Charity Reporting and Company Reporting Requirements - Assignment Example

Credit control and charity research By number and of Query 1 Advance payment to suppliers An effective measurement and monitoring system is essential for adequate management of financial risk in charitable organization like Regeneration Through Education Limited (RTE). Accordingly, trust should institute systems and framework that enable them to incarcerate financial risk ahead of time, so that appropriate remedial measures could be incited to avoid any significant losses. Irrespective of the size of charitable organization, effective governance of the trust is based on its ability to identify and mitigate risk associated with its daily operations and build its internal capacities to capitalize on its resource utilization for optimum results (Fremont-Smith, 2004). Charities are evenly exposed to risk as compared to any commercial organization because of changing economic conditions, scare availability of funds and conservative approach towards operations due to limited resources. Regeneration through Education Limited (RTE) also has to be prudent in its business operation as its supporting adult education and training facility in deprived localities. For this purpose trustees must ensure prudence in their business operations. RTE is faced with the situation of tight funding and new supplier for their huge investment of £100,000 in furniture and fittings. To mitigate the risk management of the trust has to follow two important components discussed below: 1. Creating Contractual Agreement with Bank guarantee When contracting purchase with the Vital Office Furniture Limited, RTE needs to ensure that: Supplier confirms to provide the assets of specified quality within the specific time period. Fluctuating economic condition and market price changes will have no affect on their agreed pricing structure. Ensure that the price they are charging is not above the market prices with comparing rates. Quality of material provided is as per agreed terms and conditions. Supplier has to provide reference of their previous deliveries with other clients to proof their service authenticity. Have to guarantee free after sales service for at least a year. Have to make arrangements of installing the deliveries to the location and charges included in the price already prescribed. Third party bank guarantee is created by the supplier that in case of failure to deliver goods within the specified time, bank will repay the down payment amount to RTE. 2. Insurance of the assets. Insurance cover is created for these assets because trustees are responsible to safeguard the assets of the charity. The points that need to take care in insurance cover are (Andrews, Hettle 2011): RTE indemnifies the risk to asset against theft, damage or any sort of unnatural loss during the delivery. RTE will also satisfy itself by insuring against the material quality and type provided by the supplier. Beside these two measures for risk coverage, RTE has to make the remaining payment within 10days of receipt of the goods therefore RTE has to manage its cash flow sensitivities during the construction period through: Measure accurate cash flow projections. Identify major sensitiveness. Ensure adequate information flow across various functional areas. Monitoring the cash arrangements and reporting system. Query 2 Charity reporting research All charities are required to prepare accounts and make them available on request to public and authority commission (Deloitte, 2011).  The duty to file accounts and the Trustees’ Annual Report with the Charity Commission applies to all registered charities earning annual income or expenditure over £10,000. RTE is maintaining annual turnover of £ 2.5mn so it has to send its complete Annual Return to Charity Commission with 10 months of the financial year end (Charity Commission, 2011). RTE can only succeed in providing educational courses and infrastructure support to the under privileged segment of society if it is better able to manage its financial resources and report them accordingly within specified timeframe. This implies that RTE has to manage its inflows and outflows to meet their short, medium and long term business objectives and plan operational strategies based on these financial resource reporting and planning. The rationale behind filing requirements for charity of RTE is to make trustees able to: Plan strategically identifying the available resources, future requirements, plan contingencies, risk mitigating sources and managing the opportunities of service for trust in society. Trustees are able to execute expenditure control measures to ensure that only necessary and authorized purchases are made by RTE, funds are available within approved budget constraints and payments are made for only those goods and services for which deliveries are received on agreed price conditions. Trustees are able to verify the records and checks of the payments made and receipts received with the bank with proper supporting documents to maintain transparency in the income earning structure of the trust. Funds and grants receipt and utilization transparency is maintained by keeping a proper check on grand making policies identifying the conditions or any restrictions allotted to grants. Also to make sure that grants are utilized for the purpose it has been received. Trustees are able to set out budget for RTE. This budget will help the trust in achieving its objectives, allocating the resources according to its needs and make future projections. Trustees are able to measure the financial performance of RTE to assess its effectiveness in view of overall financial management. This might also involve involving management accounts and financial analysts on a regular basis to compare actual income and expenditure against the annual budget. Due to limited funds availability and vast structure of its application, RTE must utilize the financial information in preparing contingency requirement plans (CRP). These CRPs are critical to the financial risk structure of the charity. It provides the written document for the charity to meet its funding needs in timely manner and utilize it resourcefully. The fundamental application of CRP for RTE will be maintaining reasonable amount of assets within the trust, projection of funding requirements and management access to funding sources. Trustee also ensures that the financial statements are prepared according to the guidelines provided by Statement of Recommended Practice (SORP) and any deviation can then immediately be rectified by concerned body. The role and contents of the Trustees’ Annual Report as per SORP requirements is discussed below (Deloitte, 2010): Table 1: Role and Contents of the Trustees’ Annual Report Contents of the Trustees’ Annual Report Role it Plays Charity Basic Information- Reference, administrative details, its trustees and advisors. It gives a brief outlook about the ownership structure of charity by giving details of the contact of trustees, their office location and primary information about the company. Governance, Management and Organizational Structure. It provides information about the recruitment structure of new trustees also covering the constitutional provisions regarding new appointment. The management structure defines how