Financial Transparency in Charities: Reporting Best Practices

For UK charities, financial transparency is incredibly important and there are special regulations and practices to adhere to in order to ensure charity funds are used for the intended purposes. For donors and stakeholders to support them, it is key that charities are transparent with their finances and that funds are allocated appropriately to help fulfill the charity’s mission. Donors also want to be reassured that their contributions are making a proper impact. By providing clear financial information, charities demonstrate their commitment to their integrity. In this blog, we will be exploring the key aspects that UK charities need to be aware of when it comes to financial transparency.

Charity Commission Reporting

All registered charities must comply with the reporting requirements set out by the Charity Commission, including preparing annual financial statements and an annual return. These should include information about income, expenditure and assets. Charities should always be aware of the deadlines set out by the Charity Commission in order to reduce the risk of being fined, as well as being subject to reputational damage.

Accurate Financial Records

Financial records should be written in a clear, jargon-free language that anyone can understand, no matter how financially literate they are. Adding visual aids such as graphs and charts can really help to simplify complex financial information. Within these records, charities should detail all income sources, donations and expenses to provide a clear view of all financial activities to stakeholders.

Compliance With SORP

The Statement of Recommended Practice (SORP) provides guidelines to help charities with their accounting and financial reporting. UK charities must adhere to the guidelines that apply to both the size of their charity and their overall income. All charities must use SORP to prepare their accounts, unless the trustees have opted to prepare receipts and payments. The guidelines also don’t apply to any non-company charity which had an income of £250,000 or less in the reporting period.

Independent Audit

Depending on the size and nature of the charity’s activities, most charities will need to have their financial statements reviewed by either an independent examination or audit. This adds an additional layer of transparency, ensuring the charity’s financial statements are true and fair.

Tax Relief & Gift Aid

UK charities are able to benefit from tax relief including Gift Aid, which means they can claim tax back on eligible donations (if the donor has ticked the required box when making a donation). It is really important to understand the criteria for claiming these reliefs, so it is always best to speak to an accountant to help with this.

Budgeting and Financial Planning

Financial planning is key in order for a charity to remain financially viable and continue its operations. Budgeting helps to allocate funds to areas of the charity that need it most, helping to meet the overall objectives of the charity. By regularly reviewing and auditing both the budget and the plan, charities are able to easily adapt to any changes in donations without getting into financial difficulties.

If you would like more information on how to improve financial transparency within your charity, the experts at Wright Vigar are on hand to help.