Charities, Accountants and Data Protection

More and more we are starting to see Hacking being used to steal our confidential information as opposed to the traditional ways. Big companies often find themselves more at risk despite having higher security than a sole trader would.  Yahoo is the latest news worthy victim losing millions of people’s login details and account information. (luckily I’m with google)

These disturbing stories can seem distant and unlikely to small charities and accountancy firms but the risks are very much still there. One of the easiest ways you can be hacked is through scam emails. All it takes is one click in a scam email and you can lose everything (or be ransomed with your own information!)

This raises the question of what happens when it comes to data protection and being hacked? Something, I would imagine, most large companies would have a policy on. Most small charities and even most small accountancy firms are unlikely to have a strong policy on issues like this. After all who is going to target such a small organisation?  

If you do not have a policy in place, think about these questions and then you may change your mind.

If there is no policy in place is it your fault for not taking the proper precautions?

If there has been no formal training is that again the fault of the organisation?

If you do not have virus protection on your computer are you being negligent?

Are you using an email account with a poor spam filter and if so would that mean you were to blame?

You could argue that it’s the fault of the Hacker and to a certain degree it is. However, if you as an organisation are not taking the correct precautions you are not being responsible with confidential information. Confidential information being lost can be financially damaging and mentally unsettling for employees and volunteers. Your responsibility as a data controller is to make sure you take every precaution with all confidential information.

Independent Examinations

One of the first independent examinations I did was for a very small charity in Devon. It was one of those unusual situations where the charity was only expected to go over the £25k threshold for this particular year. The reason was due to a large sum of money that had been left to the charity in a will. For this particular situation it made the Independent exceptionally easy.

Due to the small size of the charity there was hardly any documentation to go through. There was however a need to explain the reason for the sudden hike in income to the charity commission specifically noting that this was unlikely to happen again. (unfortunately from the charities perspective!) thinking about this situation is one of the reasons I enjoy independent examinations. You never know what you’re going to find around the corner at each different charity.

However, you do not always come across such happy circumstances when undertaking Independent examinations. In fact, the main reason for completing independent examinations and audits is not to identify when things are going well. Independent examinations are a tool to help you identify errors and fraud and prevent any biased opinions being present in the accounts.

In the example above I was able to trace each expenditure from the minutes through to the receipt. In general, though this will not actually be possible. Small charities (under the 25K threshold) are often at a point where the trustees can make a decision on every single item of expenditure. As charities grow they will have no choice but to delegate expenditure to employees or volunteers. (otherwise they would do nothing but authorising payments)

This is the point where charity accounts start to get more complicated and require outside review (independent examination) to ensure they are in compliance with accounting standards and charity regulation. This is also the point where internal controls become essential but we will save that for another day!

Restricted Funds – Use Wisely

Fund accounting, as it is commonly called, can be a very successful tool for raising money (or saving up) for a specific project or cause. The benefit from a member of the public's point of view is that they know where their hard earned cash is going to be spent. This does of course rely on how well your campaign emphasises the fact that the money they donate will only be spent on this specific project. People always like knowing where their money is going and more importantly they are more likely to hand it over with this knowledge readily available.

As mentioned above from a charities point of view having this tool is very useful but there are also a number of drawbacks. Once a restricted fund has been set up this money and any further money added to this restricted pot can only be used for the reason the restricted fund was set up. At this point you may be thinking well that’s good isn’t it? Well yes and no, it entirely depends what the fund has been set up to do.

Let’s use an example of a charity that provides sports and recreation for a town or local authority. If they were to set up a restricted fund to repair or replace all goal posts and nets any money set aside for this purpose will only be available for goal posts and nets.  A much better reserve to set up would be a maintenance, repair and replacement reserve for sports facilities. This reserve can include almost everything that you need to maintain any sporting facility you have. It could include your indoor courts, tennis courts, rugby equipment etc. The other option would be to set up a restricted fund for each single item you may need to replace or repair. Apart from being a huge administration pressure you will end up with pots of restricted funds that are unable to be used. In other words, there is no flexibility having to many different restricted funds set up.

