah Campbell, Rob
Frost and guest speaker Anne-Marie Piper, Head of
Charities at Farrer & Co.
Further information can be found on the PKF website
under events.
If you think this seminar will be of benefit to any of your
trustees or management or if you would like to come
along, please inform Rena Jansari (020 7065 0419).
www.pkf.co.uk
Questions?
www.pkf.co.uk
Contact us
•
Ian Mathieson
ian.mathieson@uk.pkf.com
020 7065 0399
•
Julia Poulter
julia.poulter@uk.pkf.com
020 7065 0694
PKF (UK) LLP
Farringdon Place, 20 Farringdon Road, London EC1M 3AP
www.pkf.co.uk