IInntteerrnnaall FFiinnaanncciiaall CCoonnttrroollss ffoorrCChhaarriittiieess

CCoonntteennttss PPaaggee

WWhhaatt iiss tthhiiss gguuiiddaannccee aabboouutt aanndd wwhhoo nneeeeddssttoo rreeaadd iitt?? 22

MMeeaanniinngg ooff wwoorrddss aanndd eexxpprreessssiioonnss uusseedd 33

AArree ccoonnttrroollss rreeaallllyy nneecceessssaarryy ffoorr cchhaarriittiieess?? 55

AAccccoouunnttiinngg rreeqquuiirreemmeennttss 66

TThhee cchhaarriittyy’’ss oorrggaanniissaattiioonnaall ssttrruuccttuurree 77

TTrruusstteeeess’’ lliiaabbiilliittiieess 77

DDeelleeggaattiioonn ooff ffiinnaanncciiaall dduuttiieess ttoo eemmppllooyyeeeessoorr ootthheerr ooffffiicceerrss ooff tthhee cchhaarriittyy 88

BBaassiicc iinntteerrnnaall ccoonnttrroollss 1100

Segregation of duties 10

Qualification of staff and advisers 10

Budgetary controls 11

CCoonnttrroollss oovveerr iinnccoommiinngg ffuunnddss 1111

Postal receipts 12

Public collections 12

Fundraising events 14

The Gift Aid Scheme 15

Banking and custody procedures 16

Checks of income records 17

CCoonnttrroollss oovveerr eexxppeennddiittuurree 1188

Controls over purchases 19

Payment by cheque 20

Payment by cash 22

Wages and salaries 23

Checks on expenditure records 25

1v1.1.0 - CC8

CCoonnttrrooll oovveerr aasssseettss 2255

Fixed assets for use by the charity 25

Investments 26

Bank or building society deposits 27

CCoonncclluussiioonn 2288

WWhhaatt iiss tthhiiss gguuiiddaannccee 1. This guidance sets out the basic internalaabboouutt aanndd wwhhoo financial controls which trustees need to

nneeeeddss ttoo rreeaadd iitt?? consider. It is expressed in terms appropriate forsmall charities which are not companies. Thesame principles apply to smaller charitablecompanies. This guidance can also form aframework for larger charities to consider theircontrols.

2. This guidance does not aim to be anexhaustive list of controls and we recognise thatnot all the controls mentioned will be applicablein every type of charity. We recommend thatevery trustee reads this guidance in conjunctionwith our guidance TThhee EEsssseennttiiaall TTrruusstteeee:: WWhhaattyyoouu nneeeedd ttoo kknnooww (CCCC33) and TThhee HHaallllmmaarrkkss ooffaann EEffffeeccttiivvee CChhaarriittyy (CCCC6600).

3. It is the fundamental duty of all charitytrustees to protect the property of their charityand to secure its application for the objects ofthe charity. In order to discharge this duty it isessential that there are adequate internalfinancial controls over the charity’s assets andtheir use. This guidance has been produced tohelp trustees secure the protection of propertyunder their charge, to advise them of the bestpractices to employ, and to assist in promotinggreater professionalism in charity management.This advice has been based firstly on ourexperience of charities and the most commonways in which they run into difficulties, andsecondly on the actual experience of thoserunning charities.

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4. Controls are a necessary feature of any well-run organisation. Because of the specialcharacteristics of the charitable sector, they playan essential part in helping to show potentialdonors and beneficiaries that a charity’sproperty is safeguarded, and that itsmanagement is efficient. A prime objective ofthis guidance is to promote the ability ofcharities to improve their safeguards, andthereby promote the effectiveness of, andconfidence in, the charitable sector as a whole.

5. The guidance given here does not remove theneed for trustees to seek appropriate professionaladvice where this is required. This publicationcannot hope to cover every eventuality andthere may well be instances where trustees mayneed to approach us for further guidance. Thetelephone number and the address for CharityCommission Direct can be found on the insidefront cover of this publication.

MMeeaanniinngg ooff wwoorrddss 6. In this guidance:aanndd eexxpprreessssiioonnss uusseedd

BBuuddggeett means an estimate of future incomingfunds, expenditure and other applications offunds for a particular accounting period.

TTrruusstteeeess means charity trustees. Charity trusteesare the people who, under the charity’s governingdocument, are responsible for “the generalcontrol and management of the administrationof a charity” (section 97 of the Charities Act 1993).You would, therefore, be a trustee if you are:

• the trustee of a charitable trust or of acharity founded by someone’s will; or

• the director of a charitable company; or

• a member of the management or executivecommittee of a charitable association.

