Understanding charities: Managing charity money properly

By Jose Julio Pisharello 

The series is being published following the introduction of the Charities Act 2026. Its purpose is to help readers better understand charities, the role of trustees and the governance arrangements that help maintain public trust and confidence in the charitable sector. 

Every charity depends on financial resources to carry out its work. Whether money is collected through a flag day, received as a donation or grant, or used to fund a substantial charitable project, it must be managed carefully. 

Good financial management is not simply about keeping accounts. It involves planning ahead, understanding the charity's financial position, maintaining appropriate controls and ensuring that funds are available when needed. These principles apply to charities of every size, although the arrangements will naturally differ according to their activities and circumstances. 

Planning and monitoring the charity's finances 

A budget is one of the most useful financial management tools available to trustees. It sets out the income a charity expects to receive and how it intends to spend that money. 

Even a small charity can benefit from a simple annual budget. For larger charities, particularly those employing staff or undertaking several projects, more detailed budgets and financial forecasts may be necessary. 

Preparing a budget is only the starting point. Trustees should regularly compare actual income and expenditure against expectations, understand significant differences and consider whether corrective action is needed. 

Cash flow is particularly important. Even where a charity expects sufficient income over the year, it may encounter financial difficulties if payments fall due before anticipated donations or grants are received. Trustees therefore need to understand not only how much money the charity expects to receive and spend, but also when those receipts and payments are likely to occur. A simple cash flow forecast can help identify potential shortfalls and allow action to be taken in good time.  

Reserves and financial resilience 

Charities may need to retain funds, commonly referred to as reserves, to meet unexpected expenditure, cope with fluctuations in income or maintain essential activities during difficult periods. 

However, not all money held in a charity's bank account is necessarily available for general spending. Some funds may be restricted to particular purposes, while other resources may already be committed to future activities. 

Trustees should consider whether their charity needs reserves, how much would be appropriate and the reasons for holding them. 

There is no single level of reserves suitable for every charity. Some charities, for example, may aim to maintain readily available unrestricted cash reserves equivalent to three months of normal expenditure, providing a financial cushion against an unexpected reduction in income. Others may require more or less, depending on their activities, commitments and exposure to risk. 

A reserves policy helps explain the trustees' approach and should be reviewed as circumstances change. Holding too little may expose the charity to financial difficulties, while retaining unnecessarily large amounts could prevent funds being used for charitable purposes. 

Financial controls: protecting charity money 

Sound financial management also depends on effective internal controls - the checks and procedures designed to protect money and reduce the risk of mistakes, misuse or fraud. 

These need not be complicated. Practical safeguards include ensuring that: 

• income and expenditure are properly recorded and supported by documentation; 

• payments are appropriately authorised; 

• bank accounts are regularly reconciled with accounting records; and 

• no single individual has unchecked control over receiving, authorising and making payments. 

Even in a small charity, basic checks can involve one trustee preparing a payment and another independently reviewing and authorising it. 

For a charity collecting cash at a fundraising event, having two people count the proceeds, recording the amount collected and banking it promptly can provide valuable protection. 

Larger charities may require more formal approval procedures, financial reporting systems and separation of responsibilities. 

The objective is not unnecessary bureaucracy, but controls appropriate to the financial risks involved. 

Preventing fraud and financial abuse 

Charities are not immune from fraud. Risks can arise from within an organisation or from outside, including false payment requests, fraudulent changes to bank details and misuse of fundraising proceeds. 

Trustees should ensure that unusual transactions are investigated and concerns can be raised and addressed promptly. 

Particular care may be needed when transferring funds to other organisations, especially overseas. Trustees should understand who will receive the money, why it is being transferred and how they can obtain reasonable assurance that it reaches its intended destination. This is relevant even where a Gibraltar charity raises funds for an established charitable organisation elsewhere. 

Where suspected fraud or serious financial irregularities arise, trustees should act promptly, preserve relevant records, seek advice where necessary and report the matter to the appropriate authorities, including the Charity Commission where required. 

Trustee Question of the Week 

Who is responsible for the charity's finances? 

All trustees share responsibility for the charity's financial management. A treasurer may take the lead, while larger charities may employ finance staff or professional accountants, but these arrangements do not remove the responsibilities of other trustees. 

Every trustee should have a reasonable understanding of the charity's financial position, including its income, expenditure and ability to meet its commitments. Trustees do not need to be accountants, but they should ask questions and seek explanations when financial information is unclear. 

Key Takeaway 

Every trustee shares responsibility for safeguarding charitable funds. Good financial stewardship means planning ahead, understanding the charity's financial position and maintaining practical controls that protect its resources and support its charitable purposes. 

Looking Ahead 

Next week, we will look at managing risk, safeguarding and protecting the charity, including how trustees can identify emerging threats and take appropriate steps to protect the people, activities and reputation entrusted to their care. 

Jose Julio Pisharello is a member of the Gibraltar Charity Commission and has written this series with the aim of helping readers better understand charities, trustee responsibilities and good governance. 

*Throughout this series, the term “trustee” is used broadly to describe those responsible for the governance of a charity. Depending on how a charity is constituted, they may, for example, be directors of a charitable company or councillors of a private foundation.