Money and Property Matters

If your charity works outside the UK there may be extra accounting issues to consider. This section also contains advice on carrying cash, non-traditional banking methods, property ownership, transferring and protecting funds.

My charity is just starting work in a new country. What accounting issues do we need to think about?

We recommend that you think about:

• implications of local tax laws (sales, income, corporation tax)
• any local accounting or reporting requirements to government or a local regulator
• differing business methods
• whether local currencies are easily converted/repatriated
• how much money to convert into a local currency
• how to develop appropriate accounting and reporting systems and internal financial controls, taking account of local factors
• staff training to ensure adequate accounting records are kept and budgets approved
• variations between countries in providing evidence of transactions;
• how to keep cash and documents safe
• monitoring transactions that occur in different countries
• meeting the financial reporting requirements of different institutional donors

See also What financial controls should my charity consider?

Where can charities find out how to prepare their accounts?

As a starting point, look at our guidance on preparing accounts.

More detailed information is in the Charities Statement of Recommended Practice (SORP).

Can I choose not to give details of a particular grant in the charity's accounts?

In some circumstances. Generally, the accounts should include the amount of grants paid. Where accounts are prepared in accordance with the SORP more information is required including an analysis of the grants made. This includes an analysis of grants made to institutions or organisations. However, there are exceptions, if public disclosure of a grant would:

• have a serious negative impact on furthering the purposes of the institution receiving the grant, or of the charity itself; or
• place individual beneficiaries in a position of personal danger. (This is particularly relevant where charities are working in areas where there is armed conflict, civil unrest or a repressive or unstable political climate.)

Further details are given in the SORP.

Another exception applies to charitable trusts which have been created by an individual who is still alive (or whose spouse or civil partner is still alive). In this case, the trustees are not obliged to disclose either of the following:

• the identities of recipients of grants made out of the funds of the charity
• the amounts of any individual grants made

How can a charity qualify for tax exemption?

Look at the HM Revenue and Customs website for further information. Where a charity makes a payment to a body outside the United Kingdom, the charity trustees must be able to satisfy themselves and HMRC that this money has been (or will be) applied for charitable purposes.

What financial controls should my charity consider?

Look at Internal Financial Controls for Charities (CC8) for guidance on the basic financial controls which all charities should have.

It is important to have adequate internal financial controls in place. You might need to have additional financial controls depending on what financial risks your charity encounters. There is a link between financial controls and effective risk management. Risks areas include:

• where damage to the charity's reputation might result
• where a loss of funds might have a significant impact on objectives

Key issues to consider are:

• monitoring activities including budget setting
• income
• purchases and payments
• assets and investments

Unusual local conditions may affect the type and extent of the controls and checks that can be operated in the field. We also recognise that, in certain situations, it may be difficult to create an audit trail in the normal way, eg by getting receipts for expenditure. However, trustees must be able to demonstrate:

• that the controls and procedures that they have in place are reasonable in the circumstances
• that all reasonable steps have been taken to protect charity property

Case Study: Importance of financial controls A charity was established in England and Wales to assist refugees who were in need, in particular children who were in need due to their families' opposition to the present government of a particular country. After receiving allegations about the charity, we decided to open an inquiry to establish whether or not the charity spent its money on its intended beneficiaries. The trustees transmitted funds from the UK to the country concerned via a "middle man" in a third country and various other intermediaries. The trustees indicated that they chose this method because of the vulnerability of the beneficiaries and the particular circumstances in the country they were operating in. However, by adopting this method of distributing funds the trustees could not account for what happened to the funds. They could not demonstrate that they reached the intended charitable beneficiaries nor could any independent verification be provided. The trustees were unable to show that adequate financial controls were in place over the distribution of funds. They effectively had no control over the charity's funds after the funds had left the charity's bank account. We were not able to see any substantive and verifiable evidence to show how the charity spent its funds in the area of benefit, or even that the funds got there. We concluded that there had been, at the very least, mismanagement in the affairs of the charity and that it must take action to protect the remaining funds. We worked with the trustees to ensure that the funds were applied for the charitable purposes for which they were raised.