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CCuurrrreenntt aasssseettss includes cash, bank and buildingsociety deposits, consumable stocks, tradingstocks, debtors and prepayments or any otheramounts receivable in the short term.

FFiixxeedd aasssseettss includes land, buildings, vehiclesand equipment and investments held on acontinuing basis.

GGoovveerrnniinngg ddooccuummeenntt means any documentwhich sets out the charity’s purposes and,usually, how it is to be administered. It may be atrust deed, constitution, conveyance, will,memorandum and articles of association, RoyalCharter or Scheme of the Commission.

IInnddeeppeennddeenntt eexxaammiinneerr means a personindependent of the trustees who is reasonablybelieved to have the requisite ability andpractical experience to carry out a competentexamination of the charity’s accounts.

AAuuddiittoorr means a person eligible under section25 of the Companies Act 1989 to audit theaccounts of companies (ie a registered auditor),or, in the case of an audit which is required bythe governing document of a charity rather thanby the Charities Act 1993, as amended byCharities Act 2006 or the Companies Act 1985, aperson qualified to conduct the audit.

MMuusstt or nneeeedd ttoo are used to refer to actions thattrustees, or their agents or employees, have totake by law.

Where we use terms such as the trustees sshhoouullddor we ssuuggggeesstt, rreeccoommmmeenndd or aaddvviissee we arereferring to actions which the trustees, theiragents or employees could take and which weconsider to be good practice, but which are notlegal requirements.

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AArree ccoonnttrroollss rreeaallllyy 7. It is sometimes argued by trustees thatnneecceessssaarryy ffoorr cchhaarriittiieess?? charities should not be required to put positive

systems of control into place because they areable to operate on trust alone. While this may bethe ideal situation, it is not realistic. Charitiesare unusual organisations in that they aremanaged for the beneficiaries of that charity,rather than for the benefit ofshareholders/members. It is advisable thereforethat trustees be able to show to both donors andbeneficiaries that the property is safe. Withoutthe ability to show that checks and controlshave been implemented it would not bepossible to offer that security.

8. It is important to remember that while thevast majority of people are honest, allorganisations need to take steps to avoidputting people in situations where they mightbe tempted to defraud. Also, if a charity fails toissue proper guidelines, individuals may, out ofignorance, act in a way which damages thereputation of the charity (eg by not separatingcharity funds from their own).

9. Experience has shown that theimplementation of internal financial controls issomething which is welcomed by all concerned.The controls act to protect the interests of thebeneficiaries of the charity, its employees, andindeed the trustees themselves (who are therebyprotected from any charge of neglecting theirduty of protecting the charity’s funds).

10. The fundamental responsibility for control ofthe charity’s activities and funds is that of thetrustees themselves. It is therefore crucial thatwhere the trustees administer the charitypersonally, they will need proper segregation ofduties among themselves, so that no one trusteeis over-burdened or is given too much authority.However, where the trustees delegateadministrative duties to staff or agents,

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additional controls then become necessary inorder to ensure the delegated duties are beingproperly discharged.

AAccccoouunnttiinngg rreeqquuiirreemmeennttss 11. Before discussing the various controls whichwe expect to be in place, trustees may like to bereminded of their duties with regard to charityaccounts.

• The trustees of all charities are under aduty to ensure that the charity keepsproper books and records, and that annualaccounts are prepared. In many cases, thetrustees must also prepare an AnnualReport. The Annual Report and accountsshould conform to any relevantrequirements and recommendations,particularly Part VI of the Charities Act1993, the Charities (Accounts and Reports)Regulations 1995 and 2000 and Accountingand Reporting by Charities - Statement ofRecommended Practice (SORP 2005), andin the case of charitable companies, PartVII of the Companies Act 1985. Please seeour guidance CChhaarriittyy RReeppoorrttiinngg aannddAAccccoouunnttiinngg: TThhee eesssseennttiiaallss (CCCC1155).

• Trustees must ensure that the accounts aresubjected to external scrutiny, if that isrequired by legislation or by the charity’sgoverning document. Again, please seeCCCC1155 for further details of how this mayaffect your particular charity.

• Trustees need to formally approve thecharity’s Annual Report and accounts.

• We recommend that all trustees beprovided with copies of the charity’s reportand accounts each year. New trusteesought to be given a copy of the latestaccounts on appointment, together with

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other essential documents such as thegoverning document, and informationabout the charity’s history.

TThhee cchhaarriittyy’’ss 12. All internal control systems need to be basedoorrggaanniissaattiioonnaall ssttrruuccttuurree on a recognised plan of the charity’s structure

which clearly shows:

• areas of responsibility;

• lines of authority; and

• lines of reporting.

