Sector Focus: The role of the finance function in charities post-pandemic

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It is true to say that charities have been much more resilient in the wake of Covid-19 compared to the initial predictions within the sector. This did not happen due to luck, but careful management and leadership of the charities, not least by the finance function.

The finance team has been involved in monitoring and correcting cash flows, revising forecasts, managing electronic record-keeping, maintaining controls remotely, negotiating with suppliers, ensuring donors are updated on programme delivery, budgeting in uncertain times and more.

Looking ahead, this is an opportunity to see what changes have been made during the lockdown and which ones will be retained in the “new normal” environment. It also provides charities with the opportunity to ensure that they are well prepared for any turbulence related to Covid19, a general recession or other unforeseen catastrophes.

Key areas for consideration

As we enter a period of recovery and adjustment, we’ve compiled some key advice that the head of finance should heed to make their team efficient, compliant and effective.

Review the existing staff and ensure that the finance team are qualified and experienced to deal with the complexity of the charity, especially if this has changed over the pandemic. It may be necessary that some finance staff require additional training. For instance, where some staff have previously been much more administrative, the new way of working may require them to be upskilled.
Review the existing accounting systems to ensure they are robust and completely cloud-based with supporting documentation available electronically. Charities that work internationally and with field offices, either branches or subsidiary companies overseas, have been particularly challenged as overseas offices frequently hold documents and records in hard copies. Furthermore, in many countries the government restrictions have been much more severe than in the UK, so the staff could not visit their offices for extended periods of time.
Review the existing controls and especially financial controls. Working remotely would have challenged areas of dual authorisation and online banking. Ensuring that there is an electronic trail of authorisation and that the controls have not been compromised is vital to governance.

Where applicable, use zero-based budgeting for future budgets. This would require the finance staff to coordinate the budgets from scratch. There will be few charities, if any, where the budget for next year will look anything like the accounts of the previous two years. The areas of consideration may include income outlook for the future and cost implications of working differently. Several charities have made redundancies during this period and are now short-staffed, which will need to be considered for staffing budgets. Additionally, some charities have taken the decision to allow staff to work from home at least some of the time, resulting in reduced office space but increased costs of IT.

Monitor cash flow. Trustees are required to ensure that they sign the accounts on a going concern basis, unless the accounts are prepared on different assumptions. New auditing standards have required auditors to be much more sceptical on the assumptions used in cash flow projections. In the past, it may have been sufficient to prepare this at the time accounts are reviewed, but now the finance team should be preparing cash flow projections on a revolving basis with much longer periods than just 12 months.
Review reserve policy and ensure it is linked to risks. It is almost inevitable that the risks for most charities will have changed.
Where charities work internationally or their expenditure is in a different currency than the income, foreign exchange policies should be evaluated. Charities with significant foreign exchange exposure may consider taking advice to mitigate or reduce this risk.
Where charities are holding surplus funds in investments, they may need to consider if any changes are necessary in their investment policies. The events of the last two years may, for instance, highlight the need to hold more funds with easy access over the short to medium term.

Ultimately, finance departments have adapted to enormous change, but now is the time to evaluate if those changes should remain or be reconsidered given the current and ongoing environment.

Murtaza Jessa is partner and co-head of charities at haysmacintyre