Charities are vital for the support, encouragement, and enhancement of people’s lives, but during the Coronavirus pandemic they have gone the extra mile to support those in need and have shown an admirable resilience. Charities must provide evidence of the impact they deliver to the people they support, especially to the public and grant funders who regularly monitor this. The best way to do this is by including these details in the trustees’ report, which is situated in yearend financial statements. Despite its clear benefits, the trustees’ report is often not utilised effectively.
After a review in 2019, the Charity Commission found just over half of the charities reviewed had inaccurate data included in their financial statements, with the ‘reserves policy’, ‘public benefit’ and ‘key management remuneration’ notes often being the main cause.
Over the past 2 years, the Charities Commission have tried to combat this by making it their target to address these inaccuracies. However, there are still many charities making errors in their yearend financial statements.
Whether a charity is audited or not, the Charity Commission guidance encourages all charities to focus on five key areas in the trustees’ report. Here is an outline of each:
- Reference and Administrative Data
This area is important for stakeholders as it identifies the general information of the charity. The main items expected in this area are:
- Charity name
- Charity / company number
- Address of principal office
- Names of trustees
- Name of CEO
- Addresses of relevant organisations (banks, solicitors, auditors etc)
- Objectives and Activities
With over 166,000 charities in the UK, it is especially important for the trustees’ report to contain information on the charity’s objectives and activities. From a stakeholder’s perspective, understanding the charity’s objectives as well as how the charity aims to achieve those increases the likelihood of finding an emotional connection. Ultimately, having a connection towards a charity makes it more likely for the stakeholder to provide funding, whether that is an individual or grant funder.
The main points to include in the objectives and activities key area are:
- Objectives and aims (i.e. overall purpose of the charity)
- Significant activities (i.e. activities undertaken in relation to those objectives above)
- Strategies for achieving the above objectives
- Public benefit
- Social investments / grant making policy
- Significance of volunteers in its activities
- Achievements and Performance
By using the objectives and aims as a guide to analyse the achievements, stakeholders are provided with information regarding the level of success the charity has achieved in the financial year.
The main items to include in the achievements and performance area are:
- Summary of main achievements
- Differences made to the charity’s beneficiaries
- Information on the charitable activities and achievements against the initial objectives and aims
- Fundraising activities performance against objectives
- Performance of the charity’s investments
- Financial Review
The basis of this area is to discuss the financial position of the charity at the yearend and the reasoning behind the results. During 2020/21, many charities have suffered because of reductions in donations and the closure of charitable activities following the impact of the pandemic. The financial review section provides an opportunity for charities to explain the reasons behind these figures.
Essentially, the Financial Review should incorporate:
- Financial position of the charity at the year end
- Significant events which have impacted the charity (i.e. Coronavirus pandemic)
- Principle funding sources (i.e. Any grants received in the year)
- Investment policy and objectives
- Reserves policy
- Going concern review
- Principle risks and uncertainties
- Future plans
- Structure, Governance and Managements
This is a crucial area to explain to the stakeholders how the charity maintains its structure and management. This area should incorporate:
- Governing document (i.e. Memorandum of articles)
- Charity constitution
- Recruitment and appointment, induction and training of new trustees
- Organisational structure and decision making
- Key management remuneration
- Wider network
- Related parties
- Risk management policy (i.e. How the charity monitors and mitigates risk)
The trustees’ report is a crucial part of a charity’s financial statements. A well written and accurate trustees’ report can bring a charity to life and provide donors with the opportunity to understand how money has been spent and the impact it has made. Spending extra time at yearend to ensure the trustees’ report incorporates the key areas outlined above could be the difference between winning new donors.