Running a successful charity involves more than passion for a just cause; it requires careful accounting and financial management to maintain the trust of donors, ensure you’re complying with all legal requirements, and maximising the impact of every penny you receive.
In today’s blog post, we provide our top tips that charities can use to improve their accounting.
Maintain accurate financial records
Accurate financial records are the foundation of good financial management and accounting. If they’re not accurate – and you only realise too late – you’re going to report inaccurate figures, which could get your charity into trouble.
To make sure you’re keeping accurate records, first make sure that you’re recording all donations, grants, purchases, and other financial transactions are recorded in detail. This includes tracking the source, total, and purpose of every fund.
We also recommend that you use online accounting software that specifically supports charities. This type of software can automate accounting processes, which will ultimately speed up processes and reduce the chance of error.
You should also ensure you regularly reconcile accounts with your internal records to catch discrepancies early. Online accounting software will be a special help here by fully automating the process to complete it in a matter of minutes.
Implement strong internal controls
Internal controls are policies and procedures put in place to protect assets, prevent fraud, and ensure the accuracy of financial records. Charities should consider:
- Separating duties: No single individual should be responsible for recording and approving financial transactions. Separating duties seriously reduces the risk of error and fraud.
- Approval processes: Establish clear procedures for approving expenses and payments, which could include requiring multiple signatures for large transactions.
- Regular audits: Conducts regular internal audits and considers annual external audits with an outside audit professional. These procedures will help you identify weaknesses in your internal controls and check whether you comply with all relevant regulations.
- Cash handling procedures: Extend internal controls to cash donations. These could include immediate counting by multiple individuals and secure storage until the money can be deposited.
Managing restricted and unrestricted funds
Charities often receive both restricted and unrestricted funds, the former of which can only be used for a specific purpose and the latter of which can be used however the organisation sees fit. Properly separating and managing these funds is essential so the different funds don’t inadvertently mix.
To do that, you should consider maintaining separate accounts for restricted and unrestricted funds. It may seem like this will increase your workload, but keeping these funds separate will simplify tracking and reporting, saving you a lot of time and peace of mind.
You also need to properly track your unrestricted funds. As they’re all to be used for very specific purposes, keeping them separate will ensure you respect the wishes of your donors.
Regular financial reporting
Transparent and regular financial reporting is important to maintain accountability to donors, board members, and regulatory bodies. There are multiple dimensions to this:
- Monthly reports: Monthly financial statements, including a balance sheet, income statement, and cashflow statement, will help the management team and board make short- and medium-term decisions.
- Annual reports: Annual reports that summarise the charity’s financial activities, accomplishments, and future plans will demonstrate to your stakeholders its impact and financial health.
- Compliance with UK regulations: Ensure that all financial reports comply with UK charity law, including the requirements set out by the Charity Commission and HMRC for Gift Aid. Non-compliance can lead to penalties and damage to the charity’s reputation.
Consult with an accountant
At Carston, we understand the unique challenges that UK charities face when managing finances. We specialise in helping them maintain accurate records, implement strong internal controls, and ensure compliance with all regulatory requirements.
Whether you need assistance with budgeting, managing restricted funds, or preparing detailed financial reports, we’re here to help.
Get in touch with us today to learn how we can support your charity’s financial health.