It has been suggested that “the auditor is the person who comes into the battlefield and bayonets the wounded”. A charity audit can, however, be a beneficial, useful and purposeful exercise. The notion of an understanding auditor is derived from the fact that the word “audit” comes from the Latin word “audire” meaning “to hear”.
Specific areas in which the audit process can be beneficial to charities are:
Accounting
The auditor should be able to provide assurance that the accounts comply with the ever-increasing statutory and legislative requirements. Few in the charity world need reminding just how highly regulated it already is. The public place great confidence and trust in charities being able to perform effectively and the price charities have to pay for this is greater accountability and transparency. A proactive auditor will also be able to advise on sound financial procedures and optimal internal controls.
The audit process should provide greater confidence that your finances are being properly managed and that your accounting system is producing reliable financial information.
Taxation
There are now a whole host of taxation opportunities for charities to take advantage of:
- Gift Aid (including share gift relief, donated goods, fundraising dinners, auctions and challenge events)
- trading exemptions
- payroll giving
- business rates
- Stamp Duty Land Tax
- certain VAT reliefs
- all capital taxes
To assume that charities do not pay tax is not correct. A well-informed auditor will certainly be able to ensure that the maximum tax reliefs are claimed.
Fundraising
Charities need to consider how to divert their fundraising resources between donor recruitment and donor development. Recruiting donors into a charity for the first time is particularly difficult. This should be considered as a long-term strategy. Donor development is inherently more profitable. However, charities also need to balance this with ensuring a constant flow of new donors. Good auditors can help identify opportunities in this area.
Governance and law
A knowledgeable auditor will be able to advise on the following topics:
- most suitable mode of forming the charity – the more contracts a charity enters into, the more likely a company limited by guarantee will be the most beneficial structure. Charitable Incorporated Organisations are also popular as they provide the benefits of being a company without actually being one. However, if it is envisaged that the charity is to be run by just a handful of members, then forming a charitable trust may be a more simple and convenient mechanism.
- public benefit requirements – these detailed rules require charities to demonstrate how their objects and activities achieve a public benefit.
In these ever-challenging times, charities deserve reliable and competent auditors.
Anthony Epton heads up the award-winning charities group at Goldwins, Chartered Accountants, which specialises in providing cost-effective expertise to small and medium-sized charities. Anthony is the author of the Institute of Chartered Accountants of England and Wales’ leading books on charity tax, accounting and auditing. He can be contacted on 020 7372 6494 or aepton@goldwins.co.uk