Covid-19 and Charity Accounts

The impact of Covid-19 (Coronavirus) has been significant, placing significant pressure on businesses throughout the country through ‘lockdown’ restrictions. Indeed, on 16 April 2020 the government announced that these restrictions would be in place for a further three weeks; hence the next review will take place on Thursday 7 May 2020.

This article is the first of two articles dedicated to the charities sector. This first article considers some of the measures put in place by government to help relieve financial pressures and to provide support for charities. It also looks at how a charity’s trustees should consider the charity’s financial viability during the pandemic, particularly while the sector is facing heavy restrictions. The second article will examine the impact of Covid-19 on charity financial reporting following advice provided by the Charity Commission for England and Wales (the Commission).

Financial support for charities

Like businesses, charities have been hit hard where the impacts of Covid-19 are concerned and are currently subject to the same restrictions that for-profit entities are subject to. On Wednesday 8 April 2020, the Chancellor announced a £750 million package of support to frontline charities across the UK to ensure that they can continue their work during the pandemic. This includes hospices and those which support domestic abuse victims. In addition, the Chancellor said government would also provide:

• £360 million direct from government departments and £370 million for smaller charities, including through a grant to the National Lottery Community Fund; and
• government will match donations to the National Emergencies Trust as part of the BBC’s Big Night In fundraiser due to take place in April 2020 – pledging a minimum of £20 million.

All charities are advised to see whether they can get access to these measures provided by government to help them through the pandemic.

Use of unrestricted and restricted funds

Some charities will maintain unrestricted funds which can be spent at the discretion of the trustees provided they are in line with the charity’s objects outlined in the governing document.  Restricted funds are funds that can only be spent on a specific purpose (usually as defined by the donor).

Of course, the restrictive measures that are currently in place (at the time of writing) will mean that some charities are concerned about their financial position. Trustees must consider what their short-, medium- and long-term priorities are and then carry out a review as to whether they need to amend their financial planning in light of their current situation.  In doing this, trustees should assess whether certain projects, spending or activities should be stopped or delayed (having regard to the current lockdown measures and social-distancing rules) in order to try to preserve funds.

While many charities have restricted funds, whose use is dictated by the donor, a lot of charities place internal restrictions on certain funds. For example, a charity may have decided, prior to the pandemic, that certain funds will be earmarked for a specific purpose.  Charities that have done this may be able to re-prioritise these funds – although this may not be possible with restricted funds that may only be used for a particular and defined purpose.

It can be possible for restricted funds to have the restrictions amended. However, this should only happen when other options, such as reserves, are not possible. Indeed, the Commission encourages trustees to carefully consider the wider and longer term impacts of making such decisions – particularly on financial resilience and donor relationships and the advice is to seek professional advice on this, which is where accountants may find they need to advise their charity client to seek legal advice.

AGMs and other meetings

In light of the social-distancing and lockdown measures currently in place at the time of writing, it may not be possible for a charity to convene an AGM or other critical meeting. In a lot of cases, a meeting has to be ‘quorate’ before it can go ahead and if a number of trustees are, for example, self-isolating, suffering from the virus or are ‘shielding’, it may be the case that a meeting is not quorate, hence cannot go ahead. Given the impact the virus is having, it is expected that many charities will have to cancel AGMs or other critical meetings.

Where a charity decides it cannot convene the AGM or another meeting because of the restrictions, the trustees must record this decision to demonstrate good governance. This is particularly important where the AGM is concerned because it may be the case that the annual report and accounts that would otherwise be presented at the AGM to the trustees cannot be approved and subsequently finalised (see below for filing issues).

Governing documents may allow ‘virtual’ meetings (e.g. meetings held through Zoom or other ‘apps’) or by way of telephone. Hence, charities are advised by the Commission to review their governing documents to check whether this method of holding a meeting is permissible.  If not, it may be possible for the trustees to amend the governing document to facilitate changes as to how, or when, meetings are held.

In situations where there is no such clause in governing documents and a charity decides it will hold a meeting over the phone or ‘virtually’, the Commission will understand. However, the trustees should record this decision so as to demonstrate good governance.

Filing the accounts

Where possible, the Commission request that charities still file their annual reports and accounts on time. However, where the pandemic impacts on the completion of annual returns and accounts, charities that have an imminent filing date can contact the Commission to ask for an extension.

To do this, include your charity name and charity registration number when you contact the Commission at filingextension@charitycommission.gov.uk.

Reporting serious incidents

The primary interest of charities is looking after the public and the communities which they serve.  The impact of the pandemic will undoubtedly have an impact on this, particularly while the government’s lockdown and social-distancing measures are in place.

The pandemic does not relieve the trustees from continuing to report serious incidents to the Commission using their current guidelines. The Commission continues to ask trustees to use their judgement in deciding whether an incident is significant in the context of their charity as to warrant a report.

The Commission will still continue to prioritise incidents which place individuals at risk, or incidents which have had a significant impact on the charity’s operations and thus have caused serious harm to the charity’s work.

Impact on financial reporting of charities

The SORP-making body has issued advice on issues concerning Covid-19 and the financial statements of charities. This advice acknowledges that these are unprecedented times and the situation is rapidly changing.  The key messages from the advice are:

• It is important for the charity trustees to understand the impact of Covid-19 on the delivery of their activity and their governance, including finances.
• Where a charity is preparing its financial statements that have not yet been approved, trustees should consider whether information needs to be included to explain the impact of Covid-19 on their charity.
• There could be changes to the financial statements needed as a result of the pandemic and it is therefore important that trustees understand and consider these.
• Charities must keep up to date with developing guidance from the relevant charity regulator in their jurisdictions.

These issues will be examined in the second article concerning Covid-19 and charities.

Conclusion

Charities have received support packages from the government to help them during these unprecedented times and all charities should determine whether they can qualify for relevant funding.  Trustees must consider restrictions on funds very carefully and ensure that these are not breached as it could have a detrimental impact further down the line.

Category: Accounting and standards