We’re taking a closer look at two of the Charity Commission’s December updates; firstly the regulator’s new guidance on managing financial difficulties as a result of cost-of-living pressures, and secondly the updated set of questions in the Annual Return.
1. New guidance: ‘Manage financial difficulties in your charity arising from cost of living pressures’
Trustees are responsible for effective financial stewardship
Many ICAEW members give their time to provide financial expertise to charities by taking on voluntary board roles as treasurers or, more informally, as a board’s financial expert. However, all charity trustees have a legal duty to act in the charity’s best interests and to manage resources responsibly and with reasonable care and skill. This involves asking the right questions so that informed decisions can be made. The Charity Commission’s ‘15 questions trustees should ask’ can be a useful tool to engage all trustees in discussing the financial resilience of charities and can be used for a ‘financial health check’.
Trustees with financial expertise can support the charity by raising understanding of the charity’s financial position and by frequently monitoring the cash flow implications of operations so that expected cash shortfalls can be prevented with cost reductions or a contingency fund.
The Charity Commission guidance outlines some of the options that charities in financial difficulties should consider to continue operations, including cost reduction, releasing funds, raising income from fundraising and trading activities, accessing fuel reliefs and introducing more cost-effective ways of operating. It also provides advice to charities that cannot continue to operate so that the charity’s best interest can be protected through an orderly closure.
What to do if your charity cannot continue to operate
The guidance reminds trustees to keep the best interest of the charity’s service users at the heart of its decision-making while meeting the legal requirements in the charity’s governing document. This includes financial considerations as the costs of closure will need to be built into plans. Professional advice is often critical to get this right and administrators may be needed to ensure that all the appropriate legal mechanisms are followed. However, the regulator’s guidance is a helpful starting point for discussions.
Most importantly, trustees need to consider the impact on the charity’s service users and implement a communication plan that allows all key stakeholders to understand the situation and know where they can access support in the future.
You can access the Charity Commission guidance here:
At our ICAEW Charity Conference in January, we will hear how the board of the Small Charity Coalition ensured that its core services and learnings were not lost by the charity’s closure. The session will also share more general guidance on managing financial distress and insolvency and will be co-presented by experienced insolvency practitioner Anthony Davidson (McTear Williams & Wood Ltd) and charity specialist audit partner Judith Miller (Sayer Vincent). Join us live or on demand by registering here.
2. Charity regulator launches new Annual Return question set reflecting sector feedback
The Charity Commission has published an updated set of questions as it launches its new 2023 Annual Return in response to feedback. The consultation attracted 456 responses. This includes a response from ICAEW, which is summarised here and published in full here.
Following the consultation, changes to the 2023 Annual Return (AR23) are:
- A reduction in the maximum number of questions that can be asked of charities to 49 (3 less than proposed in the consultation)
- The introduction of income thresholds for 5 of the new questions to further reduce the burden for smaller charities
- Reworded 19 questions to improve clarity and/or reduce resource and time required of charities where possible
- Substantial improvements in the glossary and guidance provided to help charities answer questions quickly and accurately
A new guide will be released in January to support charities as they set about compiling the new information required. The number of questions asked of all charities in AR23 will increase to 26 – however, this is a smaller increase than proposed in the consultation.
AR23 will apply to financial years ending on or after 1 January 2023. More information about the consultation outcome and the questions included in AR23 can be found here.