Running a charity involves more than passion and commitment to a good cause – it also comes with its share of administrative work to make sure the organisation is working in line with its regulatory and financial obligations.
One of the most crucial aspects of this is the charity audit, which ensures transparency, accountability and compliance with the law – and they’re often mandatory. Here are some tips and best practices to help your organisation prepare for a smooth and successful charity audit.
1. Know when you need to arrange a charity audit
It’s always a good idea to arrange a charity audit even when you don’t legally need to just to ensure that the organisation is complying with all relevant financial regulations in the UK. However, some charities will have to arrange an external audit.
- Charities with a gross income of £1,000,000 or more must have an external audit.
- Charities with assets above £3,260,000 and gross income of £250,000 or more must have an external audit.
However, charities with a gross income of £25,000 or more must have an independent examination – a less detailed version of an external audit but still carried out by an independent examiner.
2. Choose the right auditor
Once you’ve understood whether you need to arrange a charity audit, it’s time to choose the right auditor.
With so many auditors out there to choose from, you should prioritise auditors who specialise in working with charities and preferably have a proven track record of this work. This will ensure that your auditor understands the unique requirements charities face, such as restricted and unrestricted funds, as well as Gift Aid reporting.
To make sure that your auditor has the expertise necessary to help you, look for testimonials and case studies on their website. You may also feel more assured if your auditor is registered with a professional body like the Institute of Chartered Accountants in England and Wales (ICAEW).
Above all, don’t be afraid to reach out to prospective auditors. A good working relationship is important to keep audits as smooth and stress-free as possible, and one of the best ways to test whether one will exist is to interact with your potential auditor.
3. Organise your financial records in advance
One of the most time-consuming aspects of any charity audit is gathering all the necessary documentation that your auditor needs. To avoid last-minute scrambling, you can keep your financial records organised throughout the year. Here’s a checklist of key documents you’ll need:
- financial statements
- bank statements and reconciliations
- records of grants and donations (including Gift Aid claims)
- payroll records
- tax returns and VAT documentation (if applicable)
- fixed-asset registers
- detailed breakdowns of restricted and unrestricted funds.
4. Review internal controls and policies
Your auditor will examine your charity’s internal controls to ensure that proper safeguards are in place to prevent fraud and financial mismanagement. Before the audit, you should therefore review your organisation’s financial policies, including how funds are authorised, how cash is handled and how financial reporting is managed.
It’s also a good idea to test these controls by conducting an internal review or a mock audit. Identify any weaknesses and address them before the official audit begins. If your audit is an opportunity to improve your controls, why not start before it’s conducted?
5. Keep trustees informed
The trustees of a charity play a vital role in ensuring financial integrity and governance. You should therefore make sure they’re aware of the audit and involved in the process, as auditors will likely want to meet with the trustees to discuss governance matters, risk management and how they oversee financial reporting.
6. Meet with your auditor
Your auditor will usually want to host a pre-audit to go over the audit plan, discuss potential issues and provide a timeline for completion. Make sure to use this meeting to ask questions, clarify expectations and address any areas of concern.
Also, make sure that key members of your finance team are available during the audit. Their knowledge of the charity’s financial systems and reporting will be invaluable in answering your auditor’s questions quickly and accurately.
Get in touch with us to discuss our charity audit services.