Financial Record Keeping Introduction
All community groups (large or small, unincorporated or incorporated and with or without charitable status) need to keep some kind of financial records. Overall responsibility for your group’s financial management remains with the committee (or board) as a whole but you may choose to delegate the task of keeping accessible, accurate and up to date financial records to a committee member who acts as the group’s treasurer.
The Treasurer will then be expected to:
keep the rest of the committee informed about projected income and expenditure, prepare estimates, contribute to cash flows and budget plans
keep financial records on a day book or a spreadsheet
pull together the financial records information to prepare the group’s Annual Accounts.
The Treasurer’s role in keeping the committee informed about the group's financial position is particularly important. The Treasurer needs to be able to convey financial information in easily understood terms so that the rest of the committee are fully aware of the financial position of the group at all times, and can make any necessary financial decisions based on full knowledge of the implication.
If your group is a registered charity in Scotland, your committee (the Charity Trustees) are legally required to be in a position where they are able to disclose the financial position of the group at any time.
Keeping a record
A typical day/cash book/ledger or computer spreadsheet should note every transaction (sales, purchases, income and payments) – in and out - on a daily basis.
Suggested headings for your day/cash book include:
amount In (credit or receipt)
amount Out (expenditure or payment)
method – for example, by cheque/cash/direct-debit/BACS/pay-in
reference – the cheque number or pay in number.
description Category - taken from budget heading, could typically include grants; postage and stationary; rent; travel expenses etc
space for details – Who? What?
When your bank statements come in, check them against the day book so that you have an accurate idea of your cash in hand. Keep a separate petty cash book if you need to, but remember that this will need to be drawn together with the day book at the end of the financial year, so be consistent.
Under the current charity legislation in Scotland, if your group is a registered charity, your Charity Trustees have a legal duty to keep proper accounting records which:
show daily records of money received and spent
record assets and liabilities
disclose the financial position at any time
produce a statement of account
Best practice for Financial Record Keeping
always get and keep receipts, no matter how small the amount
always give receipts for money received and pay cash into the bank as soon as possible
keep petty cash in a secure place and always get people to sign it in and out by entries in a petty cash book. Don't count cash on your own, always have someone who can verify your calculations
pay cash and cheques into the organisations bank account weekly
pay bills on time and, if your group employs staff, ensure staff salaries are paid on time
if cash is given as a prize, for example, in a raffle, openly display a list of winners in a public place or inform the local press
if your group holds a fundraising event record the expenditure (costs of any venue, refreshments, etc.) separately to your income (entrance fees, sales etc)
get into the habit of recording grant income as either 'restricted' (that is, the funder has specified exactly what the grant is for) or 'unrestricted' (that is, core funding or funding for general running costs)
record separately and clearly any expenditure against restricted grant income
Your group may also have a legal requirement to keep your financial records for a specified number of years. If you are a registered charity, you need to keep financial records for 6 years
All community groups (large or small, unincorporated or incorporated and with or without charitable status) need to keep some kind of financial records. It is a good idea for your committee to get into the habit of recording grant income as either 'restricted' or 'unrestricted'.
If your group is a registered charity in Scotland, making a clear distinction between these two types of funds is a legal requirement for your Annual Accounts. Keeping a record which already notes the distinction between restricted and unrestricted funds will make things easier at the financial year end.
Restricted funds are usually project grants where the funder has particularly specified what the money is to be spent on.
Record the grant coming in as restricted, then, as the money is spent, mark the corresponding outgoings as restricted expenditure on your records. At the end of the period relating to the grant, the restricted expenditure should balance against the restricted income.
This may not always neatly fit into one financial year of course. Sometimes your group will receive a grant as an advance which may need to be carried over into the next financial year before it is all spent. Make things like this clear on your records and make sure that your accountant (or the person preparing your accounts) is aware of this.
Unrestricted funds include core grants where the funder has not specified any restrictions on what the money should be spent on.
Retaining your Accounts
The Charities and Trustee Investment (Scotland) Act 2005 requires a charity to retain its accounting records for at least six years. Organisations should also be aware that they may be required to keep information for longer for funders or if they are legislated by other bodies. For HMRC purposes all records have to be kept for 6 years.