about ccla

About CCLA

• CCLA is the leading manager of charity assets in the UK.

• We offer segregated and pooled investment services.

• We allocate all our resources to the needs of the sector.

• We are owned by our clients.

Agenda

• Our responsibilities as trustees

• Understanding management information

– For planning and monitoring activities (budgets, management accounts)

– For assessing financial strength (the balance sheet)

• External financial reporting

• Questions at any time!

Trustee Act 2000

Duty of Care:

To exercise such care and skill as is reasonable in the circumstances, having particular regard to any special knowledge or experience they have or hold themselves out as having, or because of their business or profession, would reasonably be expected to have.

In other words:

• We do not have to be experts in everything

• Generally sufficient to act reasonably and in good faith

• Do homework – and ask questions. Collective responsibility!

• Do not leave brain at home …

Information for decision making

Snapshot – action - snapshot

Which report? Image Content

Balance sheet (31 March 200X)

SnapshotAssets, liabilities and reserves last year

BudgetsManagement accountsReceipts & payments/SoFA

Motion(Plus) Incoming resources 1 Apr 200X – 31 March 200Y

Motion(Minus) Resources expended 1 Apr 200X – 31 March 200Y

Balance sheet (31 March 200Y)

SnapshotAssets, liabilities and reserves this year

Period covered could be monthly or quarterly (or any other interval), not just a full year.

Key concepts (1) – reserves

Free reserves• Resources we have or can make available after commitments and

planned expenditure

Equal to:• Total assets (physical and financial), less

– Liabilities– Assets we can’t sell (eg permanent endowment)– Restricted funds (committed to donor-defined purpose)– Designated funds (operational fixed assets, spending

commitments)

How much to hold in reserves?• Important policy decision for trustees

Budgets – typical basic format

This year’s budget

Last year’s result

Change in £

Up/(Down)

Change as %

Up/(Down)

Income £ £ £/(£) %/(%)

Detail

Expenditure £ £ £/(£) %/(%)

Detail

Surplus/deficit (income minus expenditure)

£/(£) £/(£) £/(£) %/(%)

• What are we aiming to achieve?

• Where will the money come from?

Management accounts – typical basic format

Year to date

Comparison with budget year to date

Comparison with this point last

year

Forecast for full year

Comparison with full year

budget

Income £ £, % £, % £ %

Detail

Expenditure £ £, % £, % £ %

Detail

Surplus/deficit (income minus exp)

£ £, % £, % £ %

• Are things working out as we planned?

• Will also look at restricted vs unrestricted funds, if applicable

Management accounts – example (still simplified!)Year to

dateComparison with budget year to date

Comparison with this point last

year

Forecast for full year

Comparison with full year

budget

Income £ %/(%) %/(%) £ %/(%)

Fundraising

Services

Investments

Expenditure £ %/(%) %/(%) £ %/(%)

Fundraising

Services

Investments

Typical key ratios : financial ratios

• Fundraising expenditure as % of funds raised

• ‘Overhead’ expenditure as % of total expenditure

• Percentage of income coming from different sources

• Unrestricted income as % of total income

• Percentage of expenditure applied to different costs

Other possible ratios and key performance indicators (KPIs)

• Average size of regular donation• Cost of recruiting a new committed donor• Donor retention rates• Legacy pledge conversions• Gift Aid uptake• Success of seasonal campaigns vs previous years

Financial ratios - example

Non financial measure – example

Reading budgets and management accounts

• We are looking for change and variance

– Budgets: are our plans achievable?

– Management accounts: are we achieving our plans?

• Look for ‘big picture’ figures first

– Key ratios and percentages

• Income is harder to manage than expenditure

• Restricted vs unrestricted funds

– Are we applying funds for the intended purpose?

– Are we subsidising activities supported by restricted funding?

Key concepts (2) - accruals

• Many organisations need to match activities with related income and expenditure

• They do not always happen at the same time

• So we ‘accrue’ (bring forward) or ‘defer’ (put back) recognition of income or expenditure, to account for them in the same report

• Examples:

– Fundraising event held just after period end

– Depreciation on fixed assets

– Utilities bill received after period end

Balance sheet – basic format

This year Last year

Fixed assetsOffice equipment, investments etc

£ £

Current assetsCash, Gift Aid claims etc

£ £

LiabilitiesCreditors, accrued costs etc

(£) (£)

Net assets £ £

Restricted funds £ £

Unrestricted fundsDesignated funds, free reserves

£ £

Total funds £ £

Reserves policy – guidance

• Policy should cover:

– the reasons why the charity needs reserves;

– what level (or range) of reserves the trustees believe the charity needs;

– what steps the charity is going to take to establish or maintain reserves at the agreed level (or range); and

– arrangements for monitoring and reviewing the policy

• Time spent on reserves policy should be proportionate

Reserves policy – example 1

• Target 12 months’ running costs in free reserves, minimum of three months’ costs

• Build up the investment portfolio to provide long term security for the work of the charity.

• Build up sufficient funds to support the significant capital investment needed in the Trust’s centres (currently estimated at £8 million).

