For many small charities, preparing for the independent examination can feel like an annual event in itself.
The year end arrives, the examiner asks for information, and suddenly there is a rush to find grant agreements, explain old transactions, reconcile balances and work out why something in the accounts does not quite match the records.
It doesn’t have to be that way.
A smoother independent examination starts long before the year end. In fact, much of the preparation is simply good financial management throughout the year.
Don’t wait until year end to tidy the records
One of the biggest causes of the year-end scramble is leaving reconciliations and corrections until the accounts need to be prepared.
Bank accounts should be reconciled regularly. The same applies to things such as petty cash, credit cards and other balances held by the charity.
If something doesn’t reconcile in June, it is usually much easier to investigate it in June than six or nine months later when nobody can quite remember what happened.
Regular bookkeeping also gives trustees better information during the year. So this isn’t just about making life easier for your independent examiner.
Keep the evidence as you go
Your examiner will need more than a set of accounts.
Depending on the charity and the transactions being examined, they may need to see invoices, receipts, grant agreements, payroll records, bank statements, contracts, trustee minutes and other supporting information.
Trying to gather all of that after the year has ended can take considerable time.
A simple filing system can make a big difference. Whether you use accounting software, cloud storage or organised folders, the important thing is that someone else can reasonably follow the trail from the accounts back to the supporting information.
And ideally, that shouldn’t depend entirely on one person knowing where everything is.
Keep restricted funds under control throughout the year
Restricted funds are an area where year-end problems can easily emerge.
If your charity receives restricted grants, you should be able to identify:
• how much was received;
• what it was intended for;
• how much has been spent;
• what remains; and
• whether the expenditure is consistent with the funding agreement.
Don’t wait for the independent examination to discover that the accounting records do not clearly distinguish one fund from another.
Regular restricted fund reporting can help trustees spot potential underspends, overspends or incorrect allocations while there is still time to do something about them.
Review unusual transactions when they happen
Not every transaction needs a lengthy discussion. But if something is unusual, significant or outside the charity’s normal activity, document it at the time.
That might include a payment to a trustee or connected person, an unusual grant, a significant purchase, a new funding arrangement or a decision about how a particular cost should be allocated.
Six months later, the transaction may still be sitting in the accounting records, but the reasoning behind it may be much harder to reconstruct.
Good minutes and supporting documentation can save a lot of questions later.
Make sure the accounts tell the same story as the underlying records
Before handing the records over for examination, take some time to stand back and look at the whole picture.
- Do the closing bank balances agree to the bank statements?
- Do payroll figures agree to the payroll records?
- Do restricted fund balances make sense?
- Are there old debtors, creditors or other balances that should have been cleared?
- Can significant movements from the previous year be explained?
- Does the Trustees’ Annual Report reflect what actually happened during the year and agree with the financial information?
You don’t need to anticipate every question your examiner might ask. But obvious discrepancies are better investigated before the examination begins.
Don’t forget the non-financial information
Preparing for independent examination isn’t only about producing a trial balance or spreadsheet.
The examiner may also need information about the charity itself, its trustees, governance arrangements and activities during the year.
The Trustees’ Annual Report is particularly important. It should not be something produced at the last minute simply because it has to accompany the accounts.
It is part of the charity’s annual reporting and should help readers understand what the charity set out to do, what it did, how it was governed and how its resources were used.
Agree responsibilities and timescales early
It helps to know who is doing what.
- Who is preparing the accounts?
- Who will provide information requested by the examiner?
- Who has access to the bank statements, grant agreements and payroll records?
- When will the draft Trustees’ Annual Report be ready?
- When will trustees review and approve the final accounts?
And, importantly, when do the accounts actually need to be filed?
Working backwards from the filing deadline gives everyone more room to deal with questions or unexpected issues without turning the final few weeks into a crisis.
A simple year-end pack can make a big difference
Rather than sending information in bits and pieces as questions arise, consider maintaining a year-end file that can be updated throughout the year.
It might include your final trial balance or receipts and payments records, bank statements and reconciliations, restricted fund summary, grant agreements, payroll information, trustee details, key minutes and supporting documentation for significant transactions.
Your independent examiner may have their own information request or checklist, so it is worth asking what they will need well before the planned examination date.
The goal isn’t a perfect set of records
Small charities don’t necessarily need complicated finance systems or large finance teams.
What they do need are records that are complete, understandable and capable of supporting the figures reported in the annual accounts.
Preparing well for independent examination is therefore less about having a frantic annual tidy-up and more about building a few good habits into the way finances are managed throughout the year.
Reconcile regularly. Keep the evidence. Monitor your funds. Document important decisions. Review the accounts before year end.
Do those things consistently and the independent examination becomes much less of a scramble — and the charity gets better financial information throughout the year too.
A useful question to ask now
If your independent examination were starting next week, how much time would you spend providing information — and how much would you spend trying to find, correct or explain it?
The answer may tell you where your year-end preparation really needs to start.
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Hi, I’m Aishat, founder of BAnC Services.
With over 25 years’ experience in charity finance, I work alongside trustees and charity leaders to make sense of their numbers in plain English, so decisions are grounded in clarity rather than anxiety.
I specialise in governance-focused financial oversight, budgeting, and helping boards understand what their figures are really telling them. I also undertake independent examinations for charities, bringing the same practical, proportionate approach to the year-end process.
Much of my work begins with conversations exactly like this.
If your charity is approaching year end and you’re looking for an independent examiner, or simply want to understand what you need to have ready, get in touch.
If you’re looking for a jargon-free guide to charity finance terms, you might find Charity Finance from A to Z useful. The crossword book also offers an interactive way to become more familiar with the language used in charity finance.