charityA round up of the accounting, finance, risk and tax matters facing charity trustees, finance directors and financial managers.

Click on the links below to read the full articles and briefing notes. We do hope you find the information and forewarnings contained within this edition useful.

If you would like to discuss any of the issues addressed in this edition, please get in touch with Adrienne Airle, Chief Executive or your usual contact at Martin Aitken & Co on 0141-272-0000.

Charity Accounting & Finance update: What's new?

Adrienne Airlie's presentation which she delivered earlier in the year at The Gathering 2018 is available to download. >Click here to download a copy.

VAT explained: Video series

In a series of videos, Iain Johnston, VAT specialist at Martin Aitken & Co provides trustees and finance managers with an overview of the key elements of VAT.

Financial & Tax Acuity Winter 2018-19

In this edition: UK Budget 2018 highlights, more requirements to fall on private landlords, news on no deal Brexit for VAT and can a revised tax system re-balance intergenerational fairness? >read more 

Scottish Budget 2019-20

The key announcements made by Derek Mackay MSP, Cabinet Secretary for Finance and the Constitution in his draft Scottish Budget for 2019-20 in the Scottish Parliament on 12 December 2018. >read the key highlights.

MTD for VAT: are you ready for 1 April 2019?

If you will be using the MTD system next year, you must use approved accounting software which will enable you to send regular updates to HMRC. You should check with your existing software supplier if they will be MTD ready, or get in touch with us to discuss your options. >find out more

Special Feature: Risk ManagementRisk 

Risk is dynamic and it impact can be instant - is your charity prepared? Our first article looks at the range of risks charities face and how to develop your mitigation strategy.

The second article: Managing Risk - Trustee duties looks at what a charity is required to do to ensure that it has the appropriate policies, controls and frameworks in place to manage, mitigate and protect the charity from risk. 

Risk is dynamic and its impact can be instant - is your charity prepared?

A quick glance at the some of the issues making the headlines in the charity sector over the past month underline the importance of having the appropriate governance and risk management procedures in place, irrespective of the size, shape or form of your charity.

“Six fold surge in charities reporting data security incidents to the Information Commissioner’s Office in the first quarter of this year.”

“The top 50 charities in the UK received 21,000 complaints last year.”

“JustGiving owes £500,000 to people who have paid fees on donations - and a huge apology."

Do all of your trustees understand risk and the range of potential risks that your charity could face? Do you have appropriate controls, strategies and action plans in place to address the identified risks? 

Risk is often seen as a relatively dry topic and is often a looked upon as bit of a finger in the wind area, which deals with issues and events that might never happen. Whilst this may be the case in the majority of situations, you only need to look at the reputational and financial damage that some charities have experienced, in some cases overnight, when issues have been brought to the fore and into the public consciousness. 

Risk is dynamic and its impact can be instant and charities and their trustees have to recognise this. Many people on charity boards are volunteers. But being a volunteer doesn’t equate to being an amateur. Many charities are receipt of public funds, and with that they are charged with ensuring that not only is the money put to good use, but the structures, controls and procedures that govern how that money is used will stand up to professional scrutiny and oversight. 

There are a wide range of approaches to document risk, implement controls and to MACO TREESfacilitate effective monitoring. There is good guidance available on the Charity Commission’s and OSCR’s websites. If you are not used to reading this type of guidance do ask your fellow trustees and auditor to help.

Putting in place robust financial controls will also help the charity to identify and manage risk. Some charities also find it helpful to set up a sub-committee for Finance & Risk. At these additional meetings trustees, charity employees, and their advisers can provide a detailed scrutiny of all areas.

On the other hand, if you operate a very small charity you should adhere to the principles of having the appropriate governance and controls in place. You don’t need to set up committees, but your trustees should be having regular meetings to review financial plans, performance against KPIs and any risks you may be facing e.g. number of complaints received – and any trends? Any data losses/breaches? Cashflow targets being missed? It is your duty as a trustee to challenge and find the time to look objectively at what you are being told.

If you are not sure, or if what you are being told doesn’t quite tally with your understanding, ask. If you don’t, then you may well find that you have the regulator, your funder(s) and/or an investigative journalist asking you the questions ‘the morning after’ and by this time it can very often be too late.

Managing Risk: Trustee Dutiesforesight

The duties of a charity trustee include ensuring that the charity meets its objects and safeguarding the charity’s assets and reputation. 

Safeguarding is a key word above, how can this be achieved without an understanding of the risks associated? Therefore not having a risk policy and processes for understanding, managing and developing strategies to mitigate risk, leaves the trustees short in terms of fulfilling their duties.

Risk management however is more than just creating a long list of risks that the charity faces and ranking them according to their likely impact and discussing them at quarterly board meetings.

Instead, Trustees must have a clear and unambiguous understanding of the level of risk that is acceptable to the charity in order to achieve its charitable purpose. Within this, Trustees should make a clear distinction between the charity’s risk appetite and risk tolerance.

This should be documented in a formal risk policy and this policy should be communicated and embedded throughout the charity so all staff, management and board members understand what needs to be taken into account when making decisions.

The policy should also clearly state who is responsible for monitoring and managing risk, how risks should be documented and reported, and to whom, and how new risks and emerging issues that could impact the charity and how these new threats and issues should be reviewed and assessed.

Do all of the charity’s trustees and senior managers understand risk and the range of potential risks the charity could face? 

As a starting point risks facing charities are split into five areas:

Risk Registersbooks library
There are a wide range of approaches to document risk and facilitate effective monitoring by a Board. In my experience, charity trustees are much more likely to engage with a high level analysis of the strategic risks if they are small (and focused) in number. A number of risk registers I’ve reviewed, whilst very comprehensive and detailed have often missed the strategic risks the charity faces. 

The following areas should be considered and examined by the Trustees when reviewing the impact of issues for the charity and assessing risk - Effectiveness, Financial Health, Brand & Reputation and Compliance.

Financial Controls
Putting in place robust financial controls will help the charity to identify and manage risk. The charity’s risk policy should refer to these controls and the boundaries that have been set to minimise and/or mitigate risk.

Some charities also find it helpful to set up a sub-committee for Finance & Risk. At these additional meetings Trustees, charity employees, and their advisers can provide a detailed scrutiny of all areas.

In summary, there should be an understanding of risk that permeates all levels in the charity, with the tone being set by the Trustees and the rhythm being constantly monitored and acted upon when necessary by managers, staff and volunteers.