Presentation on theme: "Briefing for Council Members of The British Academy’s Sponsored Institutes and Societies Ian Mathieson – Partner, PKF Julia Poulter – Senior Manager,"— Presentation transcript:
1 Briefing for Council Members of The British Academy’s Sponsored Institutes and Societies Ian Mathieson – Partner, PKF Julia Poulter – Senior Manager, PKF 23 January 2013Spend about 30 minutes on this briefing which is a part of the induction process for new Council members.Time for questions at the end
2 Introductions Ian Mathieson Audit Partner Julia Poulter Senior Audit Manager
3 Objective To give an overview of: Duties and responsibilities of a charity trusteeThe Hallmarks of an Effective Charity and Principles of Good GovernanceRelationship with the British Academy as a funderCharity reporting and accounting requirementsGood financial management indicators for trustees in the current economic environmentKeep on your radarGiving a brief overview of aspects of your responsibilities as charity trustees, including reporting and accounting requirementsAnd saying a little about the current topic of the Public Benefit requirement
4 The Charity Sector – putting the numbers into perspective Over 162,000 registered charities with total income of just over £58 billion*Charity Commission website (at December 2012)
5 The Charity Sector – putting the numbers into perspective Charities by Annual IncomeLatest published figures at 31 December 2012Annual income bracketNumber of charities%Annual income £bn£0 to £10,00069,48542.60.2300.4£10,001 to £100,00053,05632.61.8773.2£100,001 to £500,00020,01512.34.4537.6£500,001 to £5,000,0008,1155.012.21720.9£5,000,000 plus1,8311.139.70367.9 SUB-TOTAL152,50293.658.480100.0Not yet known10,4136.40.0000.0 TOTAL162,915Of the 162,000 registered charities with the Charity Commission, 1,831 have income over £5m (1.1% numbers) which account for 68% of the sector income.
6 Duties and Responsibilities of a Charity Trustee
7 A couple of maxims Trustees should: Govern and not manage Delegate but not abdicate
8 Trustee duties and responsibilities What is a Charity Trustee?Charity Trustees are the people who have the general control and management of a charity’s administration
9 Charity trustees’ duties Responsible for:Directing affairs of the charityEnsuring its solvencyDelivering the charity’s objectives for the benefit of the publicComplianceCharity law and regulationCharitable objects; governing documentOther applicable law and regulationTrustees must act with integrity, avoiding personal conflicts of interest or misuse of charitable fundsyou should check the charity’s governing document for provisions relating to conflicts of interestThat’s the corporate background – let’s start moving closer to home.What is being a charity trustee all about?You must be prepared to direct the affairs of the charity, but at the right level – strategic, not operational. To be effective in this role, you need a good understanding of what the charity does and sufficient (but not excessive) information about the results of operations – agreed key performance indicators for example.Trustees can, and should, delegate responsibility – to the executive or to committees; but they cannot abdicate their overall responsibilities. Schemes of delegation are best done in writing.Trustees need to ensure the solvency of the charity and make sure that the charity’s objectives are being delivered through a coherent strategy.
10 Charity trustees’ duties (cont…) Duty of prudenceEnsure continuing solvency of charityApply income to fulfil objects; using funds wiselyAvoid undue riskTake special care when investing or borrowing fundsDuty of careUse reasonable care and skillTake professional advice(if material risk or breach of duty)(CC3 - The Essential Trustee: What you need to know)All organisations these days have a plethora of laws and regulations to deal with, and you have a high-level responsibility to make sure they are complied with.One of the most common features of Charity Commission investigation reports is trustees not recognising conflicts of interest (or if they have recognised them, not dealing with them properly.
11 Trustees’ duties and responsibilities Summary:Charity’s assets are used only for charity’s purposesAct reasonably and prudentlyAct solely in the interests of the charityAvoid conflicts of interestAct collectivelyEnsure good governanceSafeguard assetsManage investments in accordance with the Trustee Act2000Set the policy and directionOversee implementationMonitor outcomes
12 Trustees’ duties and responsibilities Trustees must accept ultimate responsibility for everything the charity does:Trustees are responsible for the vision, mission and overall management of the charity. They are accountable if things go wrong.However, Trustees are able to and should delegate in certain circumstances.Trustees must comply with ground rules when delegating power.