the decisions are made in the organization and policies and procedures are adopted towards organizational induction and training. It also helps in providing information about the charity with related parties with which they work in close collaboration (Deloitte, 2010). Charity Objectives and Activities It has important implication in providing thorough information about charity goals and objectives. This information is useful within other participants of the charity and also to the external bodies. It also outlines the strategic framework of charitable organization designing roles and responsibilities of different participants. Also highlight significant activities incorporated in achieving goals and objectives to ensure that they are according to the regulatory requirement and in the best interest of public. It helps in analyzing the activities conducted for social program or welfare initiatives adopted by the charity and what impact it has created in society. The Statement of Financial Activities also highlights the role and contribution of various volunteers. Because volunteers constitute significant part of charity organizational structure (Deloitte, 2010). Achievements and Performance The qualitative and quantitative assessment used to measure the importance of activities conducted in the achievement of goals realizes the importance of charity in the society and what impact it has created for the purpose it was established (Deloitte, 2010). Fundraising, its utilization and objectives achieved are compared to evaluate how far the funds raised are used for the purpose it was taken (Deloitte, 2010). Investment details are covered to show the investment structure, where they are held and how far it is achieved against the objectives initially set (Deloitte, 2010). Financial Performance Review Explicitly showing the reserve policy to analyze where the materials are held, where they are deficit and where they are in surplus (Deloitte, 2010). It is important for resource mobilization in the charity. Signals the firm when funds are intensely required and also maps the funds and resource requirement along the time period. Like there are certain seasons where funds are more required as compared to slow periods. It is helpful for the management to know when they have to arrange fund raising programs and in what form it will be lucrative for donors to donate (Deloitte, 2010). Future Outlook By looking at the current performance level of charity, trustees are able to plan for the future by setting goals and objectives for the future and preparing accordingly. This is critical for ensuring the sustainability of trust and their performance attributes (Deloitte, 2010). Query 3 Comparison to company filing requirements The main differences that can be drawn from charity reporting requirement and company reporting requirement can be best analyzed through the purpose of its establishment. Charity reporting requirements are generally used for analysing the internal operations of charity and the impact it has created in the society with its activities. Company financial reporting is quite complex and comprehensive. It is established primarily to evaluate the company performance and show it to shareholders so that they can gauge the sustainability of the company. It is then distributed to other stakeholders for their use. The Key differences are drawn in the following table 2: Table 2: Key reporting differences between charity and profit oriented company Charitable Trust Profit Organization The objective of financial statement preparation for charitable organization is to show how the donated funds are being utilized and what projects have been undertaken by the firm for its effective delivery. It basically provides assurance to the reader especially donor agencies that donated funds are utilized for the purpose they have been raised. It also analysis the long term sustainability of the firm through its activities and performances (Grobman, M. G, 2008). The objective of financial statements preparation is to provide complete information about the company financial performance, management structure and strategic outlook to shareholders and investors. Based on the information provided in these statements, shareholders and investors make their financing or investing decisions. When the statements predict high profitability and value addition to the share holder it is more lucrative for investment. Financial reports of charitable trust are focused on cost allocation of funds across different expenditure items. It helps in analyzing resource utilization and resource requirements. Financial reports for company encapsulate firm performance from different parameters covering return on capital employed, asset turnover during the period, financial gearing of the firm, cash management structure showing its liquidity position and exposure to market risk through various investment activities (Kaplan, 2010). Directors and employee remuneration structure is not of that importance in the charity organization because of greatest contribution to volunteer staffs employed and voluntary service offered by many directors and management. Employee and directors compensation structure contributes to greater part in the corporate governance structure of the financial reports. This aspect is also legally regulated by various authorities. Charity organizations need to create social beneficial impact in public through their activities and initiatives which they have to report in their financial performance report. However, company doesn’t need to create an impact in society but they are socially responsible for healthy and lawful operation in society which is covered in the sustainability and corporate social responsibility sections of the financial reports. The sustainability and viability of charity is measured through the public benefit it creates with sustainable operation meaning utilizing donated funds for which they are donated. The sustainability is measured on the year on profit generation, liquidity of the firm, Return of Assets, Return on Equity and financial performance over the period with lawful business operation. List of References Andrews, H 2011, Insurance and risk management for charities. Available from: Charity Commission, 2011, Corporate website. Available from: Deloitte, 2010, Surveying the Sector: A Review of Charitable Trustee’s Annual Report. Available from: Deloitte, 2011, Charitable Incorporated Organization: A guide to establishing your charity as CIO. Available from: Fremont-Smith, Marion 2004. Governing Nonprofit Organizations, Harvard University Press, US. Grobman, M. G, 2008. The Nonprofit Handbook: Everything You Need to Know to Start and Run Your Nonprofit Organization, White Hat Communications, Harrisbury, PA. http://www.charitycommission.gov.uk/publications/cc15.aspx [Accessed 13th Jan 2012]. http://www.deloitte.com/assets/DcomUnitedKingdom/Local%20Assets/Documents/Industries/uk-charity-charitable-incorporated-organisations.pdf [Accessed 13th Jan 2012]. http://www.deloitte.com/assets/DcomUnitedKingdom/Local%20Assets/Images/About%20Deloitte/Annual%20Reports/UK_CI_Charitysurvey.pdf [Accessed 13th Jan 2012]. http://www.hettleandrews.co.uk/services-charity.asp [Accessed 13th Jan 2012]. Kaplan, 2010. Performance Management. ACCA-Kaplan publication UK. Read More