10 Common Problem Areas
From our Community Accountancy we have noticed several common ‘problem areas’ that our groups have come across. This list has been put together to help all groups to be aware of areas of potential risk for their organisations, so that you can plan to mitigate these risks.
1. Read and understand your governing document
- All groups MUST act in accordance with their constitution/trust deed/or memorandum and articles of association. This sets out what a group can and cannot do.
- Check whether your governing document requires that the group has a full audit (in which case you will need a firm of registered auditors to audit your books) or not.
- Does your governing document stipulate when your AGM should be held?
- Does the governing document have an absolute ban on any payment to trustees (and their related parties)?
- Ensure all trustees have a copy of the governing document, and have read it!
2. There are strict rules on payments to Trustees and their related parties
- In general trustees must be not paid and must not benefit in any way from their connection with the charity (although there are LIMITED exceptions to this rule).
- As a general rule, only reasonable and necessary out-of-pocket expenses can be reimbursed.
- Any reimbursement of trustee expenses should be properly authorised and all revelant paperwork kept.
- If these rules are broken the trustee may have to make good any loss to the charity out of their own pocket.
- See the Charity Commissions booklet CC11 ‘Payment of Charity Trustees’ for more details.
3. Check your cash book is up to date and that it has been added up
- All cashbook columns and rows need to be added up and a running total of the cash book balance kept.
- Have you checked it against your bank statements? Make sure you tick off all receipts and payments in your cashbook against your bank statement. Make a note of and investigate any differences between the two.
- A common error is to forget to put direct debit payments in your cashbook.
4. Keep a petty cash book
- Are all petty cash receipts and payments recorded in a petty cash book?
- Make sure that this is added up and a running total kept.
- Do regular petty cash counts and compare against the book balance.
- Make sure you record all income gross – ie don’t pay any expenses out of takings before entering the gross income in the books.
5. Check your accounting records have the correct opening balances
- If your accountant had to make any adjustments to your figures in order to prepare last yearends’ accounts make sure that these adjustments have been entered into your books.
- A lot of time could be wasted at the next year-end trying to get to the correct starting figures if these adjustments have not been made.
6. Do you have a system in place to make sure your books are complete and up-to-date?
i.e. Do you have a logical process you follow when dealing with your group’s accounts? Examples include:
- Making sure all invoices are sent to one address, that a log is kept of all post received, invoices are numbered in chronological order and this reference is used in the cash book.
- Making sure all invoices are authorised by two bank signatories, and that the cheque stub is initialled by bank signatories when cheque signing.
- Writing down how you do things in your organisation will help your group if you have to be absent for a period of time or there is a change in treasurer etc.
7. Do you discuss and minute all important financial (and other) decisions at trustee meetings?
- Minuting all such decisions shows that the trustees as a whole have agreed a particular course of action, and can act as a reminder as to why you made a particular decision several years down the line.
8. Salaries and self-employed worker
- Make sure you keep full records of all payments made to staff.
- If you have to pay workers in cash (cheque or BACS gives a better paper trail) make sure you issue proper receipts which are signed by the worker and the group. A copy should be kept by the group.
- Whether someone is employed or self-employed is not a matter of choice, but depends on the facts for each individual worker. Just because someone is self-employed for a piece of work elsewhere does not mean that you can automatically treat them as self-employed for any work they do for you.
- It’s the group, and therefore the trustees responsibility to ensure that you are deducting PAYE and NIC from all relevant staff. Should HMRC find that you have paid someone on a self-employed basis when they should have been classed as employed the trustees are liable for the unpaid tax and NIC.
9. Account for each grant separately
- This doesn’t mean that you necessarily need a separate bank account for each grant.
- Make sure that you have a separate book or column in your cash book so you know how you have spent each fund.
10. Know your responsibilities, as a trustee/director
- If your Charity is also a company, as a trustee you are also a director and so have to comply with Charity Law and Company Law.
- All decisions should be made collectively and as a team. Leaving all financial decisions to the treasurer is unfair and places too much responsibility onto one person.
- Although trustees can delegate certain tasks to employees, trustees cannot delegate ultimate responsibility for running the charity.
For more information please contact Claire Mosey or Rachel Williams on (01724) 845155.