Statutory financial obligation - Charities

Rich44_2

Hi all

I took over the role as Treasurer of a small charity recently. It's been mentioned before I don't know if it's one of those things that someone was once told and it's snowballed further as Treasurers have changed etc BUT

We have half dozen members of paid staff (not trustees!) i've been told that we should have a certain sum of money put aside in a separate bank account so that if we wind the charity/business up that there is sufficient money to pay redundancy pay etc.

Can anyone advise on the accuracy of this or put any more flesh on it or point me in the right direction. I'd be MASSIVELY grateful

Thanks

poppet

You're talking about designated funds.


For the purposes of accounting, charity funding is divided into three main groups:
Restricted funds

Restricted funds can only be used for the purposes for which they are given. if the restrictions are not met then the donor has the right to "claw back" the money. An example of a restricted fund might be money from a Trust for building reapirs and must only be used for building repairs.

Unrestricted funds

These are also sometimes known as general funds. They may be spent at the discretion of the trustees according to the objects of the charity.

Designated funds

Where money is earmarked for a particular project. However that designation has an administrative purpose only and does not legally restrict the trustees' discretion to apply the fund. In other words, trustees will still have the right to use those funds in any way that furthers the objects of the charity.
Examples are funds allocated for a new building, a staff redundancy contingency fund.

Ensuring the distinction between restricted and unrestricted funds when keeping accurate records, is crucial.

Savvy_Sue

actually, while what poppet has said is helpful - distinguishing between restricted, unrestricted and designated - I think what you're thinking of is a Reserves Policy. It's not a legal requirement as such to have reserves, but it is sensible to work out how much you'd need to wind down either part or all of the charity in a planned rather than a chaotic way. And you might want to give thought to how you'd invest or hold those reserves - again AFAIK there's no requirement to keep them in a separate bank account.

If you go bust, the government will pick up the bill for redundancy, btw. What the government won't pick up the bill for is a sensible handover for your clients from your charity to a new service provider, for example. Without knowing what you do it's hard to say what you'd need reserves for, and how many months of operating costs you should aim (in an ideal world) to hold.

It's a bit of a black art, btw. If you apply for grants then some trusts won't give you money if your reserves are too small (because you look flaky), and others won't give you money if your reserves are too large (because you could use your reserves). Same goes when you're inviting the public to support your work: a charity with more reserves than they've spent in the previous 12 months may not be a well run charity ...

If you find your local Volunteer organisation (google volunteer plus your area / town) they may be able to offer more advice, or even a Treasurer's forum. Or google Reserves Policy for charities - there may be something on the Charity Commission website, for example.

Of course, sometimes it's enough of a struggle to get the money in to pay the staff month to month, never mind building up a reserve. But if you've never given it any thought, you (and your fellow trustees) should do so.

Rich44_2

Ah thanks sooo much guys. It's a relief to know that we're at least not breaking the law which is what was implied by someone.

We're a village preschool and most of our funding comes from the funded preschool places by the government and handed out by the county council our total turnover is bordering £25k and on avg our outgoings are around £23-24k so ticking over which is the best we've done in a long time LOL!!

We've got just shy of £3k in a separate account put to one side for "emergencies" so I guess we could put that down as our reserves policy and then define the circumstances for which we can dip into it. It's been sat there for at least 3 years untouched now and we've added to it from time to time.

Thanks for putting my mind at rest both of you I feel MUCH better now. I've got a meeting lined up with our county support worker as regards the preschool side of things rather than the finances so will speak to her about these things to and she might have the right contacts and I will speak to the various bodies we're members of and see what courses are available for committee/trustees.

Thanks once again

Savvy_Sue

I think talking to those umbrella bodies is a very good idea: sounds like your main liabilities would be staff, however, you should also be aware of any contracts you've signed like mobile phone contracts, waste collection, rent on premises etc. Very definitely worth checking whether IF the worst happened, no individuals are personally liable for any of these ...

All the time govt are paying for free childcare places, you're probably in a good position. The problem with relying on govt money is that when their priorities change, you could be left up the proverbial creek.

However, have you checked your insurance policy to make sure you've got enough cover for 'if the premises we use went up in smoke / were flooded'? You'd probably want to hire an alternative.

And when I said ...

Savvy_Sue wrote: »

If you go bust, the government will pick up the bill for redundancy, btw.

I did mean that if you go bust without having enough cover to pay the redundancies, the govt will pick up the bill. Again, you should check your governing documents for 'what if this happens': if you're a ltd company as well as a charity there is more protection for the individual trustes / directors, BUT you also have legal obligations not to trade while insolvent.

Please don't be scared by this, but do make sure you understand your legal situation and obligations, and that your fellow trustees do too! It's very easy to leave it all to the treasurer, but they should not do so!

oldtoolie

If you have six employees, your organisation is not so small. This comes under the larger topic of governance. There are quite a few things that the trustees and treasurer are responsible for.

The Charity Commission has guidence here:
http://www.charity-commission.gov.uk/Charity_requirements_guidance/

Governance advice here
http://www.trusteenet.org.uk/resources

from the
http://www.smallcharities.org.uk/

More advice here
http://www.volresource.org.uk/briefing/govern.htm

The National Council for Voluntary Organisations has this:
http://www.ncvo-vol.org.uk/governanceandleadership

And sells publications such as:
Honorary Treasurer's Handbook
Good Trustee Guide

Rich44_2

Just to clarify we currently have 5 staff members but everyone is part time some do under 10 hours a week

oldtoolie

I figured that would be the case -- part-time staff.

The charity still has most of the same responsibilities however. You will find check-lists in some of the guides to help you make sure you have all of the required and recommended policies, procedures and plans in place.

You might think of contacting some long established preschools to see what they do.