Financial aspects of governance for learned societies

1. Financial aspects of governance for learned societies Mrs Pat Barter Finance and Admin Director Society for Endocrinology and BioScientifica 9 June 2011

2. Financial policy considerations Frequent queries from trustees: • Reserves policy • Risk management

3. Charities and Reserves Charity Commission Guidance – CC19 9 June 2011

4. Trustees’ duties The legal requirement – custodial • Ensure charity’s funds are used appropriately, prudently, lawfully and in accordance with the charity’s purposes for the public benefit • Funds received as income should be spent within a reasonable period of receipt • Hold reserves as authorised either by using the express or implied power to hold reserves... • ...if, in their considered view it is necessary in the charity’s best interests

5. Trustees’ duties (cont’d...) The legal requirement – reporting • If a policy has been set it must be set out in the annual report • If there is no reserves policy – must be reported • Report the purpose, level and why

6. Trustees’ duties (cont’d...) Good practice – Ongoing responsibilities • Review the reserves policy • Review the level of reserves held • Monitor the level of reserves throughout the year • Review the statement in the trustees’ annual report

7. Reserves Why have reserves? • Provide reliable and consistent services to beneficiaries beyond the immediate future • Cope with unexpected expenses • Absorb set backs • Take advantage of opportunities or changes

8. Reserves What level of reserves? • No single answer • No right or wrong answer • Target may be a single figure or a range • Must reflect the needs and circumstances of the charity

9. Reserves policy Why have a reserves policy? • Assist in strategic planning of funding activities • Inform the budget process • Inform risk management process

10. Reserves policy What is a reserves policy? • A review of the charity’s funding requirement, taking into account the charities strategic plan and risk profile. What is it not? • A back of the envelope calculation.

11. Reserves policy What a reserves policy covers Reflects the charity’s financial circumstances: • Why the reserves are needed • Level of reserves required • Circumstances in which reserves are used

12. Reserves policy Developing the policy • Understand any restrictions on charity funds • Review budgets and strategic plans for the future • Identify uncertain future income streams • Consider the possibility of future calls on charity’s funds • Calculate the ‘required reserve’

13. Reserves calculation What is included in reserves? That part of a charity’s unrestricted income funds that is freely available to spend. Exclude: • Specific funds • Endowment • Restricted • Designated • Tangible Fixed Assets Include: • Reserves held by Trading Subsidiaries

14. A balancing act • Excessive levels of reserves limit the support given to the charitable objectives • Inadequate reserves threaten the solvency and future development of the charity

15. Investment of reserve funds • Review the need in short to medium term • Funds need to be accessible

16. Monitoring reserve levels

17. Understanding reserve levels

18. Understanding reserve levels

19. Understanding reserve levels

20. Charity risk management Charity Commission Guidance – CC26

21. Risk management “Risk is an everyday part of charitable activity and managing it effectively is essential if the trustees are to achieve their key objectives and safeguard their charity’s funds and assets.”

22. Trustees’ duties • Identify the major risks that apply to their charity • Make decisions about how to respond to the risks they face • Make an appropriate statement regarding risk management in their annual report This process will need to be tailored to fit each individual charity.

23. Understanding the basics • Why is risk management important? • Types of risk • How can risk be managed? • The disaster recovery plan

24. Understanding the basics • Why is risk management important? • Types of risk • How can risk be managed? • The disaster recovery plan

25. Types of risk • Governance • Operational • Financial • External • Legal and regulatory • Unknown

26. Understanding the basics • Why is risk management important? • Types of risk • How can risk be managed? • The disaster recovery plan

27. How can risk be managed? • Spread • Avoid • Manage or mitigate • Accept

28. Understanding the basics • Why is risk management important? • Types of risk • How can risk be managed? • The disaster recovery plan

29. The risk management statement • Whose responsibility? • Who needs it? • What does it cover? • Does it need an audit?

30. The risk management statement • Whose responsibility? • Who needs it? • What does it cover? • Does it need an audit?

31. The risk management statement • Whose responsibility? • Who needs it? • What does it cover? • Does it need an audit?

32. The risk management statement • Whose responsibility? • Who needs it? • What does it cover? • Does it need an audit?

33. The risk management policy • Establish a risk policy • Identify risks • Assess risks • Evaluate actions to be taken on risks • Periodic review

34. The risk management policy • Establish a risk policy • Identify risks • Assess risks • Evaluate actions to be taken on risks • Periodic review

35. The risk management policy • Establish a risk policy • Identify risks • Assess risks • Evaluate actions to be taken on risks • Periodic review

36. The risk management policy • Establish a risk policy • Identify risks • Assess risks • Evaluate actions to be taken on risks • Periodic review

37. The risk management policy • Establish a risk policy • Identify risks • Assess risks • Evaluate actions to be taken on risks • Periodic review

38. Trustees’ future plans

39. Trustees’ level of tolerance

40. Scenario planning