13 Trustees have a duty to act collectively Decisions and responsibilities are shared, so all Trustees should take an active roleHowever, ALL Trustees are collectively responsible for decisions made by the TrusteesWhilst Trustees may have different roles (e.g. Chair) responsibility for decision-making still lies with the board as a whole
14 Trustee duties and responsibilities Trustees are responsible for the proper administration of the charity.They must make sure that:the charity’s assets and resources are used only for the purposes of the charitythe charity is run in accordance with its constitution, charity law and all other laws and regulations which affect its activities
15 Trustees’ duties and responsibilities Trustees to act reasonably and prudently in all matters relating to their charity:Trustees must “exercise such care and skill as is reasonable in the circumstances”The duty will be greater if a Trustee has (or claims to have) any special knowledge or experience, or if their business or profession means they can reasonably be expected to have special knowledge or experience
16 Safeguard the assets of the charity Reputation: A charity must recognise that its name and reputation are valuableRisk management: Trustees are expected to identify risks and decide how they should be managedGuard against fraud and mismanagement: Trustees should put proper financial procedures in place
17 Trustees and payment - Charities Act 2006 Trustees can recover reasonable out of pocket expensesExcept in certain specified circumstances - Trustees can’t receive any benefit from a charityExceptions:-- Charities Act 2006- Authorisation from the Charity Commission or the courtCC 11 - Trustee expenses and payments
18 Trustees’ expenses and payments Recommendations:Written policy for expensesComplete expense claims with receiptsClarify any fixed paymentsSet caps for e.g. hotels, travelInclude senior employees and volunteersEnsure communicated and part of inductionSet authorisation limits and rulesMinimise use of cashMileage – use HMRC rates to avoid tax / NI issues
19 - A duty to avoid a conflict of interest situation Trustees must act in the best interests of the charityTrustees should not allow their personal interests or views to override this: they must exercise independent judgmentConflict of interest rules mean that charity Trustees have:- A duty to avoid a conflict of interest situation- A duty to disclose a potential conflict of interest- A duty to manage an actual conflict of interest
20 Managing conflicts Declaration Form on appointment Annual Review Maintaining a register of potential conflicts of interestDeclaration at meetingQuorumRemaining and speakingVoting
21 Liabilities of Trustees – Breach of Trust Any liabilities that they incur as trustees can normally be met out of the charity’s resources if trustees actPrudentlyLawfullyIn accordance with the governing documentIf trustees act imprudently, or are otherwise in breach of the law or the governing document, trustees may be personally responsible for liabilities of the charity or for making good any lossThe Charity Commission has powers to take proceedings in court for the recovery, from trustees personally, of funds lost to charity as a result of a breach of trust by the trustees
22 Trustee indemnity insurance Protects Trustees against claims made against them personallyCan coverbreach of trust;breach of duty; ornegligence committed in capacity as trusteePolicy cannot coverFor criminal fines or penalties;Trustees costs in defending criminal proceedings if he or she is convicted of fraud, dishonesty or reckless conduct; orWhere the liability results from a deliberate disregard of the interests of the charityCC49 Charities and insurance
23 Charity Commission guidance Charity Commission :CC3 – The Essential Trustee : What you need to knowCC10 – Hallmarks of an effective charityCC11 – Trustees expenses and paymentsCC19 – Charities and reservesCC26 – Charities and Risk Management: A guide for trusteesCC30 – Finding new TrusteesCC36 – Changing your Charity's Governing DocumentEasy Read guidance – Being a TrusteeProtecting charities from harm – an online trustee toolkitReporting Serious Incidents – Revised guidance for trustees (December 2012)
25 What are the hallmarks of an effective charity? What are the principles of good governance?
26 An effective charity Is clear about its purposes and direction Uses clear purposes, mission & values to direct its workHas a strong boardright balance of skills & experience; acts in the best interests of the charity and beneficiaries; understands its responsibilities, with systems allowing it to exercise themFit for purposeStructure, policies & procedures enable charity to achieve its purposes & mission and to deliver its services efficientlyLearning and improvingFinancially sound and prudentin a transparent and understandable wayAccountable and transparent(CC10 - Hallmarks of an effective charity)The Charity Commission has set out some guidance on its view of what makes a successful charity, which are set out here.Every charity needs to consider from time to time whether it is doing as well as it should, and whether strategies and structures need review.One aspect that learned societies sometimes need to consider is whether the source of new trustees, ie the membership, gives access to all of the skills a charity board needs. If it does not, some means might need to be found to supplement the existing skill base – often through co-opting outside help on to committees, for example onto the Audit Committee.
27 Recruitment of Charity Trustees Consider balance of skills on the Trustee BoardGood practice for new Trustees to confirm that they are legally qualified to be a Trustee (e.g. not convicted of an offence involving dishonesty or deception, undischarged bankrupt)Proper inductionSign Trustees Code of Conduct
28 What does a successful Board look like? Some thoughts:Provide social forums for board members to get to know each otherMake sure everyone has easy access to organisational documentsMake processes transparentCoach individuals to voice concerns in a constructive wayDistribute leadership across the boardProvide opportunities to share accomplishmentsProvide opportunities to share concerns with the Chief ExecutiveHave ongoing communications
29 Engage your board members Mine the rich experience of your board members: utilise strengths and skillsEncourage lively and challenging discussionsClarify roles and responsibilities of the board collectively and individuallyBe clear about expectations associated with board membershipClarify the level of time commitment required for board membership and take attendance at meetings seriously
30 Governance“The systems and processes concerned with ensuring the overall direction, effectiveness, supervision and accountability of an organisation.”(Governance of Voluntary Organisations,)A word about governance – based on this definition; which is not the only one but which has the virtue of being succinct.
31 Key principles of good governance Understanding of roleEnsuring delivery oforganisational purposeWorking effectively asindividuals and a teamExercising effective controlBehaving with integrityBeing open and accountable
32 Charity Commission Guidance Big Board Talk – Updated December 201215 questions trustees need to askChecklist is organised into 4 broad areas:Strategy – opportunities and risksFinancial healthGovernanceMaking best use of resourcesWhat effect is the economic downturn having on your charity and its activities?Are you financially strong enough to sustain your operations?Do you know what impact the economic climate is having on our donors and support for our charity?Do you have any reserves?Have you reviewed your banking arrangements and investments?Have you reviewed your contractual commitments, for example office leases, rental agreements, equipment hire?Have you reviewed any contracts to deliver public services?If you have a pension scheme, have you reviewed it recently?How can you make best use of any permanent endowment investments?Are you an effective trustee body?Do you have adequate safeguards in place to prevent fraud?Are you making the best use of the financial benefits you have as a charity?Are you making the best use of staff and volunteers?Have you considered collaborating with other charities?Are you making the best use of your property?
33 Relationship with The British Academy as a funder
34 The British Academy Is: established by Royal Charter anda registered charitypurposes: education/training, arts/cultureThe Council Members/Trustees are therefore subject to:UK charity and trust lawThe British Academy is governed by its Charter and ByelawsIt is important to start with the constitutional document, not just because that sets out the objective for the charity, but also because charities can exist under a variety of different legal forms: limited companies, charitable incorporated companies, industrial & provident societies, simple trusts – and each type has particular characteristics and requirements.The British Academy is established by Royal Charter, which means that changing your constitution means an application to the Privy Council as well as the Charity Commission.It is also a registered charity, which not all charities are (for example, certain religious and educational entities are not registered).In your role as trustees, you are subject to UK charity and trust law, which simplifies matters for you. For example, if the Academy were a company, you would also be subject to Company Law.The British Academy itself is governed by its Statutes and Standing Orders, reproduced on your website
35 What is the British Academy for…? The objects of the Academy are:“… the promotion of the study of themoral and political sciences,includinghistory, philosophy, law, politics and economics,archaeology and philology.”The place to start as a charity trustee is, what is the charity for?Not, what has it become over time? But, what was it set up to do?The reason why this is vital as the starting point is that everything the Academy does must fall within its charitable objects. I will come back later to the consequences of entering into activities which are outside that primary purpose.So what is the British Academy for?Simple enough – promoting the study of the moral and political sciences – what the Charter actually says is on the slide.These are very wide objects, which is good from some points of view, but inevitably means that there has to be strategy adopted that translates the wide objects into achievable aims.The other aspect of what the British Academy is for, is the public benefit. You are not a private members’ club which studies these sciences, as a charity you are charged with promoting that knowledge for the public good.I mentioned earlier that BA was admitted as an educational charity. When we come onto Public benefit later on, the significance of that status will be mentioned again.For the benefit of the public
