How Do Independent Examinations Work For Charities?

Charities aren’t exempt from undergoing a form of auditing process. This will take the form of an independent examination.

These ensure a charity is 100% accountable for any funds it raises and how the money is spent.

This is a formality for a charity, and they work slightly differently from a company audit.

It’s helpful to know the ins and outs of the process, so here’s what you can expect.

What is an independent examination?

Although, as mentioned, an independent examination of a charity is different to a typical audit, the aim stays roughly the same.

A charity will have its records looked over to ensure that everything is accounted for in terms of money coming in and going out.

The main difference between the two is that an examiner will not check for every error and omission but for any significant failings to maintain a charity’s records.

Once everything has been checked, the examiner will compare the narrative of a trustee report to the figures in the charity’s accounting period and flag any concerns in an independent examiner’s report.

The reviews will include the following:

  • the charity’s constitution
  • any future financial risks
  • the way the charity is managed and controlled
  • accounting records and systems
  • the charity’s funds, investments and spending.

The main things an examiner will look for will be if there’s a chance of money laundering, criminal activity, mishandling of raised funds and potential conflict of interest.

Any funds, gifts in kind and accounts will be checked against your records.

When will my charity undergo an examination?

To qualify for an audit or examination, you must meet certain thresholds, depending on how much your charity has raised.

The trustees of your charity will usually be able to choose an independent examination instead of an audit if the gross income is:

  • more than £25,000, but not more than £1 million, provided that
  • if its gross income is more than £250,000, its gross assets are £3.26m or less.

If your charity has an income under the £25,000 threshold, there isn’t a need for an external examination. Anything below this figure, and you could volunteer for an independent review.

Any charity with a gross income over £1m will be legally required to undergo a full audit.

Most charities will choose to undergo an examination to provide clarity and peace of mind for their trustees, volunteers and funders, as well as the public.

Who will carry out the examination?

The onus of appointing an appropriate examiner falls on the charity’s trustees. When deciding, the trustees must choose an individual or company completely separate from the charity that has the ability to carry out the examination.

To qualify as an independent examiner, the person should:

  • have no personal interest/stake in the charity
  • have the skillset to carry out the examination
  • understand the codes of conduct and practice for charities.

If the charity’s income is over £250,000, the trustees must appoint an examiner who is a member of one of the accountancy bodies listed in the Charities Act 2011 (such as the ICAEW).

P B Syddall & Co works closely with a number of charities and can offer support and advice through the process or even carry it out for you.

If you have questions about your charity’s independent examination, contact the team today.