Getting your accounts right

 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 – sums owed by the charity
WHAT DOES A FUND INCLUDE?

 Unrestricted
 Designated
 Restricted
 Endowment
WHAT TYPES OF FUND ARE THERE?

 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.
WHAT IS AN UNRESTRICTED FUND?

 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and can be altered or rescinded by the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.
WHAT IS A DESIGNATED FUND?

 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”
WHY SET UP DESIGNATED FUNDS?

 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
DESIGNATED FUND EXAMPLES

 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.
WHAT IS A RESTRICTED FUND?

 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
WHAT IS AN ENDOWMENT FUND?

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
RESERVES POLICIES

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
FREE RESERVES

 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
WHY HAVE RESERVES?

 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
THINK – WHAT IF!!

 The Status Quo approach
 The Armageddon approach
2 APPROACHES

 Consider risks
 Analyse current position
 Look ahead at income streams
 Look ahead at expenditure expectations
 Consider future projects
A BETTER WAY

 Why the need
 How much
 How to get there
 Review & Monitor
DRAFTING THE POLICY

 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
ACTIVITY BASED REPORTING

 No clear link between TR and accounts
 Analysis by “natural” classification NOT by
activity
PROBLEMS ENCOUNTERED

CORRECT
Correct analysis
Cost of charitable activities Staff Other direct Grants Support Total
Activity 1
Activity 2
Activity 3

INCORRECT
Incorrect analysis This year Last year
Project salaries
Admin salaries
Rent
Rates
Travel
Etc
Etc

Correct analysis This year Last year
Incoming resources from charitable activities
Activity 1
Activity 2
Activity 3
CORRECT

INCORRECT
Incorrect analysis This year Last year
Welsh Assembly Government
Arts Council for Wales
Cardiff City Council
Lottery
Europe
Sales

 Confusing funds with activities
 Confusing projects with activities
OTHER SIMILAR ISSUES

 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 employees
SMALL CHARITIES

 Thinking “small first”
 Core modules that apply to most charities
 Other modules that you use if applicable
SORP MODULES

 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

 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

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

 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

 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

Getting your accounts right

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