Our Third Sector will play a vital role in supporting and delivering key services to individuals and our communities as a whole during these challenging times. However, the normal operations of running a charity will also be widely affected by the reduction in interaction with beneficiaries, stakeholders, colleagues and trustees, and routes of fundraising, such as events, retail and campaigning continue to have a sizeable impact. Whilst we will continue to monitor any announcements regarding support for the sector, our charity team are also here to help with any questions you may have in terms of governance and financial issues to guide you through these unprecedented times.
Here’s a short summary of the action you should be taking now and support currently available to the charity sector:
Where restricted funds have been given to your charity for a specific purpose i.e. to deliver a project, a one off piece of work or the use of the monies defined for a specific reason, then it is the individual or organisation providing those monies that determines that there is a restriction on the use of those funds.
Under normal circumstances your charity may have provided a regular report on how these monies were being expended and the outcomes that were being achieved, however, when awarding your charity these funds initially, these funders could not have foreseen the situation that we now find ourselves in and so it may be possible that funders would be willing to allow you to use the funds for a different purpose or reason.
Communication with funders is essential to assess whether the use of restricted funds can be amended in the short term, whether to support the charity’s continuation in the current climate or changes within the categorisation of spending to allow for movement in costs. Documentation of management’s and the Trustees’ decision making thoughts and processes is vital when approaching funders, and any specific agreements or changes of use that may be put in place in the short-term. It is also important for trustees to consider whether this is the right action for the charity to take in terms of fulfilling other commitments and its plans for the future.
Where restricted funds comprise of donations received from many donors, it may be impracticable to contact them all individually to ask permission to use the funds differently. If trustees consider it appropriate in the circumstances, they may consider using their normal methods of communication with donors such as bulletins, newsletters or their website to inform those donors that they are proposing an alternative use for those funds and, providing there are no objections raised within a set period of time, then the Trustees can document the decision to change the use of these funds.
If a charity holds a significant restricted fund created by a single donation and no approval/communication has been received by the original donor or funder to change its use, then the charity should not utilise funds for any other purpose other than those restrictions in place when the original donation was received.
Find out what funding is availble nationally, regionally or across Scotland for your charity to help during this Covid-19 pandemiic https://www.armstrongwatson.co.uk/news/2020/04/funding-charities-and-not-profit
The government recently launched the Job Retention Scheme and the term ‘furloughed employee’ has swiftly become one we are increasingly familiar with. The scheme pays 80% of an employee’s salary where they cannot work, up to a maximum of £2,500 per month. Payments will be back dated to 1 March 2020. Furloughed employees will be able to volunteer in their communities to help people affected by the coronavirus pandemic, but not at their usual organisations. A furloughed employee can take part in volunteer work or training as long as it does not provide services to or generate revenue for their own organisation. Karen Thomson, Armstrong Watson Head of Payroll, has provided specific guidance, relevant to both commercial and charitable entities, on the terms and conditions which must be adhered to when considering to furlough employees. For further information regarding the scheme, along with a template letter, please click here.
A word of caution though, where staff are directly funded for projects and funders have confirmed that they will continue to provide this income to your charity, then these staff members should not be included within the ‘furloughed employee’ selection. Effectively, as you are receiving the funding covering these wages and salaries then, providing the employee is capable of completing their duties, their employment should continue as normal.
The Charity Commission and OSCR advise that all charities have a defined reserves policy which identifies funds that can be freely spent by a charity on any of its charitable purposes. The reserves policy is normally determined by the Trustees as a monetary value equivalent to x number of months of current operating expenditure.
Under normal circumstances, Trustees would look to maintain a healthy level of reserves in line with their policy to effectively help them through any loss of funding streams or ‘for a rainy day’. Charities now find themselves in an unprecedented situation whereby Trustees need to do their best for their charity. Trustees must have the confidence to utilise these reserves, where necessary, by firstly appraising the current financial situation of the charity, assessing the short to medium term needs and then acting accordingly. These funds should be expended on helping your charity to continue to deliver its services and support your beneficiaries. Crucially, Trustees will need to consider any original plans which those reserves had been budgeted for, as it may no longer be possible to deliver those plans on the timescales initially considered.
HMRC have issued guidance on the deferral of VAT payments. The deferral will apply from 20 March 2020 until 30 June 2020 and all UK businesses (including VAT registered charities) are eligible. For further information please read our article here.
With the current ‘lockdown’ and the likelihood of restrictions of movement being in place for a period of time, charities will need to change the way they work and how they are governed. Decisions about how you can continue to operate during this time will need to be taken collectively by the Trustees, where possible. Decisions on the short term measures will need to be made quickly, with the impact on future plans carefully considered.
Key decisions made by local management and Trustees, the decision making process, assessment of risks involved, conclusions and actions will need to be recorded and advice taken where necessary.
The COVID-19 pandemic is going to have an impact on a charity’s ability to hold an AGM. This might also make it difficult to finalise the annual report and accounts in accordance with the rules governing your charity within your governing document.
Wherever possible, it is important to try to submit these on time to your charity regulator. Both the Charity Commission and OSCR accept uploaded documents via their online portals, with both regulators acknowledging that it might be difficult for some charities to complete these. The regulators have also acknowledged that they would take an understanding and proportionate approach to this and no charity in this situation will be penalised for being late.
Meeting face-to-face is not going to be possible at the moment so holding meetings virtually is considered to be a good option. Some charities have specific provisions in their governing documents to allow meetings to take place over the phone or using digital solutions. However, in the current situation, the regulators are happy if charities choose to hold their meetings in these ways even if the governing document doesn’t say anything about this. This will allow charity trustees to have important discussions and to take decisions at this difficult time.
Where you decide to take this virtual route, you should record the method of this meeting, those in attendance, the discussion process and conclusions reached, with actions and timescales determined. This will ensure that you continue to demonstrate good governance for your charity.
Some key practical tips about successful virtual meetings (Source SCVO website):
It may be that your charity’s purpose is to host a specific event, for instance a festival or an agricultural fair. It may be that this event is even specified in your governing document. Where it will be impossible for your charity to host or undertake an event in the next few months then you will not be required to seek permission from the regulator to postpone your event.
Understandably you will be very concerned about how the current COVID-19 pandemic will affect your charity now on a day to day basis and the potential longer term impact. As your trusted adviser, we’re with you to assist with any immediate questions or concerns you may have.
If you would like to speak to us please contact our Charities team via the key contacts below: