Financial aspects of governance for learned societies

Mrs Pat Barter Finance and Admin Director Society for Endocrinology and BioScientifica www.bioscientifica.com

BioScientifica

9 June 2011

Financial policy considerations Frequent queries from trustees:

Reserves policy Risk management BioScientifica

Charities and Reserves

Charity Commission Guidance – CC19 www.bioscientifica.com

BioScientifica

9 June 2011

Trustees’ duties The legal requirement – custodial

Ensure charity’s funds are used appropriately, prudently, lawfully and in accordance with the charity’s purposes for the public benefit Funds received as income should be spent within a reasonable period of receipt Hold reserves as authorised either by using the express or implied power to hold reserves...

...if, in their considered view it is necessary in the charity’s best interests BioScientifica

Trustees’ duties (cont’d...) The legal requirement – reporting

If a policy has been set it must be set out in the annual report If there is no reserves policy – must be reported Report the purpose, level and why BioScientifica

Trustees’ duties (cont’d...) Good practice – Ongoing responsibilities

Review the reserves policy Review the level of reserves held Monitor the level of reserves throughout the year Review the statement in the trustees’ annual report BioScientifica

Reserves Why have reserves?

Provide reliable and consistent services to beneficiaries beyond the immediate future Cope with unexpected expenses Absorb set backs Take advantage of opportunities or changes BioScientifica

Reserves What level of reserves?

No single answer No right or wrong answer Target may be a single figure or a range Must reflect the needs and circumstances of the charity BioScientifica

Reserves policy Why have a reserves policy?

Assist in strategic planning of funding activities Inform the budget process Inform risk management process BioScientifica

Reserves policy What is a reserves policy?

A review of the charity’s funding requirement, taking into account the charities strategic plan and risk profile.

What is it not?

A back of the envelope calculation.

BioScientifica

Reserves policy What a reserves policy covers

Reflects the charity’s financial circumstances: Why the reserves are needed Level of reserves required Circumstances in which reserves are used BioScientifica

Reserves policy Developing the policy

Understand any restrictions on charity funds Review budgets and strategic plans for the future Identify uncertain future income streams Consider the possibility of future calls on charity’s funds Calculate the ‘required reserve’ BioScientifica

Reserves calculation What is included in reserves?

That part of a charity’s unrestricted income funds that is freely available to spend.

Exclude:

Specific funds Endowment Restricted Designated Tangible Fixed Assets

Include:

Reserves held by Trading Subsidiaries BioScientifica

A balancing act

Excessive levels of reserves limit the support given to the charitable objectives Inadequate reserves threaten the solvency and future development of the charity BioScientifica

Investment of reserve funds

Review the need in short to medium term Funds need to be accessible BioScientifica

Monitoring reserve levels Readily usable reserves

5 100 4 600 4 100 3 600 3 100 2 600 2 100 1 600 1 100 600 1999 2000 2001 2002 2003 2004

Year

2005 2006 2007 2008 2009 2010 Reserve requirement Readily usable reserves BioScientifica

Understanding reserve levels Readily usable reserves

5 100 4 600 4 100 3 600 3 100 2 600 2 100 1 600 1 100 Stockmarket falls 600 1999 2000 2001 2002 2003 2004

Year

2005 2006 2007 2008 2009 2010 Reserve requirement Readily usable reserves BioScientifica

Understanding reserve levels Readily usable reserves

5 100 4 600 4 100 3 600 3 100 2 600 2 100 1 600 Stockmarket falls 1 100 600 1999 2000 2001 2002 Property 2003 2004

Year

2005 2006 2007 2008 2009 2010 Reserve requirement Readily usable reserves BioScientifica

Understanding reserve levels Readily usable reserves

5 100 4 600 4 100 3 600 3 100 2 600 2 100 1 600 Stockmarket falls Stockmarket falls 1 100 600 1999 2000 2001 2002 Property 2003 2004

Year

2005 2006 2007 2008 2009 2010 Reserve requirement Readily usable reserves BioScientifica

Charity risk management

Charity Commission Guidance – CC26

BioScientifica

www.bioscientifica.com

Risk management

“Risk is an everyday part of charitable activity and managing it effectively is essential if the trustees are to achieve their key objectives and safeguard their charity’s funds and assets.” BioScientifica

Trustees’ duties

Identify the major risks that apply to their charity Make decisions about how to respond to the risks they face Make an appropriate statement regarding risk management in their annual report This process will need to be tailored to fit each individual charity.

BioScientifica

Understanding the basics Why is risk management important?

Types of risk How can risk be managed?

The disaster recovery plan BioScientifica

Understanding the basics

Why is risk management important?

Types of risk

How can risk be managed?

The disaster recovery plan BioScientifica

Types of risk

Governance Operational Financial External Legal and regulatory Unknown BioScientifica

Understanding the basics

Why is risk management important?

Types of risk

How can risk be managed?

The disaster recovery plan BioScientifica

How can risk be managed?

Spread Avoid Manage or mitigate Accept BioScientifica

Understanding the basics

Why is risk management important?

Types of risk How can risk be managed?

The disaster recovery plan

BioScientifica

The risk management statement Whose responsibility?

Who needs it?

What does it cover?

Does it need an audit?

BioScientifica

The risk management statement

Whose responsibility?

Who needs it?

What does it cover?

Does it need an audit?

BioScientifica

The risk management statement

Whose responsibility?

Who needs it?

What does it cover?

Does it need an audit?

BioScientifica

The risk management statement

Whose responsibility?

Who needs it?

What does it cover?

Does it need an audit?

BioScientifica

The risk management policy Establish a risk policy

Identify risks Assess risks Evaluate actions to be taken on risks Periodic review BioScientifica

The risk management policy

Establish a risk policy

Identify risks

Assess risks Evaluate actions to be taken on risks Periodic review BioScientifica

The risk management policy

Establish a risk policy Identify risks

Assess risks

Evaluate actions to be taken on risks Periodic review BioScientifica

The risk management policy

Establish a risk policy Identify risks Assess risks

Evaluate actions to be taken on risks

Periodic review BioScientifica

The risk management policy

Establish a risk policy Identify risks Assess risks Evaluate actions to be taken on risks

Periodic review

BioScientifica

Trustees’ future plans Readily usable reserves

5 100 4 600 4 100 3 600 3 100 2 600 2 100 1 600 1 100 600 1999 2000 2001 2002 2003 2004 2005

Year

2006 2007 2008 2009 2010 2011 2012 Reserve requirement Readily usable reserves BioScientifica

Trustees’ level of tolerance Readily usable reserves

5 100 4 600 4 100 3 600 3 100 2 600 2 100 1 600 1 100 600 1999 2000 2001 2002 2003 2004 2005

Year

2006 2007 2008 2009 2010 2011 2012 Reserve requirement Readily usable reserves Council limit BioScientifica

Scenario planning Readily usable reserves

5 100 4 600 4 100 3 600 3 100 2 600 2 100 1 600 1 100 600 1999 2000 2001 2002 2003 2004 2005

Year

2006 2007 2008 2009 2010 2011 2012 Reserve requirement Readily usable reserves Scenario planning BioScientifica