Jamie Davidson of Henderson Loggie on the ten finance and governance issues all charities and voluntary groups must be aware of
At a time when funding is under pressure, the charity sector in Scotland is having to cope with additional cost implications of changing legislation, and rigorous scrutiny from regulators. It has never been more important that not for profit organisations prioritise governance issues if they wish to flourish, and being alive to taxation issues has become imperative. Organisations not on top of these issue are in danger of not meeting their charitable goals, or worse.
Henderson Loggie, with offices in Aberdeen, Dundee, Edinburgh and Glasgow, is a member of MHA, the UK-wide association of independent accountancy and business advisory firms which produced the report. The association’s not-for-profit specialists drew up the list of key challenges based on the issues raised regularly by its client base of over 1600 charity and NfP organisations.
The sector is dealing with continued challenges from numerous directions
Jamie Davidson
The 10 current Issues featured in the report are:
Governing documents – a charity’s governing document is quite possibly the most important document it will have. It is essentially a charity’s rulebook, which makes it crucial that this document is carefully thought through in the first place, is reviewed and kept up-to date over time and is held in a safe place.
Boards of trustees – the key to good governance is having a board composition that works for the organisation. There is no one size fits all position, but the report highlights a number of good principles to follow.
Risk management best practice – there is a requirement for trustees of charities over the audit threshold to include a risk management statement in their trustees’ annual report and in order for trustees to make this positive statement they will need to consider risks and their management in a formal way.
Annual return and internal controls – the annual return is an online form that includes key information about the charity, including details of its operations and finances. It is basically a check to ensure that a charity is safe to operate and charities now need to confirm whether or not they have reviewed their financial controls during the period being reported.
Fundraising– charities must consider the related tax implications and opportunities arising from the changing fundraising environment; Corporation Tax, VAT and Gift Aid issues should all be considered.
Gift Aid declaration – this can gross-up donations by 25%, but the charity must ensure the system is correctly administered and does not fall foul of HMRC’s rules. This can enable the charity to maximise its donated income, however, the new rules state that if a person pays insufficient tax, the responsibility for any shortfall lies with the donor and not with the charity.
Business rates relief and the risks – the most valuable tax relief for charities is business rates relief – Mandatory Relief 80% and Discretionary Relief up to 100%. This can present a series of challenges with complex issues and changing rules.
Key management personnel (KMP) – this term was introduced by SORP 2015. It is a term used by FRS 102 to define those who have authority and responsibility for planning, directing and controlling the activities of the reporting entity, directly or indirectly including any director (executive or otherwise). Charities need to decide who their KMP are and what issues relating to them need to be included in the financial statements.
Collaborative working or a full merger?– many charities are finding increasing pressure on their traditional sources of income. One way for charities to achieve efficiencies is for two or more charities to come together to fulfil their charitable purposes, however, there are a number of issues, risks and benefits that need to be considered.
Acquisition and disposal of property – property is a key asset for many charities, as with all assets trustees must make sure it is being put to the best use. Some charities may find it necessary to dispose of a property or put it to alternative use and there are a number of factors to consider.
Jamie Davidson is head of charities at Henderson Loggie. MHA is a member of the global network Baker Tilly International the world’s 8th largest network of independent accounting and business advisory firms, by combined fee income of its independent members.
