This guidance is for Trustees of charities and academy trusts (which are exempt charities), particularly those on a Finance/Audit Committee, but importantly also for the full board. It is additionally for the clerk/governance professional to use to prompt Trustees to consider these matters.
When it comes to reviewing the Annual Accounts, some Trustees believe it is the sole/main responsibility of the Treasurer/Chair of the Finance Committee and are happy to leave it to them. Trustees may even restrict their review to where they themselves are mentioned in the Accounts. While Trustees who are professionals may owe a higher level of duty, the full Accounts and Annual Report remain the responsibility of all Trustees.
The Annual Report section of the Accounts is the Trustees opportunity to show achievements and plans for the future. Unfortunately, the report is often a template drafted by the auditors. In addition to statutorily required information, it is essential for the Trustees to own the Report and include what they think is significant for anyone to know who has a reason to look at the Accounts. Smaller charities may have an Independent Examiner instead of an auditor.
Trustees are in a difficult position when it comes to approving the Annual Accounts. They are unlikely to have had oversight of the day today transactions carried out by accounting staff, yet the auditors will ask the Chair on behalf of all the board of Trustees, to sign the audited Accounts and a Letter of Representation. The Letter of Representation is drafted by the auditors for the organisation to prepare on their letterhead and it confirms to the auditors certain matters or supports other audit evidence.
Although there is no substitute for keeping on top of the financial matters, the Trustees may wish to consider what else they can do by asking pertinent questions and by taking other action to mitigate the risk they are running and, provide them with some degree of comfort.
The risk is that trustees could be considered responsible if the representations they make are not true and accurate and, if they do not have the knowledge or understanding of the organisation’s financial affairs to make the representations.
Trustees could be considered negligent if they do not comply with relevant laws and regulations.
Trustees can mitigate their risk by thoroughly understanding the financial position, reading and understanding the Letter of Representation and, the auditor’s Management Letter which sets out their recommendations and actions. Trustees can discuss with the auditors any of the points they are worried about made in these documents.
The following questions are for the management/financial staff:
Q. What assurances can you give us that there is no reason we should be concerned about anything in the Accounts or Letter of Representation the Chair is being asked to sign on behalf of the board? Or:
Q. Are you aware of any reason why the Chair should not sign the Accounts and Letter of Representation on behalf of the board?
Depending on the circumstances, Trustees may also wish to obtain a letter from management/financial staff to confirm their assurances, to act as back up evidence for the undertakings the Trustees and Chair are giving. Alternatively, the management/financial staff (the Accounting Officer, for an Academy Trust) can sign the audited Accounts and Letter of Representation in addition to the Chair.
The following questions are for the auditors. If Trustees have any particular concerns, they should consider asking these questions without management/financial staff present in the meeting. Trustees can ask them to temporarily leave the meeting for this part:
Q. Were you granted unrestricted access, did you receive full cooperation from management?
Q. Is there anything to discuss that you did not want to put in writing?
Q. Does XX have sufficient knowledge of the Accounting/Senior Financial Officer role to carry out their duties effectively?
Q. Is there anything you have seen and not mentioned elsewhere, that gives you cause for concern?
The questions and replies should be carefully minuted.
If there is a Finance/Audit Committee, it would be usual for much of the detailed enquiries to be carried out by them and the Accounts and Letter of Representation to be approved for signing off by the committee, subject to ratification by the whole board.
If that is the case, for reasons mentioned, it is recommended that the minutes of the relevant Finance/Audit Committee meeting come to the full board together with the full the Accounts and Annual Report and, the auditor attends the full board meeting to make a presentation and allow all the Trustees to ask their questions.
This guidance covers a particular aspect of the Accounts and Annual Report. Although the Charity Commission does not appear to offer any guidance of their own on this subject, they do deal with independent examination which may be useful to consult here.
The purpose of this guidance is to highlight certain issues to support Trustees in discharging their duties and should not be considered exhaustive. Trustees should take appropriate professional advice where relevant.
Written by Stephen A. Ross MSc FCII DchA FRSA, an experienced and qualified governance practitioner and senior independent board member specialising in charities and education.
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Related resources:
Understanding the role of the charity trustee (part 1)
Understanding the role of the charity trustee (part 2)
Advice for trustees with experienced board trustee Anna Feuchtwang
