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Trust and confidence in the Charity Commission

22 August 2017

Plus: the Charity Commission’s annual report and the revised Charity Governance Code

The latest survey “Trust and confidence in the Charity Commission” reports consistent levels of trust both in the sector as a whole and also in the role of the regulator. Whilst this is the main theme, there is an interesting comment on financial pressures facing the sector. The report cites the following as headline financial pressures for charities:

  • a decline in public trust and confidence, and the impact on donations,
  • uncertainty relating to Brexit,
  • how new government policies will affect charity funding,
  • the challenges of adapting to new technology, and
  • generally, the lack of resources faced by both the sector and the Charity Commission

This makes for a useful, if depressing, little checklist when considering budgets and other financial plans!

The lack of resources is especially apparent in Okehampton, where the local press report that West Devon Borough Council has cut business rate relief for local museum charities, reducing their 20% discretionary business rates relief by half. Charities comment that this represents a real cost to them, and that local councils are often not consistent with each other. For charities operating around the country, this adds an additional element of uncertainty into financial planning.

In this environment, charities need to take advantage of every financial opportunity, so may want to take note of new guidance from HMRC. It relates to charities and social enterprises using the Social Investment Tax Relief (SITR) scheme in order to raise money to support their trading activity. The guidance sets out the eligibility criteria for organisations looking to apply: the main threshold being less than 500 employees and the maximum amount a charity can raise is currently £250,000 over three years.

The Charity Commission’s annual report has also been issued, and amongst other things it reminds trustees that charity accounts are indeed looked at by the regulator. The report says that during the year the Commission’s team of “accountancy experts” looked at 894 sets of accounts covering 607 charities. 380 of these were as part of proactive monitoring activities, and the rest related to regulatory casework.

The revised Charity Governance Code has also at last been published.  Although the focus is on governance generally, it has some specific financial implications. Looking at the requirements for larger charities, some of these financial aspects are highlighted below under the relevant section:

1. Organisational purpose

Charities need to have clear strategic plans, achieve financial sustainability and use resources to deliver pubic benefit.

2. Leadership

There are appropriate remuneration policies and practice, and relationships with subsidiary companies are properly established.

3. Integrity

Conflicts of interest are handled properly, and registers of interests, gifts and hospitality are maintained.

4. Decision-making, risk and control

The board manages financial and other risk, suppliers operate in line with the charity’s values, reserves and other financial policies are kept under review, and budgets and management accounts are in place and monitored. The board describes the charity’s approach to risk in its annual report, and oversees an effective process for appointing auditors. Where the charity has an audit committee, its chair has recent and relevant financial experience and the committee includes at least two trustees.  The board, or audit committee, has the opportunity to meet the auditors without paid staff present at least once a year.

5. Board effectiveness

The board has the right skill mix, and the annual report explains how the charity reviews or evaluates the board in a governance statement. The board can access independent professional advice, such as legal or financial advice, at the charity’s expense if needed.

6. Diversity

There is a budget to encourage board diversity: for instance by making sure that reasonable expenses are paid to all trustees.

7. Openness and accountability

Trustees publish the process for setting the remuneration of senior staff, and their remuneration levels, on the charity’s websites and in its annual report. There is also an expectation that charities will make a statement in the Annual Report about how the code is applied.

Article first published in Third Sector on 16 August 2017.