 Pool of resources
NOT
 Pot of cash
Watts Gregory LLP in association with WCVA
WHAT IS A FUND?
 Property
 Fixed assets – IT kit, office equipment,
vehicles etc
 Debtors – sums due to the charity
 Cash
 Creditors ...
 Unrestricted
 Designated
 Restricted
 Endowment
Watts Gregory LLP in association with WCVA
WHAT TYPES OF FUND ARE THE...
 This is often referred to as a “general fund”
and represents funds that are available to
the trustees to be applied for ...
 This is a type of unrestricted fund
comprising of amounts of unrestricted funds
set aside or earmarked by the charity fo...
 To provide for future costs / issues
 To recognise that some components of
unrestricted funds cannot be spent – e.g.
fi...
 Fixed asset fund – representing NBV of fixed assets
 Stock fund – representing NBV of stock
 Project in deficit fund –...
 These are funds subject to specific trusts which may be
declared by the donor. This means that the donor has
specified h...
 Funds received to be held as capital – e.g. a
portfolio of investments
2 TYPES
 Permanent – no power to convert to inco...
The basic definition of what is commonly known as
“free reserves” is “that part of the charity’s income
funds that is free...
SORP 2005 changed the above in that designated
funds can (not must) be regarded as part of free
reserves and charities may...
 To fund working capital
 To fund unexpected expenditure arising out
of e.g. project deficits, unplanned events,
emergen...
 My grant is 3 months late in arriving
 The roof needs replacing
 I want to embark on a new project
 Project 1 has cos...
 The Status Quo approach
 The Armageddon approach
Watts Gregory LLP in association with WCVA
2 APPROACHES
 Consider risks
 Analyse current position
 Look ahead at income streams
 Look ahead at expenditure expectations
 Cons...
 Why the need
 How much
 How to get there
 Review & Monitor
Watts Gregory LLP in association with WCVA
DRAFTING THE PO...
 The Trustees report should clearly state the
main activities of the charity within the
section “objectives and activitie...
 No clear link between TR and accounts
 Analysis by “natural” classification NOT by
activity
Watts Gregory LLP in associ...
CORRECT
Watts Gregory LLP in association with WCVA
Correct analysis
Cost of charitable activities Staff Other direct Grant...
INCORRECT
Watts Gregory LLP in association with WCVA
Incorrect analysis This year Last year
Project salaries
Admin salarie...
Correct analysis This year Last year
Incoming resources from charitable activities
Activity 1
Activity 2
Activity 3
CORRECT
INCORRECT
Watts Gregory LLP in association with WCVA
Incorrect analysis This year Last year
Welsh Assembly Government
Arts...
 Confusing funds with activities
 Confusing projects with activities
Watts Gregory LLP in association with WCVA
OTHER SI...
 2 SORPS
 One for large charities
 One for small
THE NEW SORP 2015
If you satisfy 2 of the following 3 criterion you are
SMALL
 Annual income < £6.5mill
 Total assets < £3.26mill
 <50 em...
 Thinking “small first”
 Core modules that apply to most charities
 Other modules that you use if applicable
SORP MODUL...
 Periods starting post 1/1/15
 For most that means the first year end is 31/3/16
 Need comparatives to 31/3/15
EFFECTIV...
 Fair and balanced – disclose successes and
failures
 Public benefit – cover activities and performance
not just aims an...
SORP 2005 NEW SORP
Incoming resources Income and endowments
Voluntary income Donations
Incoming resources from charitable ...
 Income recognised when “probable” not “virtually
certain”
 Donated goods recognised on receipt if practicable
 Disclos...
 Stock that is given away may still be included in
stock at cost
 Multi employer defined benefit schemes –
recognise lia...
THE END
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Getting your accounts right

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From the Wales Charity Law and Governance Conference 2014.

Published in: Government & Nonprofit
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Getting your accounts right

