SORP 2005 for PCC Treasurers Statement of Recommended Practice

1. SORP 2005for PCC TreasurersStatement of Recommended Practice

2. SORP 2005 – an Introduction • PCCs are charities - must comply with Charity law • SORP 2005 must be followed for the 2006 parish Annual Accounts and Annual Reports • Most changes in Annual Report and Expenditure

3. Importance • PCCs across the country handle between them annual income and expenditure in excess of £750 million. • This pays for the vast majority of the mission and ministry of the Church of England. • Most treasurers are volunteers - THANK YOU for the important role that you play!

4. DIFFERENT SIZES OF PCC……. R&P Full Full Full Full

5. What we’ll cover today • Changes to the Annual Report • Changes to the Accounts • Common Errors • Questions and Answers • The Charity Bill (briefly)

6. Changes to the Annual Report R&P Chapter 6 & Example Ch 9 & Example in Ch 14 • The main change is to focus on the charity’s “activities” • The Annual Report should cover – • What it has done (outputs) • What it has achieved (outcome) • What difference it has made (impact) • What it plans to do (vision)

7. Annual Report : R&P Ch 6 & Example Ch 9 & Example in Ch 14 • The Annual Report should relate the figures in the accounts to the wider life of the Church. • The Report is more than the Treasurer’s report • The revision of the Annual Report is largest in the first year – a sample outline is available at www.parishresources.org.uk/Treasurers/AnnualReport.doc • Keep it simple

8. Annual Report : R&P Ch 6 & Example Ch 9 & Example in Ch 14 There are 5 main sections to the Annual Report: • Title page / reference information • Structure, governance and management • Objectives and activities • Achievements and Performance • Financial overview, inc. reserves policy

9. Annual Report : Reference information R & P Section 6.14 Section 9.25 • Full name of the Parish • Location of the church (or address if it has one) • PCC correspondence address. e.g. church office • Names of all PCC members (during financial year – inc. Incumbent, Officers should be indicated; will cover two APCM) • Name /address of bankers • Name / address of Independent Examiner or auditor • Name / address of legal or any other adviser

10. Annual Report : Structure, governance & management R & P Section 6.15 Section 9.26 An explanation of - • the make up of the PCC • the constitution and activity of the PCC • how / when PCC members are elected / appointed i.e. as governed by the Church Representation Rules • any related trusts or charities (including their Charity number.)

11. Annual Report : Structure, governance & management R & P Section 6.15 Section 9.26 •  Some disclosures are optional for “smaller” accounts, i.e. those not requiring an audit, below £250,000 for 2006) •  A brief description of how new PCC members are recruited and trained. •  A brief description of the way the PCC organises itself in order to carry out its aims and objectives. •  A Risk Assessment statement

12. Annual Report : Objectives and Activities R&P Section 6.16 Section 9.27 The report should provide: • A brief statement of the aims of the PCC. (e.g. taken from The PCC (Powers) Measure 1956)Mission / Vision statements can also be included • An explanation of the PCC’s main objectives for the year including any particular focus for a year • A description of the strategies and activities that have been adopted to enable the PCC to achieve its objectives

13. Annual Report : Objectives and Activities R&P Section 6.16 Section 9.27 •  A description of the contribution of volunteers e.g. in charitable activities / generating funds • The policy for making grants or donations (including how potential recipients are identified) • Plans for the future including the key objectives and activities planned to support them. These will form the basis of the objectives and activities section of the next annual report

14. Annual Report : Achievements and Performance R & P Section 6.17 Section 9.28 • A review of charitable activities undertaken, and achievements related to the objectives set •  A review of fundraising activities against the objectives set • A review of investment performance •  A note of factors that affect the achievement of objectives, both within and outside PCC control

15. Annual Report : Financial Review R & P Section 6.18 Section 9.29 • PCC’s reserves policies – level and reasons • Reasons for any deficits, action to clear deficit •  Details of principal funding sources •  Details of how expenditure supported PCC’s key objectives • Note of investment policy and objectives, inc. any social, environmental, ethical considerations

16. Annual Report : Funds held as Custodian Trustees on behalf of others R & P Section 6.20 Section 9.31 It is unusual for PCCs to act as Custodian Trustees for another charity but if applicable include a brief description of • The name and objects of the charity • The assets held; • How this fits with the objects of the PCC • Details of the arrangements for the safe custody and segregation of such assets from those of the PCC

17. Annual ReportPracticalities • Suggest PCC secretary leads, with help from the Incumbent (Chair of the PCC) and the Treasurer • Keep it brief – see examples • Give a draft report to the IE/Auditor t

18. Accounts - What’s Changed? The three principal changes are in the areas of : • Income and expenditure related to activities • When to recognise income and expenditure • The introduction of “heritage” assets

19. Accounts – Changes (i) Activities The new SOFA headings are meant to : • Distinguish between fund raising income and charitable income • Help to explain activity costs. • Show the link between income and expenditure for particular activities See the sample SOFA for the new headings

20. Changes (i) Income – Activities R&P Section P21-22 Section 6.6 SORP 2005 uses the following income categories: • Voluntary income - including all giving, donations, collections and special appeals • Activities for generating funds - including all fundraising events • Investment income – including bank interest • Charitable activities

