Are internal financial controls stressing you out?

by | Mar 12, 2020 | Emma Willder

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Fraud is perhaps the biggest fear of most charities. It’s not just the financial impact, it’s the resulting reputational damage, potential loss of staff and volunteers, and inability to deliver certain services to the beneficiaries because of a lack of funds.

According to research from the Charities Commission, “85% of charities think they’re doing everything they can to prevent fraud, but almost half don’t actually have any good-practice protections in place.”

In 43% of fraud cases investigated by the Charities Commission, it was an employee of the charity – including trustees and volunteers – who committed the fraud, with one of the major contributing factors listed as “Absence of controls or existing controls poorly applied.”

Getting to grips with CC8

In July 2012, the Charities Commission published its guidance for ‘internal financial controls for charities’ known as the CC8. It is the trustees’ collective legal duty to ensure these controls are implemented, and to submit the charity’s CC8 return within 10-months after your year-end.

According to the CC8:

“Internal financial controls are essential checks and procedures that help charity trustees:
• meet their legal duties to safeguard the charity’s assets.
• administer the charity’s finances and assets in a way that identifies and manages risk.
• ensure the quality of financial reporting, by keeping adequate accounting records and preparing timely and relevant financial information.”

While having internal financial controls in place doesn’t eliminate risks to your charity, having them in place significantly reduces your exposure, as well as demonstrating good governance to the Charities Commission, your beneficiaries, volunteers and donors.

The problem with internal financial controls is…

Unless you are a larger charity, that can afford to pay experienced financial directors to take the reins, you’re probably going to be out of your depth when it comes to implementing CC8. As a small charity, you might only have 1-2 people running the day-to-day operations alongside a board of trustees, so everything falls on your shoulders.

Establishing and maintaining strong internal financial controls requires a specialist touch, and unless you have prior experience/training in the world of finance, you’re going to need help.

Thankfully, the Charities Commission has published a comprehensive checklist that you can self-assess your charity against.

Download the checklist…


After 9-pages of comprehensive questioning, you might still be none the wiser.

Our clients, who are all small charities, struggle with various issues because they’ve fallen into a finance role without any proper training. Many set up their charity with the best of intentions, wanting to leave a legacy for a loved one or serving their local community. And yet now they’re facing a wall of governance requirements that they’re just not prepared for. They’re trying their best to set up the structures, systems and processes behind the scenes, but it’s a real struggle, and many worry about whether they’ve done the right thing.

Their biggest fear is fraud because that’s when you’re on the Charities Commission’s radar. If fraud, or the misappropriation of assets, has been allowed to occur in your charity, it’s like a big red flag to a bull – the Charities Commission may come knocking because it signals that either your internal financial controls aren’t in place, of they’re not being properly followed.

What does it mean?

On the checklist, you’re presented with page after page after page of yes/no answers:

For example: “Is there segregation of duties to provide automatic ‘double check’?”

The question is trying to ascertain whether you have separate people to input an invoice into the system and then sign it off and pay it. But if there’s only you working in the charity, you can’t do that. You’re forced to tick ‘no’ – but does that mean you should expect a knock on the door?

What about this question: “Have the trustees considered the need to appoint an internal auditor or set up an audit committee?”

If you don’t have this in place, you might start worrying again. And if you don’t have the internal resource to form a committee, your knee jerk reaction might be to run our and hire an internal auditor with money the charity had probably earmarked for its services elsewhere.

And then what about the questions like: “Is incoming post opened in the presence of two unrelated people?” or “Does the charity keep unopened mail secure?”

These are all concerned with the risk of donors sending cash or cheques through the post – but how many people are still posting money? Yes, most donors still prefer to give cash to charities, but this is through buying goods, raffles/lotteries, direct debits, online or fundraising events, not asking Postman Pat to make a special delivery.

Things aren’t always as they seem

The problem with the Charities Commission’s checklist is that there’s no nuance behind it, everything is presented as black or white: you tick ‘yes’ and you’re doing the right thing, or you tick ‘no´ and you’re in trouble.

In reality, a lot of internal financial controls just aren’t practical for smaller charities so it’s ok to say ‘no’. And in some instances, like the internal auditor, you might have other systems and processes in place, which mean you’re already compliant and therefore don’t need to run out and hire someone.

The CC8 guidance even admits:

“A ‘yes’ answer for good practice recommendations does not mean there is no scope for further improvement. A ‘no’ answer does not always indicate a problem.”

The issue is that unless you understand what each question is asking and how it applies to your specific charity, you’re going to panic about whether you’re doing the right thing.

Stop crossing your fingers and hoping for the best

When presented with 9-pages of comprehensive questioning with ‘yes’ or ‘no’ answers and no room for commentary, we hate the thought that small charities are sat there, crossing their fingers and hope for the best.

It’s not right.

Internal financial controls exist to protect charities against fraud. At times, these controls can also improve the efficiency of your processes, giving you more time to dedicate to delivering services to your beneficiaries.

Getting it right shouldn’t be reserved for the larger charities that have deeper pockets and therefore the ability to lean on specialists to set them on the right path. Every charity – regardless of their size or who they serve – deserves to have the very best governance structures in place.

Look beyond the boxes to find peace of mind

We believe that small charities need a little extra help, which is why we’ve developed the Charities Commission’s checklist into a practical tool. Rather than a simplistic ‘yes/no’ box that requires the brain of a financial genius to decode, we’ve added commentary around risk management, policy work and recommendations, all with a ‘RAG’ (red-amber-green) status to help you identify the priorities for your charity.

We want to bring the checklist to life for you, so it becomes a genuinely useful document, rather than a cause of unnecessary stress and worry.

We’ll share our insight so you know when it’s ok to say ‘no’…

We’ll share our expertise to provide recommendations on the best controls to implement for your charity and why…

And if you need us, we can even help take on some of those responsibilities for you, whether that’s keeping on top of your day-to-day finances, one-off help with policy writing, or helping you to see the bigger picture budgets, forecasts and business plans.

Nobody panic – get back to work!

Once you’ve signed up to our enhanced checklist, the process only takes 4-weeks*. Our team will visit you on-site, spending time with your employees to understand how your charity currently operates and why.

Following our on-site audit, we will review your answers and create a simple yet comprehensive report, which provides suggestions for improvements with appropriate RAG ratings so you know where to focus your efforts.

We will then present this report back to you so you have an opportunity to ask questions and clarify areas where you may be unsure. Our purpose is to give you peace of mind that you’re in an operationally strong position – where your charity’s finances are secure and your people have the time to spend on what really matters, your beneficiaries.

We won’t leave until you feel confident.

Let’s arrange a coffee and see how we can help.

*subject to staff availability

If you’re looking for more than an accountant then why not give Emma an email or a call?

[email protected]

07419 786 943

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