Answer

The starting point for considering this issue is the underlying requirement that charity trustees must take adequate measures to protect the charitable assets under their control. While the Charity Commission issues guidelines on such matters, it is ultimately up to the trustees to decide on just what is appropriate for their charity and circumstances. If the charity should lose money – through fraud, say, or a botched investment – and it is subsequently shown that the loss was the result of inadequate financial controls, then the trustees may be liable to repay the loss to the charity.

I don’t know where the figure of £200 comes from. While the Commission certainly prefers to see cheques signed by trustees, rather than by staff, its published guidance states that “it may be reasonable for trustees to claim that it is operationally necessary for employees to be able to sign cheques, perhaps up to an agreed limit” – but they don’t specify what the limit should be.

It is possible that the £200 limit is referred to in the charity’s governing document. If the governing document (constitution or mem & arts) lays down rules about cheque signatories and thresholds – and many do – these rules must be followed scrupulously. If the Charity Commission has ever issued any instructions to the charity regarding its financial controls, these must also be followed. Otherwise, it is up to the trustees to establish what they believe to be a workable and secure mechanism for controlling their finances, and be prepared to justify it if challenged. As noted, if the controls prove to be too lax and funds are lost as a result, it is possible they will be held personally liable.

Cheque signing procedures, of course, are not the be-all and end-all of financial control. If responsibility for major expenditure is delegated to staff – and inevitably this will be the case in larger charities – then attention must be paid to authorisation, reporting and monitoring procedures, and ensuring that more than one person is involved in every transaction, to minimise the chance of abuse. These matters are ultimately more important than just who has to sign a cheque. The Commission proposes the following basic set of rules:

 All expenditure and investment of charitable funds be properly authorised and it is essential that there is supporting documentation (eg itemised receipt, share certificate or invoice) for all items of expenditure.

Instruments of payment (such as cheque book, building society passbook and bank mandate forms) need to be kept in safe custody, with access limited to nominated persons.

The preparation of documentation for authorisation be undertaken by someone other than the persons authorising the payment.

Charities have a written statement of policy and practice covering payment procedures, which is available to all trustees and staff. This would include instructions on who is authorised (and in what circumstances and up to what limit) to place orders or contracts, or to incur any liability on behalf of the charity.

(taken from Internal Financial Controls for Charities.)

If it transpires that the charity is constrained by its governing document with regard to financial control mechanisms it is able to adopt, it will have to make a formal amendment to this document, and have this approved by the Charity Commission. Clearly the Commission is likely to ask why such changes are considered necessary and to seek reassurance that the charity’s funds will continue to be adequately protected.

If the trustees decide on a system of financial controls but are concerned they may be considered inadequate by the Charity Commission, they can always ask for advice from the Commission, which will give them the opportunity to explain the practical difficulties involved in having trustees authorising expenditure. Assuming they manage to agree a set of controls with the Commission, this should protect the trustees from any threat of personal liability on these grounds if losses should be incurred in the future.