Bookkeeping

Bookkeeping is sometimes considered as a lesser role than accountancy or perhaps its accountants who just think they are more important. Whichever way around it is the message to take away is that’s wrong.

Bookkeeping is the bedrock of accounts preparation and good reporting. It is very difficult to prepare accounts, reports or balance sheets if you have no information to put in them! Even if you have the smartest, slickest templates for your reports, without accurate, timely bookkeeping there is not much point in having templates at all.

The basics of good bookkeeping are actually very simple. You need to have an electronic system that allows you to easily enter dates, invoice numbers, descriptions etc. another essential tool for your electronic system is data manipulation. Most accounting software packages are specifically targeted at accounts which is perfect if all you want from your software is bookkeeping and reports.

We use excel spreadsheets for a couple of good reasons.

The first is its very cost effective, once you have bought the initial package you have that for as long as you need with no renewal costs (unless you are now on the pay monthly deal offered by Microsoft).

The second reason is just how adaptable excel really is. It can be used to store an unlimited amount of data whilst still providing the tools to quickly and easily dig out the information that you want. Excel is not just useful for finances, you can use it for monitoring numbers of people helped, website visits, contact details the list of uses is almost endless! Some more examples include monitoring key words on your website, monitoring training records and so on.

So, excel is our preferred software of choice for small charities. Once you reach a certain size however you will find specially made accounting software essential for quick bookkeeping. But remember size is not necessarily a measure of expenditure or income but a measure of how many transactions your charity needs to process.

Internal controls and procedures

Another essential tool for bookkeeping is a solid internal controls and procedures policy. There is more information on our website including guidance documents provided by the charity commission. But the key is make sure the procedures are reasonable and that the controls are effective. Internal controls and procedures is such a complex topic that I will dedicate another article to this at a later date.

So far we have only scratched the surface of bookkeeping but there is plenty of time to say everything that needs to be said! Stay tuned.

Creating an Ethical Culture

Over the last few years there has been a lean towards using ethical values and principles to govern professions in the light of financial crashes being caused be unethical behaviour. We are now starting to see the spot light turned on charities as recently there have been some bad examples of poor ethical behaviour.

One issue is people assume that because you are involved in a charity or work or run a charitable organisation that automatically makes you ethical to a certain degree. This is of course true in some cases but what charities lack in general is the organisation wide ethical approach to every aspect of work. As accountants we are taught to approach every client and business partner with a degree of professional scepticism. This is not because we never trust anyone or indeed that are clients and business partners are not trustworthy, it is simply to recognise that no matter how good we think we are at reading peoples character we are never going to know enough to be able to eliminate all doubt.

It’s not enough to just act ethically in one department. Your staff, your volunteers, your trustees and every one in-between need to think and act with a professional mindset. A great way to achieve this is to implement an ethics policy or code. The set of principles below are often referred to as the Nolan Principles or The Seven Principles of Public Life. Using them as the starting blocks to build your ethics policy is a good way to start.

Selflessness Holders of public office should act solely in terms of the public interest. They should not do so in order to gain financial or other benefits for themselves, their family or their friends.

Integrity Holders of public office should not place themselves under any financial or other obligation to outside individuals or organisations that might seek to influence them in the performance of their official duties.

Objectivity In carrying out public business, including making public appointments, awarding contracts, or recommending individuals for rewards and benefits, holders of public office should make choices on merit.

Accountability Holders of public office are accountable for their decisions and actions to the public and must submit themselves to whatever scrutiny is appropriate to their office.

Openness Holders of public office should be as open as possible about all the decisions and actions that they take. They should give reasons for their decisions and restrict information only when the wider public interest clearly demands it.

Honesty Holders of public office have a duty to declare any private interests relating to their public duties and to take steps to resolve any conflicts arising in a way that protects the public interest.

Leadership Holders of public office should promote and support these principles by leadership and example.

Important things to note with implementing an Ethics Policy

-     1. Creating an ethical culture throughout your charity needs to start from the top and be reflected all the way down to volunteers to be effective.

-      2. Making sure all new volunteers and staff are taught to be ethical when they join your organisation is a great way of maintaining your organisations ethical values. 

-      3. Being aware of outside threats is key to ensuring your organisation does not accidentally behave unethically.

-      4. Constant reminders for all members are important as it is easy to get into bad habits.

-      5. Last but not least make sure you have clear objectives for implementing an ethics policy.

If you want any help or advice in creating an ethics policy that suits your organisation Chadmin is more than happy to help. As accountants we have ethical principles that we have to abide by and after a while it just becomes common sense. That is essentially the main goal of an ethics policy, to get everyone involved to naturally react in an ethical manor.