21. Changes (i) Expenditure – Activities Section 6.7 R & P P23-24 SORP 2005 uses these expenditure categories • Charitable activity - achieving the charity’s charitable objectives • Fundraising activity - raising funds to expend on charitable objectives • Governance activity - overseeing the work of the charity

22. Accounts – Changes (i) Activities The new SOFA heading: Governance costs Removes the possibility of confusing “support costs” with “management and administration costs” Governance is narrowly defined Audit / exam costs, legal advise to trustees, costs associated with PCC meetings, preparation of accounts

23. Accounts – Changes (ii) Grants 8.37- 8.44 When to recognise grant income and expenditure: Receipts and Payments Accounts - No change Accounts record actual receipts and payments as they occur

24. Accounts – Changes (ii) Grants 8.37- 8.44 When to recognise grant income and expenditure: Accruals Income should be recognised when 3 criteria have been met: • entitlement • certainty of receipt • reliability of measurement Additional guidance is given to help identify when entitlement to the income arises and so needs to be recognised i.e. included in accounts • grants with conditions - are recognised when conditions are met or fall within the control of the receiving charity / PCC • unconditional grants are recognised when note of award is received

25. Accounts – Changes (ii) Grants 8.37- 8.44 When to recognise grant income and expenditure IMPLICATIONS FOR PCCs Take particular care with • Legacies • Multi-year grants • Conditional grants

26. Accounts – Changes (iii) Heritage Assets 5.11 -5.12 ‘Heritage Assets’ are not simply ‘inalienable and historic assets’ but are more narrowly defined as tangible fixed assets that are of historic, artistic or scientific importance and are held to advance the preservation and conservation objectives of a charity IMPLICATIONS FOR PCCs • Unlikely that PCCs will hold such assets. (Church is benefice, Vicarage is LDF) • If held, SORP 2005 requires a separate line in the balance sheet (Accruals accounts only) • Can be omitted if difficult or costly to attribute a cost or value to them

27. Common mistakesRestricted vs Designated Funds R&P 4.1 to 4.4 3.7 to 3.13 • Too often funds are classed as “restricted” when they are merely “designated” • RESTRICTED funds have a limit to their use imposed on them by the donor, or by the means of soliciting the gift e.g. a specific appeal for church repairs • DESIGNATED funds are ones which the PCC has decided it will use for a specific purpose. They can be undesignated or re-designated to another use

28. Common mistakesIncomplete Accounts R&P Section 3 Chapter4 • PCCs, in their annual financial statements, must present ALL the monies for which they are responsible • Examples… St Agatha’s Mums & Toddlers The Ark soup kitchen The Friends Association • which of the above should be included

29. Common mistakes Conduit Funds Chapter 4 • In some cases, the PCC simply banks money received for another charity, and then writes out a cheque to them eg envelopes collected during Christian Aid week, or by putting special gift envelopes out for another charity. These funds should not be included in the accounts of the PCC but could appear as a note in the accounts. • Money collected during a Church service, however, should be included in the accounts • See website www.stewardship.org.uk/documents/When_a_charity’s_income_is_not_its_income.pdf

30. Common mistakesMissing Documents R&P 5.34 – 5.44 p42 7.32 – 7.48 p106 • Statement of Assets and Liabilities PCCs producing Receipts and Payments accounts must produce a Statement of Assets and Liabilitiesthat includes cash, deposit and investment assets, as well as fixed assets e.g. property (other than consecrated assets and parsonage houses) • Independent Examiners report Sample available from ww.charity-commission.gov.uk/library/investigations/sorp/word/ier.doc

31. Common Mistakes Missing Notes & Policies R&P Section 5.47 ff Section 7.45 ff 8.75 ff The Financial Statements should include notes to provide further detail as appropriate. • The accounting policies • Explanatory notes as appropriate. Check that index number and £ figures used in the notes match those in the main statements • Details of any payments to PCC members

32. Common mistakes Signing Off R&P Section 6.7ff Section 9.7 - 9.9 The Annual Accounts and Annual Report should : • Be approved by the PCC before the Annual Meeting, and signed by the Chairman of that meeting, and the date that it was approved shown in the report • A copy of the signed audit/examination report should be included within the accounts. • The Annual Report and Annual Accounts should be circulated together

33. Resources New “Green guides” from Church House Publishing www.churchhousepublishing.org.uk New national website for Parish Officers, www.parishresources.org.uk Older site http://natstew.diochi.org.uk/

34. The Charities BillThis does not affect the 2006 accounts The Charities Bill has passed through Parliament. Two main implications for PCCs and future year accounts are: • Audit threshold will be: income over £500,000 or income over £100,000 and gross assets exceed £2.8million, (before deduction of liabilities) • PCCs with income of over £100,000 will have to register with the Charity Commission.

35. How will this affect PCCs? PCCs with income over £250,000 and less than £500,000 i) May no longer need an audit ii) But the IE must be a fully qualified accountant or a Fellow of ACIE. These proposed changes do not affect the 2006 accounts

36. How will this affect PCCs? • PCCs with income over £100,000 will need to register • Please do not registeruntil we tell you when and how • PCCs that register will need to complete an annual return to the Charity Commission as well as to the Diocese.