Internal financial controls for charities (CC8) were first published by the Charity Commission in July 2012. As of April 2023, they have been updated to reflect the changes to practice and law.
Internal financial controls are crucial for charities, to ensure that all financial operations are conducted in a transparent and responsible manner.
As the overall objectives are the responsibility of the trustees, they must ensure assets are utilised appropriately, funds are effectively spent, and financial matters are well handled. Internal financial controls, in fact, play a crucial role in assisting charity trustees to meet their legal obligations in protecting the charity’s assets, managing the finances, identifying, and handling risks whilst ensuring the financial reporting is accurate.
Some of the key internal financial controls that charities should consider implementing include:
Separation of duties
The duties of handling financial transactions, such as receiving and depositing donations, reconciling bank statements, and preparing financial reports, should be divided among different individuals. This reduces the risk of fraud or errors and ensures that financial operations are conducted in a transparent manner.
Documentation and record-keeping
All financial transactions should be properly documented and recorded. This includes receipts, invoices, bank statements, and other financial documents. This allows for easy tracking of financial transactions and helps to ensure that financial reports are accurate.
Regular financial reporting should be conducted to keep track of the charity’s financial performance. This includes regular financial statements, budget reports, and cash flow projections.
Oversight by the board of trustees
The board of trustees should provide oversight of the charity’s financial operations and ensure that internal controls are in place and being followed. This includes regular review of financial reports and oversight of the charity’s financial policies and procedures.
Training and education
Staff and volunteers involved in financial operations should be trained and educated on financial policies and procedures, as well as the importance of internal controls. This helps to ensure that everyone involved in financial operations understands their responsibilities and the importance of maintaining internal controls.
Overall, implementing strong internal financial controls is essential for charities to ensure that their financial operations are conducted in a transparent and responsible manner, and to maintain the trust of donors and the public.