Can the legal title to a charity's property be held by another organisation?

Local laws may require a charity's local partner, a local corporation or an individual to hold property on behalf of a charity. It may not be possible for the charity to retain a legal interest in the property. We recommend that the trustees take professional advice from a lawyer who has knowledge, or has access to those who have the knowledge, of the local laws and customs. This should help them to protect the charity's interests as far as possible.

How much money should my charity hold locally and how can we protect it?

This depends on the levels of risk. Where you think there is high risk to your charity's assets, such as through a possible collapse of the local banking system or currency fluctuations, you should aim to keep the minimum amount of funds in a country.

In such situations we advise, where possible, to keep a main account at a recognised bank in the capital, so that you can access money easily. You should just hold small floats at local level. It is good practice to keep any reserves in a "hard" currency. This is one which is relatively stable and easily convertible into local currency. It doesn't have to be sterling.

You should use conventional banking systems where possible. Your charity should have clear procedures setting out how to open and operate its bank accounts. For example, always open accounts in the name of the charity, never in the names of individual members of staff.

See also What can charities do to protect their funds against foreign exchange risk?

Can the charity's funds be carried as cash?

It is better to carry as little cash as possible. It's fine to carry small amounts of cash to cover immediate working needs. However, we strongly advise trustees, their employees, volunteers and agents not to transfer significant amounts of cash from one location to another on their person or in personal luggage. This could be too risky, personally and financially.

To avoid personal liability for any loss or injury incurred by carrying cash, trustees should be able to demonstrate:

• that such an action was appropriate in the particular circumstances
• that the risks had been properly assessed and managed

Most countries have restrictions on the amount of cash that can be brought in to the country. You should check local rules before travelling. You also need to declare to HMRC if you are carrying over 10,000 euros in cash to a country outside the EU. See Declaring cash when entering or leaving the UK (HMRC website)

Can we use non-traditional banking methods?

If traditional banking facilities are not available then you can use alternatives. These are more risky so you should ensure that robust additional controls and audit trails are in place. These should protect the charity's funds and show how and when the funds were used. Please see section E5 of Internal Financial Controls for Charities (CC8).

Case study: non traditional banking methods An educational charity operates in a number of remote villages in the Horn of Africa. There are limited local banking facilities. Head Office make arrangements through a global foreign exchange intermediary with representation in the region to release local currency on a drawdown authorised from Head Office.

Can a charity use a third party to transfer funds?

Yes, a charity may decide to use an intermediary organisation such as an established NGO or a local charity to transfer funds. In this case the charity should set out all arrangements in a formal agreement. This agreement should ideally include:

• the details of the intermediary organisation and the recipient
• timescales in which grants are to be paid over or returned to the charity
• details of what paperwork (eg recipient's application, report on the use of the grant etc) will be required by all parties to the agreement

It is also important to carry out due diligence checks on the solvency and reliability of the intermediary.

What can charities do to protect their funds against foreign exchange risk?

Changes in foreign exchange rates can be a risk when pursuing a charity's aims. They may affect a charity's purchasing power. There are different ways to mitigate this risk.

For example, a charity predicts a need to buy foreign currency for future activities. It may wish to eliminate the risk of a fall in the value of sterling by buying the currency forward, and/or by taking out foreign currency futures or options.

Transactions like this can be complex and the trustees should consider taking professional advice.

Case studies: mitigating foreign exchange risk A charity specialising in health projects in Eastern Europe anticipates the need in six months for five all-purpose vehicles built in the Czech Republic. They purchase an option to buy 250,000 Koruna at 50 Koruna to the £ in six months. They only take up the option if the vehicles are still needed and the exchange rate has not moved in favour of sterling. A charity supplying courses in English as a foreign language receives a substantial part of its fee income in foreign currencies. The charity's outgoings are mainly in Euros. In order to be able to budget effectively, the charity sells the foreign currencies forward so as to assure the Euro value of the anticipated fee income.

 

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