Let Your Numbers Talk

Good Governance requires charities to use good quality financial information for decision making and accountability. The year-end financial statements prepared by charities provide the following minimum benefits:

·        An annual feedback on use of reserves and financial activities. This is often a year old and may not represent the current state.

·        If audited, then independent certification to confirm whether the financial data held by the Charity is materially ‘true and fair’ – meaning there are no ‘big problems’ in the accounts.

·        The Executive and Trustees can be held accountable for income and spend.

·        A discipline is enforced for keeping records and maintaining audit trails of income and spends.

In addition to the above, charities that aspire to improve their governance should use their financial statements as effective tools to improve control, inform strategy and achieve transparency, for example:

1.      The financial statements should make sense to trustees and those charged with governance. They should inform decision making and strategy otherwise there is a risk that decisions may not reflect ground reality. This could potentially lead to disastrous consequences or waste of resources.

2.      Charities should use the year-end process to take stock of their financial controls. Financial controls and financial statements are interlinked. Late or poor quality financial statements are often as a result of inadequate financial controls.

3.      The financial statements must be user friendly, reflecting the nature of the charity. This raises the charities profile and credibility among its donors and external bodies such as banks, institutional funders and regulators.

By Nasir Rafiq (Director HW Controls & Assurance LLP)

An Expert in Governance and Internal Control within the Charity and Government Sectors

Email nrafiq@hwca.com  ; Website: www.hw-ca.com

The Camel and Muslim Charities – Risk Management

In a well-known saying Prophet Muhammad (PBUH) advised Muslims to tie their camels before placing trust in God for its protection. This concept has some very important lessons for Muslim charities:

1.   Charities should recognise their risks like the risk of losing the Camel. Charities face the risk of fraud, loss of reputation; loss of income; loss of key staff, fines and penalties, litigation and most importantly the risk of not achieving the charity or fund objectives... to help those in need.  The impact of these risks will depend on the nature and size of a charity; they nevertheless apply to all.

2.   Recognised risks should be controlled. God will not protect the Camel unless it’s properly tied up. Trustees and Directors of Muslim charities should ensure that adequate and effective controls are introduced to mitigate risks. Application of these controls should be in the context of risk, for example, the Camel can be tied up with a metal chain (expensive and excessive) or a weak rope (camel will break free).  Moderation and proportionate risk control is therefore the way forward, and those charged with governance should put in place the capability to allow them to exercise this role effectively.

3.   Place your trust in God. No control is perfect to eliminate risks. According to the values of Islam, it is because of God’s mercy and blessings that charities are often protected and make a difference to their beneficiaries. It is important however not to abuse this beautiful concept by leaving risks unattended... like that Camel.

By Nasir Rafiq ACA (Director HW Controls & Assurance LLP)

An Expert in Governance and Internal Control within the Charity and Government Sectors

Website: www.hw-ca.com

Overheads in Charities – Good Governance

Overheads are support and administration costs that Charities incur in delivering their charitable objectives. In a small organisation this may be borne by Trustees with no impact on charity accounts whereas in large charities this cost becomes unavoidable.

Overhead costs and activities either incurred by the charity or by the donors directly are important, as without these costs or activities, it is impossible to deliver charitable objectives.

Trustees and Directors have a legal and a moral duty to ensure that charity funds are spent wisely, properly and according to charity objectives. Consequently, robust administration of funds becomes a necessity for the charity sector and the not-for-profit sector generally.

Support costs however can be rationalised, if charities are able to effectively capture, control and plan their support costs, for example:

• The business case for support costs should be reviewed against the risk management and accountability needs of charities.
• Consistent good financial controls and robust year end reporting of support costs through the annual accounts and internal reports;
• Effective budget monitoring of support costs through out the year; and
• Smart business planning to reduce the impact of support costs on public donations, for example the use of trading income, specific business donors.

By Nasir Rafiq ACA - Director HW Controls & Assurance LLP

An Expert in Governance and Internal Control within the Charity and Government Sectors.

http://www.hw-ca.com/  

Spending Review – An opportunity or a threat for internal audit?

For too long internal audit functions have allowed themselves to become the poor relation – when the executive seek advice on performance or structural transformation they pick up the telephone and call in the specialist consultant.

Why not reinvigorate internal audit to ensure that their activities compliment those of the organisation and ensure that their approach considers the structural and value for money elements of service delivery in the functions they look at year in, year out.

An untapped resource – that if properly channelled can yield cost savings for years to come.

If ever there was a time to change the way Internal Audit is delivered, its now

The focus on back office services when times are tough isn't new.  What's rather astonishing is that in spite of CCT (Compulsory Competitive Tendering), Best Value, CPA (Comprehensive Performance Assessment), efficiency savings etc etc one would be hard pressed to identify discernible changes in the culture and mindset with regard to the way internal audit (IA) is viewed within local government. 

The Comprehensive Spending Review now presents local government internal audit with a whole new level of challenge and, in our mind, a real opportunity to step up to the plate.  How?  In a sentence, IA has to address its biggest issue - lack of genuine profile and worth within an organisation.  IA has to quickly position itself as the original advisor to senior management.  It can only do so by producing work of genuine value and strategic importance.  We believe that even the most routine review can and should be undertaken with the big picture in mind.  To do this auditors have to unshackle themselves from being slaves to check-lists and start thinking - therein lies the mindset/culture change that is needed.

Down to earth external audit fees... Finally?

The recent announcement that the Audit Commission is to be disbanded should herald an era of greater choice and keener prices within the public sector external audit market.  The operative word here is “should”.  The onus is very much on public sector organisations to demand that such a market is created.  A good starting point would be to allow smaller auditing practices to enter what has traditionally been a market for the privileged few.  Public sector organisations would benefit immediately through a marked and long overdue reduction in external audit fees.