13. A good control system will cover all of theindividual elements of the charity’s financialadministration. If the size of the charityprevents any particular control beingimplemented, the trustees will have to ensurethat compensatory controls are in place. In thecase of smaller charities who may not find itpossible, for instance, to segregate duties, thecontrol function exercised by the trustee bodybecomes of even greater importance.

TTrruusstteeeess’’ lliiaabbiilliittiieess 14. No system of controls, however elaborate, canguarantee that a charity will be totally protectedagainst abuse. Trustees often express concern aboutthe extent of their personal liability in the event ofany loss to the charity through misappropriationor misapplication of its funds. Having sufficientlyrigorous controls provides not only protection forthe charity property but also the best defenceagainst a charge of failing to protect the charity’sfunds and thereby being in breach of trust. Iffunds are lost through trustees neglecting theirduty of care they could be held personally liableto repay to the charity the funds lost. However,if reasonable controls are in place then trusteesare unlikely to find themselves in the position ofhaving to make good any such loss.

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DDeelleeggaattiioonn ooff ffiinnaanncciiaall 15. Generally speaking, charity trustees have adduuttiieess ttoo eemmppllooyyeeeess oorr duty to ensure that all property of the charity is

ootthheerr ooffffiicceerrss ooff brought under their joint control as soon as istthhee cchhaarriittyy reasonably practicable, and that it remains

under their joint control, until it is applied forthe purposes of the charity. This guidance isdesigned to explain how this duty might best bedischarged in practice. But this does not meanthat every single step has to be taken by thetrustees themselves. Where a charity is of such asize that the trustees consider it impracticablefor them to undertake personally some of thechecks and controls mentioned in this guidance,they may consider the possibility of delegatingcertain of these tasks, say to specific keyemployees. Where the trustees make a consciousdecision to delegate they are required to ensurethat the delegation is authorised either by thecharity’s governing document, or by section 11of the Trustee Act 2000.

16. The power of delegation on which trusteesrely may impose conditions which need to befollowed by the trustees when using the power,but, at the least, we would recommend that:

• the scope of the delegation is clearly laiddown in writing and understood both bythe trustees and by the delegate (it wouldbe normal for delegated tasks and thelimitations of delegated authority to berecorded in employees’ job descriptions);and

• regular and effective reporting back of theuse of delegated powers takes place.

17. Even where a control function has beenproperly delegated, trustees should ensure thatsystems and procedures are in place to enablethem to check that the necessary controls are inforce and functioning correctly. Trustees have alegal duty to exercise such care and skill as is

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reasonable in the circumstances when selectinga delegate, and when determining the terms onwhich the delegate is to act. They also:

• have a legal duty to review thearrangements under which the delegateacts, and how those arrangements arebeing put into effect; and

• must consider the need for:

• giving the delegate directions as tothe exercise of his or her functions;

• revising the terms of the delegation;and

• terminating the delegation.

18. Trustees have a duty to exercise such careand skill as is reasonable in the circumstanceswhen discharging these review duties. If theyfail to exercise reasonable care and skill whenappointing delegates and reviewing theirperformance they may be personally liable forlosses resulting to the charity from the acts ofthe delegate.

19. Ultimately, therefore, it is the responsibilityof the charity trustees to consider what isappropriate in the particular circumstances oftheir charity. They ought to bear in mind theneed to look particularly critically at the areas ofhighest risk in their charity. For example, if mostof the charity’s income is received by post thenwe recommend that priority be given toensuring strict controls in that area. However,lower priority areas should not be neglected.Proper controls over gifts in kind and the waythey are used is just as important as the controlof money.

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20. Advances in technology may be used tosimplify many record-keeping and transactionprocesses. This does not remove the need forsufficient controls to be put in place. It will,however, require that controls be adapted tomeet the changes in practice which will occur.

BBaassiicc iinntteerrnnaall ccoonnttrroollss SSeeggrreeggaattiioonn ooff dduuttiieess

21. One of the prime means of control is theseparation of those responsibilities or dutieswhich if combined would enable one person torecord and process a complete transaction. Ifduties are segregated, this reduces significantlythe scope for errors and oversights, as well asdeliberate manipulation or abuse, and builds inadditional checks. For example, if the personwho records incoming cash is the same personwho checks that cash paid in is recorded on thebank statements, it would not be easy to detectany dishonesty. Mistakes are also more likely togo undetected if a person checks their ownwork. The principle of segregation is importantwith regard to both income and expenditure,and capital transactions. We appreciate that thedegree of segregation of duties which can beachieved will vary according to the size andnature of the charity concerned.