Materiality

Materiality is a strange accountancy calculation for many different reasons. The first reason is that it is often not calculated to an exact figure. By that I mean when you calculate materiality you will most likely round that figure to a nice whole number. This goes against the grain as 99.99% of the time our figures must be as accurate as humanly possible. Although even if it was calculated to an exact figure there is still the possibility of that figure being unrealistic or just wrong.

Another varying element with materiality is who decides what is material for this organisation? Just last week I was questioning KPMG Auditors over there decision to set materiality at 1.5% (of total expenditure) for West Devon Borough Council. During the conversation I discovered they have a maximum and a minimum percentage that they will apply for different organisations. The higher risk you are the lower percentage materiality they will use and vice versa. Interestingly they calculated materiality on expenditure instead of income which is different to the commercial world where you would normally calculate it on turnover.

This is all nice to know but how does this help charities or even small businesses? First we need to understand the concept. Materiality is really a tool to help prevent charities and businesses getting weighed down by insignificant errors in reporting on accounts. If there was not a similar mechanism in place entities would be endlessly making minor adjustments to accounts. Having a measure as to what is classified as a serious error helps auditors and accountants make reasonable decisions on the accuracy of the accounts.

Another side of materiality is that it acts as a safety net. By this I mean materiality is there to insure there is a limit on how big a mistake can go unadjusted. Remember lots of little mistakes or errors can add up to being material so it’s never worth ignoring items that are not considered material. Often auditors will raise adjustments that could be made but are not of a material nature and can be adjusted moving forwards. It is important to work well with auditors at the same time as not becoming too familiar.

As a charity it is important to make sure your materiality percentage makes sense but also gives you enough room to move freely. Setting it at anything below 0.5% is probably too low but above 4% is far too high. Other things you need to consider are what will you calculate materiality on? As a charity calculating it on turnover(income) may not be the best way as regularly charities spend more than they receive. You could of course have two separate materiality levels one for income and one for expenditure.

One last thing to say and that is once the level of materiality has been set for the year you must abide by that level. You cannot suddenly decide to increase your materiality level because of what you find.

The Office Move

Moving my accountancy and fundraising business has been one of the busiest weeks I have had in a long time. First thing on the Saturday morning I went to the van depot to pick up the hire van only to find out I had not held a driving licence long enough to be able to drive the van! At this point I was thinking to myself it’s going to be one of those days! I had to wake up my friend who was helping me move and get him to drive the van instead (I now owe him several pints!). Thankfully that was the only thing that went wrong that day. We got everything in to the office mostly without damaging it!

The odd dent in a desk or filling cabinet is not concerning and does not hinder me or my staff working. My new accountancy office however, does not currently have WiFi due to Talk Talk not behaving themselves. The Phone number is also incorrect again due to Talk Talk messing us around. Hopefully this will be resolved soon and I should probably apologise now for the poor person who has to deal with my formal complaint! Still you can’t expect everything to go correctly and despite this issue with the internet and phone everything has gone relatively smoothly. For anyone else looking to move office make sure you start setting up your phone line and internet at least 2 months in advance of the move! (as clearly 1 month was not long enough!)

After a week of trying to work without internet connection whilst also unpacking everything we finally feel like the office has fully been set up and ready to go. It’s been an interesting week moving the accountancy practice from my Parents loft to an office in the centre of Okehampton. Despite being very grateful my parents let me use their loft, I am very excited to have moved out and taken a big step forward. Instead of crammed files, piles of boxes and documents everywhere, I now have row upon row of neatly labelled files all my documents are in the filling cabinet and boxes are a thing of the past!

In general, I have never been the most organised person in fact that is probably my greatest weakness. Thankfully I am able to recognize this and have taken steps to ensure my fresh start is not short-lived due to my disorganized approach! Much of this new organized office is thanks to Emma who I have been working with over the last 6 months. Although I may have said what I have wanted Emma is the one who actually implements these new systems.

Fresh starts are never easy mainly because you realise how stuck in your ways you were. Turning over a new leaf often highlights all the flaws in your previous accomplishments which (although slightly depressing) highlights new ways to improve and better the old versions. I find this exciting for a new accountancy office as it means I can only improve (at least that’s the idea). I would actually be more concerned if I had no vision for the future improvements I would like to make.

Looking to the future for my accountancy firm I hope we become a leader in charity finance and governance on a national scale. This may seem a long way off but every step we take is a step closer to the goal. In achieving this goal I hope we make a difference to every charity client we have along the way.