No charity remains unaffected by the crisis, and in all cases building financial resilience in the charity is key.
In previous posts, we talked about the support available to charities, but to recap charities can use the Coronavirus Job Retention Scheme to furlough staff. This is useful for many, but for charities working on the frontline furloughing is not an option. The demands on the work their staff do has increased not decreased and furloughing them is counter-productive to their charities purpose.
Coronavirus Business Interruption Loan Scheme (CBILS) is available to charities, but for some charities demonstrating that they would have been eligible for a loan on commercial terms not-with-standing Covid-19 could prove difficult and some may not generate at least 50% of their income from trading activities. In general, charities are not keen on loans, coming as they do with repayment requirements. For some, CBILS may be an option, but it is likely more suited to those who feel their income has been delayed rather than lost.
Charities should take the VAT deferments and Business Rate holidays on offer.
Finally, given the diversity of the charity sector and the difficulties in matching charity needs within support structures primarily designed for businesses, the Government announced £750m of direct support. £360m to be distributed to named charities through Government departments and a further £370m to small and medium sized charities, possibly using the National Lottery Community Fund as a method for distribution. Full details are not yet available.
Decision making and cashflow
At this time, it is crucial that charities have clear decisive and recorded decision making and that they focus primarily on cashflow.
- Regular – rather than 100% accurate – cashflow forecasts are recommended, alongside tracking early warning signs for cashflow drivers, direct debit mandates being cancelled for example.
- Identify “What If “scenarios, model the possible impacts on cashflow and look at the cashflow headroom you have. Scenarios might include; what if lockdown is extended again, what if there is a second wave of coronavirus?
- Consider how you might be able to achieve more headroom. Further furloughing, if possible, tax deferrals, stand by credit facilities, use of reserves or restricted funds (given donors permission).
It is important to stress that you should document decisions taken carefully, noting not only the decision but the information available to you at the time.
Financial Reporting and Audit
The Charity Commission have issued guidance on governance and Companies House on Annual Reporting and Audit requirements, some of which we covered in an earlier blog post.
On a practical note, automatic filing extensions are available on request for three months from Companies House and the Charity Commission. Given the significant impact of Covid-19 we would expect to see it referenced in your risk statement, reserves policy, achievements and plans going forward and in investment performance, if relevant. If your year end is Dec 2019, and your charity has investments, a post balance sheet event is likely to be required.
On the question of going concern, it may be beneficial to delay the approval of your accounts, taking advantage of the filing extension, until there is greater clarity on the current situation.
Auditors will be posing tough questions around Covid-19 and robust, stress tested cashflow forecasts alongside clearly documented and evidenced decision making will be essential.
If you would like our help in cashflow management, forecasting, what if scenario planning or to discuss your financial reporting or audit arrangements, please do get in touch.