Internal financial controls sit at the heart of every well-run charity. They exist not just to comply with regulations, but to ensure that the organisation’s hard-earned funds are protected, that financial information is reliable, and that public trust is preserved. For UK charities operating in an increasingly complex funding and regulatory landscape, effective financial oversight is more important than ever.
Charity trustees, as the stewards of these organisations, carry the ultimate responsibility for ensuring that internal controls are in place and functioning properly. This responsibility extends well beyond the finance team and includes oversight of all the systems, processes and behaviours that ensure charitable funds are safeguarded and used for their intended purposes.
The Charity Commission makes it very clear that trustees must take reasonable steps to ensure that their charity’s assets are properly used, adequately protected, and legally compliant. Good internal controls help charities achieve this by making sure that money is only spent on authorised purposes, financial reports are accurate and timely, and risks of fraud, error, or mismanagement are minimised. In turn, this fosters trust from donors, funders, beneficiaries and the wider public, whose confidence is essential to the long-term sustainability of any charity.
Why Internal Controls Are Challenging for Charities
Yet, the nature of charities means that achieving strong internal controls can be challenging. Many organisations operate with limited resources, relying on small teams or volunteers. In smaller charities, one person may be responsible for multiple financial functions simply because there are no others available to share the workload. Complex funding arrangements, such as grants with specific conditions, restricted funds, and varying reporting requirements, add further layers of difficulty. The drive to keep administrative costs low, while entirely understandable, can sometimes lead to necessary financial controls being overlooked or weakened.
The realities of modern working arrangements also contribute to the challenge. Many charities now operate with hybrid or fully remote teams, complicating processes that traditionally relied on physical oversight or paper-based authorisations. While technology offers many solutions, it also requires careful management to ensure that security and accountability are maintained.
The Risks of Weak Internal Controls
From our work auditing charities of all sizes, certain weaknesses in internal controls repeatedly surface. For example, we often encounter situations where the same individual is responsible for both authorising and processing payments, meaning there is limited independent oversight. Invoices may be paid with minimal checking, and supporting documentation can sometimes be incomplete or missing altogether. Bank reconciliations may be delayed or not independently reviewed, which creates opportunities for errors or even fraud to go undetected for extended periods. Where restricted and unrestricted funds are not properly tracked, the risk of misusing funds for purposes other than those intended by donors becomes a very real concern.
These risks are not confined to smaller organisations. Even well-established charities can face difficulties if systems become overly reliant on a few key individuals, or if financial processes are not regularly reviewed and updated. What matters is not how large or small the charity is, but whether appropriate checks and balances are embedded into daily operations.
Achieving Effective Financial Oversight in Practice
Fortunately, effective internal controls do not need to be overly complex or costly. Often, they are about adopting simple principles that ensure financial responsibilities are shared appropriately, authorisations are clearly defined, and records are accurate and complete. For example, even where staffing is limited, it may still be possible for trustees or external advisers to review payment schedules or bank reconciliations on a regular basis, providing that much-needed independent oversight. Ensuring that payments require two approvals, particularly for higher value transactions, is another basic but highly effective safeguard.
Clear financial policies and procedures can make a huge difference. By setting out in writing how financial tasks should be handled, from income recording to expenditure approval and reporting, charities can ensure that everyone involved understands their role and the standards expected. These policies should not sit on a shelf but be actively followed, regularly reviewed, and updated as the charity’s operations evolve.
Timely financial reporting to trustees is also central to good oversight. Regular management accounts, showing both the current financial position and comparisons against budget, allow trustees to spot trends, question variances, and make informed decisions. It is important that reports are not overly technical, but presented in a way that trustees, many of whom may not be finance professionals, can readily understand.
The Role of Technology in Internal Controls
Technology increasingly plays a role in maintaining internal controls, particularly for charities operating in cloud-based environments. Modern accounting systems allow for audit trails that track who has entered, authorised or changed transactions. Secure online banking with dual authorisation features can prevent unauthorised payments. Document management systems, such as cloud storage solutions, can ensure that supporting records are securely stored and easily accessible for audit or trustee review. Of course, the use of technology also introduces its own risks, so cyber security and data protection must remain high priorities.
Fostering a Strong Governance Culture
At the centre of all these systems, though, is culture. Even the best-designed control framework will struggle if those responsible do not see financial governance as a shared and vital responsibility. Trustees should foster a culture where questions are welcomed, oversight is routine, and financial transparency is non-negotiable. It is not about mistrust, but about recognising that strong controls protect everyone involved with the charity.
How Auditors Can Support Strong Internal Controls
Auditors have a key role to play in supporting this effort. While the statutory audit focuses on verifying financial statements, a well-conducted audit also involves reviewing and testing the charity’s internal controls. Through this process, auditors can highlight areas where controls could be strengthened and offer practical, proportionate recommendations based on the charity’s size and complexity. In our experience, many charities value this external perspective, which can help identify gaps that may not be obvious to those involved in day-to-day operations.
Trustees Don’t Have to Do This Alone
Trustees should not feel that they need to navigate these issues alone. Guidance is available from the Charity Commission, and professional advisers such as auditors or independent examiners can provide invaluable support in reviewing and enhancing financial controls. Taking proactive steps to strengthen internal controls is an investment, one that not only helps prevent problems but also reassures donors, funders, and beneficiaries that the charity is being run with integrity and care.
The Stakes Are Too High to Leave Oversight to Chance
At a time when public scrutiny of the charity sector remains high, strong internal financial controls are one of the most effective ways for trustees to protect their charity’s reputation and ensure its long-term viability. The stakes are too high to leave financial oversight to chance.
If you have any concerns about your charity’s internal controls, or simply wish to ensure that your existing processes remain fit for purpose, we would be very pleased to assist.
As experienced charity auditors, we work closely with organisations to review internal controls, provide tailored advice, and support trustees in fulfilling their financial governance responsibilities.
Contact our team today for a confidential, no-obligation discussion. Together, we can help strengthen the financial foundation your charity needs to thrive.