Having the right financial controls in place is one of the key factors in managing how a charity handles money and reduces the risk of loss.
If a charity has established the proper checks and procedures, it is much easier for them to safeguard their assets, identify and manage risk, meet any legal duties and ensure the timely and accurate preparation of financial information.
It is recommended that a charity reviews their internal financial controls at least once a year.
Key controls for charities
Here are just some of the internal financial controls that all charities should have in place
- Trustees are given regular information about the charity’s financial performance;
- Financial performance is discussed at each trustee meeting;
- Appropriate accounting records are maintained for all transactions;
- The charity’s accounts comply with the relevant legal requirements;
- An annual report is prepared and accounts which are formally approved by trustees at an annual meeting;
- Controls are understood and followed by everyone within the charity; and
- The annual report and accounts are filed on time with the Charity Commission.
Controls to mitigate risk
All charities are required to have some level of financial controls in place, however the type and level of control varies depending on the nature of the charity and its size and location.
Charities should always seek professional advice if they are not sure what controls are applicable for them.
It is helpful to determine the types of financial risks a charity could be exposed to make sure the appropriate controls are in place to lessen their threat.
Examples of financial risk include
- Inaccurate and/or insufficient financial information;
- Inadequate reserves and cash flow;
- Dependency on limited income sources;
- Inadequate investment management policies; and
- Insufficient insurance cover.
To help charities check their financial controls, the Charity Commission has published new guidance – highlighting the important role such controls have on protecting resources.
The new guidance includes
- An updated checklist to help charities put financial controls into practice;
- Managing the risks associated with fundraising and holding public collections; making payments to related parties; operating internationally and accepting hospitality; and
- Information on issues that were not initially relevant when the previous guidance was issued, including using mobile payment systems and the treatment of cryptoassets.
According to the Department for Science, Innovation and Technology, 24% of charities experienced a cyber-attack in the last 12 months – the full 2023 survey can be found here.
The alarming rise in cyber security breaches highlights the value of having proper controls in place to handle donations of cryptoassets and the use of mobile payment systems such as Google Pay and Apple Pay.
Internal financial controls are essentially invaluable checks and processes that enable a charity to safeguard their financial assets and meet their legal responsibilities. Should you have any questions on internal financial controls, please get in touch and we will be happy to help.