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Findings from ICAEW and Charity Commission pilot project offering free reviews of financial controls and risk awareness to charities
About the project
In September 2011, ICAEW and the Charity Commission launched a joint pilot project offering 25 charities with income less than £5 million the opportunity to participate in a free review of financial controls and risk awareness by ICAEW members with experience in the sector.
These reviews provided an opportunity to charities to receive a free consultation by experienced practitioners on the charity’s policies, procedures and practices relating to internal controls and risk. The reviews covered general awareness and governance topics on strategy and planning, overview of risk awareness and management, internal financial controls, fraud and financial abuse management and information and communication (focusing on management accounts and financial performance rather than statutory accounts).
The reviewers and charities discussed and agreed the reports, mainly in Q1 2012. ICAEW collated the reports and the collective outcome of the reviews were discussed at a Reviewers Panel and have been summarised anonymously in a report.
More information on this project, including information sheets for charities and reviewers is available below.
Key findings
The report summarises key themes, trends and feedback from the reviewers and charities participating in the project. The findings were also presented at the Charity Commission’s public meeting on 24 May in Birmingham.
In summary, the key themes from the report are as follows:
Funding
There is a real concern over funding in all income bands taking part in the review. There was very little comment from the charities on merger, collaborations or shared services; although the reviewers felt that this should be the way forward for many charities with funding issues.
Governance
There was a general theme around the difficulties of charities attracting new trustees and specifically attracting trustees with the relevant skill base. Another general theme was that many trustees do not understand the financial reports that they receive and the reviewers thought that there needed to be a greater ownership of the report and accounts by the board of the trustees as a whole.
On a number of occasions there were comments about the lack or poor communication between the trustees and the senior management team and the reviewers generally believed that there was a tendency for charities to underfund the finance function of their charities both in terms of resources and people both at the board and the senior management level
Fraud Prevention Policies
Charities were, generally, weak in this area, in spite of readily available guidance by the Commission and sector bodies.
Advice and Guidance
Generally the reviewers felt that their charities had an awareness of the advice and guidance offered by the Commission. However there was criticism by the charities and indeed the reviewers as to the accessibility of the website to its users. Many commented on the need for proportionality of guidance in relation to the size of charity. The volume of information available is large and the smaller charities wanted to focus on key areas relative to their size as opposed to the complete panoply of requirements.
The reviewers suggested that some type of modular guidance based on the size of the charity would seem appropriate. Other reviewers thought that specific guidance for specific sectors would be helpful and that umbrella organisations could help in providing that guidance.
More case studies on the website would also be useful.
Conclusion
The main themes occurring from this pilot review are perhaps not that surprising. However, it does show that there is still substantial concern over the financial health of many charities in this current economic climate and the need to encourage a culture of mergers, collaborations and shared services. In terms of governance there are concerns about attracting new trustees and the financial awareness of those existing trustees.
In regard to advice and guidance from the Commission, the restructuring of the Commission’s website and a more streamlined approach to guidance to cater for different types and sizes of charities is a key message from the sector.