Creating an Internal Financial Controls Policy for a Charity

The Charity Commission’s guidance states that all charities, regardless of their size, need financial controls. While it is not a legal requirement to adopt a formal internal financial controls policy, the Charity Governance Code strongly implies that such a document should be used as a tool to adopt and record what those controls are.

In the light of the Commission’s guidance and the Code, it is good practice for all charities to adopt a formal written Internal Financial Controls Policy detailing the financial controls that the charity operates. 

What does adopting a Policy achieve?

Adopting a Policy will help to:

• Clarify for a charity’s trustees and others what the financial controls of the charity are. 
• Ensure that the charity and its trustees follow the relevant Charity Commission guidance documents.

New template policies

 A new internal financial controls policy template for each legal form of charity is now available; for a charitable company (CCLBG), a charitable incorporated organisation (CIO), and an unincorporated smaller charity, as follows:

• Internal Financial Controls Policy for a Charitable Company Limited by Guarantee
• Internal Financial Controls Policy for a Charitable Incorporated Organisation
• Internal Financial Controls Policy for a Small (Unincorporated) Charity

What you should do now

Step 1.

Choose whichever one of the above templates is designed for the legal form of your charity.

Step 2.

Create a policy document based on that template tailored to the needs of your particular charity.

Step 3.

Pass a resolution at a board meeting of your charity that formally adopts the policy document. 

Step 4.

At suitable intervals:

• Ask new and existing trustees to read the document and raise any queries about it with your trustee board.
• Use the document as a checklist to monitor whether the charity is actually implementing fully the controls set out in it.
• Review the policy to ensure that it remains appropriate and that it reflects the controls needed. 

See Internal Financial Controls for Charities CC8 and The Essential Trustee: What You Need To Know, What You Need To Do CC3)