Interpreting Change - Charities Autumn Newsletter 2015

RAFFINGERS STUART CHARITY NEWSLETTER AUTUMN 2015

INTERPRETING

CHANGE

New Pension Rules: Even Small Charities Must Comply

Charities Under-Report on their Charitable Expenditure

Have You Accounted for Your Charity Grant?

Many charities are rejected each year by the Charity Comission due to improper workplace pension structures.

Over 47% of charities fail to correctly report their charitable expenditure.

With over ÂŁ6billion worth of funding available for charities, have you applied for a grant?

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Contents Welcome and Partners

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Special Feature New Pension Rules: Even Small Charities Must Comply

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The Importance of Transparent Financial Accounts

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Charities Under-Report on their Charitable Expenditure

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Employee Spotlight

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Raffingers Stuart Shortlisted for the British Accountancy Awards 2015

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Special Feature Have You Accounted for Your Charity Grant?

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Top Ten Tips: Trustee Governance

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Special Rules and Audit Exemptions for Charities

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Partner Perspective Charities Need to Take a New Approach to Finance

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Welcome to our CHARITY AUTUMN Newsletter

Now that the sun begins to dip away and the nights are getting longer, we are excited to introduce to you the second and autumn edition of our charity newsletter.

This quarter, we bring you all of the latest news and insights from the charity and not-for-profit sector, with particular focus on the changes being made to automatic enrolment, The Importance of Transparent Financial Accounts and Special Rules and Audit Exemptions for Charities.

Furthermore, with the charity sector continuing to be scrutinised, we look at Charities Under-reporting on their Charitable Expenditure, Top Ten Tips for Trustee Governance and why Charities Need to Take a New Approach to Finance.

In addition, we are pleased to announce this quarter that we have been shortlisted for The British Accountancy Awards, APSCo’s Awards for Excellence and the 2020 Innovation Awards, topping off a brilliant year.

If you would like to be featured in our next edition, or have any suggestions for topics that you would like to see discussed, please get in touch.

The Partners at Raffingers Stuart

Raffingers Stuart Partners

Gary Inglis Managing Partner gary.inglis@raffingers-stuart.co.uk

Andrew Coney Partner andrew.coney@raffingers-stuart.co.uk

Lee Manning Partner lee.manning@raffingers-stuart.co.uk 2 Adam Moody Partner adam.moody@raffingers-stuart.co.uk

Suda Ratnam Partner suda.ratnam@raffingers-stuart.co.uk

Barry Soraff Partner barry.soraff@raffingers-stuart.co.uk

Paul Dell Partner paul.dell@raffingers-stuart.co.uk

RAFFINGERS STUART CHARITY NEWSLETTER AUTUMN 2015

New Pension Rules: Even Small Charities Must Comply SPECIAL FEATURE

On 1 June 2015, automatic enrolment was extended to charities with fewer than 30 employees. The latest update means that all employers are now obligated to enrol eligible employees onto a workforce pension scheme, even if there is only one employee.

Automatic enrolment came into force in 2012. The rules state that all employers must enrol eligible employees onto a company pension scheme, which both the employee and employer will contribute to. Automatic enrolment may be automatic for the employee, but the employer has their work cut out. The key things you need to be aware of are:

Staging Date 3

Every employer will have to be prepared for their individual staging date. This is where the charity’s automatic enrolment duties will come into effect.

Those who fail to comply by their staging date will face excessive fines of up to £500 a day, depending on the number of employees.

Charities with 30-49 employees will need to implement a workforce pension scheme by 1 October 2015; those with no more than 30 employees will need to do so between 1 January 2016 and 1 April 2017.

You can find out your exact staging date on The Pensions Regulator website. Ideally, employers should begin preparing a year in advance of their staging date.

Key Criteria Employees have the right to opt out of automatic enrolment. However, employers do not have this choice and must enrol employees who: ● Earn more than £10,000 a year ● Are between the ages of 22 and 65 (National State Pension Age) ● Work in the UK 8% of an employee’s earnings must be paid into the scheme with 3% made up of employer contributions, 4% of the employee’s contributions and 1% from tax relief. The table below shows who must be automatically enrolled, who is eligible to opt in and who can join a pension scheme.

