The economic downturn: 15 questions trustees need to ask

(December 2012)

Big board talk

Introduction

The Charity Commission is the independent registrar and regulator of charities in England and Wales. We regulate charities in the public's interest and it is our mission to ensure charities know what they have to do, the public know what charities do and charities are held to account

We have designed this checklist to be suitable for all charities to use when looking at what they do and how they do it. The 15 main questions will not all be relevant to every charity - it will depend on your charity’s size and how it operates. The checklist reflects a good practice approach your charity should use when regularly reviewing the way it operates, and this approach becomes especially important in a changing or uncertain economic climate.

The checklist is a template which can be used to help structure a discussion as an agenda item at your trustee meeting, away day discussion or planning meeting. It will also help you to develop a plan and timetable for action. The Charity Commission strongly encourages trustee boards of all charities to use this checklist.

If your board works through the areas in this checklist that relate to your charity, it will help to demonstrate that your trustees are responding appropriately to current and potential changes in your charity’s working environment.

To help focus the discussion, the checklist is organised into four broad areas:

Our guidance on various topics is signposted throughout the checklist and is available on our website www.charitycommission.gov.uk.

You can also view a full colour PDF version of the checklist.

Checklist

A. Strategy - opportunities and risks

1. What effect is the current economic climate having on our charity and its activities?

  • What is the impact of the economic climate on the environment in which we operate?
  • What do we see in the future? How can we best reflect this in any scenario or forward planning that we do?
  • Are we focusing on the right things, or have we drifted into activities that are over and above our core charitable aims? If we have, is it justified?
  • Are there opportunities of which we could take advantage? For example:
    • an increasing pool of volunteers, including those with different skills
    • collaborating with others to provide accommodation or equipment
    • opportunities to re-negotiate contracts
    • opportunities to take on public service delivery contracts
  • Are there particular risks we should consider? For example:
    • increased or reduced demand for services, or changes in the type of services needed
    • reduced income from investments
    • funding uncertainty in some areas
  • Do we need think about whether we want to, or are able to, continue operating?

For further information:

Managing financial difficulties and insolvency in charities (CC12)
Managing charity assets and resources: An overview for trustees (CC25)
Planning for the future | National Council for Voluntary Organisations

B. Financial health

2. Are we financially strong enough to sustain our operations?

  • Do we have up to date information about our charity’s finances, cash flow and debts/obligations?
  • Do we have access to the right type of financial advice?
  • Based on the information we have:
    • do we know what might happen to our future income?
    • can we protect (or increase) our current income?
    • can we continue our programme of activities for the foreseeable future?
    • can we make our money go further, for example by identifying costs we can cut?
    • can we fulfil our contractual obligations?
    • can we meet our financial commitments as they fall due?
    • are we financially solvent?
  • Are we clear about the core activities we want to sustain under any circumstances?
  • Are we clear about the prospects for the longer term?

For further information:

Managing financial difficulties and insolvency in charities (CC12)
Coping with cuts: Practical advice guides | National Council for Voluntary Organisations

3. Do we know what impact the economic climate is having on our donors and support for our charity?

  • How secure is our funding, for example contracts from other bodies for service delivery, statutory funding or grants, for the foreseeable future?
  • Is it possible to diversify or broaden our sources of income?
  • Do we need to rethink our fundraising strategy?
  • Are there new opportunities for funding which we can explore? Have we considered organisations and charities that exist to provide loans and other support to charities?

For further information:

Charities and Fundraising (CC20)
Code of Fundraising Practice - Institute of Fundraising
https://www.gov.uk/
Coping with cuts: Practical advice guide | National Council for Voluntary Organisations
Addressing needs | National Council for Voluntary Organisations

4. Do we have any reserves?

  • Do we have a reserves policy? If not, why not?
  • Do we know the level of our reserves?
  • In what circumstances do we intend to use our reserves - is now the right time?
  • Have we considered:
    • new priorities or needs which have arisen because of the economic downturn?
    • spending from our reserves in order to reduce the impact of the downturn on our beneficiaries?
    • a longer term strategy to replenish reserves, or spending them in their entirety?
    • using reserves to restructure our work?

For further information:

Charities and Reserves (CC19)
Charity Reserves and Defined Benefit Pension Schemes
Charity Reporting and Accounting: The essentials (CC15b)

5. Have we reviewed our banking arrangements and, where relevant, our investments?

  • Have we recently reviewed our banking arrangements - for example, the willingness of our bank to lend money?
  • What can we do about any reductions in the level of income generated by our investments?
  • Have we recently reviewed our investment policy to ensure that it is appropriate for current and future needs?
  • Have we arranged for regular investment policy reviews, taking into account that sudden changes in the economic climate might mean they should take place more regularly?
  • Have we reviewed the diversity, suitability and risks associated with our spread of investments?

For further information:

Charities and investment matters (CC14)
Banking for Charities (CFG)

6. Have we reviewed our contractual commitments, for example office leases, rental agreements, equipment hire?

  • Do we know what our contractual commitments are?
  • Do we understand the obligations of any existing or new contracts?
  • Are these obligations manageable in the current economic climate?
  • Can we terminate any contracts we are party to if necessary?
  • Should we review any contracts we have with fundraisers?
  • If we cannot meet the terms of a contract, are we aware of the financial and reputational risks we could face?