36 How does it achieve this mission today? “The fundamental purpose of the Academy is: to inspire, recognise and support excellence and high achievement in the humanities and social sciences, throughout the UK and internationally, and to champion their role and value”Fellowshiptakes a lead in representing humanities and social sciencesLearned societyfosters and promotes the full range of work that makes up the humanities and social sciencesFundersupports excellent ideas, individuals and intellectual resources in the humanities and social sciencesNational forumsupports a range of activities and publications which aim to stimulate curiosity to inspire and develop future scholars, encouraging appreciation of the value of these disciplines.Here is the translation of your wide objects into achievable strategy, in it’s four roles.To drill down further, your strategic priorities have four main headings:Ideas, Individuals and Intellectual ResourcesInternational EngagementCommunications and AdvocacyFellowship – se page 26 of 2009 Annual Report
37 Your relationship with The Academy Compliance within the terms and conditions of the grantFunds spent on the purposes given forEffective stewardship of those funds
39 Charity reporting by trustees Legal framework: SORP 2005, Charities Act 2011, Companies Act 2006, your governing documentAdministrative detailsStructure, governance and managementrecruitment/appointment of trusteesinduction/traininghow decisions are maderisk statementObjectives and activitiesActivities described linked to Statement of Financial ActivitiesPolicies (for reserves, investment and grants) and linkage to risk statementAchievements and future plansGive good news, and badPublic benefitThe framework for charity reporting is Statement of Recommended Practice 2005.This and the next slide list the matters which need to be included in the Report of the Council.As you see, they are simply stating for public consumption, the charities position on many of the areas I have talked about so far.
40 Public benefit Public benefit guidance Charity trustees public benefit dutiesCharity trustees must:Ensure that they carry out their charity’s aims for the public benefitHave regard to guidance published by the charity commission on public benefit; andReport on their charity’s public benefit in their Trustees Annual Report.Revised guidance expected early 2013Public benefit guidanceBig issue last year re fee-charging schoolsCharity Commission have updated their guidance as a result of the upper-tribunal decisionKey point – it is for the trustees to determine whether/how public benefit requirements are complied withCC/OSCR to intervene where serious issues existTrustees must therefore be able to demonstrate compliance
41 Serious incident reporting – Dec 2012 Updated guidance from the Charity CommissionTrustees have a legal duty to reportTrustees should report on a timely basis (i.e. not wait until annual return)Updated summary of what is a “serious incident”Significant financial lossSerious harm to beneficiariesMisuse of charity fundsIllegal activity involving the charityOther “significant” non-complianceIf in doubt, trustees should reportOften CC/OSCR take no additional action where trustees can demonstrate resolution
42 Charity accounting Legal framework: SORP 2005 Statement of Financial Activities (SoFA)Charitable income and expenditure linked through activities (and linked to trustees’ report)Balance sheetAccounting policiesTransactions with trustees (related party transactions)On this slide, I will just mention the need to report related party transactions with trustees.Rather than speak more to this slide, I will bring the issues closer to home.
43 Heritage assets –Financial Reporting Standard 30 Applicable for years ending after 31 March 2011Greatly increased disclosureFive year summaryManagement of assetsAssets should be capitalised where possibleDonated assetsRelaxed valuation requirementsWhere assets are excluded:Must be able to justify itObtain justification for audit fileExplain in financial statementsCurrently capitalised assets must remain on balance sheet
44 Heritage assets – five year summary 20112010200920082007£'000AdditionsPurchases20100151,205340Donations40-12Total1201401,217Carrying value of sold assets30605Sales proceeds471,350Impairment recognised in period68Distinguish between transactions reported in balance sheet and those not includedIf earlier information not available, give current and prior year. Build up to five years by 2014.