QQuuaalliiffiiccaattiioonn ooff ssttaaffff aanndd aaddvviisseerrss

22. We recommend that trustees ensure thatwhere necessary they have access toindependent professional advice. They need toalso ensure that their staff and any volunteersare competent, properly trained and qualifiedfor the tasks they have to perform. Therelationship between the charity’s trustees,accountant, and independent examiner orauditor ought, wherever possible, be one ofongoing dialogue, rather than simply an annualexchange of records and information. Any

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general or specific advice from the accountant,independent examiner or auditor must bebrought to the attention of aallll of the trustees.

BBuuddggeettaarryy ccoonnttrroollss

23. If the internal controls described in thisguidance are put in place, trustees will havegone a long way to ensuring that they havetaken good precautions to protect the charity’sfunds. However, in order to achieve full controlover the charity’s finances, it is necessary towork within an agreed budget and to undertakefull financial planning. Proper and realisticestimates of expected income and expenditureneed to be made for each financial year. Weadvise that regular reviews are made to ensurethat the charity’s budgets are not stretchedbeyond their limits.

24. Approval of the budgets and accounts canonly be done after discussion at trusteemeetings. The discussions need to be fullyminuted. It is important that trusteesunderstand the financial information which isgiven to them. They may, therefore, need toconsider recruiting trustees with particularfinancial expertise, and in any event need toensure that full explanations and training areprovided for those who are not so familiar withfinancial matters.

25. In larger organisations some of thebudgetary work could be delegated, but thetrustees still have the overall responsibilitiesreferred to in paragraphs 17 and 18.

CCoonnttrroollss oovveerr 26. Trustees are under a duty to take control ofiinnccoommiinngg ffuunnddss and to safeguard all funds to which the charity

becomes entitled.

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PPoossttaall rreecceeiippttss

27. It is important to take all possible action tobring all funds sent to the charity by post intoits control as soon as possible. Circumstanceswill vary from one charity to another but thecontrols to be considered include the following:

• Incoming post being opened at the earliestopportunity and in the presence of ttwwooresponsible people.

• All incoming cheques and cash need to berecorded immediately and entries verifiedby someone other than the person who hasmade the entry. (This is particularlyimportant for cash.) It is appreciated thatthere may well be problems in this respectwhere charities have neither premises norpaid staff. In these circumstances, trusteesought to ensure that all donations are sentto a central point and that a book is kept torecord receipt of all mail with moneyenclosed.

• Rotation of post-opening staff ought to beconsidered where practical.

• The security of unopened mail needs to beensured.

PPuubblliicc ccoolllleeccttiioonnss

28. In this respect, the aim of internal financialcontrols is to ensure that the charity has asmuch control as possible over what could be awidespread network of fundraising efforts. It isalso important to remember that trustees haveto ensure that they operate according to thevarious statutory regulations which governpublic collections. These regulations are madeunder the House-to-House Collections Act 1939and the Police, Factories etc (Miscellaneous

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Provisions) Act 1916 (which regulates streetcollections). Our guidance CChhaarriittiieess aannddFFuunnddrraaiissiinngg (CCCC2200) explains the legislativeframework under which trustees must operatewhen raising funds from the public.

29. In addition to adhering to statutoryrequirements, we recommend that the followingcontrols are in place:

• Collection boxes be individually numberedand documented control exercised overtheir allocation and return.

• All collecting boxes be sealed so that anyopening prior to recording is readilyapparent.

• Static collection boxes be regularly openedand contents counted in the presence of atleast two people authorised by the trusteesfor this duty. (It is also a good idea to keepa diary showing not only where staticcollection boxes are situated, but alsogiving a history of their takings and thename of the person designated to emptythem.)

• General public collections be counted inthe presence of the collector and a receiptfrom a duplicate pad given to them.

• Dual control over the handling andrecording of all money and other assets, asfor the postal receipts.

30. Similar points arise for envelope collectionswhich are authorised by a Home OfficeExemption Certificate.

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FFuunnddrraaiissiinngg eevveennttss

31. The responsibilities of the trustees here aresimilar to those for collections, ie to make surethat the charity is in control of the funds raisedon its behalf so that it receives all the money towhich it is entitled from such events.

32. We recommend that the following controlsare in place:

• records be maintained for each fundraisingevent, in sufficient detail to identify grossreceipts and how they have arisen, and allcosts incurred; and

• for all events for which there is ticketincome or gate money:

(i) that tickets all be pre-numbered;

(ii) a record be kept of all persons whohave been issued with tickets to sell,and of which ticket numbers havebeen allocated to each;

(iii) a record be kept of which tickets havebeen sold; and

(iv) a reconciliation be made of receiptsagainst tickets sold.

