Charity Accounting&

Resource MaximisationPresentation byRobin 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

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

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.

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Investment Advisory

Consultancy

Our Services

4 Commercial in Confidence

Payroll

Purchase Ledger

Sales Ledger

Debtor Management

Treasury Management

Credit Card &Debit Card processing

Management accounts

Direct Debits

Annual accounts

Collaborative Services

Efficiency & effective process reviews

Strategic financial planning

Business planning

Full cost recovery

Feasibility studies

Investment Manager Reviews

Performance monitoring

and

Reserves and Investment policy

Meeting the Charity’s financial aims

Tendering Investments

Education & Training

Sharing experience through market seminars

ACEVO / EPC / A4A / NCVO CASS Business School – guest lecture on Financial Management and Outsourcing

Shared Services

Transition Management

reporting

reviews

Client Views

5 Commercial in Confidence

Client Survey Why Charity Business

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

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

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 of

Serious Incidents

Financial Info

Standard Info

Return

MinOpinion

< £10k IE

£10k – £25k IE

£25k - £500k IE

£500k - £1m Audit

>£1m Audit

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Audit vs Independent Examination

Audit

• 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

Independent Examination• 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 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.

The Role of the Treasurer

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 - Reduce numbers of suppliers, cycles of payments;

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

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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

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

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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

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 NorthKembrey Park

SwindonSN2 8UH

Email: robin.middleton@charitybusiness.com Website: www.charitybusiness.com

Phone: 01793 554204General Enquiries: marketing@charitybusiness.com

Copyright Charity Business 2011

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