{ CHARITY & BUSINESS }
TOP FIVE FINANCIAL ISSUES FACING CHARITIES Eileen Houghton, head of the Not for Profit group at Carpenter Box, highlights the top challenges facing third sector organisations in the south east.
A
usterity remains a fact of life for many local charities, but the likelihood of further reductions in public spending means that the burden being borne by the third sector will almost certainly increase in the future. However, by recognising where the key challenges lie, it will be possible for them to prioritise actions and optimise available resources.
The top issues for charities highlighted in a recent report by the MHA (an association of independent accountants) include:
1) Operating
that resources are being stockpiled rather than being applied for the charitable purposes for which they were received. However, to operate with nothing in reserve might be considered reckless, so charities must pursue a thoughtthrough reserves policy that supports the development of the organisation and its
“Further reductions in public spending means that the burden being borne by the third sector will almost certainly increase in the future”
a charity trading subsidiary: Commercial trading activities of charities need careful consideration to avoid potential difficulties. Generally, it is better to undertake these activities within the charity itself, taking advantage of exemptions available under charity and tax law. Where things go beyond the exemption limits, it may be more appropriate for activities to be undertaken through a wholly owned trading subsidiary. Although this is a tried and trusted structure that has long been accepted by the Charity Commission and HMRC (HM Revenue and Customs), there are some potential challenges to overcome.
activities, assists in the overall strategy, provides a buffer to manage unforeseen financial difficulties and demonstrates good management to supporters and other funders.
2) Determining
3) Fraud:
the appropriate level of reserves: Significant reserves can suggest
There are a number of reasons why charities can be susceptible to fraud.
These include the fact that a high level of confidence in the sector means people think it very unlikely; there can be a lack of adequate controls either because of limited resource or over reliance on goodwill of employees or volunteers, together with a reliance on a large number of volunteers. It is essential that trustees understand the risks to which the charity is exposed and where it might be vulnerable to fraud. They must then work to ensure that controls are designed accordingly and that proper training is given to trustees and staff.
4) Gift
Aid: This can “gross-up” donations by 25%, so the charity must ensure that all opportunities are taken, the system is correctly administered and does not fall foul of HMRC’s rules.
5) VAT:
This can present a series of challenges involving some complex issues. Charities must keep on top of matters such as exemptions and obtaining the relief available in order to be VAT efficient. If you would like a copy of the full report, or to discuss any of the issues raised above, contact Eileen Houghton or Fiona Ede on 01903 234094. www.carpenterbox.com
61