33. Similar records need to be maintained forsponsored events.

34. Where external fundraisers are engaged, careneeds to be taken to comply with therequirements of Part II of the Charities Act 1992(our guidance CChhaarriittiieess aanndd FFuunnddrraaiissiinngg (CCCC2200)gives further details).

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TThhee GGiifftt AAiidd SScchheemmee

35. Donations through the Gift Aid Scheme areincreasingly encouraged by trustees as a tax-efficient way of raising funds. This is animportant area as encouraging donors to give ina tax-efficient way is good financialmanagement. It is important that accuraterecords are maintained in order to ensure thatthe charity receives all that is due to it fromboth the donor and HM Revenue and Customs,and that all money due is brought within thecontrol of the charity without delay.

36. To ensure that the charity receives all themoney to which it is entitled, we recommendthat trustees:

• make regular checks against records toensure that expected amounts have beenreceived from the donor;

• make regular checks to ensure that in thecase of Gift Aid donations from individualsall reclaimable tax has been obtained fromHM Revenue and Customs (there isnothing for the charity to reclaim in thecase of Gift Aid payments fromcompanies); and

• are careful not to overclaim tax repayments- particular care needs to be taken to avoidmaking tax repayment claims in relation toGift Aid payments which have not in factbeen received from the donor.

37. For more information on the Gift AidScheme, please see HM Revenue & CustomsGuidance Notes on GGiifftt AAiidd, obtainable alongwith other advice and guidance by ringing 0845302 0203.

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BBaannkkiinngg aanndd ccuussttooddyy pprroocceedduurreess

38. Care always needs to be taken to ensure that,once funds are received into the control of thecharity, their continued security is maintained.Following the guidelines listed below willprovide a basic level of protection for thecharity’s funds, but additional controls may benecessary depending on the individualcircumstances of the charity.

• Incoming receipts be banked regularly andas soon as possible - at least weekly.Frequency of banking will depend on theamount of cash received. Keeping cash in alocked cash box is really only suitable forsmall amounts of money, say less than£100.

• Cash or cheques be placed in a safe orlocked cash box if they cannot be bankedon the day of receipt. The keys to any safeor cash box should be held by a nominatedofficer. We advise that they are signed forwhenever they are used. We recommendthat insurance cover is obtained to covercash held in the safe or cash box up to aspecified limit.

• All incoming money be banked gross - noamounts be held back for ‘feeding’ pettycash. Without banking incoming moneyintact it is impossible to trace particularreceipts into the charity.

• Charities have a written statement ofpolicy and practice covering banking andcustody procedures, which is available toall trustees and staff.

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• It is important that the money of thecharity is kept quite separate from anyindividual’s personal money. For example,charity treasurers should not use their ownbank accounts for the charity’s finances.

• We recommend that trustees consider thesafety of getting money to the bank, eg twopeople might be required if the amountsare large, particularly if significant sums ofcash are involved. Insurance cover needs tobe considered to cover cash in transit.

• Controls are also maintained over receiptbooks issued by the charity - both in termsof accounting for all receipts issued, andfor stocks of receipt books.

CChheecckkss ooff iinnccoommee rreeccoorrddss

39. It is important that trustees make regularchecks to ensure that records are beingaccurately maintained (so that money and otherassets received can be traced through theaccounting system), and that there are nodiscrepancies in the accounting records. This isan elementary control, which is often ignored. Ifperformed regularly, it will serve as an earlywarning of anything going wrong. In largercharities some of these checks may be delegatedto employees but the trustees still have theresponsibilities referred to in paragraphs 17 and18. We recommend that frequent, random spotchecks are made to ensure (as a minimum) that:

• records of cash and cheques received agreewith bank paying-in slips;

• the paying-in slips equate with the bankstatements, both in terms of amountbanked and date of credit; and

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• all transfers or other direct payments intothe bank can be identified and verifiedagainst paperwork.

40. These checks should be made by someoneother than the person concerned with theoriginal recording of the transactions.

41. Care needs also be taken to identify andadminister separately any funds received wherethe donor has placed restrictions upon their use,and to ensure that they are only used inaccordance with these restrictions.

42. Records need also to be checked to ensurethat there has been no unauthorised creditextended (eg through an overdraft facility) andthat the finances of the charity are not placedunder any strain by credit which has beenapproved.

CCoonnttrroollss oovveerr eexxppeennddiittuurree 43. It is important for trustees to bear in mindthat they are responsible for all expenditure ofcharitable funds and have to account for howthe charity’s funds have been applied. The basicrules of proper record-keeping, segregation ofduties, and safekeeping of valuables are allvital. In larger charities, some of the duties maybe delegated to employees, but the trustees stillhave the responsibilities referred to inparagraphs 17 and 18.

