The Government has updated its guidance for charity trustees. The new guidance provides charities with greater clarity on what they need to do to ensure they commission genuinely independent examinations.
Why has the guidance been updated?
Recent reports from the Charity Commission have highlighted the serious problems that can arise when charities rely too heavily on their own trustees for external scrutiny. Charity Commission inquiries into the Cup Trust and Helping Hands for the Needy, for example, uncovered financial misconduct by trustees and resulted in both organisations having their charitable status revoked.
The Charity Commission’s annual surveys of the quality of charity accounts have indicated that some auditors and examiners are failing to recognise significant shortcomings in charity accounts. It found that three quarters of charities with incomes of over £1million, and fewer than half of smaller charities, met the external scrutiny benchmark.
The two main reasons they failed were incomplete reporting of related party transactions and failure to provide a separate summary income and expenditure account.
Through the new guidance, the Charity Commission is placing greater reliance on charity accounts undergoing thorough external checks. It puts the responsibility on trustees to ensure the appropriate level of scrutiny is carried out.
What does the new guidance mean?
The Charity Commission states that every charity with an annual income of more than £25,000 must arrange for an independent person or accountancy firm to conduct an audit or independent examination of its accounts. The new guidance, which is outlined here, should help ensure trustees understand what an independent examination entails. The aim is to give the charity’s trustees and supporters assurance that the charity’s funds are properly accounted for.
Does my charity need an independent examination or an audit?
Trustees of charities with incomes of under £250,000 can choose to commission an audit or an independent examination of the charity. An independent examination is a less detailed process and involves specific matters being checked by an external examiner. Trustees must ensure a competent person, with the appropriate skills and expertise, carries out the examination. Trustees of charities with an income over £250,000 must check that the person is qualified and eligible for the role. Those charities with an income exceeding £1million, as well as those with incomes over £250,000 and assets worth over £3.26million, must have an audit.
How Thomas Westcott can help
In our experience many smaller charities have previously relied on trustees to carry out an independent review. Under the new guidance, this is no longer permitted. Charity executives and trustees need to be confident that their external scrutiny is objective and independent. The charity sector moves quickly, so you will need independent examiners who appreciate the nuances around what public impact means and who have the most up-to-date specialist knowledge. Our specialist Charity team at Thomas Westcott can help by offering a truly objective external review.
Charities need to strike a balance between getting value for money and protecting their reputation. Charities are extremely vulnerable and, as the recent Charity Commission reports show, they can disappear overnight.
Here at Thomas Westcott, we have a long-standing history of working with charities of all sizes across the South West and beyond. We understand the financial framework in which charities and not-for-profits operate. We have a track record of delivering training to trustees, helping them to understand their responsibilities, and we also have extensive experience of conducting external examinations and audits
There is no doubt that people are becoming more cynical about the charity sector and are seeking transparency. The onus is on charities to tell their story and be transparent about their finances – whether seeking donations from individuals, corporates or through grants.
By Adam Croney, Director