Bank accounts and financial controls

Hello and welcome to this recording from Support Cambridgeshire, a partnership of Cambridge CVS and Hunts Forum. This module is one of several short recordings we have developed to help people set up a charity to benefit others in their local community – this session looks at opening a bank account and putting the necessary financial controls in place –There are guidance links to support you alongside this recording.

This information is intended for small groups without assets or endowments.

Taking care of finances

If you are an independent group and regularly need to manage funds, your group will probably need its own bank account. You are also likely to need one if you want to apply for grants. To ensure your group will manage the money coming in and out of the group legally and safely you will also need some financial controls in place.

A group’s management committee is responsible for keeping accurate financial records and ensuring funds are spent only on activities that deliver the aims of the group, as outlined in their constitution. The committee will usually delegate the keeping of financial records to the treasurer who will give a report at each meeting.

Tools for financial control

As already mentioned, responsibility for finances rests with the committee and for small groups the key tools to ensure good financial control are:

  • A well-managed bank account
  • A financial controls policy
  • An up-to-date record of receipts and expenditure
  • Budget for a defined period typically 12 months

Finding a bank account

Opening a bank account can be quite longwinded and you should not be surprised if it takes several weeks to open. There are more options available for registered charities, but unregistered community groups can also open accounts. Free community accounts are usually found in the business section on bank websites, and it can be an advantage if one of the potential signatories is an existing customer.

Considerations when choosing a bank account

There are some things to think about when choosing a bank account:

  • Make sure the bank is regulated and is covered by the Financial Services Compensation Scheme and that there is no fee for banking with them – so long as you remain in credit.
  • Think about what sort of account you need – a current account with instant access or do you need a savings account and/or credit facilities? Do you need a debit card? Check if a bank has a minimum balance requirement or limits on the number of transactions.
  • Do you need to have physical access to your bank eg taking in cash? This is an increasing issue with so many banks closing branches.
  • How will you authorise payments? Can you set up a dual mandate where the bank requires 2 signatures on each transaction, or can you set up your own 2-stage system of authorisation keeping robust records? I’ll come back to having good internal financial controls shortly.
  • Are the bank’s ethical policies important to your group? For example, do you object if they do business with certain industries?
  • The potential signatories should be eligible, not declared bankrupt or convicted of fraud and prepared to share a lot of detailed information with the bank.
  • If you are a registered charity, you have more options for example you can apply to the Coop for their direct plus account which qualifies you to apply for £1000 from their customer donation fund
  • If you use additional services, check if there is a charge. Take care not to go overdrawn as you are likely to incur a fee.

Tips for setting up your bank account

  • Clarify who the bank expects to see ID for and what sort of ID do they need to have. The bank is likely to want to see a photo ID to confirm identity and ID to confirm addresses.
  • Most applications have a time limit, make sure all the people involved can respond promptly to requests for information.
  • Make sure you are complying with your own governing document.
  • Make sure you have all the information the bank needs available – they will usually want to see a signed and dated copy of your governing document and signed minutes agreeing to the bank account application.

Financial controls

Financial controls are put in place to ensure you keep to the rules laid out in your governing document, prevent fraud, avoid mistakes, and help you prepare you annual accounts.

The financial controls policy covers controls around income

There is a template for a financial control policy in the guidance links. It sets out controls around income including:

  • How will cash or cheques be handled.
  • How will committee members ensure they are satisfied that any donations are appropriate and legitimate.
  • Any income made from selling things needs to stick to Charity Commission rules on trading income (see in the guidance links for detail on charities and trading income)
  • Any fundraising must comply with fundraising code. The fundraising code sets out how charities are expected to behave in the way they ask for and manage donations, in how they handle people’s data and in their approach to working with vulnerable people, there is a link to this in the guidance.

Controls around expenditure

The financial control policy also describes how your bank account will be managed including:

  • Payments should be authorised by 2 signatories
  • Debit cards should be kept securely
  • Bank accounts should be checked /reconciled against statements monthly
  • The treasurer should present a report at each committee meeting.

It outlines how invoices will be raised and authorised and how expenses should be paid and if you have it how petty cash is managed.

Are there any reserves that need to be built up to meet liabilities should you lose some funding or must close? For example, if you lease an office how much notice are your required to give? You should ensure money is put aside i.e.,designated in reserves for this and not put into the pot of funding you may utilise for non-essential spending.

The policy will also stipulate how you record any assets so they can be well-managed, for example, equipment belonging to the group.

Financial controls also put in place safeguards to manage risks such as putting in place measures to minimise cybercrime and fraud, for example by using a password manager and setting up transaction alerts on electronic banking.

Receipt and payment accounts

Non-Company charities with incomes of under £250k pa prepare the simplest type of accounts – receipt and payment accounts which summarise all money received and paid out and a statement giving details of the group’s assets and liabilities at the end of the year.

All charities registered or not have to keep accounting records namely invoices and receipts for at least 6 years.

The guidance links include a template for setting up a receipts and payments account on an excel spreadsheet. You can see that it lists 2 types of funds.

Unrestricted are funds available for running the organisation and restricted are funds which have been ringfenced for a particular purpose such as a grant to run a coach trip.

Preparing a budget

A budget is an estimate of your income and expenditure for a set period. It is your realistic best guess of what is going to happen. It is not set in stone, and it will be adjusted as necessary with the agreement of the committee. The example shown here is a simple budget, but for organisations with more activities, you might want to split costs into fixed costs – where the costs are the same regardless of what the group does eg rent/website hosting/insurance and variable costs which will depend on what the groups choose to do such as the promotional costs. You might also want to plan the income and expenses out for each month – this will help to ensure you always have enough cash to cover your outgoings.

A budget is a planning tool for the committee, which you would share will your supporters along with your receipts and expenditure account at your AGM.

To summarise

To summarise how do you maintain good financial control

  • Put a financial controls policy in place and make sure everyone follows it
  • Prepare a budget to plan ahead
  • Check your bank account against your statement monthly and report on the bank account at each meeting
  • Report on receipts and expenditures at each meeting

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Guidance links

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