44. When making payments, we recommendthat the following rules are followed.

• All expenditure and investment ofcharitable funds be properly authorisedand it is essential that there is supportingdocumentation (eg itemised receipt, sharecertificate or invoice) for all items ofexpenditure.

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• Instruments of payment (such as chequebook, building society passbook and bankmandate forms) need to be kept in safecustody, with access limited to nominatedpersons.

• The preparation of documentation forauthorisation be undertaken by someoneother than the persons authorising thepayment.

• Charities have a written statement ofpolicy and practice covering paymentprocedures, which is available to alltrustees and staff. This would includeinstructions on who is authorised (and inwhat circumstances and up to what limit)to place orders or contracts, or to incur anyliability on behalf of the charity.

CCoonnttrroollss oovveerr ppuurrcchhaasseess

45. Trustees have a responsibility to ensure thatadequate checks are made to both confirm thatpurchases have been properly authorised, andthat goods or services ordered have actuallybeen received. We recommend that thefollowing controls are in place (and areoperated).

• Invoices received need to be checkedagainst orders made.

• Records kept of orders placed but not yetcarried out.

• The quality and quantity of goods suppliedought to be inspected in order to ensurethey correspond with orders placed andthose invoiced for. Services supplied needto be similarly checked.

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• Regular stock taking be undertaken.

• Authorisation levels for the placing oforders to be documented.

• Payments only be made against oorriiggiinnaallinvoices.

PPaayymmeenntt bbyy cchheeqquuee

46. Although payment by cheque is generallyconsidered a safe method of payment, there arestill basic controls which we recommend areexercised in order to prevent any misuse ofcharity funds (these are set out below). If anyparticular control is delegated to employees thetrustees still have the responsibilities referred toin paragraphs 17 and 18.

• Trustees must abide by any relevant clausein their governing document whichspecifies who are the people authorised tosign cheques. Employees cannot beallowed to sign cheques if the governingdocument only permits trustees’signatures.

• If there is no provision in the governingdocument which relates to the operation ofbank accounts, the bank mandate mustspecify at least two trustees as signatories,unless the charity trustees can reasonablyclaim that some other regime must befollowed as a matter of operationalnecessity. In the governing documents oflarger charities there will often be explicitprovision regarding the operation ofbanking accounts, but, if not, it may bereasonable for trustees to claim that it isoperationally necessary for employees tobe able to sign cheques, perhaps up to anagreed limit. One form of reporting backon the use of this delegated powers is for

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all payments made under delegatedauthority to be summarised regularly forinspection by the trustees.

• It is always advisable to have a ‘pool’ ofpeople authorised to sign cheques which isgreater in number than the minimumnumber of signatures required on themandate. This can prevent a situationarising where insufficient signatories areavailable, eg during popular holidayperiods. All people in the ‘pool’ must, ofcourse, either be trustees or be otherwisequalified to sign cheques.

• Cheques made payable to a nominatedsignatory should not be signed by thatperson. This is another reason why it isimportant to have a ‘pool’ of mandatedsignatories.

• Close control should be exercised overaccess to the cheque books.

• It is preferable to avoid a situation whererelated trustees are able to sign chequestogether.

• It is a dangerous breach of financial controlover expenditure from charity funds ifblank cheques are signed in advance. Thepractice of signing blank cheques would beregarded as neglecting the duty of careowed by trustees.

• The agreed limits (if any) for individualsignatories be recorded in the bankmandate and circulated amongst thetrustees.

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• All cheque expenditures be recorded in thecash book and cross referenced to thecheque number, with the nature of thepayment and the payee clearly identified.

• All cheque book stubs (or equivalent) becompleted at the time of payment, andretained (they form part of the charity’saccounting records).

• Regular spot checks be made of theexpenditure records against primarydocuments such as invoices. No chequesbe signed without a corresponding invoice,or other documentary evidence as to thenature of the payment. Expenditure beregularly summarised for inspection by thetrustees with exceptionally large itemshighlighted.

PPaayymmeenntt bbyy ccaasshh

47. Dealing in cash represents an extra degree ofrisk, so a greater degree of care needs to beexercised. We recommend that:

• Every effort be made to reduce the needfor cash payments to an absoluteminimum.

• All cash payments be made from a cashfloat of a fixed amount which is regularlyreplenished from the bank or buildingsociety account and not by the retention ofincoming money (see paragraph 38).

• All claims for replenishment of the cashfloat should be backed up by supportingdocumentation and signed by the cashier.

