OG15 X1 - CHARITY ACCOUNTS AND REPORTS

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OPERATIONAL GUIDANCE

CHARITY ACCOUNTS AND REPORTS

CHECKLIST

OG 15 X1 – 14 April 2008

Purpose

A quick review checklist to reading a charity’s trustees’ annual report and accounts. The module takes the reader through the main points, from a regulatory perspective, and identifies when a Commission case officer may need to seek the advice of a Commission accountant.

Functional responsibility

For information

All operational staff

Contents

1. General checklist
2. Additional accounting information that may be available from the charity trustees (when the accounts are late or missing.)

Index to further related information


The Law	Refer to a lawyer	Refer to an accountant

1. General checklist
	This guidance is intended to assist case officers undertake a general purpose review of a charity’s accounts and trustees’ annual report using a checklist approach. Use the checklist as you read through the report and accounts of a charity. The answers to the unnumbered questions can be used to bring together the information needed to prepare a report on the accounts; the answers to the subsidiary questions prompt whether a referral to a Commission Accountant is necessary, but can also draw attention to areas which could be mentioned in your report.
	You will need to have access to a copy of the SORP and a copy of the Charity Commission booklet CC15 Charity Reporting and Accounting: The Essentials (section H). Only sections which give a ‘no’ answer will need to be considered for a referral to a Commission accountant.
	Where the income of the charity exceeds the threshold for the Summary Information Return (£1m) then you should always refer the case either after having used this checklist, or for the initial review itself, to the Commission accountant for your business area because of the likely complexity of the notes and the analytical skills the accountant can bring.
	Before using this checklist have in mind what you are interested in finding out. Is it a general review, information to support a request for an order, a response to a specific complaint or other reason? When reviewing the report and accounts you should take a risk based approach. This involves taking account of your familiarity with accounts, the matter at hand, and the nature of the charity and the exercise of your discretion. This approach will help you identify as you work through the checklist what issues matter and what particular things about the accounts you are interested in and when to ask an accountant for advice.
	Always refer the case to an the Commission accountant for your business area where you intend to request additional accounting information because they can confirm what information you really need to resolve the matter and whether that information is likely to be available, and if available how to go about framing your request. Where you intend to request additional accounting information the Commission accountant will advise you as to whether the request will fulfil your needs and is a proportionate request.

	Commission Reference	Review
		Yes	No
Format of Accounts
1. Are the accounts prepared as receipts and payments accounts?	OG 15 B2
2. Is income less than or equal to £100,000? (if income is over £100,000 then cannot prepare receipts and payments accounts)
3. Is the charity unincorporated? (companies incorporated under Companies Act cannot prepare receipts and payments accounts)
4. Do the accounts have a trustees report?
5. Are the accounts accruals accounts?	OG 15 B1

Contents of the Accounts

A. Trustees report
What does the trustees report say about the charity? Look at details of trustees, governance information, objectives, activities, achievements and performance, financial review including risks, grantmaking, reserves and plans for the future.	CC15
Has the report made the appropriate reference to our public benefit guidance? (only required for accounting periods commencing on or after 1 April 2008)
Does the information provided meet the requirements of the SORP listed in section H of CC15?
Are the activities undertaken to further charitable purposes for the public benefit summarised and in the case of an auditable charity, reviewed ? (The information provided should enable the reader of the report to understand how the purposes of the charity are carried forward through the activities undertaken. The specific reference to "activities for the public benefit" only applies for accounting periods commencing on or after 1 April 2008 in earlier period charities must still summarise/review their activities)
Is the trustees report consistent with the figures in the accounts? For example: Does the reserves level match the policy? Is the financial review consistent with the accounts (if they comment on a deficit or funds in deficit does that match the accounts? Is the summary/review of key activities consistent with the expenditure shown in the accounts for such activities?
If you are looking at receipts and payments accounts go directly to section H.

B. Statement of Financial Activities (accruals accounts)
In reviewing the SOFA you should also look at the relevant notes to the accounts which should give you further information and analysis on the figures.
Review the incoming resources and resources expended for the year and compare them with last year’s. Are there any major changes, increases or decreases? If so are those in line with what you expected from your reading of the trustees report?
Have incoming resources in the year exceeded resources expended? If not is the deficit within restricted funds or unrestricted funds?
Has the charity made a transfer from restricted or endowment funds to unrestricted funds in the year? If so is the reason for this transfer explained in the notes to the accounts?
Has the charity got positive reserves at the year end? If so are the unrestricted reserves positive?
If the accounts are subject to statutory audit, is the format of the SOFA in line with Table 3 of the SORP?	SORP 2005
If the charity is a company, has it got an income and expenditure account or is the SOFA headed Statement of Financial Activities including Income and Expenditure account?
Does the amount expended on charitable activities seem reasonable in the context of income and resources available? (an explanation may be provided in the annual report)
Does the cost of generating income (fundraising and trading) seem reasonable in relation to the income generated? (an explanation may be provided in the annual report)

C. Balance Sheet (accruals accounts)
The balance sheet is a statement giving a high-level "snapshot" summary of the charity's financial position at "close of business" on the last day of the accounting period.
The top half of the statement is a summary of the types of assets and liabilities which the charity has. The bottom half summarises the types of fund to which the charity's net assets belong. These funds are the charity equivalent of what is more commonly known as the "capital and reserves" in commercial accounts. Both halves are required to come to the same total amount and thus balance each other out.
Is the format of the balance sheet in line with Table 7 of the SORP?	SORP 2005
Review the assets and liabilities and compare each with the previous year. Are there any material changes between this year and last year? If so, are these changes what you would expect from reading the trustees report?
Does the charity’s balance sheet show a net asset position? ( see table 7 of SORP)
Does the charity’s balance sheet show a net current asset position? (see table 7 of SORP)

D. Cash Flow Statement
Any charities large enough to require a cash flow statement should be being reviewed by the Large Charities Unit.

