Other
Charities:
Trustees’ Responsibilities
It
is often considered an honour to act as a trustee for a charity
and an opportunity to give something back to the community.
However, becoming a trustee involves a certain commitment
and level of responsibility which should not be underestimated.
Whether you are already a trustee for a charity, be it a local
project or a household name, or are thinking of becoming involved,
there are a number of responsibilities that being a trustee
places upon you.
We outline the main responsibilities below, with a particular
emphasis on accounting and audit requirements.
Background
The
charities sector is generally overseen by the Charity Commission.
The Commission is a government department that requires the
registration of most charities.
The Commission plays an important role in the charity sector
and is in place to give the public confidence in the integrity
of charities.
A key part of the Commission’s work is to provide advice
to trustees. This is primarily achieved through the publication
of guidance notes (CCs). These are available from either the
Commission’s website (www.charity-commission.gov.uk)
or by telephone or written request.
Types
of Charity
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Charities
can be created in a number of ways but are usually either:
- incorporated
under the Companies Act 1985 (limited company charities)
or
- created
by a declaration of trust (unincorporated charities).
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All
charities are affected by the Charities Acts 1992 and 1993.
The type of the charity will determine the full extent of
a trustee’s responsibilities.
Who
is a Trustee?
The
Charities Act defines trustees as 'persons having the general
control and management of the administration of a charity'.
This definition would typically include:
- for
unincorporated charities, members of the executive or management
committee
- for
limited company charities, the directors or members of the
management committee.
Trustee
Restrictions and Liabilities
In
addition to the responsibilities of being a trustee, there
are also a number of restrictions which may apply. These are
aimed at preventing a conflict of interest arising between
a trustee’s personal interests and their duties as a
trustee. These provide that generally:
- trustees
cannot be paid for their work, although reasonable out of
pocket expenses may be reimbursed
- trustees
cannot benefit personally from the charity
- trustees
cannot be employees of the charity.
Where
trustees do not act prudently, lawfully or in accordance with
their governing document they may find themselves personally
responsible for any loss they cause the charity.
Trustees'
Responsibilities
Trustees
have full responsibility for the charity and are:
- required
to act prudently at all times in the best interests of the
charity and its beneficiaries
- personally
accountable for the proper management of the charity and
its assets.
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The
Charity Commission leaflet CC3 contains a long list
of trustees’ responsibilities, which essentially
cover:
- managing
finance
- applying
income
- land
and buildings
- investing
funds
- employing
staff
- fund
raising.
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Accounting
requirements
In addition to these responsibilities, there are particular
requirements for most charities to:
- keep
full and accurate accounting records (and funds requirements
are of particular importance here)
- prepare
charity accounts and an annual report
- to
ensure an audit or independent examination is carried out
- to
submit an annual return, annual report and accounts to the
Charity Commission (and, for limited company charities,
to Companies House).
The
extent to which these requirements have to be met generally
depends upon the type of charity and how much income and/or
total expenditure is received or generated.
Funds requirements
An important aspect of accounting for charities is the understanding
of the different 'funds' that a charity can have. The effective
management and control of fundraising is an important trustee
responsibility.
Essentially funds represent the income of the charity and
there may be restrictions on how certain types of funds raised
can be used. For example, a donation may be received only
on the understanding that it is to be used for a specified
purpose.
It is then the trustees' responsibility to ensure that such
'restricted' funds are used only as intended.
The annual report
The annual report is often a fairly comprehensive document,
as legislation sets out the minimum amount of information
that has to be included. The report generally includes:
- a
trustees' report (which can double as a directors' report
for incorporated charities)
- a
statement of financial activities for the year
- an
income and expenditure account for the year (for some incorporated
charities)
- a
balance sheet
- a
cashflow statement
- notes
to the accounts (including accounting policies).
Audit
requirements
Whether or not a charity requires an audit will depend mainly
upon how much income (and/or total expenditure) is received
or generated. The income and expenditure limits vary according
to the type of charity as follows:
- all
charities where income exceeds £250,000 require an
audit
- unincorporated
charities where income is between £10,000 and £250,000
require an independent examination
- incorporated
charities where income is between £90,000 and £250,000
require an audit exemption report.
Certain
limits are set to change once the new Charities Bill is implemented.
Reporting requirements
There is a widespread framework in place that determines how
a charity’s accounts should be prepared.
Unincorporated charities with income below £100,000
may prepare receipts and payments accounts.
All other charities must prepare accounts that show a 'true
and fair' view. To achieve this the accounts generally need
to follow the requirements of the Charities Statement of Recommended
Practice (SORP).
How
We Can Help
A
trustee’s responsibilities are many and varied. If you
would like to discuss these in more detail or would like help
in maintaining your charity’s accounting records or preparing
its annual report we are able to help.
We are also able to advise on whether or not an audit or independent
examination will be required and are able to carry this out.
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For information of users: This material is published
for the information of clients. It provides only an overview
of the regulations in force at the date of publication, and
no action should be taken without consulting the detailed
legislation or seeking professional advice. Therefore no responsibility
for loss occasioned by any person acting or refraining from
action as a result of the material can be accepted by the
authors or the firm.
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