While the findings will not come as a surprise to many trustees, they serve as a timely reminder that good financial management remains a fundamental aspect of running a charity. At the heart of the report are five key lessons which charities should consider when reviewing their financial record keeping arrangements.
1. Keeping Records Appropriate to the Charity
Accounting records should be proportionate to the size and complexity of the charity and its activities.
For smaller charities, a well-maintained cash book or spreadsheet recording day-to-day income and expenditure may be enough. Larger charities, however, may require more sophisticated systems, including ledgers, management accounts and detailed records of assets and liabilities. The key point is that trustees should ensure the systems in place allow them to understand and monitor the charity's finances properly. A 'one size fits all' approach is unlikely to meet regulatory expectations.
2. The Importance of Keeping Records Up to Date
Up-to-date records provide trustees with a clear picture of the charity's financial position and help them identify emerging risks before they become more serious problems. Accurate and timely financial information also allows trustees to recognise when the charity may be approaching regulatory thresholds that trigger additional reporting or scrutiny requirements. In practice, keeping records current enables charities to make informed decisions and avoid unnecessary surprises at year end.
3. Accounting Software Is a Tool, Not a Solution
A particularly notable finding from OSCR's report concerns charities' increasing reliance on accounting software.
There is no doubt that modern accounting systems can make financial administration significantly easier. However, OSCR makes clear that software does not remove trustees' legal responsibilities and has encountered instances where charities have relied on accounting packages to generate reports that were not suitable for charity accounting purposes.
Trustees remain responsible for ensuring that accounts are prepared in the correct format and comply with Scottish charity accounting requirements. Software can assist with record keeping, but it cannot replace proper oversight. Reports generated by accounting systems should therefore be reviewed carefully rather than accepted at face value.
4. Accounting Records to Support Accurate Reporting
Financial records should do more than simply satisfy regulatory requirements.
Accurate and detailed accounting records allow charities to produce meaningful financial reports throughout the year. These reports help trustees assess financial performance, monitor spending against budgets, identify potential risks and make informed decisions about future activities. Good record keeping also helps ensure that year-end accounts accurately reflect the charity's financial position and comply with applicable accounting regulations.
In short, financial records should be viewed as an important management tool rather than a compliance exercise undertaken once a year.
5. Avoiding Over-Reliance on One Individual
The final lesson concerns governance and accountability. OSCR highlights the risks that arise when responsibility for financial records rests with a single individual. Where only one person has access to accounting systems or understands how they operate, a charity can quickly encounter difficulties if that individual leaves, becomes unavailable or fails to share information.
While not every trustee is expected to maintain the charity's records, all trustees share collective responsibility for the charity's finances. It is therefore good practice for more than one person to understand the charity's financial systems and for appropriate checks and oversight mechanisms to be in place. Doing so reduces the risk of errors, loss of information and over-dependence on any single individual.
Key takeaways
OSCR's report provides a useful reminder of the standards trustees are expected to meet and the issues that continue to attract regulatory attention.
For many charities, particularly those experiencing growth or increasing operational complexity, the challenge is not a lack of financial information but ensuring that governance arrangements evolve alongside the organisation. Regular governance reviews, documented financial procedures and ongoing trustee training can all play an important role in mitigating risk and promoting good stewardship of charitable assets.
OSCR's latest report highlights that strong financial record keeping is essential for good governance, accountability and public trust, especially as regulatory scrutiny of charities continues to increase.
This article was co-authored by Trainee Solicitor at MFMac Cameron McCreaner.