• The supporting documentation beauthorised by someone other than thecashier or claimant.

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• Regular spot checks of the petty cash floatbe made by an authorised personindependent of the cashier. This involvescounting the balance of cash in hand andreconciling the float by totalling thevouchers for amounts paid out and not yetreclaimed by the cashier.

WWaaggeess aanndd ssaallaarriieess

48. This is often a major item of charityexpenditure, and therefore warrants particularcare to avoid any misuse of funds. Trustees needto ensure that the charity is not exposed toadditional liabilities by a breach of statutoryregulations, for example through failing todeduct and account for PAYE. We recommendthat:

• Personnel records be kept for each memberof staff separately from the pay records.Checks of one against the other be made inorder to prevent the payment of fictitiousemployees. Actual physical checks of anemployee’s existence are carried out on arandom basis. These checks may not benecessary if the charity is small with a fewemployees. Trustees need however toensure that they are fully aware of the staffemployed by the charity and thatappointments have been properlyauthorised; also that salary payments havebeen properly authorised and paid inaccordance with that authorisation.Trustees need to satisfy themselves thatstaff are actually carrying out the duties forwhich payment has been authorised.

• Where (if absolutely necessary) paymentsare made in cash, these be paid out bysomeone other than the person making upthe payroll, with the employee signing asevidence of receipt.

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• Trustees need to ensure that employeeshave a proper contract of employment andthat individuals are not incorrectlyclassified as self-employed. Guidance maybe sought from HM Revenue and Customsin any case of doubt. Trustees shouldavoid, at all costs, failing to deduct andaccount for PAYE and national insurancecontributions, as they may be unable torecover the over-payment from theemployee, and have to meet the Revenue’sclaims themselves. In such a case theywould not normally be able to indemnifythemselves out of the charity’s assets.

• Proper procedures be in force for paymentof expenses to trustees, employees, andvolunteers. Systems need to be in force toensure that costs have been necessarilyincurred in the course of carrying out thecharity’s business. We recommendreimbursement needs to be a straightpayment of actual cost incurred rather thanround sum payments. Evidence shouldalso be produced of the actual costsincurred, eg bills or receipts. Where thiswould cause a considerable administrativeburden, charities may wish to considerwhether this requirement may be waivedfor very small sums. If the charity employsa system where travel costs are paid at amileage rate then they should ensure thatthis does not run the risk of incurring anytax or national insurance liability for thecharity or its trustees. Advice on tax andnational insurance matters can be obtainedfrom HM Revenue and Customs.

49. We also recommend that procedures be inplace to ensure that control systems are notthreatened when a member of staff is absent orleaves.

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CChheecckkss oonn eexxppeennddiittuurree rreeccoorrddss

50. As with controls over incoming funds it isessential to check regularly that records of fundsapplied are being accurately maintained.Similarly we recommend that random spotchecks are made to verify that:

• records of payments made agree withcheque stubs, paid invoices or otherauthorisations and are in accordance withbudgets;

• cheques have been presented for paymentby the bank or building society as shownby the statement; and

• standing orders and direct debit paymentsare in accordance with valid instructionsgiven to the bank or building society.

51. These checks need to be made by someoneother than the person concerned with theoriginal recording of the transactions. Care alsoneeds to be taken to verify that payments aremade out of the correct fund wherever thecharity administers restricted funds of any kind,eg a special appeal fund or an endowed fund.

CCoonnttrroollss oovveerr aasssseettss 52. As well as ensuring that they have controlover the charity’s incoming and outgoing funds,trustees also have the duty of ensuring the safekeeping of the charity’s assets so that they canbe effectively used to promote the charity’sobjects.

FFiixxeedd aasssseettss ffoorr uussee bbyy tthhee cchhaarriittyy

53. This term includes such items as land,buildings, vehicles, fixtures and fittings, andequipment (eg computers and the data

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contained in them, fax machines) which areused in the charity’s activities. We recommendthat the following guidelines be observed:

• A list of fixed assets be held and updatedregularly. This needs to include all assetsdonated for continuing use by the charity.

• All fixed assets be checked at regularintervals to ensure they remain in goodrepair and of use to the charity.

• Trustees give due consideration to the needfor insuring assets, and to the extent ofcover which is appropriate.

• The use made of fixed assets be reviewedannually to ensure they are put to best useand effectively serve the interests of thecharity.

