Charities Services:

The financial responsibilities of trustees are neatly summarised in the Charity Commission's booklet CC3:

"Trustees are accountable for the solvency and continuing effectiveness of the charity and the preservation of its endowments. They must exercise overall control over its financial affairs. They should ensure that the way in which the charity is administered is not open to abuse by unscrupulous associates or employees; and that their systems of control are rigorous and constantly maintained".

In practice, this statement can be broken down into a number of areas.

INTERNAL CONTROLS
Should trustees fail to act prudently, lawfully and in accordance with their governing document they may be in breach of trust and personally liable to meet any resulting call on the charity's property or to make good any loss to the charity. Furthermore, since trustees must act jointly in administering a charity, they will be responsible jointly for any liability incurred by them or on their behalf.

It follows that while trustees should exercise appropriate care when entering into transactions or contracts on behalf of the charity, their responsibilities extend to careful oversight of the activities of others. Key to this is the establishment, monitoring and updating of appropriate internal controls. As emphasised time and time again in Charity Commission inquiry reports, delegation of these duties to a chief executive or senior management team is not appropriate unless the trustees then exercise appropriate scrutiny in respect of the activities of that chief executive or team.

INVESTMENT OF SURPLUS FUNDS
Whatever the agreed level of reserves maintained by a charity, it is good practice to invest any funds not needed for immediate expenditure.

Trustees are responsible for taking appropriate advice and ensuring that any investment is suitable in terms of its duration, risk and rate of return. They are responsible also for constant monitoring of the performance and continuing suitability of the investments chosen. From the point of view of internal controls, it is advisable that no single trustee should be in a position to control a particular investment or policy generally.

BUDGETING
It is essential that trustees make proper estimates about expected income and expenditure in order to plan ahead effectively.

Budgeting, cashflow forecasts and financial planning generally should form a central part of a charity's financial controls and this area should be subject to regular reporting to and monitoring by the trustees as a body. The charity should have in place effective mechanisms to obtain the necessary level of information at an appropriate frequency. Variances against budget should be questioned and, if deemed necessary, the underlying causes addressed.

BORROWING
Before borrowing any sum, trustees should consider whether appropriate powers are present in their governing document. If suitable powers exist, the trustees should obtain advice from a person of appropriate experience who has no interest in the proposed loan. This advice should cover whether the loan is necessary, whether the terms are reasonable and whether the charity will be able to repay the loan on those terms.

ACCOUNTS AND ANNUAL REPORT
 Trustees are required to account for their financial stewardship on an annual basis, with those accounts being subject to independent examination or audit where appropriate.

In the majority of cases, the format of accounts will be governed by the Statement of Recommended Practice (SORP): Accounting and Reporting by Charities and it will be necessary to make them available for public inspection on request. Trustees should ensure that they are also familiar with the detailed requirements of charities regulations. Any underlying records must be preserved for at least six years. The SORP also requires that charities include in their Annual Report a statement of their reserves policy and, where relevant, both a statement of their investment policy and an assessment of performance against that policy.

FUNDRAISING
Trustees are responsible for ensuring that any fund-raising activity is properly undertaken and that all funds raised are properly accounted for.

Where trustees allow others to undertake fund-raising on their behalf, they should ensure that all sums are paid into a bank account in the charity's name before deduction of expenses. Trustees should ensure that all fund-raising methods are subject to their approval and, where external fundraisers are employed, should arrange for a proper contract to be drawn up.

Finally, it should be noted that trustees should not benefit financially (or otherwise) from the charity either directly or indirectly. In the absence of an express provision in the governing document or specific authority from the Court or Charity Commission, trustees are not entitled to receive any payment out of the charity's property beyond the reimbursement of reasonable expenses (and these should only be paid when supported by appropriate documentation). Any other payments, borrowing, contracts or other business with the charity may constitute a breach of trust. In such cases, the trustee may be required to make good to the charity any loss that results or to account for any profit made.