Reporting of trustees' expenses in annual accounts and controls over expenses
Trust and confidence in charities depends on their good governance and accountability. Sound internal controls underpin good governance and accountability is demonstrated through transparent financial reporting.
About this Q & A pack
The Report by the Independent Expert Group on Expenses highlights the importance of good internal control procedures on the payment of expenses to trustees, staff and volunteers. The report also provides a timely reminder on the importance of meeting the SORP’s disclosure requirement for trustees’ expenses in the statutory accounts. Our response to this report is available on our website.
This Q & A pack address some of the common issues arising relating to the disclosure of trustees’ expenses in SORP compliant accounts.
What is included within trustees’ expenses?
Trustees should not be ‘out-of-pocket’ as a result of the work they carry out on behalf of their charity. Expenses are normally refunds by the charity of costs a trustee has had to meet personally (or which have been met on his or her behalf) in order to carry out trustee duties. In some cases, these expenses may be paid in advance. A refund of properly incurred expenses is not a trustee payment, nor does it count as any kind of personal benefit.
Further information on trustees’ expenses is available in our guidance Trustee expenses and payments (CC11).
What must be disclosed in statutory accounts?
The notes to the accounts must disclose the total amount of trustees’ expenses in the financial year.
The amount disclosed includes both amounts reimbursed to trustees and also amounts paid for by the charity to third parties. For example, if the charity purchases rail tickets for a trustee to attend a trustees’ meeting this amount should be included within trustees’ expenses in the same way as when a reimbursement is claimed for travel costs incurred.
In addition, the note to the accounts should state the total number of trustees who claimed or incurred expenses during the financial year. The names of the trustees claiming expenses do not have to be provided in the accounts. If none of the charity’s trustees have claimed expenses it is important that this fact is stated.
The final required disclosure is a brief description of the nature of the expenses incurred. For example travel, accommodation and subsistence.
The required disclosures are set out in paragraphs 232 to 233 of the SORP.
What are the most common errors in reporting of trustees’ expenses within statutory accounts?
Often trustees’ choose not to claim expenses. Trustees’ need to remember that if no expenses are claimed then the notes to the accounts should confirm this fact.
Some confusion seems to exist as to whether amounts paid for by the charity to third parties in relation to trustees expenses should be included. The SORP is clear that where costs are costs are paid directly to a third party these amounts should be included within the disclosure. For example, if hotel accommodation is paid for a trustee to attend a trustees’ meeting this cost should be included in the same way as a hotel booked directly by the trustees where the costs are reimbursed by the charity.
What additional information on trustees’ expenses can be provided with statutory reports and accounts?
The Charities SORP provides a base level for disclosure of trustees’ expenses and trustees may choose to give addition information or explanations where trustees’ consider this to be helpful to readers of accounts.
The Report by the Independent Expert Group on Expenses highlighted the potential confusion that can exist between properly incurred expenses and remuneration. Expenses should not provide personal benefit and therefore should not be confused or presented in a way that might create such a presumption. Trustees’ might, for example, wish to included a statement explaining that expenses paid relate to properly approved costs incurred by trustees relating to their work with the charity. There is no requirement to provide such explanations and it is for the trustees to decide whether further explanation is helpful to the reader of the charity’s accounts.
Internal financial controls form a vital element of good governance arrangements for all charities. The SORP requires trustees of auditable charities to confirm that major risks identified by the trustees have been reviewed and systems have been establish to manage such risks. However, the SORP does not require trustees to make a specific statement on the operation of internal controls and how they are monitored by trustees. Where trustees wish to include a more detailed internal control statement or details of the controls exercised over expenses then they may do so within their annual report. Further information on internal control statements can be found in The Turnbull Guidance on Internal Control.
What controls should be exercised over the payment of expenses?
It is important that controls over expenses payments are applied without exception to all those involved with the charity: trustees, all staff and volunteers. We recommend that a written policy should be in force for the payment of expenses.
To ensure that the charity only reimburses legitimate expenses properly incurred on its behalf, the policy should clarify whether the charity pays expenses for travel, hotel, conference, business, training and out-of-pocket expenses, and, if so, on what terms.
The policy should set out the requirement to complete expenses claims and to provide receipts. It should also clarify any fixed payments and any cap on total payments, eg hotel costs on a bed and breakfast basis for single occupancy only are reimbursed on production of original receipts to a maximum of £xx a night.
We also recommend that:
- a formal expense policy should exist applying to all trustees, staff including the CEO and senior management and volunteers;
- the policy should be clearly communicated within the charity and included within induction training;
- expense claims should be authorised by someone other than the claimant and checked for accuracy before payment;
- expense claims should contain a self-declaration that the claim is accurate and incurred in connection with the business of the charity;
- to minimise the charity’s cash payments, reimbursement should be made by cheque or BACS transfer;
- any mileage rate paid for motor travel should be at HMRC rates that do not result in a tax or national insurance liability for the charity or the claimant.
Unless a dispensation has been granted by HMRC, a Form P11d will need to be completed and filed with HMRC detailing expense payments and benefits received by each staff member earning £8,500 or more. Further guidance is available from HMRC website.
Further guidance on internal financial controls is available - Internal Financial Controls for Charities (CC8).
Should we disclose the expenses claimed by senior staff?
There is no requirement in the SORP for charities to provided details of expenses paid to senior staff in their annual accounts and reports. Annual accounts are ‘general purpose statements’ and their focus is on financial and operational performance.
Our view is that the decision whether or not to provide information on the expenses of senior staff should rest with individual trustee bodies. As recognised by The Report by the Independent Expert Group on Expenses that decision will be informed by a number of factors including proportionality. If disclosure is considered appropriate then we would encourage the use of the charity’s website as the means of providing this information rather than the annual accounts and reports.