The board has some key financial responsibilities. These include:
No matter how modest the resources of your charity or non-profit the board should agree a budget. The budget sets out the expenditure you plan to make and the income you expect to raise. The board needs to monitor on a regular basis the actual performance against the budget. Agreeing and monitoring the budget is a key way in which the board ensures that income and any assets the organisation may have are used to further the organisation's aims. Charity trustees have a duty to ensure that the organisation's resources are only used to further the charity's objects.
The board also needs to monitor its cashflow as it has duty to avoid becoming insolvent. It is advisable to hold reserves to meet your outgoings.
In addition to an annual budget, a longer term plan or strategy can build the organisation's financial strength. Many charities and non-profits rely on just a few sources of income, making them vulnerable if these dry up. It's a good idea for the board to explore how it can diversify its sources of income. Read more information here on the range of funding sources available to charities and non-profit organisations.
The board should ensure that there are proper controls in place to ensure money can be accounted for and not misused. The extent of the controls you need will depend on the size and scale of your organisation ranging from procedures for authorising expenditure and setting out who signs cheques through to a full financial handbook.
The Charity Commission has published guidance on internal financial controls.
The non profit or charity board needs good financial information to understand the financial health of the organisation. It is particularly important that you keep an eye on the cash flow to ensure your organisation is not in danger of becoming insolvent.
In addition to internal reports charities and non profits should also prepare annual external accounts. Once over a certain size charities are required to submit their accounts, which the public has a right to see, to the Charity Commission within 10 months of the end of the financial year.
If you are regulated by other bodies you may also have to provide financial reports to them for example to Companies House, the CIC regulator, or the FSA.
The Charities Commission requires charities with over £10,000 of income to have their accounts independently examined and audited.
- NCVO publish the Good Guide to Financial Management a practical for voluntary sector organisations, appropriate to organisations of all sizes, regardless of activity, remit or constitution.
- The Charity Commission has published guidance on Charity Reporting and Accounting, charity reserves and independent examination of charity accounts. There is also specific advice for small charities about holding reserves.