Charity Commission and ICAEW Financial Controls Review Project

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 Findings from the icaew and charity commission pilot project offering free reviews of financial controls and risk awareness to charitiesSize: 374 kbPages: 7report.

Key findings

The Findings from the icaew and charity commission pilot project offering free reviews of financial controls and risk awareness to charitiesSize: 374 kbPages: 7report summarises key themes, trends and feedback from the reviewers and charities participating in the project. The findings were also ICAEW and Charity Commission Pilot presentation slidesSize: 371 kbPages: 12presented 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.

Charity Commission’s response

The Charity Commission issued its response to ICAEW’s key findings from the review programme in January 2013. The Commission's response  to ICAEW’s report sets out a plan of action for addressing the main issues. These will include adding to or revising its current guidance, but also looking at encouraging the contributions of partner bodies, like the ICAEW, and the charitable sector itself.

Among the specific future actions outlined by the Commission are:

  • Improving accessibility to our guidance, and better signposting to that of other bodies, as part of the current upgrade of our website.
  • The possible development of a Trustees guide to using the SORP (Statement of Recommended Practice) and reporting, to accompany the version of the SORP to be introduced in 2015.
  • Exploring the feasibility of developing advice and guidance on topics tailored to some extent to specific sub-sectors, including in the areas of financial controls and risk management.
  • As part of its response, the Commission has already updated its Big Board Talk, which provides a practical checklist of the 15 questions Trustees need to ask when facing uncertain times.

Sam Younger, Chief Executive of the Charity Commission, commented:

"The ICAEW report provides an extremely useful glimpse into the issues charities face, and Trustees should make sure they read it. Whilst this review highlights a lot of positive work already going on, it also shows areas that can be developed. The review tells us that one of our priorities has to be to raise Trustees' awareness of the financial risks charities face, and to signpost them to resources that can help them, particularly to avoid fraud. Our upgraded website will aid this, as will our Partnership Strategy. As with all aspects of our Partnership Strategy, we also look to the sector to play its role in meeting these challenges."