Age of Employee Gross Monthly Earnings

£486 or less

16 - 21

Between £487 and £833 £834 or more

Can request to be opted in

22 to State Pension Age

State Pension Age to 74

Gross Weekly Earnings

Can join a pension scheme

£112 or less

Can request to be opted in

Between £113 and £192

Must be automatically Can request to be opted enrolled In

£193 or more

*Eligible employees for automatic enrolment YOUR BUSINESS OUR PASSION

From the table, those who ‘can request to be opted-in’ must be accepted by the employer and contributions made by both parties. Those who fall under the ‘can join a pension scheme’ can pay towards their pension, however; employers are not liable to make a contribution.

740 charities with an annual income of £500,000 saw a deficit in their accounts due to the automatic enrolment legislation.

What does this mean for charities?

According to The Charity Commission, in 2014, over 740 charities with an annual income of £500,000 saw a deficit in their accounts due to the automatic enrolment legislation. 97% of these charities reported a combined pension scheme deficit of over £617million.

With some of the largest charities experiencing high deficits from the introduction of automatic enrolment, smaller charities are more likely to find the changes to the legislation a threat to their growth. All charities have to contribute 3% for every eligible employee. Therefore, it is important that all charities seek advice and carry out extensive budgeting and planning before their automatic enrolment duties commence.

Suda is our charity sector specialist.

If you require any further information or advice on your charity’s automatic enrolment duties, please contact Suda at suda@raffingers-stuart.co.uk.

The Importance of Transparent Financial Accounts On 1 July 2015, The Charity Commission filed yet another statutory inquiry. This time it was into the Swimming Teachers Association (STA) after abnormal financial discrepancies were spotted when the charity submitted their accounts to the charity watchdog.

The STA is an organisation that aims to ‘preserve human life by the teaching of swimming, lifesaving and survival techniques’. The lifesaving organisation is one of the UK’s largest swimming associations, boasting an annual income of £2million. In June 2015, the STA submitted an Incident Report, which proposed a restructure of the business by transferring assets to a private company.

Upon receiving the request, a representative from the Charity Commission stated, “The Commission identified serious concerns with the charity governance, aspects of its financial controls and proposed organisational changes which posed a risk to the charity’s assets since it was unclear if the changes were in the best interest of the charity…

These concerns prompted the Commission to open the statutory Inquiry”. Consequently, the Charity Commission will be examining the following areas of concern: ● The governance and management of the charity’s trustees ● Rate relief on property that the charity owns, which may have been wrongly claimed for ● Financial controls and expenses of the charity ● Mismanagement and misconduct by those who have a relationship with the charity This investigation once again stresses the importance of maintaining transparent financial accounts. If you would like further information or confidential advice on your accounts, please contact Lee Manning at lee.manning@raffingers-stuart.co.uk.

RAFFINGERS STUART CHARITY NEWSLETTER AUTUMN 2015

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Charities Under-Report on their Charitable Expenditure The latest report from the Charity Commission (published on 19 August 2015) suggests that a large number of charities fail to correctly record their charitable expenditure in both their annual accounts and annual reports.

The Charity Commission analysed over 180 annual reports and accounts from charities that declared they spent less than 10% of their annual income on charitable activities and who had an annual income of over £500,000. From analysing these reports, the Commission revealed that 57% of charities had accounted correctly and were able to provide valid reasons for their lack of charitable spend.

However, the remaining 43% had made errors, which lead to a significant level of under-reported charitable expenditure.

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To help restore the public’s confidence in charities, the Charity Commission is promoting transparency. They are also placing heavy emphasis on there being a ‘reasonable’ amount of charity expenditure being used for a charitable purpose that is of benefit to the public.

The director of investigations of monitoring and enforcement at the Charity Commission, Michelle Russell, stated: ‘It is heartening to see that the majority of charities we looked at as part of this review were able to provide

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reasonable and legitimate explanations as to why their charitable expenditure was so low for the year in question.