E. Notes to The Accounts: Accounting Policies
Charity accounts should include notes on the accounting policies chosen. These should be the most appropriate in the circumstances for each charity for the purpose of giving a true and fair view.	SORP 2005 para 356-370
1. Do the notes appear to be appropriate to the charity?

F. Notes to the accounts: SOFA
Are there notes giving more details on the incoming resources and resources expended?	SORP 2005 paras-
Incoming Resources	114-147
Resources Expended	166-213
In particular you should almost always find:
Details of any trustees remuneration and expenses and related party transactions	230-233
Details of Employees emoluments.	234-236

G. Notes to the Accounts: Balance Sheet
Are there notes giving more details of the assets and liabilities on the balance sheet?	273-350
Are there notes giving details of the structure and purpose of the charity’s funds?	75-76
If there are restricted or unrestricted funds in deficit, is there, anywhere, an explanation of what the charity is expecting to do to remedy the situation?

H. Receipts and Payments Accounts
Review the figures in the current year and compare them to the previous year which should be shown as a comparative. Are there any major differences between the two years, and if so, are these what you would expect from having read the trustees report?
Does the difference between the receipts and the payments in the period equal the change in the cash funds over the year?

I. Special Cases
Groups
Does the charity have one or more subsidiary trading companies?
Are the results of the subsidiary material in the accounts of the group?
Does the trustees report explain the activities of the subsidiary and give details of the relationship with the charity?
Has the charity prepared consolidated accounts, or explained why it has not prepared them?
Is there a separate SoFA for the charity? If not, is this information provided in a note to the accounts?
Is a charity balance sheet provided as a separate statement or as a column alongside the group’s balance sheet?
Have the key details about subsidiaries been given in a note to the accounts? Including:
Name
Activities
Net assets/liabilities
Summary of turnover/expenditure and profit or loss

J. External scrutiny report
Is the required scrutiny report present?
Has the external scrutiny, the examiner or auditor, given the accounts a report without any caveat or qualification?

General
In your view from your reading of the annual report and the accounts do you consider that the accounts are sufficiently informative, given the size of the charity?
If the matter you were interested in was one to which the report and/ or accounts should have provided information was there adequate information to give you the answer?

If you have any no answers above or any other concerns, or if there is anything you do not understand, you should refer the accounts to the Commission accountant for your business area.

2. Additional accounting information that may be available from the charity trustees (when the accounts are late or missing.)
	Occasionally we need to review the financial affairs of a charity and either the accounts are not available or the matter cannot be answered by the accounts because it relates to a level of detail or information not normally included in the accounts. In this case we may request other financial information from the charity to enable us to establish the position or to support the request made of us, for example to grant an order or make a Scheme.
	In order to prepare accounts for a charity, an accountant or bookkeeper would need access to the accounting records. A company charity must keep accounting records for 3 years (Companies Act 2006 section 388(4)(a)) and an unincorporated charity and charitable incorporated organisation must keep records for 6 years (Charities Act 1993 section 41(3)) Accounting records is not a term defined in statute but are generally taken to include:
	Any manual cash book and accounting ledger or equivalent computerised accounting records.
	Bank statements or pass books for pass book accounts.
	Credit card statements.
	Petty cash records and vouchers.
	Cheque book stubs and paying in book stubs.
	Receipts and other third party verification of expenditure.
	Documentation from funders or donors confirming the amount and purpose of large grants, contracts and legacies.
	Any invoices or credit notes raised for services provided.
	Contract documentation for services received or supplied by the charity.
	Gift Aid records.
	Other income records, eg street collection returns, remittance advices, receipts or copy thank you letters sent to donors.
	Employment and PAYE records.
	In addition, whilst falling outside statutory requirements, trustees are advised to retain.
	Management accounts prepared during the year. (The information made available monthly or periodically for managers to manage their devolved budgets.)
	Bank reconciliations.
	Minutes of trustees’ and any finance or audit sub committee meetings.
	In addition, charities will often retain other relevant information such as:
	The management accounting reports submitted to the most recent trustees’ meeting which set out information to assist trustees in managing the charity which may include budgets, spend to date, income to date, projections to the year-end and information about assets or cash balances held.
	Business plans or initial budgets or revised budgets for its activities.
	The pre-audit draft accounts which are to be/ or have been submitted for audit.
	Other than in the context of section 8 inquiries, or in our assessment of the grounds for an inquiry, it would be unusual for us to need to inspect the original accounting records.
	Where an inspection is being considered we should be aware that charities’ accounting records vary in sophistication depending on their size, nature, and the expertise of the person involved in bookkeeping. We should not assume that charities can retrieve such records easily or without cost. Many of these records are in day to day use and if our request relates to a current year which is still open, you may not be able to inspect these records without visiting the charity’s or their bookkeeper’s premises. Records for a preceding closed financial year should be retrievable and could be transported to our office or collected, as appropriate. Where originals, rather than copies are requested it is recommended transfer is made by collection or a courier since if the records are lost or mislaid this will cause considerable disruption to the charity. A record should be maintained of any charity records held by us and if possible the despatch and return should be signed for by us and the charity concerned.
	A review of these accounting records for a period subsequent to the last set of accounts submitted to us might on occasions be relevant to our enquiries where current information is needed and provided the request is proportionate to the matters or concerns to be resolved. We may also need on occasions to request permission from the charity to ask their accountant to send us copies of records that they are holding pending the preparation of accounts if our powers to make an order are not considered necessary.
	To ensure the records requested will meet your needs you should always discuss your requirements and the suitability of the records with the Charity Commission accountant for your business area before contacting the charity or its professional advisor.

Index to further related information