45 Taxation Charities do pay tax – or do they?? Trading subsidiary Direct taxNon primary purpose activities, including tradingVATProperty transactionsTrading subsidiaryTax emerging issuesReal time informationUpdated Gift Aid formsSmall Charitable Donations BillCharities OnlineAsk your professional advisors if you have any queriesThe Treasurer is the point man on financial matters but his fellow trustees are not off the hook!Amongst other tasks, an Audit Committee usually recommends the annual financial statements for approval by the full Trustees. This process gives assurance to other trustees but does not take away their responsibility to approve the accounts themselves.Some charities carry out trading which is considered to be primary purpose and therefore charitable. Other activities which are not considered charitable may need to be routed through a trading company, whose profits would be gift aided back to the charity, thereby avoiding a tax charge. VAT is a horrendously complex tax affecting charities and the only thing to be said on the subject here is that it is constantly changing through case law – charities with issues such as partial exemption for VAT purposes should consider reviewing with their advisors from time to time to see whether a more beneficial arrangement can be negotiated.
46 Future of UK GAAP – common questions “I’ve heard that charities will be adopting IFRS in the near future. When is this happening?”Key point: Only entities currently required to adopt IFRS will (continue) to be required to do so in the future.Other entities will use FRS 100, 101, 102 (new UK accounting standards) or FRSSE (where currently permitted)FRS 102 broadly based on IFRS for SMEs but is not an international standardEffective date is periods commencing on or after 1 January 2015
47 Future of UK GAAP – common questions “Will there still be a charities SORP?”Yes, the FRC have stated that there will be a continuing need for SORPs in the NFP sectors (charities, RSLs, education)All SORPs are undergoing or about to undergo a redraft to take account of the new requirementsExpected consultations in 2013
48 Future of UK GAAP – common questions “What are the changes?”FRS 102 is based in principals consistent with IFRS but significant accounting options currently allowed under UK GAAP continue to be allowedSome debates on-going regarding:donated stock : likely to be permitted to account for donated stock on sale of the stock and not on receiptrestrictions vs performance conditions : some conflicting information/confusion in current draftmerger accounting : permitted for PBEsaccounting for pension scheme arrangements : losses and DB schemes
49 New Annual Return New Annual Return Updated to reflect the results of a public consultationadditionally will be askedif the charity is registered for Gift Aid;whether the charity owns or leases any land or buildings; andwhether any of the charity’s land or buildings are used for the charity’s purposes.Meanwhile, previously voluntary questions are now mandatoryon overseas activities; andthe number of volunteers.
50 Good financial management indicators for Trustees in the current economic environment
51 Some wise advice“It is not the strongest of species that survives, nor the most intelligent, but the one that is most responsive to change.” Charles Darwin
52 Good financial management indicators for trustees? CashflowGoing concernScenario planningInternal controls – fraud risk factorsReserves policiesSigns of operational stretchChanging risks
53 CashflowOrganisations fail through lack of cash, not lack of operating surplus / reservesAlso need to be aware of the unrestricted / restricted cash splitWhat information are your trustees receiving on cashflow?How regularly?Period covered?Are the key variables and cashflow risks clear?Cashflow management processes?All organisations need a closer control over cash in difficult times; ensure these basic processes are in place and under control in your charity
54 Going concern issuesAuditors looking very carefully at the robustness of going concern assumptions, operational plans and supporting evidence (at audit planning and completion)Under auditing standards – duty lies first with the trustees to satisfy themselves over the going concern basisOne year from the date of signing the accounts, not the year endCashflow is key – minimum of 12 months from signing split across restricted and unrestricted fundsPotential for trustees to be in breach of trust where using restricted funds for unrestricted purposes. Review your net asset funds noteHave you seen all the evidence you need? Letter of Representation – are your senior management team happy for you to sign it?
55 Scenario planning Questions for trustees: What scenario planning has taken place in your organisation?Who was involved?How often is it renewed?Balance of external / internal information used?Conservative / wild and whacky scenarios?Is it clear what action needs to be taken and when in each case?How will you know which scenario is panning out and therefore when actions need to be triggered?
56 Internal controls – fraud risk factors Risk of fraud is heightened in times of economic downturn:Controls over company credit cardsExpenses policy – self certification at the top?Access to internet banking and controls over payments (including payroll)Duplicate payments & dummy invoicesFraudulent changes to supplier details (and collusion)Controls over access to systems by leavers (watch your security over data)Many frauds are not complicated; they are perpetrated at a basic transactional level and can be guarded against by good controls and by all staff being alert for the signs of a potential fraudAnd the typical fraudster is?