‘But we are concerned that so many charities are making basic errors in their annual reporting. Aside from being a regulatory concern and undermining public trust in charities and the information they provide about their work and finances, it is likely to impact on how they are perceived by donors and potential supporters.’

From the Charity Commission’s report, three of the charities were highlighted for non-compliance issues as they failed to audit their accounts for the year in question, and two of the charities failed to report any expenditure used on charitable activities. All of these charities now have to resubmit their accounts for the year in question. As a result, the Commission will be promoting their guidance to ensure charities are aware of the importance of staying compliant, in the hope of preventing the above becoming a regular occurrence.

If you require further information, please contact Adam Moody at adam.moody@raffingers-stuart.co.uk

Raffingers Stuart Shortlisted for the British Accountancy Awards 2015

Employee Spotlight In this slot we would introduce to a valued likeyou to introduce youmember to a of our team, allowing you toallowing put a face toto a put valued member of our team, you name.

This quarter we speak we to our Marketing a face to a name.

This quarter speak to our Manager, Aston.

MarketingLauren Manager, Lauren Aston.

Name: Lauren Aston Nicknames: Lol DOB: 12 August 1988 Career history: After graduating, I was in a position of uncertainty; not entirely sure what I wanted to do.

I had an English degree and so Publishing seemed the obvious choice. As they say, everything happens for a reason, and after carrying out work experience in the Editorial department at Pearson, I was given the opportunity to join the marketing team. Since then, I have never looked back.

Five years later, having worked at Pearson and then Avanti (both of which have two very different approaches to marketing), I find myself at Raffingers Stuart. Raffingers Stuart has been a refreshing place to work, welcoming new ideas and being very open to try new things. So much has been achieved in the 18 months I have been here; I now look forward to seeing what the next 18 months will bring.

Interests: Much to my boyfriend’s delight I can get into almost any sport and I am currently an avid fan of Moto GP. I also have a love/ hate relationship with running. In that, I love running races (half marathons and 10ks), but hate training!

Partners Report: Lauren has become an integral part of the Raffingers Stuart team since she joined us 18 months ago and her enthusiasm is infectious amongst her team members. It is a pleasure to see her smile every day even after a gruelling half marathon the night before!

We are pleased to announce that we have been shortlisted for the ‘Mid-Tier Firm of the Year’ award and Barry Soraff, one of our Partners, has been nominated for ‘Practitioner of the Year’ at the 2015 British Accountancy Awards.

Hosted by Accountancy Age, The British Accountancy Awards celebrates quality in the accountancy sector; the awards “pinpoint professional development and highlight those that have demonstrated excellence in their profession during the last 12 months”.

We have witnessed substantial growth over the past few years, moving up seven places on the Accountancy Age’s Top 50+50 Firms, exceeding our previous year’s billings by 30% and continuing to deliver an outstanding client service.

As a result, the firm had been shortlisted for ‘Mid-Tier Firm of the Year’, a contest for UK practices with a turnover of £3m to £25m. Alongside this award, Barry Soraff will be competing against six other candidates for the ‘Practitioner of the Year’ accolade, which recognises individuals who have provided an exceptional service to their firm and clients.

Barry Soraff, Partner at Raffingers Stuart, stated: “It is a complete honour to be shortlisted for one of the most recognised awards within the accountancy sector and I am extremely humbled. Also, Raffingers Stuart being shortlisted for the ‘Mid-Tier Firm of Year’ award is absolutely amazing and a true testament to everyone’s hard work at the firm.”

The British Accountancy Awards 2015 will take place on Tuesday 24 November 2015 at the Brewery in London.

Alongside these awards, Raffingers Stuart has been shortlisted for ‘Most Innovative Large Firm’ at the 2020 Innovation Awards 2015 and ‘Affiliate Member of the Year’ at APSCo’s Awards for Excellence 2015, topping off a brilliant year.

RAFFINGERS STUART CHARITY NEWSLETTER SUMMER 2015

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Have You Accounted for Your Charity Grant?

