What is your charity audit process telling you?
If you're a trustee of a charity, the buck stops with you. That's why any concerns flagged in audits should be a signal for action, writes Page Kirk partner James Haywood, who specialises in the charity sector.
Taking on a governance role in a charity comes with quite a range of responsibilities, even if the organisation is relatively small. When you join the Board of Trustees, you'll be expected to keep a close eye on the operation and finances and will have a legal responsibility to ensure that you're complying with relevant regulations.
Audits can play a useful role in highlighting issues that need attention. While some findings might just be a matter of good practice or ensuring efficiency, others can be real red flags. Either way, you need to be on the case.
Governance and oversight
This is pretty fundamental. You absolutely must be discussing key risks at board level and have the minutes to prove it. Make sure that any potential conflicts of interest are properly declared and that trustees are appropriately appointed.
Financial and internal controls
It's very common in small charities for one person to take responsibility for income, payments and reconciliation, but it's not great practice. Make sure those bank reconciliations are done regularly and are independently reviewed. Auditors will also pick up on inadequate authorisation procedures, poor expense and payroll controls, as well as weaknesses in the handling of cash.
Financial reporting issues
This can be another tricky area. Are your restricted and unrestricted funds correctly allocated? Do you have a formal policy on reserves and, just as importantly, do you stick to it? Obviously it's critical to acknowledge any cash-flow problems too and potential over-reliance on one source of funding when considering your viability as a going concern.
Compliance and regulatory errors
Here, the dangers are submitting accounts or annual returns late to either the Charity Commission or Companies House, failing to follow the guidance of the Fundraising Regulator, or risking breaches of GDPR regulations.
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Audit Theme
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What Auditors Flag
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Why It Matters for Trustees
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Governance and oversight
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Risks not formally discussed, lack of minutes, undeclared conflicts
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Weak governance evidence and regulatory exposure
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Financial and internal controls
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One person handling income, payments and reconciliations
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Increased fraud and error risk
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Financial reporting issues
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Incorrect allocation of restricted funds, no reserves policy, cash-flow concerns
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Financial instability and potential misuse of funds
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Compliance and regulatory errors
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Late filing with Charity Commission or Companies House, GDPR breaches
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Reputational damage and regulatory sanctions
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The kind of patterns that auditors often flag will include informality (where processes exist but are not properly documented), lack of an audit trail and the concentration of responsibility in one individual. From a trustee perspective though, the most important things to watch – and the ones which carry the highest risk – are concerns over insolvency, misuse of restricted funds and serious reporting failures.
If you feel your charity would benefit from a partner with real expertise and experience in the charity sector, you can contact Page Kirk by email at enquiries@pagekirk.co.uk or by phone on 0115 955 5500.
Check out our charity page to find out how we help can help you.
Chairty and not-for-profit accountants
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