Autumn statement 2013: Key messages for charities

The Autumn Statement 2013 took place on 5 December 2013. The statement provides an update on the government’s plans for the economy based on the latest forecasts from the Office for Budget Responsibility. Here is a round up of the key messages for charities.

Gift Aid

The government wants as many eligible donations as possible to attract Gift Aid, and will establish a new working group to revise the model Gift Aid Declaration to make it easier to understand, and to develop new promotional material to increase take-up. The government also intends to allow intermediaries to take a greater role in operating Gift Aid in order to reduce the number of instances where a new Gift Aid Declaration is given. However, following feedback from charities in the recent consultation exercise, it will consult further on the detail of how this can best be achieved, before changing legislation.

Cultural Gifts Scheme and estate duty

In the Finance Bill 2014, the government will amend legislation underpinning the Cultural Gifts Scheme to ensure that estate duty is brought into charge where appropriate.

Community Amateur Sports Clubs (CASCs)

Following a consultation over the summer, the government announced on 25 November 2013 a series of reforms to the tax regime for CASCs. As part of these changes, from April 2014 donations by companies of gifts of money to CASCs will be eligible for corporate Gift Aid. (Finance Bill 2014)

Joint registration of Charities between HMRC and the Charity Commission

HMRC will develop a new IT system to allow organisations wanting to register with the Charity Commission for England & Wales and seeking charity tax status with HMRC to submit their applications through a single online portal. The new system is planned to be introduced in 2015 to 16 and will later be extended to enable charities in Scotland and Northern Ireland to register with their charity regulators at the same time as they apply to HMRC.

Charity Shops

Government to provide additional support to the retail sector through a business rates discount of up to £1,000 in 2014-15 and 2015-16 for retail properties (including pubs, cafes, restaurants and charity shops) with a rateable value of up to £50,000, and a 50% discount from business rates for new occupants of previously empty retail premises for 18 months.

Stamp duty land tax (SDLT): charities relief

The government will legislate to make it clear that partial relief from SDLT is available where a charity purchases property jointly with a non-charity. The charity will be able to claim relief from SDLT on the proportion of the purchase attributable to it. The changes will take effect from the date on which Finance Bill 2014 receives Royal Assent. (Finance Bill 2014)

Charities established for tax avoidance purposes

Legislation will be introduced in Finance Bill 2014 to amend the definition of a charity for tax purposes to put beyond doubt that entities established for the purpose of tax avoidance are not entitled to claim charitable tax reliefs.

For further information:

Visit the government topical pages on the Autumn Statement 2013 here.

You can download the full statement here.

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Fraud risk management for small charities

News of charity fraud has heavily hit the sector in recent months. Both staff and trustees have been implicated, and charities small and large have fallen victim of fraudulent activity.

In June 2013, the Charity Commission reported that 1 in 10 charities with income over £100,000 had found fraud in that financial year, and the estimated financial loss to charities in that year due to fraud was almost £150m.

In November 2013 alone, there have been various reports of fraud actions in court:

The impact of fraud on a small charity can be devastating. Financially, the financial loss may be unrecoverable. But also, the damage to the organisation’s reputation is immeasurable.

Understanding fraud

Action Fraud, the UK’s national fraud and internet crime reporting centre, defines fraud as “when trickery is used to gain a dishonest advantage, which is often financial, over another person”.

In its nature, fraud is a covert activity, which is designed never to see the light of day. This makes it particularly difficult to detect fraudulent activity, and charities cannot afford to be complacent about their fraud risk management.

Fraud triangle

Perhaps one of the most insightful ways of thinking about fraud was a term coined by an American penologist and criminalist, Donald R. Cressey. He thought that there are three factors that are always present for every fraud situation:

  • Motive – the circumstances that create a need to commit fraud e.g. need for money;
  • Opportunity – the circumstances that make it possible for the fraud to occur; and
  • Rationalisation – the ability to justify the fraud, e.g. “Nobody cares about this, it’s tiny!”

While no organisation is immune to the risk of fraud, removing one of these factors can make it impossible for fraud to occur. In particular, organisations can close gaps in management controls (i.e. remove opportunity).

Big challenges for small charities

The Trustees have a legal duty to safeguard the assets of the charity. It is therefore their responsibility to design and instigate internal control mechanisms for preventing, detecting, and responding to fraud.

However, small charities face particular challenges in mitigating fraud risk. Often, there is simply not enough staff in the charity so that segregation of duties controls can be implemented. For example, the person holding cash is often the same person “authorising” and recording payments.

Small charities are particularly attractive for fraudsters, given the high level of embedded trust between colleagues in the sector. In many ways, a small charity can be much like a family, so it can be awkward to even contemplate that someone could defraud the charity.

The result is that the systems of internal control for fraud prevention and detection are generally less developed in small charities. But there are simple and generally cost free activities that the Trustees can adopt in order minimise the risk.

