Learning from OSCR Inquiries: Four Financial Record-Keeping Lessons for Charities
The Scottish Charity Regulator’s latest Learning from OSCR’s Inquiries report is a timely reminder that good financial record keeping is not simply an administrative task. Reliable records help trustees protect the charity’s assets, meet their legal duties and make sound decisions.
Drawing on issues identified through OSCR’s regulatory work, the report highlights four key lessons relevant to charities of every size. Below, we explain what those lessons mean in practice and identify steps trustees can take to strengthen financial governance in practice.
OSCR’s four key lessons for charities:
1. Match the system to the charity
Trustees should focus less on the particular bookkeeping method or software used and more on whether the charity’s financial systems provide the information they need to exercise effective oversight.
The right approach will depend on the charity’s size, activities and complexity. A straightforward spreadsheet may be entirely adequate for a small organisation, while a larger or more complex charity may require specialist accounting software and more detailed reporting.
Whatever the system, trustees should be able to understand the charity’s financial position, identify where funds have come from and how they have been used, and confirm that restricted funds have been applied only for their intended purposes.
Reports should also help the board make decisions and understand the finances. A brief, plain-English explanation of significant movements, emerging risks and matters requiring action will often be more useful than figures presented without context.
2. Keep records current, secure and accessible
Financial records should help trustees understand what is happening throughout the year, rather than simply enabling the annual accounts to be prepared at year end.
Regular bookkeeping and reporting allow the board to monitor budgets, identify emerging issues and respond to financial risks before they become more serious. They also make it easier to anticipate changes in accounting or reporting requirements.
Trustees should also decide how financial information will be stored, protected and shared. Appropriate backups, access controls and handover arrangements should keep records secure while ensuring that authorised people can obtain them when needed.
3. Remember that software is only a tool
Accounting software can make financial administration more efficient, but it should support good governance rather than be treated as a substitute for it.
The reliability of any system depends on the quality of the information entered, how it is configured and the checks applied to its outputs. Trustees must therefore understand what the reports show and be prepared to question anything that is unclear or unexpected.
The board remains responsible for ensuring that the annual accounts meet charity accounting requirements and that adequate supporting evidence is retained, including bank reconciliations, invoices, receipts and explanations for significant transactions. That responsibility remains with the trustees whoever prepares the records.
4. Avoid over-reliance on one individual
Concentrating financial knowledge and access in one person creates an avoidable governance risk. Although a treasurer, finance trustee, employee or external adviser may take the lead, the trustee board remains collectively responsible for financial oversight.
Boards should ensure that key processes are documented, more than one person understands how the financial systems operate and appropriate checks and reporting arrangements are in place.
Shared knowledge reduces the risk of disruption, lost information and weakened oversight if a key individual becomes unavailable or leaves the charity.
Proportionate access arrangements, regular reporting and succession planning will help the charity maintain effective financial management through changes in personnel.
Trustees can use these lessons to review their own arrangements.
You can read the whole of OSCR’s Report here – OSCR | Learning from OSCR’s inquiries: Good financial record keeping for charities
In considering strengthening financial governance, we recommend that all charities should take the following four practical steps:
1. Adopt a clear and realistic financial controls policy
Ensure that the charity has a financial controls policy which is understood and followed by trustees, staff and volunteers with financial responsibilities, and is also scheduled for periodic review.
Financial controls and procedures templates provide a useful starting point, but they must always be tailored to the charity’s structure, delegated authorities, banking arrangements and risk profile.
2. Review the board’s financial skills
Carry out a board skills review and identify whether there is knowledge on the board to understand financial reports, scrutinise decisions and challenge appropriately.
Consider whether any identified gap can be addressed by training an existing or newly appointed trustee, rather than assuming that the charity needs to recruit a traditional “finance trustee”.
Charity accounting is subject to specific rules that do not apply to other organisations. A trustee with wider financial expertise may therefore still need training in charity accounting and reporting requirements.
We would recommend the Charity Treasurer’s Handbook, by Elaine Alsop and Gareth Morgan as an accessible and practical resource for treasurers, finance leads and trustees who want to strengthen their understanding of charity accounting.
If external recruitment is needed, organisations such as TrusteeConnect can provide support to charities seeking to reach skilled people who are interested in voluntary board roles.
Include financial governance in the trustee induction process so that new trustees understand the charity’s financial arrangements, their collective responsibilities and the reports they will receive.
SCVO’s Accounts & reporting – SCVO ,page has useful learning resources including free webinar on finance basics.
3. Define and document responsibilities
Charity boards are collectively responsible for financial governance.
Any authority given to a treasurer, finance committee, employee or adviser is delegated by the board and should be clearly recorded.
Role descriptions, committee terms of reference and delegated authority schedules should align with the governing document and financial controls policy.
The NCVO treasurer role description can be a helpful starting point for a treasurer or “finance trustee” role description.
4. Build independent assurance into the annual cycle
Trustees have a duty to safeguard the charity’s assets and should seek assurance that its financial controls remain appropriate and effective.
An annual or twice-yearly review using a recognised checklist can support this.
Although designed for charities in England and Wales rather than specifically for Scottish charities, the Charity Commission’s Checklist: Internal financial control for charities provides a helpful starting point.
Final thought
Trustees should review their charity’s financial records, controls and reporting arrangements against these lessons and agree any action required. They should ensure that responsibilities are clear, knowledge is shared and the board receives the information it needs to maintain effective oversight.
Should you require any support on reviewing or developing your financial governance we can help. Contact us here.
Disclaimer:
The information in this article is intended to provide general guidance on charity law and governance matters in Scotland. It does not constitute legal advice and should not be relied upon as a substitute for obtaining advice on your organisation’s specific circumstances. If you would like advice tailored to your charity or not-for-profit organisation, please contact Sarah Brown Charity Law WS.
Any links to third-party websites are provided for convenience only. Sarah Brown Charity Law WS is not responsible for the content of external websites and does not necessarily endorse the views, products or services they contain.