Charities need to inspire trust. The people who support them, work for them and donate to them do so because they believe in the cause they’re working towards – but they also need to have confidence that the organisation itself is being managed in the right way.
One of the most significant ways you can instil that sense of trust in your organisation is through clear and transparent financial accounts.
Unfortunately, many of the independent examinations and audits carried out on charities’ accounts have fallen well below the standard they need to meet.
Earlier this year, the Charity Commission reviewed 296 charities and found that only 44% of accounts that were submitted by qualified examiners met its minimum standards for external scrutiny.
Meanwhile, only 18% of those submitted by unqualified examiners met the benchmark, painting a troubling picture for the charity sector’s reputation, which has already been shaken by scandals in recent years.
Your choice of auditor can make all the difference to the quality of your accounts and the service you receive, so it’s important to know what you’re looking for, and think carefully about the decision.
When does your charity need an audit?
If your charity’s income is more than £25,000 a year, its trustees must arrange either an independent examination of the charity’s accounts or an audit.
An audit is compulsory for charities with an income over £1 million, and also if their gross income is more than £250,000 and gross assets are more than £3.26m.
The charity’s governing document may also require an audit, or trustees may choose to have one carried out – this will vary in different organisations.
How to choose an auditor
Do they understand the sector?
Specialist experience can make a big difference in a service like audit, both in terms of the accuracy and efficiency of the work done. But that doesn’t necessarily mean you should go for one of the Big Four, especially after a string of high-profile mistakes.
An auditor who specialises in working with charities should have a better understanding of the way your organisation functions than someone used to working with other business types, and will be able to talk about it within the context of wider changes in the sector.
Ask your auditor about their experience working with charities and not-for-profit organisations, and how they use that as part of their audit service.
It’s also worth asking about specific members of their audit team, and the work they’ve done with charities – what level of contact will you be able to have with those specialists?
Will they communicate effectively?
Your auditor needs to be able to talk to you about what they’re doing, and clearly explain their findings. Problems with communication, in the form of slow responses or a lack of clarity, can make the whole audit process much longer and more difficult to manage.
If the relationship doesn’t work out, you may end up having to go through the whole auditor selection process from the start, so it’s worth giving serious consideration to how well you’ll be able to work together.
At the same time, you need to be sure the auditor is impartial, so it’s important to strike the right balance between a good working relationship and an independent approach.
What additional advice and support do they offer?
Your organisation will benefit the most from an audit when it’s carried out by someone who helps you to understand their final audit report, and use it to improve in the future.
Look for added-value services, knowledge of non-audit issues faced by charities, and the level of support they can give during the audit process.
Talk to us
We offer both external audit services and independent examinations for charities. Both of these services are designed not only to meet regulatory standards, but to help your organisation meet the challenges of the charity sector.
Find out more about our specialist accounting services for charities and non-profits, or contact us to talk about how we can support you.
Do you have an auditor already but you’re thinking of changing? We’ve got the advice that you need to make the right decision.