About CCLA

2. About CCLA • CCLA is the leading manager of charity assets in the UK. • We offer segregated and pooled investment services. • We allocate all our resources to the needs of the sector. • We are owned by our clients.

3. Agenda • Our responsibilities as trustees • Understanding management information • For planning and monitoring activities (budgets, management accounts) • For assessing financial strength (the balance sheet) • External financial reporting • Questions at any time!

4. Trustee Act 2000 Duty of Care: To exercise such care and skill as is reasonable in the circumstances, having particular regard to any special knowledge or experience they have or hold themselves out as having, or because of their business or profession, would reasonably be expected to have. In other words: • We do not have to be experts in everything • Generally sufficient to act reasonably and in good faith • Do homework – and ask questions. Collective responsibility! • Do not leave brain at home …

5. Information for decision making

6. Snapshot – action - snapshot Period covered could be monthly or quarterly (or any other interval), not just a full year.

7. Key concepts (1) – reserves Free reserves • Resources we have or can make available after commitments and planned expenditure Equal to: • Total assets (physical and financial), less • Liabilities • Assets we can’t sell (eg permanent endowment) • Restricted funds (committed to donor-defined purpose) • Designated funds (operational fixed assets, spending commitments) How much to hold in reserves? • Important policy decision for trustees

8. Budgets – typical basic format • What are we aiming to achieve? • Where will the money come from?

9. Management accounts – typical basic format • Are things working out as we planned? • Will also look at restricted vs unrestricted funds, if applicable

10. Management accounts – example (still simplified!)

11. Typical key ratios : financial ratios • Fundraising expenditure as % of funds raised • ‘Overhead’ expenditure as % of total expenditure • Percentage of income coming from different sources • Unrestricted income as % of total income • Percentage of expenditure applied to different costs

12. Other possible ratios and key performance indicators (KPIs) • Average size of regular donation • Cost of recruiting a new committed donor • Donor retention rates • Legacy pledge conversions • Gift Aid uptake • Success of seasonal campaigns vs previous years

13. Financial ratios - example

14. Non financial measure – example

15. Reading budgets and management accounts • We are looking for change and variance • Budgets: are our plans achievable? • Management accounts: are we achieving our plans? • Look for ‘big picture’ figures first • Key ratios and percentages • Income is harder to manage than expenditure • Restricted vs unrestricted funds • Are we applying funds for the intended purpose? • Are we subsidising activities supported by restricted funding?

16. Key concepts (2) - accruals • Many organisations need to match activities with related income and expenditure • They do not always happen at the same time • So we ‘accrue’ (bring forward) or ‘defer’ (put back) recognition of income or expenditure, to account for them in the same report • Examples: • Fundraising event held just after period end • Depreciation on fixed assets • Utilities bill received after period end

17. Balance sheet – basic format

18. Reserves policy – guidance • Policy should cover: • the reasons why the charity needs reserves; • what level (or range) of reserves the trustees believe the charity needs; • what steps the charity is going to take to establish or maintain reserves at the agreed level (or range); and • arrangements for monitoring and reviewing the policy • Time spent on reserves policy should be proportionate

19. Reserves policy – example 1 • Target 12 months’ running costs in free reserves, minimum of three months’ costs • Build up the investment portfolio to provide long term security for the work of the charity. • Build up sufficient funds to support the significant capital investment needed in the Trust’s centres (currently estimated at £8 million).

20. Reserves policy – example 2 • Free reserves to cover 30 per cent of budgeted expenditure • Excluding non-cash items, gifts in kind and expenditure for which restricted funding has already been secured • Calculated as an average over the year (seasonal fluctuations) • Temporary increase to 40 per cent target (£850,000) for major capital work

21. What we look for in the balance sheet - examples • Compare reserves level with reserves policy • Restricted vs. unrestricted funds • Are we solvent? • Enough cash and debtors (cash due in soon) to pay creditors? • Changes in solvency indicators • For example, big change in net current assets? Seek explanation …

22. External reporting

23. External reporting and scrutiny thresholds Reporting format* • Gross income below £250,000 – can prepare receipts and payments accounts • Gross income above £250,000 – must follow SORP (statement of recommended practice, currently SORP 2005) *Accounting periods ending on or after 1 April 2009. Earlier accounting periods, threshold is £100,000. Independent scrutiny* • Gross income up to £10,000 – no independent scrutiny required • Gross income up to £500,000 – independent examination ok • Gross income over £500,000 – full audit required *Year end of 31 March 2009 or later

24. Trustees’ annual report – R&P format • Proforma available on Charity Commission website • Contents: • Reference and administration details (some optional) • Structure, governance and management • Objectives and activities, achievements and performance • Brief statement on reserves policy • Details of any funds materially in deficit • Principal sources of funds* • How expenditure has supported key objectives* • Investment policy including ethical policy* * disclosure optional

25. Trustees’ annual report (TAR) – SORP Contents include: • Vision, mission, strategic objectives • Goals • Achievements against targets • Plans for next year • Governance • Structure • Trustee induction and training • Policies • Reserves • Investment • Risk management Some elements optional for charities below audit threshold

26. Public benefit • No longer an assumption of public benefit for advancement of religion • Public benefit may be demonstrated through (examples only!): • Pastoral care • Missionary and outreach work • Public access • Ecumenical relationships • Will be evidenced in, for example, ‘objectives and activities’ and ‘achievements and performance’. • Charity Commission guidance and examples at http://www.charity-commission.gov.uk/publicbenefit/pbreport.asp#examples

27. Receipts and payments accounts – basic format

28. Statement of financial activities – basic format

29. Statement of assets and liabilities

30. Balance sheet – basic layout, as before

31. Questions

32. Heather Lamont Client Investment Director CCLA 80 Cheapside London EC2V 6DZ heather.lamont@ccla.co.uk 020 7489 6058 or 0844 561 5058

33. Regulatory information and risk warnings The services described are provided by CCLA Investment Management Limited (CCLA), a firm authorised and regulated by the Financial Services Authority. This document is issued for information purposes only and is not a solicitation to buy or sell any investment. The contents contained within this presentation are opinions and views within CCLA. Nothing in the document should be deemed to constitute the provision of financial, investment or other professional advice.