11.3 Financial Policies

These are supplementary over-arching rules which govern the way the groups’ finances  are managed and they may be developed in a number of ways.  What is important is that they are recorded.  Where accruals accounts are maintained the financial policies will be stated as part of the Notes to the Accounts.   Examination of the accounts also requires viewing of the minutes of meetings to ensure that operations do infact follow the procedures set up through the decisions of management committees.

The various financial policies, which should be kept under review as appropriate, might include:

• Financial Procedures – a detail of how and who are involved in the various aspects of day to day management of finances eg. Petty cash, order and/or payment authorisation, cheque signatories, operational responsibilities, etc.  It is good practice to note that there should always be a requirement for at least two signatories to cheques over an agreed amount.
• Depreciation Policy – where capital assets, fixtures and fittings, machinery and equipment or buildings are to be charged to the accounts over a number of years a depreciation method must be chosen which is appropriate to the nature of these assets.  There are a number of accepted methods the most common being:
•  the straight line method whereby an equal amount per year is charged over the expected lifetime in years;
• Percentage decreasing whereby the balance remaining is reduced by a given percentage each year. 

The percentage chosen should recognise the differing type of asset, therefore examples might be:

• Vehicles and Computers may warrant three year depreciation – 33.3%
• Fixtures and Fittings may warrant 10 year – 10%

Providing the policy will allow for on-going operational decisions to be made without continual reference to the committee.

• Investment Policy – at the basic level this will include the types of bank account to be used in the operation of the business and will develop through to investment in larger amounts of funding as the organisation grows.  Whilst there are restrictions on the level of risk which charities may incur there are now a number of Common Investment Funds which provide extremely good rates of interest, with minimum investments of £1000, and have been specifically developed for charity fund management.

Reserves Policy – An organisation, as it grows, will need to consider how its’ funds need to be allocated:

• General Reserve – the operational surplus;
• Designated Reserves – these are funds which are earmarked for particular purposes in future years eg.  Provision for maintenance of premises where it is a requirement of the lease that every 5 years redecoration must take place and the committee decide to set aside sufficient on an annual basis to cover costs in year 5.  These funds may be redesigned by the trustees if necessary;
• Restricted Funds – these reserves relate to funds which have been given to the organisation for a particular purpose.  Should it no longer be possible to spend the money for the original purpose then authorisation must be sough from the original giver for permission to spend in other ways or to return the funds.  These funds take many forms but often include special projects which run alongside the general business of the organisation. 

• Fundraising Policy – these are the rules which any group of people attempting to put in place a fundraising strategy would need to consider eg.  Yes or no to street collections, a decision to develop the organisations capability of bidding for particular streams of funding such as European.  The point being that the decisions made under this heading would predetermine the level of future development of the organisation itself.

• IT Development – Most organisations today, even the very smallest, use computers.  It is a wise group which recognises the growth in such use both internally and, where appropriate, through provision of its’ client services.  Planning the replacement of equipment can be better facilitated in the longer term and this will involve funding decisions.