Combined banking for Charitable Trust and operating company?

BlueVinney

I've just become a trustee of a charitable trust which operates a museum for heritage equipment. The actual museum is run by a limited company (limited by guarantee) and returning all profit to the trust. The company employs a number of full time people to maintain the equipment.

The most of the company's income is from summer visitors and so it is cash positive in summer but has an overdraft in winter, as the employment costs are on-going. The bank charges for the overdraft.

The trust has a number of funds for specific projects. Any of these will only be spent when there is sufficient money for that project, so these are in savings accounts. The amount held, in total, is larger than the overdraft required by the company but gains much lower interest than the charges for the overdraft.

Does anyone know of a bank which would hold the funds for the charity in such a way we are only charged for the net overdraft, ie. overdraft - saving funds? This is just the equivalent of some personal accounts which incorporate current account + mortgage + loans.

Savvy_Sue

We (small charity, also limited company) have all our money in one pot, Unity Trust to be precise as they pay decent rate of interest. But some of this money is 'restricted funds', only to be spent on particular things, like a particular person's salary, or supplies for our van outreach. It's the treasurer and auditor who work out what should be in each 'pot' at the end of the financial year and it's shown in the statement of accounts, but not in the bank statement.

I can't see any reason why you shouldn't be able to do the same, unless your different 'projects' have completely different names on their bank accounts. Which would raise other problems ...

As an example, at the moment we're 'holding' money being given towards an extension of our work, which may end up being run entirely separately from our work. We'll need 000s before this goes ahead and we may in the end not go ahead, in which case the gifts we've had so far will need to be returned (or at least offered back) to the donors. We're not yet at a stage where it would be worth opening a bank account for the new work, even if the decision to proceed was certain. So the money sits in our account, and at the end of the year Madam Treasurer will tell the AGM that £x000 of our healthy bank balance isn't actually ours to spend.

Does that make sense?

I hope you're not offended by this, but if you're the treasurer, I think you would benefit from some training or 'reading up' on this kind of thing. If you're not the treasurer, I think s/he needs some updating! Keep asking the questions though: while you are new is the time to do it, before you slip into the "But we've always done it this way" rut! And in any charity, it is a really good idea if someone other than the treasurer has half an idea of how to read a balance sheet and what's going on.

Another thought: any charity is encouraged to build up a suitable level of 'reserves'. This can be very hard: my DH would like to have 3 months operating costs (including salaries) in hand but operates far more on a hand to mouth basis where he works (also a charity). But for you, I'd say you ought to be aiming at having enough in the 'main pot' to keep going through a winter without going overdrawn.

Hope that helps and makes sense!

BlueVinney

Hi Savvy_Sue,

Thanks for passing on your experience with this type of situation.

I've just been elected as a trustee and attended my first meeting of the trustees. I was intrigued when I saw details of the bank accounts and thought that there must be a better way.

As far as I can see our 'savings' are also restricted funds so perhaps we could consolidate in the same way as you. Rather than just getting a better rate of interest on these funds it would be better if we could lend it as a short term loan to our operating company. In that way we wouldn't need to pay the high interest rate on our overdraft. I wonder how the Charity Commissioners would view that?

I'll try working on this but the Treasurer is the FD of a City accountancy practice who I guess should really understand what he is doing. I have my doubts but will have to walk on eggshells in trying to take it forward.

Savvy_Sue

DH has just read your original post and points out that the charities for which he and I work are slightly different to yours, in that in both cases we are both a charity and a limited company. But he doesn't think that makes a material difference to my answer, because as far as he can see the trust can lend money to the company and vice versa. But he says "What's the relationship between the trust and the company?"

He was also fairly dismissive about your assumed ability of the FD of an accountancy practice to understand what he is doing ... and going by our experience of the ways in which our auditors (accountants) have failed to understand our 'restricted income' pots I'd have to say he has a point. Thank goodness our treasurer is on the ball!

But as you say, you're walking on eggshells, and it's easy for someone who everyone thinks SHOULD know what they are on about to bamboozle the rest of the trustees. However, at the end of the day a) the trustees are responsible for how the charity uses its money, not just the treasurer and b), where the trustees are not effective, it's not unknown for treasurers to run off with the money because no-one realised what they were up to.

So get yourself informed, and try to put yourself forward as someone who wants to help rather than someone who's undermining him. Do you know how to read a basic balance sheet? If not, learn! I once asked at an AGM why the organisation appeared to have spent over £1000 on a lawnmower for a not very large piece of grass. Of course they hadn't, it was a mistake, which the treasurer was hoping no-one would spot. If there's something in the treasurer's reports you don't understand, ask him to explain it. If you prefer, ask the chairman or another trustee outside of the meeting. If they don't understand either there's a problem of communication!

Have a look at the stickies at the top of this board, esp the one on useful sites. Charity Commission give 'chapter and verse' - I hope you've had their booklet on your responsibilities (scary stuff!) NCVO are useful sources of information, especially if you use volunteers - scrub that, you DO use volunteers as trustees! If there's a local CVS (Council for Voluntary Service) they may do training - ours has recently offered training in financial stuff for trustees. It may not be called a CVS but you should hopefully be able to find it from that site, or ask NCVO.

Hope all this helps, good luck!

Savvy_Sue

Savvy_Sue wrote:

b), where the trustees are not effective, it's not unknown for treasurers to run off with the money because no-one realised what they were up to.

I think I should rephrase this. What I mean is that it is far more difficult for the treasurer to misappropriate funds if the trustees are effective, ie doing their job properly. In the rare cases of misconduct, some blame is usually laid on the rest of the trustees for failing to understand what they were being told.

None of us likes to come out and say "I don't trust the treasurer." However, best practice says that the treasurer should behave almost as if s/he can't be trusted! For example, in a church it's not unknown for a collection plate to be passed around during the service. In the past it was quite common for the treasurer to slide all the money into a carrier bag and take it home to count it. I hope that doesn't happen these days: in an ideal world two people will count the money on the premises, record the amount and the treasurer will sign to say s/he's had that much cash. Then when s/he pays it in, the amount paid in for that week will tally with the amount counted at church. Or Questions Will Be Asked.

No-one's saying that charity treasurers are less trustworthy than they used to be. But they have to safeguard their trustworthiness, as it were.

trust_treasurer

BlueVinney wrote: »

I've just become a trustee of a charitable trust which operates a museum for heritage equipment. The actual museum is run by a limited company (limited by guarantee) and returning all profit to the trust. The company employs a number of full time people to maintain the equipment.

The most of the company's income is from summer visitors and so it is cash positive in summer but has an overdraft in winter, as the employment costs are on-going. The bank charges for the overdraft.

The trust has a number of funds for specific projects. Any of these will only be spent when there is sufficient money for that project, so these are in savings accounts. The amount held, in total, is larger than the overdraft required by the company but gains much lower interest than the charges for the overdraft.

Does anyone know of a bank which would hold the funds for the charity in such a way we are only charged for the net overdraft, ie. overdraft - saving funds? This is just the equivalent of some personal accounts which incorporate current account + mortgage + loans.

Try asking the Charities Aid Foundation for help. They have a website.