Risk assessment: identifying the exposure points

Assessing the risk of fraud in the organisation is one of the most important mitigation activities. This can be as simple as an outline list of situations in the organisation’s normal course of business which present opportunities for fraud. For example:

  • Grants and donations received in cash.
  • Income received by a single person over a period of time i.e. a small amount at a time.
  • Expense claims for allowances, travel, and subsistence.
  • Changes to the accounting records.
  • All purchasing done by a single individual.
  • Diverting supplier payment to an employee’s own account.
  • Duplicate and/or fake invoices in the financial records.
  • Cheques being signed and cashed by the bank signatories.

Agree an action plan

Leading from the top, the Trustees should agree a mitigation plan showing how the charity protects itself against fraud. To save time, this could be done as part of a wider risk management process.

Preventative controls for small charities

For small charities, the operations and organisational structures can render conventional fraud control mechanisms ineffective. However there are alternative activities that Trustees could consider:

  • Have a finance sub-committee on the board with a higher level of visibility with regards to the Charity’s finances. They should also maintain a healthy level of scepticism and aim to promote best practice financial management.
  • All payments should be counter-authorised by at least one other person. Small charities should consider the feasibility of a trustee other than the treasurer authorising payments, while the treasurer monitors and scrutinises the expenditure.
  • Have a fraud policy and procedures in place. In particular, have a really simple reporting mechanism for fraud suspicion, including the option to report to members of the board of Trustees if the staff do not feel comfortable reporting the issue to their direct reports.
  • Have clear whistleblowing procedures in place.
  • During training or other day-to-day business activities, invite someone to speak to staff about fraud to increase awareness. Your accountants, local community accountancy group, or the skills sharing and mentoring service by The Coalition for Small Charities may be a good resource for this.
  • The finance procedures should include a limit to the amount that can be paid in cash and the nature of items that can be paid for in cash.
  • Consider using online banking, with double authorisation, to minimise cash and cheque transactions.
  • Wherever possible, commit the organisation to expenditure in its own name instead of relying on staff to pay and then reclaim in expenses.
  • Keep cash and other assets locked away. A fraudster can’t do very much if they don’t have access to the assets.

Detective controls

Detecting fraud can be really hard, even for a seasoned fraud investigator. Some of the actions a small charity could take include:

  • On-going review: The finance sub-committee should review the finances of the organisation on a regular basis.
  • Keep your management accounts simple, to help all trustees better understand and query them.
  • Spot checks, particularly identifying trends e.g. multiple payments going to the same payee with no apparent reason or standing contract, amounts changed on invoices consistently.
  • Maintain good record keeping: it is much easier to hide a fraud in a pile of disorganised documents.
  • Implement simple whistleblowing and reporting mechanisms.

Response

Even when we’ve done our best, fraud can still find its way through our preventative. Organisations need to have a fraud reporting and response mechanism in place to help them take appropriate action.

Internally, having an “ethics/compliance champion” can work well for some charities. This would be someone that staff would feel more comfortable with so they can report to them instead of going through the normal reporting lines.

Externally, if the fraud involves your bank accounts or business cards, you will need to inform the bank immediately.

If there are concerns over anyone’s safety, the charity should consider reporting to your local police.

If the case involves national taxes e.g. Gift Aid or VAT, you will need to report to HMRC. You can call 0800 788 887 to make a tax evasion report.

In all cases, suspected and actual fraud should be reported to Action Fraud (this can be done online at www.actionfraud.police.uk or by calling their helpline 0300 123 2040).

If you have reasonable grounds to consider the fraud a serious incident e.g. because the amount is significant, you will need to report it to the Charity Commission. This can be done by email at rsi@charitycommission.gsi.gov.uk.

Written by:

Charles Ssempijja

Director

NfP Accountants

Financial management for small charities & social enterprises

www.nfpaccountants.co.uk

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Chartered Accountant Launches New Employee-owned Firm for Small Charities

A new brand of accountancy business for small charities and not for profit organisations, such as social enterprises, has been launched. There are thousands of small charities and social enterprises in the UK, doing fantastic work, and yet, many are still struggling to keep on top of their books or make use of their financial data for management decision-making.

Although there are many accountancy firms serving the charity sector in the UK, NfP Accountants is set up to become the first employee-owned accountancy business. “It’s time to move beyond the traditional partnership model of accounting firms; for small charities and social enterprises, a more co-operative approach to financial management is best placed to provide the much needed support and at a reasonable cost”, says founder, Charles Ssempijja.

NfP Accountants Ltd will provide all manner of services to small charities and social enterprises. What’s unique about this firm is that small charities will now have an accountant that can work with them to build processes that connect finance with other strategic and operational management, particularly around donor management, project tracking, process automation, and jargon-free financial information for the non-accounting manager.

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