Reserves policy – example 2

• Free reserves to cover 30 per cent of budgeted expenditure

• Excluding non-cash items, gifts in kind and expenditure for which restricted funding has already been secured

• Calculated as an average over the year (seasonal fluctuations)

• Temporary increase to 40 per cent target (£850,000) for major capital work

What we look for in the balance sheet - examples

• Compare reserves level with reserves policy

• Restricted vs. unrestricted funds

• Are we solvent?

– Enough cash and debtors (cash due in soon) to pay creditors?

• Changes in solvency indicators

– For example, big change in net current assets? Seek explanation …

External reporting

External reporting and scrutiny thresholds

Reporting format*• Gross income below £250,000 – can prepare receipts and

payments accounts• Gross income above £250,000 – must follow SORP (statement of

recommended practice, currently SORP 2005)*Accounting periods ending on or after 1 April 2009. Earlier accounting periods, threshold is £100,000.

Independent scrutiny*• Gross income up to £10,000 – no independent scrutiny required• Gross income up to £500,000 – independent examination ok• Gross income over £500,000 – full audit required

*Year end of 31 March 2009 or later

Trustees’ annual report – R&P format

• Proforma available on Charity Commission website

• Contents:

– Reference and administration details (some optional)

– Structure, governance and management

– Objectives and activities, achievements and performance

– Brief statement on reserves policy

– Details of any funds materially in deficit

– Principal sources of funds*

– How expenditure has supported key objectives*

– Investment policy including ethical policy*

* disclosure optional

Trustees’ annual report (TAR) – SORP

Contents include:• Vision, mission, strategic objectives• Goals

– Achievements against targets– Plans for next year

• Governance– Structure– Trustee induction and training

• Policies– Reserves– Investment

• Risk managementSome elements optional for charities below audit threshold

Public benefit

• No longer an assumption of public benefit for advancement of religion

• Public benefit may be demonstrated through (examples only!):

– Pastoral care

– Missionary and outreach work

– Public access

– Ecumenical relationships

• Will be evidenced in, for example, ‘objectives and activities’ and ‘achievements and performance’.

• Charity Commission guidance and examples at

http://www.charity-commission.gov.uk/publicbenefit/pbreport.asp#examples

Receipts and payments accounts – basic format

Unrestricted funds

Restricted funds

Endowment funds

Total this year

Total last year

Receipts

Analysis by receipt type £ £ £ £ £

Asset/investment sales, etc £ £ £ £ £

Total receipts £ £ £ £ £

Payments

Analysis by payment type (£) (£) (£) (£) (£)

Asset and investment purchases, etc

(£) (£) (£) (£) (£)

Total payments (£) (£) (£) (£) (£)

Net receipts/(payments) £/(£) £/(£) £/(£) £/(£) £/(£)

Cash funds last year end £ £ £ £ £

Cash funds this year end £ £ £ £ £

Statement of financial activities – basic format

Unrestricted funds

Restricted funds

Endowment funds

Total this year

Total last year

Incoming resources

From ‘generated funds’Donations, events, trading

£ £ £ £ £

From charitable activitiesEg. project grants

£ £ £ £ £

Resources expended

Cost of generating fundsEg. fundraising, trading costs

(£) (£) (£) (£) (£)

Charitable activitiesEg. project costs, helpline

(£) (£) (£) (£) (£)

Governance costs (eg. audit) (£) (£) (£) (£) (£)

Net incoming/(outgoing) resources £/(£) £/(£) £/(£) £/(£) £/(£)

Fund balance last year £ £ £ £ £

Fund balance this year £ £ £ £ £

Statement of assets and liabilities

Unrestricted Restricted Endowment

Cash funds £ £ £

Other monetary assetsGift Aid claims etc

£ £ £

Investment assetsCreditors, accrued costs etc

£ £ £

Assets retained for useOffice building, computers etc

£ £ £

LiabilitiesBills awaiting payment, loans

(£) (£) (£)

Balance sheet – basic layout, as before

This year Last year

Fixed assetsOffice equipment, investments etc

£ £

Current assetsCash, Gift Aid claims etc

£ £

LiabilitiesCreditors, accrued costs etc

(£) (£)

Net assets £ £

Restricted funds £ £

Unrestricted fundsDesignated funds, free reserves

£ £

Total funds £ £

Questions

Heather Lamont

Client Investment Director

CCLA

80 Cheapside

London

EC2V 6DZ

[email protected]

020 7489 6058 or 0844 561 5058

Regulatory information and risk warnings

The services described are provided by CCLA Investment Management Limited (CCLA), a firm authorised and regulated by the Financial Services Authority. This document is issued for information purposes only and is not a solicitation to buy or sell any investment. The contents contained within this presentation are opinions and views within CCLA. Nothing in the document should be deemed to constitute the provision of financial, investment or other professional advice.

about ccla

Documents

financial ratios examplepage

home page

budget year

year budgetincome

financial strength

management accountsfor

management accountswe

typical key ratios