Charity Commission updates its guidance on internal financial controls

The Charity Commission’s guidance note on Internal Financial Controls (CC8) is relevant for all schools that are registered charities. The Commission updated this guidance on 26 April 2023 for the first time since 2012.  

The guidance has been made clearer and more concise. The Commission has refreshed some of its existing advice in the note and new sections have been added on subjects including using mobile payment systems and handling donations of ‘cryptoassets’. We consider why it is important to follow the guidance and highlight some of the changes below.  

Why are internal financial controls important? 

All charities need internal financial controls to protect their resources. They help charities identify and manage risks with their finances, make informed decisions about their financial position and ensure their financial reporting complies with the relevant legal requirements. 

Financial controls should cover all aspects of how a charity handles its money and other resources.  For example, controls should be put in place relating to:

  • Banking, income and expenditure;
  • Payments to related parties;
  • Assets;
  • Investments;
  • Loans; and
  • Storage of personal data. 

The Commission’s guidance sets out a number of general principles that must be followed, including understanding what types of controls are appropriate for the charity, preparing accounts and reports, embedding the financial controls within the charity and splitting financial duties between people to provide a ‘double check’ on transactions. Charities should also identify and manage operational risks, such as fraud and cybercrime.  

Although detailed work on financial controls may be delegated to members of staff, school governors should be aware that, as trustees, they remain responsible for their charity’s financial management. The school’s financial position and performance should therefore be a standing agenda item at governors’ meetings.   

Donations of cryptoassets

The development of new technologies has led to charities having to navigate new risks that they may not have considered in 2012. One new area covered by the updated guidance is cryptoassets.  

The Commission draws attention to the many risks associated with cryptoassets, including the volatility of their value, potential fraud or theft by hackers and the lack of protection compared to traditional currencies or financial products. Charities who decide to accept donations of cryptoassets should first understand the risks involved and be certain that they have the expertise to manage these risks carefully.  

The updated guidance also states that a charity’s policy on donations should cover whether the charity accepts donations of cryptoassets and how these are handled. The guidance will be of interest to charitable entities connected to independent schools, such as charitable foundations, which I discussed with my colleague George Shepherd in Risks to tax reliefs for independent schools: could charitable foundations be the answer?

Payments using cards or mobile payment systems

The guidance emphasises that charities should have clear policies in place for the use of payment cards covering who can use them, spending limits and security. It also makes a number of practical suggestions, including making sure that card statements are sent directly to finance teams rather than to card holders and regularly checking card use to make sure that the policies are being followed.   

The updated guidance states that charities should have the same controls in place for mobile payment systems, such as Google Pay, Apple Pay and PayPal, as for payments using cards.  

Other updates to the guidance

The Commission has made a number of other updates. For example, it has refreshed the existing advice on a number of topics including fundraising and holding public collections, making payments to related parties and operating internationally. A section on internal financial controls for hospitality has also been added.  

The guidance is accompanied by an updated checklist to help charities check their internal financial controls against the legal requirements and good practice recommendations. Schools may find this to be a helpful summary and self-assessment tool. Financial controls should be reviewed regularly to ensure they are still suitable, and any areas for improvement should be acted upon. 

Read the full guidance note and checklist on Internal Financial Controls for Charities (CC8)

How Moore Barlow can help

Moore Barlow offers specialist advice to independent schools on charity governance. Please do not hesitate to contact any member of the independent schools team to discuss how we can help you.