For further information:

Charities and Risk Management (CC26)
Managing financial difficulties and insolvency in charities (CC12)

7. Have we reviewed any contracts to deliver public services?

  • Do we understand the obligations of our existing contracts?
  • Are these obligations manageable in the current economic climate?
  • Can we terminate any contracts we are party to if necessary?
  • If we cannot meet the terms of a contract are we aware of the financial and reputational risks we could face?
  • Have we planned for what happens when the contract ends?
  • Are we fully aware of the risks and obligations attached to taking on new public service delivery contracts?
  • Have we explored the different ways in which we can achieve our charity’s aims as an alternative to entering into a new contract?

For further information:

Charities and Public Service Delivery (CC37)
Public Service Delivery | National Council for Voluntary Organisations

8. If we have a pension scheme, have we reviewed it recently?

  • Do we know the risks and liabilities attached to our charity’s pension scheme?
  • What plans do we have to manage those risks and liabilities?
  • Do we need to take specialist advice?

For further information:

Charity Reserves and Defined Benefit Pension Schemes
Defined Benefit Pension Schemes - Questions and answers 

9. How can we make best use of any permanent endowment investments we hold?

  • Do we know whether any of our funds represent permanent endowment and can only be invested to produce income for our charity?
  • Do we think that the interests of our charity and its beneficiaries would be better served by making use of the greater flexibility to spend permanent endowment offered by the Charities Act 2011?

For further information:

Spending permanent endowment

C. Governance

10. Are we an effective trustee body?

  • Have we recently reviewed our performance as a trustee body?
  • Have we recently reviewed the skills, knowledge and experience we have as a trustee body? Have our needs changed?
  • Are we aware of the importance of effective communication and negotiation with those with an interest in our charity, including our staff?
  • Do we have the guidance we need to ensure that our decisions are made in the best interests of our charity and its beneficiaries?
  • Do we need to monitor the charity’s affairs more closely, for example by meeting more frequently?
  • Do we feel able to take difficult or unpopular decisions if needed, for example on:
    • ending or changing some activities?
    • changing staffing levels?
    • changing staff benefits?

For further information:

Hallmarks of an Effective Charity (CC10)
The Essential Trustee (CC3)

11. Do we have adequate safeguards in place to prevent fraud?

  • Do we have proper financial controls and procedures in place to prevent fraud?
  • Do they need reviewing and updating, to take account of potential increased risk of fraud as a result of the economic downturn?
  • Are there controls and procedures in place to reduce the risk of misuse of personal data?

For further information:

Internal Financial Controls (CC8)
Protecting charities from harm (the ‘Compliance Toolkit’)
Charity Fraud: A guide for the trustees and managers of charities

D. Making best use of resources

12. Are we making the best use of the financial benefits we have as a charity?

  • Do we understand how to make the most of Gift Aid?
  • Are we making the most of our potential tax relief as a charity?
  • Are we aware of government financial help available for charities during the recession? If yes, have we considered whether it is appropriate for our charity, and whether to apply for it?
  • Have we considered whether any trading activities need to be hived off to a subsidiary trading company in order to avoid tax liabilities?

For further information:

HMRC - Gift Aid
HMRC - Charities and Tax/Trading
Trustees, trading and tax (CC35)

13. Are we making the best use of our staff and volunteers?

  • Are we aware of our obligations as employers and do we know where to go for further information?
  • Do our staff have the right mix of skills and experience that our charity needs to be effective?
  • Could we introduce more flexible patterns of working in order to focus our resources where most needed?
  • Do we need the same type and number of staff? Are there better opportunities to recruit in a more competitive job market?
  • Do we think that there is more potential to give people an opportunity to volunteer for our charity in the current circumstances?
  • Are we proactive in attracting potential volunteers and have we reviewed the way we support and use them?

For further information:

ACAS
Volunteering England
People, HR and employment (NCVO)

14. Have we considered collaborating with other charities?

  • Are there activities that we think could be run more effectively by working with others, such as sharing equipment, sharing staff, running joint training sessions, or sharing back office services?
  • Do we know how to identify other charities with similar purposes operating in our area that we could contact to discuss possible collaboration or joint working?
  • Should we consider the possibility of a formal merger with another charity or charities in the interests of our beneficiaries?

For further information:

The Register of Charities: gives full details of all charities registered with the Charity Commission
Working with other charities
Collaborative Working and Mergers (CC34)

15. Are we making the best use we can of our property?

  • Have we thought about how we use any assets, such as buildings or equipment we own or rent? Could we use them differently, share them with others, re-negotiate terms or sell them?
  • Is this a good time to buy property instead of renting it?
  • Have we reviewed any insurance policies we hold - can we get a better deal?
  • What will any change in use of our property mean in terms of insurance?

For further information:

Sales, leases, transfers or mortgages: What trustees need to know about disposing of charity land (CC28)
Charities and Insurance (CC49)

Other sources of information

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