SPECIAL FEATURE

With over £6billion worth of funding available for charities, have you applied for a grant?

The UK alone has approximately £2.65billion available in government grants and £4billion available with external grant makers. Grants are one of the most desired sources of funding available to charities, being that there is no interest payable and those privileged to receive one will not have to pay it back. That being said, many charities miss out on thousands available each year and/or fail to properly account for this income correctly, exposing them to excessive funds.

Applying for a Grant 7

introducing you to the types of grant available and how you can get started with a grant application. Alongside this, sites such as “GRANTfinder” host an array of grant makers who cater to a range of industries and sectors, currently the site features 8,000 funding opportunities.

Once you have decided on a grant, it is important to remember that, depending on the grant maker, there may be rules and guidelines that you will have to follow.

In some cases, grants may only be available for specific uses or can even be a substitute for a fund amount, such as an asset or favour. For example, The Google Grant offers charities up to £10,000 worth of google marketing and online advertising.

Grants vary in amounts and are awarded depending on the size, nature and objectives of the prospective charity.

As desirable as a grant may be, they are fairly difficult to obtain and with so many available, it can be difficult to find the most suitable one.

How to Account for Grants: Restricted and Unrestricted funds

Websites such as Big Lottery Fund provide funding for projects and help support charities through their application. Also, Dummies.com is a great resource for

Correctly maintaining an accurate set of charity accounts is essential to restoring the public’s trust and confidence in the sector. Under the Statement of Recommended

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Practices (SORP), a charity must account for all resources that come into the organisation, including grants.

Commonly, these fall under one of the two categories: unrestricted funds or restricted funds.

Top 10

Tips

Top Ten Tips: Trustee Governance

Unrestricted Funds Unrestricted Fund refers to finance which has no restriction or limitation as to what the charity spends it on. Consequently, donations and Gift Aid fall under this category. However, as with all grants, Unrestricted Funds must contribute to achieving the charitable aims and purposes of the charity, as set out in the charity’s governing document.

Restricted Funds In the instance that the funds given can only be used for a specific purpose or explicit use, this is known as a Restricted Fund. More often than not, the grant maker will state the intent, which the fund must be used for (this will be outlined in a contract or terms and conditions). Where this is the case, the grant should be referred to as a ‘contract’ due to its limitations. Failure to use the grant for its intended use is illegal and the funder can request for the amount to be paid back in full.

If a charity does not use the entire grant, this should usually be returned. Where this is not the case, the fund often becomes restricted and must be used for a specific purpose only, as determined by the funder. In the case of a contract not being used, unless specified that it should be returned, this should often be kept as part of a reserve fund for the charity.

Failure to correctly account for external income is illegal and a breach of the Charities Act. In severe cases charities may face a statutory inquiry from the Charity Commission.

For further information regarding reporting requirements and your obligations, please contact Gary Inglis at gary.inglis@raffingers-stuart.co.uk.

Trustees hold a lot of responsibility when it comes to the management and upkeep of a charity. To be an effective trustee, not only do you require the relevant skills and expertise, but you must also keep up with the ever changing legislation and ensure the charity remains compliant. To help you become a top trustee, we have created our Top Ten Tips to help guide you with your governance.

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Know your governing document

2

Manage your fundraising

3

Implement an effective risk procedure

4

Ensure total transparency in your accounts

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Ensure your charity maintains its purpose and continues be of public benefit

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Know the law - do not get caught out with legislation changes

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Recruit reliable and effective trustees

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Maintain impartial decision making

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Annually review your performance as trustees

10 Promote YOUR charity

View the full guide at www.raffingers-stuart. co.uk/downloads/Top_ Tips-_Trustees.pdf

RAFFINGERS STUART CHARITY NEWSLETTER AUTUMN 2015

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Special Rules and Audit Exemptions for Charities 31 March 2015 brought the introduction of the increased charity audit thresholds: more charities are now exempt from having an audit if their gross income is less than £1million and gross assets fall below £3.26million. However, in some circumstances charities are still required to carry out an audit even if they meet the above criteria.

