A leading expert on charity finance has highlighted the top challenges facing third sector organisations in the south east.
Eileen Houghton, who heads up the Not for Profit group at Sussex-based chartered accountants Carpenter Box, part of the MHA association of independent accountants, said that a recent MHA report had highlighted the mounting pressures being faced by charities.
She said: “Austerity remains a fact of life for many local charities but the likelihood of further reductions in public spending means that the burden being borne by the third sector will almost certainly increase in the future. However, by recognising where the key challenges lie, it will be possible for them to prioritise actions and optimise available resources.”
The top issues for charities highlighted in the report include:
- Operating a charity trading subsidiary: Commercial trading activities should generally be undertaken within the charity to take advantage of exemptions available under charity and tax law – where a wholly owned trading subsidiary is the preferred option, there can be some significant challenges to overcome.
- Determining the appropriate level of reserves: Significant reserves would begin to suggest that resources are being stockpiled and not applied for the charitable purposes for which they were received. However, to operate with nothing in reserve might be considered reckless, so charities must pursue a thought-through reserves policy that supports the development of the organisation and its activities, assists in strategic planning, provides a buffer to manage unforeseen financial difficulties and demonstrates good stewardship to funders.
- Fraud: It is essential that trustees understand the risks to which the charity is exposed. Where it might be vulnerable to fraud risk, they must work to ensure that controls are designed accordingly and that proper training is given to trustees and staff.
- Gift Aid: This can “gross-up” donations by 25% but the charity must ensure the system is correctly administered and does not fall foul of HMRC’s rules.
- VAT: This can present a series of challenges involving some complex issues. Charities must keep on top of matters such as exemptions and obtaining the relief available in order to be VAT efficient.
If you would like a copy of the full report or to discuss any of the issues raised above contact Eileen Houghton or Fiona Ede on 01903 234094.