There have been some high-profile charity closures in the last few years, so it is vital that trustees make sure they have a handle on their charity’s financial management.
A charity’s continuing viability is a key responsibility for trustees. No charity can operate without money, so we have released a report exploring the financial resilience of charities in the UK and identifying wider lessons for those that may be experiencing financial distress.
One key finding was that trustees who take early, pragmatic steps to actively identify and manage financial difficulties will secure better outcomes than those who bury their head in the sand.
This may sound obvious, but it illustrates the crucial link between robust governance and financial soundness that is crucial to a charity’s success.
Good financial governance depends on trustees understanding their role and duties. Our entry level guidance, charity finances: trustee essentials, sets out the basics in three main areas: making the most of your finances, generating income and using other resources, such as staff and volunteers. It gives information about all the essentials that a regulator would expect trustees to be aware of and provides links to more detailed information about, for example, financial controls, fundraising and accounting requirements.
The guidance also looks at investments, reminding trustees that they must agree on the purpose of any investment, the level of risk and the length of time appropriate for their charity. Trustees must also consider the suitability of any investment for their charity: ensure that the investments directly further the charity’s aims and that any private benefit is incidental.
A charity’s reserves (or lack of) is another issue that we have found frequently arises in cases where a charity experiences financial difficulties or winds up.
The priority for trustees when drawing up a reserves policy should be their charity’s beneficiaries. Those whose health, welfare or even lives depend upon the charity continuing to provide services need to plan early for what will happen if they need to close. Setting aside reserves to provide for their care until other provisions can be made is one way to do this. Charities may also want to designate reserves for the extension or development of their service provision.
Charities can be criticised for both not keeping reserves at all and for keeping reserves that seem excessive, so it is important that the reasoning behind your policy is fully explained in the charity’s annual report. A charity should tell its own individual story and in doing so make it clear to supporters, donors and the public why it uses its income in the way it does. Our guidance charity reserves: building resilience gives more information about what charity reserves are, plus how to develop and report on a reserves policy.
This might seem like a lot to do, but our checklist charity governance, finance and resilience: 15 questions trustees can be a great way of deciding which financial issues need prioritising.
The responsibility of trustees is wide-ranging, however, and covers a number of issues beyond money. A charity’s staff and volunteers, for example, are a vital part of its work and as employers charities need to be aware of their legal obligations. This means keeping up-to-date with changes in legislation such as the new pension auto-enrolment requirements.
Trustees should also make the best use of staff by regularly reviewing what skills and experience are needed by the charity, as well as its recruitment methods, training and working conditions. Consider flexible working, equality and diversity issues and performance reviews. Whatever the arrangements, proper oversight and monitoring from trustees is vital.
Supporting and training volunteers is equally important, bearing in mind areas of legislation that might apply such as criminal record checks, data protection and health and safety. There should, for instance, be a written policy for claiming and approving expenses so that trustees and staff know what expenses volunteers can ask to have reimbursed from the charity’s funds.
Altogether, this guidance should help trustees protect their charity’s assets so that they can effectively deliver their charitable aims and show the valuable and visible results of their commitment to their charity, beneficiaries and supporters.
Jane Hobson is head of guidance and practice at the Charity Commission
Talk to us on Twitter via @Gdnvoluntary and join our community for your free fortnightly Guardian Voluntary Sector newsletter, with analysis and opinion sent direct to you on the first and third Thursday of the month.
Looking for a role in the not-for-profit sector, or need to recruit staff? Take a look at Guardian Jobs.