Although many charities are now relieved from regulatory burdens, it is important to be aware of the circumstances where an audit is still required: ● Grant funders and banks: Your funder or bank can still request for you to carry out an audit. This will be stated in your agreement or contract

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● Certain charity types: By law, some charities are obliged to have an audit carried out. This includes ‘Registered Social Landlords’ and ‘NHS charities’

More charities are now exempt from having an audit if their gross income is less than £1million and gross assets fall below £3.26million.

● Governing Document: Although not required by law, some governing documents request that the charity carries out an audit. If you fall under this bracket and no longer wish to have this obligation, it is important you look at updating your document ● Scotland: The thresholds for Scotland, and English charities who are based in Scotland, are still the same as the old legislation If the above points are not applicable to your charity, you will fall under the charity audit exemption threshold.

However, charities who are relieved from audits may still be required to carry out an ‘Independent Examination’.

An Independent Examination is less detailed and less extensive than an audit, but it still helps to provide assurance and confidence in the charity sector. In the case of an examination, a review of the charity’s accounts will take place to ensure that the accounts are reliable and correctly prepared.

Charities that have an income, which is more than YOUR BUSINESS OUR PASSION

£25,000, by law, must have an independent examination carried out by a qualified individual. By having an independent examination carried out, both the public and charities are at benefit. For charities, the examination is less time consuming and more price efficient than an audit, and for the public and donors, they get to see transparent information.

Charities that have a gross income of less than £25,000 will not need to carry out an independent examination or an audit.

For further information please contact Lee Manning at lee.manning@raffingers-stuart.co.uk.

partner perspective

Charities Need to Take a New Approach to Finance Charities were once renowned for the help and support they provided to those in need. However, in recent years, the sector has faced something of a backlash and now it is more common for the public to refer to them as “tax-dodging enterprises set to make tax-dodging greedy people rich” (Matter of Trust Report, 2014). The charity sector constantly faces scrutiny over their poor financial decisions: everything from excessive fundraising practices to poor accountancy practices and even the ongoing debate of the overpayment to senior executives.

As a Partner at an accountancy firm that specialises in the charity sector, it disappoints me to see that charities are lagging behind when it comes to financial governance.

This has been made apparent through the new laws and provisions, which have highlighted fraud, poor accounting practices and careless governance by trustees.

It is now time to scale back and opt for a new approach.

The story of Olive Cooke shook up the charity sector after claims stated that her death was due to pressures from charity marketing campaigns requesting money. Charities need to explore more sophisticated and alternative methods of funding, such as government and public grants, crowdfunding and investors. There is so much help available to charities that it is time we adopted new

methods of funding in order to keep up.

In regards to new methods, charity governance also needs to be looked at too. There is an influx of charity statutory inquiries and constant press on poor conduct. It is necessary for charity trustees to be proactive in this area for the sake of their charity. Having timely, accountable and compliant accounts is extremely important due to the dying public trust in the sector. Charities need to have in place effective risk management processes to help tackle fraud and seek advice when it comes to their finances.

I recently read an article in the Guardian called “It’s time to change the definition of charity”, which concluded that charities are no longer what they used to be. This made me think that it is important for charities to remain charitable and maintain their public benefit and purpose (as it is the law). However, this can only be achieved by seeking thorough specialist financial advice and staying compliant before the sector falls even further behind.

It is about time that the sector shed this affiliation as “taxdodging enterprises” and be as compliant with the law as possible.

Suda Ratnam, Partner suda@raffingers-stuart.co.uk 020 8418 2681 RAFFINGERS STUART CHARITY NEWSLETTER AUTUMN 2015

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Head Office 19-20 Bourne Court, Southend Road, Woodford Green, Essex, IG8 8HD Tel: 020 8551 7200 Fax: 020 8551 0912 Email: info@raffingers-stuart.co.uk London Office 3rd Floor, 5-10 Bury Street, London, EC3A 5AT Tel: 020 7167 6880 www.raffingers-stuart.co.uk facebook.com/RaffStu

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