Building financial resilience starts with robust financial controls for charities — yet many organisations still operate without the safeguards that not-for-profit accounting experts recommend. In this guide, we explore the smart strategies that help charities survive uncertainty and scale their impact.
For charity trustees and finance managers, the pressure to deliver more impact with fewer resources is a constant reality. While passion drives the mission, it is financial stability that ensures the engine keeps running. Without a solid framework of internal checks and strategic oversight, even the most well-funded organisation can face existential threats.
This article outlines essential steps to strengthen your organisation’s financial health. We will look at how partnering with a virtual finance office can professionalise your operations, ensuring you are not just surviving month-to-month, but planning confidently for the future.
Why Financial Controls for Charities Are Non-Negotiable
Effective financial controls for charities are not just about “ticking boxes” for the auditors; they are the bedrock of trust and sustainability. In a sector reliant on public generosity and grant funding, the risk of financial mismanagement can be catastrophic. A single instance of fraud or a significant error in reporting can lead to severe reputational damage, from which it is often impossible to recover.
Furthermore, charities have specific regulatory obligations to the Charity Commission and HMRC. Compliance with the Statement of Recommended Practice (SORP) is mandatory for larger charities and highly recommended for smaller ones. Weak controls often lead to audit failures, which signal to donors and grantmakers that the organisation is high-risk. If you cannot demonstrate that every penny is accounted for and used for its intended purpose, funding streams will inevitably dry up.
Implementing strong controls protects your assets, ensures accuracy in your financial reporting, and provides the board of trustees with the confidence that the charity is being run responsibly. For many organisations, moving from ad-hoc bookkeeping to a structured system—often supported by a virtual finance office—is the critical step in mitigating these risks.
5 Smart Financial Controls Every Charity Should Implement
To build true resilience, you need to move beyond basic bookkeeping. Here are five smart controls that not-for-profit accounting experts consider essential for any modern charity.
Segregation of Duties
The golden rule of financial management is that no single individual should have total control over a financial transaction from start to finish. For example, the person who authorises a payment should not be the same person who processes it in the bank. Segregation of duties prevents errors and significantly reduces the risk of fraud. If your team is small, this is where external support becomes vital to ensure checks and balances are in place.
Monthly Financial Reporting
Trustees cannot make informed decisions if they are looking at outdated figures. A robust control system ensures that management accounts are produced monthly, not just at year-end. These reports should compare actual performance against the budget, highlighting variances immediately. A virtual finance office can often automate this process, pulling real-time data from cloud accounting software to give the board a clear picture of the charity’s financial health every single month.
Robust Budgeting & Forecasting
Financial controls for charities must be proactive, not reactive. It is not enough to simply record what has been spent; you must predict what will be spent. This involves detailed scenario planning—asking “what if” questions regarding funding cuts or cost increases. A clear reserves policy, backed by accurate cash flow forecasting, ensures the charity can weather temporary storms without compromising its core mission.
External & Internal Audit Trails
Every transaction must be traceable. Whether it is a volunteer’s expense claim or a large grant receipt, there must be a clear digital paper trail. This includes keeping digital receipts, ensuring proper authorisation workflows for expenses, and maintaining clear records of trustee decisions regarding finances. Being “audit-ready” at all times saves panic at year-end and serves as a deterrent against internal financial abuse.
Donor Fund Restricted Reporting
One of the most complex areas of charity finance is managing restricted funds (money given for a specific purpose) versus unrestricted funds. Using restricted funds for general operating costs is a breach of trust and charity law. Your financial system must be set up to track these funds separately. Proper coding in your accounting software ensures that you remain compliant with donor intent and SORP guidance, protecting you from having to repay grants due to misuse.
The Role of a Virtual Finance Office in Building Resilience
For many small to medium-sized charities, hiring a full-time, high-level Finance Director is simply too expensive. This is where a virtual finance office (VFO) becomes a game-changer. A VFO is an outsourced finance function that provides the expertise of a full finance team—from bookkeepers to strategic CFOs—at a fraction of the cost of in-house hires.
A VFO provides access to not-for-profit accounting experts on demand. Instead of relying on a single employee who may go on leave or lack specific regulatory knowledge, a VFO ensures continuous coverage and compliance monitoring. They utilise the latest cloud accounting technology to provide real-time access to your numbers, allowing trustees to log in from anywhere and see the exact financial position of the charity.
By outsourcing these functions, charities can focus their internal resources on service delivery rather than administrative burdens. Furthermore, a VFO adds an immediate layer of segregation of duties, as the external team acts as a check on internal decision-making. For guidance on financial governance, the Charity Commission provides extensive resources that align with the rigorous standards a VFO can help you maintain.
How Not-for-Profit Accounting Experts Strengthen Financial Controls
Generalist accountants often struggle with the nuances of the charity sector. Not-for-profit accounting experts, however, live and breathe these regulations. They understand the intricacies of Gift Aid, VAT partial exemption rules, and the specific reporting requirements of SORP.
These experts do more than just crunch numbers; they provide governance support. They act as a sounding board for trustees, explaining complex financial data in plain English so the board can fulfil its legal duties. By conducting regular health checks on your financial controls, they can identify weaknesses before they become crises.
This level of specialist support builds confidence among staff and stakeholders. When donors see that a charity is advised by sector specialists, it signals professionalism and stability. For further reading on sector standards, the NCVO offers excellent guidance on finance and governance that can help trustees understand the benchmarks they should be aiming for. Alternatively, the ICAEW provides specific charity finance resources for finance professionals.
Building Long-Term Financial Resilience — A Strategic Checklist
Achieving financial health is an ongoing process. Use this checklist to ensure your charity stays on the right path:
- Review financial controls for charities annually: Regulations change, and so do risks. Update your policies regularly.
- Appoint or consult not-for-profit accounting experts: Ensure you have access to sector-specific advice.
- Consider a virtual finance office for scalable support: Move from fixed overheads to a flexible, professional finance model.
- Maintain a minimum 3-month unrestricted reserve: This provides a safety net for operational continuity.
- Implement cloud-based accounting software: Platforms like Xero or QuickBooks Nonprofit are essential for transparency.
- Conduct a finance health check every 6 months: Don’t wait for the annual audit to find problems.
- Ensure all trustees complete finance governance training: Financial responsibility sits with the board, so they must be upskilled.
Conclusion
Financial resilience is not about hoarding cash; it is about having the visibility and control to navigate challenges effectively. By implementing robust financial controls for charities, you protect your organisation’s reputation and ensure its longevity.
Ready to strengthen your organisation’s financial foundation? Our not-for-profit accounting experts and virtual finance office services are designed to help charities just like yours thrive. Get in touch today for a free initial consultation.
