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The finance challenge in small and medium sized charities

In 2003 I took on a treasurer role in an international network undertaking work in Africa, Asia, South America, run by a small employee base in the London HQ. Receiving income from several different donors all requiring reports on their restricted funding and a total income of £300k annually. The treasurer I took over from was a project specialist but didn’t have much finance experience and there was an administrator responsible for bookkeeping in the office; she found the bookkeeping daunting and was very much out of her comfort zone. So when I took on the treasurer role, no one realised the gravity of the finance impasse that had come about.

The relationship with the auditors had broken down; the charity had been charged over £13k by the auditors for a year’s worth of work. The accounts for the period ending March 2002 were one year overdue and couldn’t be filed as there was a problem with the closing balance on restricted funding. In order to complete the accounts I worked with the employees, trustees, auditors, the Charity Commission and Companies House and managed to get the accounts signed off and then steam-rollered through the accounts ending March 2003, which were filed only 4 months late.

In a voluntary capacity, I spent probably near on a day per week on those accounts; this was made possible because my employer was in the same area of development work and was closely affiliated with the charity I’d become treasurer for.

The charity is not untypical: run by visionaries; undertaking ambitious organisational projects that need to be supported by financial and legal technical expertise although sometimes the need isn’t recognised by the visionary leaders; staffed by general administrators and no finance employees.

There’s a great deal that a qualified treasurer, bookkeeper or accountant can bring to such an organisation. However, there needs to be a clear meeting of minds between finance staff and volunteers and other executive staff and trustees. Executive staff and trustees need to be receptive to financial input otherwise the role of paid and volunteer finance professionals can become frustrated. Any finance volunteers also need to be sure that they have the time and energy if taking on a demanding role; they may be the only finance professional in the organisation.

Currently there are over 500,000 charities in the UK and about 160,000 of those are registered with the Charity Commission of England and Wales. Some will be registered with the Charity Commission of Northern Ireland and some with the Office of the Scottish Charity Regulator and some will not be registered with any commission. Of the 160,000 registered with the Charity Commission of England and Wales according to figures issued in March 2012, approximately 86% of them have an income of less than £500,000 and, unless stipulated by their governing documents, do not have to have an audit. Charities with income between £25k and £500k have to have an independent examination; the independent examiner must be a qualified accountant for charities with an income of more than £250k.

Clearly there’s a significant need for financial input and guidance in all charities. Charities need access to finance professionals in order to navigate their way around the requirements of charity finance and the difficult decisions they are faced with on a daily basis such as how to manage restricted and unrestricted funds. Many charities will not be in a position to permanently employ a qualified finance professional and rely on volunteer trustees and volunteer independent examiners. Charity finance is challenging to understand, even for qualified finance professionals. Imagine what it must be like for non-finance managers who are often the people making decisions in charities.

Competition between charities for donations and grants is a challenge for charities. Competitive advantage can be gained from having efficient and effective finances that can be facilitated by good financial guidance. Every penny saved is another penny to spend on the charitable aims and the beneficiaries of the charity which is the real aim of effective and efficient finances within charities.

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