A good financial management system ensures:

• Meets legal requirements
• Protects organisation from fraud
• Protects organisation from mistakes
• Protects individuals from accusations
• Ensures trustees/committee knows what is happening
• Helps plan the finances
• Uses money efficiently
• You know what it costs to run the organisation and/or service
• You can easily create reports for stakeholders including funders
• Formal controls can give evidence to outsiders that their money is safe with them

A system should:

• Have a plan and budgets kept in check
• Look to diversify your income and have clear policies to maintain a healthy cashflow by efficiently dealing with income and expenditure
• Keep accurate accounting records, apply effective controls and provide reports for assisting decision making

What you need, as a minimum is:

1. A set of written procedures for handling money

• These should set out clearly
  • What has to be done
  • How it has to be done
  • Who has to do it

• They don’t have to cover everything, just the important and the day-to-day. See here for our template. The Charity Commission has detailed guidance and a useful checklist.

2. A bank account, with instructions that at least two people must sign each cheque or authorise an electronic payment. 

• This is essential (and expected by the Charity Commission)
  • So that you can keep the group's money separate from your own
  • As your first line of defence against dishonesty and impropriety

•  You can find a useful comparison here.

3. An annual budget, and cash flow 

• The budget is your plan showing
  
  • How you intend to spend the money over the year
  • Where this money is coming from

• The cash flow is your plan showing 
  
  • When the money comes in
  • When it goes out so that you don’t end up over-drawn

• Larger projects may need a three year budget and cash flow 

4. A bookkeeping system which is written up in full at least monthly, with a bank reconciliation. 

• These can be in hard copy but electronic may be easier. For simple accounts Excel is perfect. The Resource Centre in Brighton have two easy to use Excel accounts systems which you can download for free. They were developed especially for small community and are designed to help you keep track of your group’s money so that you can check your balances, provide financial reports to your members, and report to funders. You could use off the shelf products. Adapta Consulting produce a list.

• The system needs to: 
• Record all monies you receive and pay out in the year
• Analyse these under the headings you use for your budget

• The bank reconciliation checks that your records and the banks agree, and if they don’t, explains the differences

5. Regular (monthly or quarterly) finance reports that compare actual income and expenditure with the budgets

• This is so that you
  
  • Know where you stand
  • Don’t get any unpleasant surprises
  • Can work out whether you are winning or losing
  • Can cut your coat accordingly 

6. Annual Accounts and Reports.

• We in the voluntary and community sector are about making a difference rather than making money. So at the end of the year we will want to explain how we have used the money received to make a difference.  Charities and CIC have to do this by law. Other voluntary and community groups don’t have to but it is good practice so you can tell your supporters, funders and others what you’ve done in the past year.  There is more advice here. 

7. External examination. 

• Your constitution/articles may say your annual accounts need to be checked by someone independent of your group or even a formal audit by a qualified accountant. Some funders may insist on some form of check. If you are a charity then depending on your annual income you may need an independent examination (generally if you’re your income is more than £25,000) or audit (if your income is more than £1 million). If you are a company (including a CIC) unless your articles say you must you won’t need a formal audit until your income is over £10.2 million (see the rules here)

• An independent examiner is somebody outside your group who looks over your books at the year end to check that you are keeping to the rules. There is a list of suitably qualified people. The Charity Commission has guides for examiners and trustees.

• An auditor
  • Is somebody independent of your group
  • Is a qualified accountant
  • Not only checks that you are keeping to the rules
  • Also checks that your books give a true and fair view of your finances

Our sister CVS in Hampshire has a good guide to all the above here

Last updated: 26th April, 2022