IInnvveessttmmeennttss

54. Investments (including stocks, shares, landand buildings) are normally held in order togenerate income for the charity and to protectits capital. It is therefore vital to make sure thatthey are safeguarded. New powers and dutiesrelating to investments have been introduced bythe Trustee Act 2000, and in order that trusteescomply with these we recommend that theadvice given below be observed:

• The trustees ensure that full records arekept of all investments held (includingdetails of all those sold or purchased) bythe charity, and that these are kept in asecure place.

• The formulation of an investment policy isthe responsibility of trustees. The detailedimplementation of that policy is oftendelegated to investment professionals, but

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the trustees, by insisting on the supply ofsuitable reports or otherwise, must ensurethat their policy is being implemented.This will also allow them to reviewproperly the performance of theirinvestments.

• Trustees need normally to take professionaladvice before selecting or disposing ofinvestments.

• Where statements of investmentperformance are sent to a nominatedtrustee they need to be inspected at regularintervals by the trustee body as a whole.

• Controls be put in place to ensure that alldividends or interest payments due arepromptly received and all purchases andsales of investments are properlyauthorised and accounted for.

• Wherever possible, investments need to bediversified so as to ensure that the failureof one investment does not have a majorimpact on the charity. Trustees have ageneral legal duty to have regard to theneed for diversification of investments ofthe trust in so far as is appropriate to thecircumstances of the trust.

55. Further information may be found in ourguidance IInnvveessttmmeenntt ooff CChhaarriittaabbllee FFuunnddss(CCCC1144).

BBaannkk oorr bbuuiillddiinngg ssoocciieettyy ddeeppoossiittss

56. In the case of bank or building societydeposits, we recommend that:

• A record (other than the passbooks) of allbank and building society deposits areheld in a safe place.

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• Regular bank reconciliations take place,and if carried out by delegated employees,the trustees need to ensure that this isbeing done. (If employees are delegated toundertake bank reconciliations werecommend that they are not the samepeople who maintain the cash bookrecords.) Any discrepancy should be fullyexplored and resolved.

• Instructions to open or close depositaccounts are authorised by the wholetrustee body, or if delegated to a financesubcommittee or finance officer, thetrustees are kept informed of alldevelopments.

• Accounts are not are allowed to remaindormant.

• Statements are sent to a nominated trusteeand made available for inspection by anytrustee.

CCoonncclluussiioonn 57. If, after reading this guidance, trustees feelthat they need further guidance, morespecifically aimed at their individualcircumstances, we recommend they contactCharity Commission Direct, the addresstogether with the telephone number is given onthe inside front cover of this publication.

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CChhaannggeess ffrroomm tthhee pprreevviioouuss vveerrssiioonn oofftthhiiss gguuiiddaannccee

The previous version of this guidance was datedMay 2001. A number of minor changes havebeen made to keep the text as up to date aspossible.

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© Crown copyright 2007. This publication(excluding the Royal Arms and departmentallogos) may be reproduced free of charge in anyformat or medium provided that it isreproduced accurately and not used in amisleading context. The material must beacknowledged as Crown copyright and the titleof the publication specified. This publication canalso be accessed at the department’s website at:www.charitycommission.gov.uk

We aim to make our publications as usefuland easy to read as possible. If you haveany suggestions about how this bookletmay be improved, please write to the Printand Publishing Manager at our Tauntonoffice.

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FFuurrtthheerr RReeffeerreennccee

For further information you may find it useful to refer to the following CharityCommission publications:

CC3 The Essential Trustee: What you need to know

CC3(a) The Essential Trustee: An introduction

CC12 Managing Financial Difficulties and Insolvency in Charities

CC15 Charity Reporting and Accounting: The essentials

CC16 Receipts and Payments Accounts Pack

CC17 Accruals Account Pack

CC20 Charities and Fund-raising

CC60 The Hallmarks of an Effective Charity

CC63 Independent Examination of Charity Accounts: Directions and GuidanceNotes

Mae’r rhan fwyaf o’n cyhoeddiadau ar gael yn Gymraeg. Am wybodaeth ar ycyhoeddiadau sydd ar gael ffoniwch Comisiwn Elusennau Uniongyrchol ar 0845 300 0218.

For a complete list of all our publications and audio-cassettes, please ask for:

CC1 Charity Commission Publications

To obtain copies of any of the above publications you can either:

• view and print from our website:wwwwww..cchhaarriittyyccoommmmiissssiioonn..ggoovv..uukk;

• order (08:00 - 20:00 Monday - Friday, 09:00 - 13:00 Saturday) by telephoning uson 00884455 330000 00221188; or

• write to CChhaarriittyy CCoommmmiissssiioonn DDiirreecctt,, PPOO BBooxx 11222277,, LLiivveerrppooooll,, LL6699 33UUGG.

SEC-G5002 V6 9/05

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NNootteess

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