57 Fraud risk Questions for trustees: Do you have a clear strategy in place to reduce fraud within your organisation?Do you measure and monitor the risk and the cost of fraud in some way?Is there a clear counter fraud culture in place within the organisation?Is there a clear whistle blowing policy in place?Are firm, rapid actions taken if fraud is discovered?Is detection and prevention of fraud built into controls, systems and processes?Do fraud issues get discussed at board level?Do you periodically assess the effectiveness of your approach to fraud?
58 Reserves policy Why do charities hold reserves? to fund working capitalto fund unexpected expenditure, for example when projects overrun or unplanned events occurto fund shortfalls in income, when income does not reach expected levelsCurrent reserves level – what are your free reserves?Exclude those that cannot be turned into cash quickly e.g. fixed assetsExclude restricted fundsWhat reserves does your charity need i.e. what are your charity’s rainy days?
59 Reserves policy (continued) Questions for trustees:When did you last revisit your reserves policy?Does it remain appropriate to your charity’s changing needs?Is it clear how you plan to manage any gap between current reserves levels and reserves targets?How often do reserves levels get discussed at trustee meetings?Are the links to the risk register and your strategic direction clear and well understood?Have a good look at your restricted funds – can you use them better whilst complying with their terms and conditions?
60 Signs of operational stretch Change management + keeping the show on the road = potential operational stretchYour senior management team are key; they need to be supported and challenged – balance is importantHow can you address operational overstretch?Just do the important stuffPostpone less important thingsDo things differentlyGet more resourcesUse trustees & volunteer skills and commitmentWatch out for the warning signsDiscussions with auditors
61 Changing Risks Questions for trustees: When did you last see your risk register?Does it reflect the key risks the organisation now faces?Is it clear what the key risks are, how they are being managed and how they are being monitored?How often do trustees receive a report on organisational risk?What actions are taken when a heightened risk is identified?Who is scanning the horizon – is anyone looking across sectors?
62 Risks and the current Economic Environment PKF/CFG 2012 Annual Risk SurveyAssessments of value for money are changingSector improvements are being held back by resource limitationsThere is opportunity for better performance management processesSignificant change is planned in premises holdingsImprovements in procurement are being soughtInvestment return remain a major concernFraud detection is increasing but could be improvedConcerns over funding are still being identified as charities biggest risk
63 Keep on your radar Potential Conflicts of Interest Regulatory requirementsCashflow forecasts – split between fundsRobustness of budgets, forward strategic plansSigns of Management stretchUse of restricted funds- are you using them effectively?Bribery Act – Compliance Toolkit updatedLocal Laws and RegulationsForeign Exchange RatesStock and property values
64 Keep on your radarStrength of the internal control environment and risk management procedures. When things change the routine can be overlooked and internal controls weakenFraud risk – proven fact that the likelihood of a fraud increases during a recession (internally and externally)Ensure your tax planning is as effective as possible – new changes all the time – especially on the VAT front. Increase in PAYE InspectionsCharity Commission website, sector umbrella groups and charity specific publicationsRemember there are lots of opportunities out there (even if it is not always easy to find)
65 Keep on your radarChanging operational and regulatory environment – are opportunities as well as challenges (VAT, Real Time Information, auto - enrolment are good examples)When things change – the routine can be overlooked and internal controls can weakenAre our gift aid claims up to date? – easy money sitting there for you to reclaimWhat are others doing across sector(s) – can this benefit us?Remember there are a lot of opportunities out there for your organisation (even if not always easy to find)
66 To sum up – some key messages Ask the right questions – even if they are difficult onesTrustees may need to challenge the sacred cows and previously accepted wisdoms from managementTake advice if you need it – use someone as a sounding boardBe aware of the risk of management stretch – remember somewhere along the line it will always impact on the finance teamIdentify the “must do’s” and get those rightKeep asking – is there a way we can use the assets and resources currently employed in a better way?
67 A final thought…“If you do what you’ve always done, you’ll always get what you’ve always got.” Anthony Robbins
68 Breakfast seminar It's never too early to get technical The London office will be holding a breakfast seminar on Tuesday 29th January The seminar will provide a legal and technical update on topics including UK GAAP and speakers will include myself, Sarah Campbell, Rob Frost and guest speaker Anne-Marie Piper, Head of Charities at Farrer & Co.Further information can be found on the PKF website under events. If you think this seminar will be of benefit to any of your trustees or management or if you would like to come along, please inform Rena Jansari ( ).