The Charity Commission issued updated guidance in respect of internal financial controls for charities in April 2023.
All trustees, management and everyone in your charity should follow your charity’s internal financial control procedures. It is really important that the trustees and senior management lead by example in this area. By doing so they will help embed a culture of financial responsibility within your charity.
Training
All trustees, staff and volunteers should be trained on your charity’s financial controls. This includes training on:
- procedures to identify and report known or suspected financial crime or abuse; and
- how to raise concerns about the conduct of trustees, senior managers or other
The types and levels of financial controls your charity needs will vary depending on your charity’s purpose, size and structure and where your charity operates.
All trustees should have access to clear, accurate and up-to-date financial information and your charity’s financial position and performance should be:
- a standing agenda item at trustee meetings; and
- sent to each trustee before the meeting.
Regular reviews
Regularly reviewing the charity’s financial position can help trustees check that your charity is operating as a ‘going concern’ and isn’t facing insolvency.
Whilst many charities will have a treasurer, it is worth remembering that the trustee body as a whole is responsible for your charity’s finances and therefore all trustees must understand their charity’s financial position and performance.
It is also important that there is segregation of duties in financial transactions. This means having a different person authorising a transaction to the person who made it. This can be difficult in smaller charities.
If there is a breakdown in your charity’s financial controls they should be recorded and other bodies may need to be notified depending on the type and level of the incident. A significant or potential loss to your charity’s money or assets would be a serious incident and must be reported to the Charity Commission. Failure to report a serious incident to the Commission may result in regulatory action.
Monitoring your controls
The guidance recommends an annual review of your charity’s financial controls to make sure they are still suitable and always performing a review after a significant financial loss or narrowly avoided significant financial issue, or if there is a significant change in how your charity operates.
Monitoring helps make sure that:
- all controls including the basic ones such as bank and other reconciliations are carried out
- everyone involved (staff and trustees) are aware of and are following the charity’s policies and processes, for example if they suspect there is a problem
- your charity complies with its authorisation and approval procedures
There is a useful summary of what controls may be needed when reviewing your charity’s internal financial controls, which can be found here.
A read of the full guidance is strongly recommended and can be found at here.
