Our Charity & Not for Profit advisers were on hand to help this charity which holds a small investment portfolio and also receives donations from individuals. It then makes grants to other charitable organisations using the income from these sources.
On reviewing the correspondence accompanying notification of these grants we noted that the trustees were expressing their commitment to support certain charities or projects on an ongoing basis in some cases. The change in treatment of such obligations under the new SORP guidelines meant that a thorough review of each such grant would need to be conducted in order to ascertain whether the future obligations should be brought in to current year expenditure.
The potential amounts involved are material to the charity, and although there is no cash flow effect, the initial impact would be to move the charity into a deficit position if all the possible multi year obligations were required to be brought into the current year.
We conducted a review of the grants in question, looking at:
- Past history of maintaining contributions to those charities
- The precise wording used in correspondence with and from those receiving grants
- Trying to ascertain the expectations of those receiving the grants in question.
Following this review we formed the opinion that some of the grant correspondence was phrased in such a way that it merely expressed a desire to continue supporting those receiving the grant rather than creating a firm obligation or expectation with either the foundation or the grant recipient. However there were also a number of others that fell within the criteria of the SORP and had to be accounted for in full in that year.
As a result of this, the charitable foundation is reviewing how it makes grants and, at our suggestion, imposing conditions where it makes multi-year grants, both in order to prevent a recurrence of this problem but also to ensure that the trustees are satisfied with the progress and use made of the funds they have provided to other charitable organisations.
If you would like to arrange a similar review for your charitable organisation please contact us.