Charity trustees must engage with and use finance guidance from the regulator if they are to run their charities effectively, the Charity Commission tells charity trustees today.
The commission, the independent regulator of charities in England and Wales, has updated key finance guidance to show clearly that trustees are ultimately responsible for their charities’ finances, and respond to the need to make sure its guidance reflects the most current challenges facing thousands of charities.
Many charities face a daily challenge of making ends meet, balancing reduced income with potential increased demands or costs. Some inevitably end up becoming insolvent and need to wind up. With around 600 new charities being registered every month, competition for funding is very strong.
This climate makes the commission’s finance guidance essential reading. It covers the importance of having a good reserves policy and how trustees can manage their charities in charities in challenging circumstances. It says clearly what trustees must do, that they must understand the legal requirements, and know what they should do in terms of good practice.
The commission has also updated its popular ‘15 questions trustees should ask’ guide for trustee meetings to better reflect the current social and economic climate.
Sarah Atkinson, Director of Policy and Communications at the Charity Commission said:
We recognise that charities operate in a very challenging environment, with some charities heavily reliant on single sources of funding. So it is all the more important that trustees are in control of their charity’s finances. This means actively taking steps to manage their charity’s finances through regular monitoring, asking the right questions and getting professional help where needed. Donors and beneficiaries rightly ask questions about issues such as reserves, and want to understand why charities do or don’t have them. Reserves policies help tell that story clearly and demonstrate that trustees are aware of the real risks.
These guidance updates are designed to help trustees make the right call and support them, not to overburden them. That’s why there are also guides on how to set a good reserves policy for small and large charities. As regulator there is a limit on how much we can do as these are individual decisions for trustees to make. But these tools will help them manage any difficulties properly and with confidence.
The 3 sets of updated guidance are:
- Managing a charity’s finances: planning, managing difficulties and insolvency (CC12)
- Charity reserves: building resilience (CC19)
- Charity governance, finance and resilience: 15 questions trustees should ask
Managing financial difficulties
The commission recommends in its updated guidance that trustees review the charity’s financial position and its performance against budgets and future projections at least once a month, but the extent of the review will vary according to the size and stability of the charity. Proper analysis of financial trends and changes in budget predictions may help to assist early identification of financial problems.
Where their charity has to close, the commission expects trustees to have planned for an orderly shutdown. The guidance covers what is meant by insolvency, and what steps trustees should take if they believe they are insolvent, including getting good professional advice.
The reserves guidance confirms that there is no single level or even a range of reserves that is right for all charities. Any target set by trustees for the level of reserves to be held, or decision that there is no need for reserves, should reflect the particular circumstances of the individual charity. However trustees should not simply monitor their level of reserves annually, but keep them under review throughout the year. Where a charity hasn’t got the reserves it thinks it needs, it is exposed to greater risk and the commission expects the trustees to address this actively.
The updates to make the sets of guidance clearer and more streamlined come ahead of a full review of the guidance later this year.
Notes to editors
- The Charity Commission is the independent regulator of charities in England and Wales. To find out more about our work, see our annual report.
- To search for charities on our online register go to GOV.UK.
- Read more information on how the commission reports on its regulatory work.
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