Often large donations come with a catch i.e. you must set up a restricted reserve (only use the money for a particular activity) to accept the donation. This can be restricting to a charity especially if extensive effort has been expended to draw in this particular donation. Although it can be restricting, I would suggest continuing to work for these sorts of donations and keep encourage current donators. Providing the work you are expected to do falls within the scope of what your charitable aims are, you can find a way to make these donations work to your charities advantage. At least you are getting income even if it is restricted you are still making a difference. The more willing you are to work with people who make large donations the more likely they are to continue supporting you and over time you will be able to guide them to what you need the most.

The point I am trying to make is be wise with your restricted reserves. Use them to your advantage in fundraising campaigns. Be savvy with setting up the restricted funds in the first place and make sure they have a broad enough scope so they do not hold you back or leave pots of money stranded. 

Accountants VS Volunteers

This is the first blog of many to come from The Charity Accountant (Ben Stephens owner of Chadmin). There are many topics to cover from fund accounting to bookkeeping to independent examinations. I may also stray into topics such as fundraising and administration but everything on this blog will be focused on charities.  All these topics and more will be discussed overtime but for the first blog I want to talk about why so many charities still rely on volunteers for their accountancy needs.

1. The number one reason is of course it’s free which sounds perfect and makes charities feel like they are saving money.

The trouble with free accounting services or free bookkeeping is there is normally a lack of professional knowledge. This can regularly become more of a hindrance for charities than a benefit. Most accountants will always do their best to save money for their clients (charities or businesses) and this is something that a volunteer would not necessarily have the skills to do. Of course if your volunteer who does the accounts happens to be a qualified accountant then you are very lucky!

2. Accountants are often not trusted as we are occasionally perceived as money grubbing monsters!

This is true for some accounting firms who unfortunately care about money more than people. But there are plenty of practices around who genuinely care about making a difference to the world. They can be difficult to find but when you do find one that works well with your charity make sure you keep them. Whilst we are on the subject of charity accountants don’t forget to check out my website Chadmin For Charities.

3. The transition can be difficult going from volunteer to paid accountant.

If you have had a volunteer who has done the accounts for years but the charity has grown beyond their capabilities it can be difficult to say we need to get an accountant now. But it is very important that you do! Otherwise you could end up on the wrong side of the law simply by trying to keep costs low and not wanting to lose a committed volunteer.  If you are respectful of the work the volunteer has put in and include them in some other way, perhaps get them to work with the accountant, then you can have the best of both worlds.

4. Trustees think an accountant is not necessary.

This can happen easier than you might think. Trustees get used to the volunteer doing the accounts and as the charity grows and expands probably forget or do not realise that they are asking too much of their volunteer. Communication is essential between trustees and volunteers to ensure volunteers are not being given responsibilities they are not qualified for. Obviously in the first year or so of starting up your charity there is probably no need to be paying for an accountant. As you start to grow your accounts will inevitably get more complicated. (Keep reading my blogs to see what I mean by complicated!)

5. Worst case scenario is that the people running the charity think reporting and keeping accurate accounts is not necessary.

I personally have not come across any situations like this yet but there are bound to be people who think like this for one reason or another. Even if you hate all the endless amounts of reporting it is essential that you don’t ignore it or make it less of a priority. The reason reporting is so essential is to ensure charities are legitimate and not committing fraud or being used as fronts for organised crime. If your sat there thinking “well my charity is clearly legitimate” think on this. How are the Charity Commission or HMRC meant to prevent charities being used for fraud or fronts for organised crime without some kind of information exchange?  

Thanks for reading and stay tuned for the next topic I cover! I will be posting a new blog at least twice a week. Perhaps even more if there is something really exciting going on in the world of charity accountancy!