Accounting for different types of funds

Where a PCC holds funds, other than unrestricted funds, its accounting records must be adequate to allow separate financial information to be produced for each fund. Unrestricted, restricted and endowment funds must all be shown separately in the annual accounts and PCCs should also be able to account separately for any funds they have designated.

In the accounting records this can either be done by using separate columns in the cash book for the different types of fund or by clearly labelling each entry to distinguish those that are unrestricted and those that are restricted or designated.

In the annual accounts restricted and endowment funds must be reported separately from unrestricted funds. As a minimum all funds of one type should be reported together, either as three separate columns or, in the case of accounts on the R&P basis, as three separate statements of account. It is important that the reader can tell that all the funds are not held on the same basis and it is important that the PCC members know that certain funds have restrictions on the way the money can be used. The PCC must also be able to demonstrate that it still holds assets belonging to restricted and endowment funds and has not used these for unauthorised purposes. It is a breach of trust to spend restricted funds for purposes other than for which they were given without the prior consent of the Charity Commission.

The PCC’s unused monies may be invested to generate income. Any income earned belongs to the fund whose assets were invested and the income is, therefore, subject to the same restrictions as that fund. So the investment income must be attributed to each fund, based on the amounts invested and the time for which they were invested and must be accounted for as part of the fund to which they belonged.

The only exceptions to this are: (i) where the donor has expressly provided for some other use for the income; (ii) where the asset is part of a permanent endowment held for general purposes. In this case the capital is restricted in an endowment fund (because it cannot be spent) but the income is unrestricted since it can be spent for the PCC’s general purposes.

If a restricted fund has assets (e.g. a house or investments) and any are sold, the proceeds of sale must be held within the same restricted fund.

SORP 2005 makes it clear that funds may be grouped and sub-analysed by major fund in the notes to the accounts, and so all endowments may be reported on as one group, all other restricted funds as another group and all funds with no special restriction as a third group. On the Receipts & Payments basis the PCC should produce either a separate R&P account for every restricted fund or a combined account, which adequately distinguishes the different funds by grouping and sub-analysing them in the same way.

Tips for handling different funds

  1. Clear records of restricted money should be kept so that it can readily be identified. Poor records can lead to confused administration and then it is possible that the rules will be ignored and restricted and unrestricted funds will be merged with one another.
  2. Restricting money by specifying the objects when making an appeal has two advantages: (i) As restricted money can only be used for the purpose for which it was given, it cannot be ‘raided’ for other purposes. (ii) People tend to give more to funds that are restricted to a particular purpose with which they can readily identify.
  3. Expenditure of restricted funds may anticipate promised funding at the time the expenditure is incurred. It is acceptable practice in such cases to show a deficit on the project and then wait for the promised funding before deciding what balance must be met from the general fund. However, any insufficiency of the general fund for this purpose cannot be made good out of other restricted funds. Where material, deficit balances on restricted funds should be detailed in the annual report (see chapter 9).
  4. Collections at some funerals are taken in a bowl by the church door and are taken by the undertaker for a specific purpose at the wish of the bereaved family. These collections should only be recorded and accounted for by the PCC if the money is given directly to the Church or the PCC makes the decision as to the use to which it should be put.
  5. Fees for the services of bell ringers or choir at weddings need not be included in the accounts if the money is paid over in full directly to those involved. If a choir fund is built up with some of the choir fees (e.g. to pay for outings or social events), this is the property of the choir and should not be treated as a PCC fund.
  6. PCCs will from time to time collect money on behalf of others in a public place. Examples of this include Christmas carolling and Christian Aid door-to-door collections. In these instances these receipts are not to be included in the PCC’s income as the PCC is acting as an agent for the charity. However, if the money is counted and the PCC treasurer writes out a cheque for money paid into its bank account, then the PCC is holding trusts for the charity. Although the item does not have to be included in the Accounts there should be a note to the accounts to say that the PCC was acting in this way if such funds are held at the year-end. This is not to be confused with restricted collections in church, which should be accounted for.
  7. PCCs should remember that they do not have to accept a gift if they are uncertain of its source or if they are not happy at abiding by the donor’s conditions. There is no formal reason why PCCs should agree to accept every gift but written evidence of gifts and their restrictions is desirable.
  8. Tax recovered under the Gift Aid scheme on a restricted fund donation is also part of that restricted fund.
  9. Legacies given for the general purposes of the PCC should be credited to the general fund. Unless the donor has restricted the use of the legacy in the Will, it remains unrestricted and may not be restricted by the PCC. All or a part of the legacy may then be designated for a particular purpose but it should not be designated to a ‘Legacy Fund’ with no intention as to its use.
  10. The separate identification of funds does not require them to be kept in separate bank accounts, but this may be a useful practice in some circumstances.
  11. In the past, many parishes have operated with a large number of funds for different aspects of the Church’s life. Such a large number involves administrative complexity in the accounting system and the published financial statements under the new rules. PCCs are recommended to keep under review the number of funds while taking care not to conflict with the strict rules on restricted and endowment funds. The PCC should consider – closing the fund by using all the assets for the purpose for which it was set up; – identifying and reversing designated transfers the PCC may have made in the past, unless such money has been clearly spent or has a continuing purpose; – seeking assistance from the Charity Commission to modify the purpose for which the funds are held.
  12. PCCs are well advised to ensure that they have proper systems in place for the signing of cheques, the counting of collections (including the opening of planned giving envelopes) and their prompt payment into the bank. Charity Commission leaflet CC8 provides useful information.

You may find the New Treasurers Guide (pdf) produced by ACAT a helpful download.



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