  1. 1.  Pool of resources NOT  Pot of cash Watts Gregory LLP in association with WCVA WHAT IS A FUND?
  2. 2.  Property  Fixed assets – IT kit, office equipment, vehicles etc  Debtors – sums due to the charity  Cash  Creditors – sums owed by the charity Watts Gregory LLP in association with WCVA WHAT DOES A FUND INCLUDE?
  3. 3.  Unrestricted  Designated  Restricted  Endowment Watts Gregory LLP in association with WCVA WHAT TYPES OF FUND ARE THERE?
  4. 4.  This is often referred to as a “general fund” and represents funds that are available to the trustees to be applied for the general purposes of the charity.  In other words you are free to use these funds for ANY of the charity’s purposes. Watts Gregory LLP in association with WCVA WHAT IS AN UNRESTRICTED FUND?
  5. 5.  This is a type of unrestricted fund comprising of amounts of unrestricted funds set aside or earmarked by the charity for a specific purpose. It is NOT a restricted fund.  The designation is made by the trustees and can be altered or rescinded by the trustees. Watts Gregory LLP in association with WCVA WHAT IS A DESIGNATED FUND?
  6. 6.  To provide for future costs / issues  To recognise that some components of unrestricted funds cannot be spent – e.g. fixed assets  To reduce reserves that look “too healthy” Watts Gregory LLP in association with WCVA WHY SET UP DESIGNATED FUNDS?
  7. 7.  Fixed asset fund – representing NBV of fixed assets  Stock fund – representing NBV of stock  Project in deficit fund – to cover the likely future losses on ongoing restricted fund projects.  Future maintenance fund – to cover major cyclical type costs such as re-roofing, replacement of windows etc.  Project fund – to cover the costs needed to establish a particular new project Watts Gregory LLP in association with WCVA DESIGNATED FUND EXAMPLES
  8. 8.  These are funds subject to specific trusts which may be declared by the donor. This means that the donor has specified how the funds are to be used. In other words they are gifts with “strings attached”.  Funds received as a result of a special appeal would also be restricted as the money is collected for a specific purpose.  e.g. Oxfam cannot run an appeal for a relief effort in Somalia and then spend the monies raised on a project in Brazil. Watts Gregory LLP in association with WCVA WHAT IS A RESTRICTED FUND?
  9. 9.  Funds received to be held as capital – e.g. a portfolio of investments 2 TYPES  Permanent – no power to convert to income  Expendable – power to convert to spendable income Watts Gregory LLP in association with WCVA WHAT IS AN ENDOWMENT FUND?
  10. 10. The basic definition of what is commonly known as “free reserves” is “that part of the charity’s income funds that is freely available.” This definition used to exclude :  Permanent endowment funds  Expendable endowment funds  Restricted funds  Designated funds  Income funds that could only be realised by disposing of fixed assets held for charity Watts Gregory LLP in association with WCVA RESERVES POLICIES
  11. 11. SORP 2005 changed the above in that designated funds can (not must) be regarded as part of free reserves and charities may (not must) be able to view expendable endowment funds as part of reserves. The emphasis now is on flexibility and a consideration of the charity’s circumstances Watts Gregory LLP in association with WCVA FREE RESERVES
  12. 12.  To fund working capital  To fund unexpected expenditure arising out of e.g. project deficits, unplanned events, emergencies  To fund income shortfalls  To develop new functions / projects  To underpin long term commitments Watts Gregory LLP in association with WCVA WHY HAVE RESERVES?
  13. 13.  My grant is 3 months late in arriving  The roof needs replacing  I want to embark on a new project  Project 1 has cost overruns  Etc etc Watts Gregory LLP in association with WCVA THINK – WHAT IF!!
  14. 14.  The Status Quo approach  The Armageddon approach Watts Gregory LLP in association with WCVA 2 APPROACHES
  15. 15.  Consider risks  Analyse current position  Look ahead at income streams  Look ahead at expenditure expectations  Consider future projects Watts Gregory LLP in association with WCVA A BETTER WAY
  16. 16.  Why the need  How much  How to get there  Review & Monitor Watts Gregory LLP in association with WCVA DRAFTING THE POLICY
  17. 17.  The Trustees report should clearly state the main activities of the charity within the section “objectives and activities”  The SOFA or the related SOFA notes should analyse income and expenditure by activity Watts Gregory LLP in association with WCVA ACTIVITY BASED REPORTING
  18. 18.  No clear link between TR and accounts  Analysis by “natural” classification NOT by activity Watts Gregory LLP in association with WCVA PROBLEMS ENCOUNTERED
  19. 19. CORRECT Watts Gregory LLP in association with WCVA Correct analysis Cost of charitable activities Staff Other direct Grants Support Total Activity 1 Activity 2 Activity 3
  20. 20. INCORRECT Watts Gregory LLP in association with WCVA Incorrect analysis This year Last year Project salaries Admin salaries Rent Rates Travel Etc Etc
  21. 21. Correct analysis This year Last year Incoming resources from charitable activities Activity 1 Activity 2 Activity 3 CORRECT
  22. 22. INCORRECT Watts Gregory LLP in association with WCVA Incorrect analysis This year Last year Welsh Assembly Government Arts Council for Wales Cardiff City Council Lottery Europe Sales
  23. 23.  Confusing funds with activities  Confusing projects with activities Watts Gregory LLP in association with WCVA OTHER SIMILAR ISSUES
  24. 24.  2 SORPS  One for large charities  One for small THE NEW SORP 2015
  25. 25. If you satisfy 2 of the following 3 criterion you are SMALL  Annual income < £6.5mill  Total assets < £3.26mill  <50 employees SMALL CHARITIES
  26. 26.  Thinking “small first”  Core modules that apply to most charities  Other modules that you use if applicable SORP MODULES
  27. 27.  Periods starting post 1/1/15  For most that means the first year end is 31/3/16  Need comparatives to 31/3/15 EFFECTIVE DATE
  28. 28.  Fair and balanced – disclose successes and failures  Public benefit – cover activities and performance not just aims and objectives  Going concern – state nature of uncertainties CHANGES TO TRUSTEES REPORT
  29. 29. SORP 2005 NEW SORP Incoming resources Income and endowments Voluntary income Donations Incoming resources from charitable activities Earned from charitable activities Activities for generating funds Earned from other activities Investment income Now combined with “other income” unless material Resources expended Expenditure Costs of generating voluntary income – fundraising trading: cost of goods sold and other costs – investment management costs Cost of raising funds Charitable activities Expenditure on charitable activities Governance costs No longer a separate heading - Now included in support costs Other resources expended Other expenditure CHANGES TO SOFA
  30. 30.  Income recognised when “probable” not “virtually certain”  Donated goods recognised on receipt if practicable  Disclose remuneration of key personnel in total  Extended definition of related parties OTHER CHANGES
  31. 31.  Stock that is given away may still be included in stock at cost  Multi employer defined benefit schemes – recognise liability on balance sheet  Holiday pay accruals OTHER CHANGES
  32. 32. THE END
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