Banking

Charity bank accounts run like business bank accounts; they enable organisations to manage their finances separately from the personal finances of their trustees. The main differences between personal or business accounts and specially designed charity bank accounts are related to tax exemptions and Gift Aid. Many high-street and online banks offer accounts specifically for charities. There are also a handful of financial services providers who look after charities or social enterprises.

There is usually a cost incurred and it is advisable to do some research to find the most appropriate account. Charity accounts are usually cheaper than standard business accounts.
Some of the fees that may be incurred are:

• Monthly fee. This is just a fixed monthly fee to keep the account open and may depend on the charity’s annual turnover.
• Foreign transaction fee. For the use of the debit card to make payments or withdraw cash from an ATM (Automated Teller Machine) outside the UK.
• Depositing cash. Some bank accounts may charge to deposit cash or cheques into the account.
• International bank transfers. A charge for sending money abroad.
• Overdraft for taking out more money than the account holds.
• Cheques for issuing or paying in cheques.

A charity bank account may be opened online, or it may need to be opened in person.

The following details will need to be provided:

• Details and documents of the organisation. For example, the charity registration and Companies House numbers, or the organisation’s constitution documents. Often minutes from recent meetings showing decision to open the account.
• Details of people holding the account, such as personal details, proof of identity and proof of address. Normally there should be at least two trustees as well as any other signatories on the account.

A charitable bank account should have one or more signatories. These are people who can authorise withdrawals and payments on behalf of the organisation. It is usually best practice for a charity’s treasurer or finance director to oversee managing the account.
The Charity Commission states that “where practicable,” bank mandates should need 2 signatories, one of whom is a trustee. But the commission acknowledges that some charities may allow for low-value amounts to be authorised by just one individual. It is important to get familiar with all the commission’s rules on banking before opening an account.

Charitable organisations may use electronic banking. To maintain the security over electronic bank accounts there are some basic precautions that can be put in place including:

• the Charity Commission recommends the use of a dual authorisation system for charities who choose to bank online
• there should continue to be clear segregation of duties to prevent any single person from being able to control substantial resources or obtaining unauthorised access to account information
• there should be proper approval for movements between, and payments from, bank accounts
• after each electronic banking transaction, a printout should be taken showing details of the transaction and stored as part of the accounting record
• retaining print outs of statements as part of the accounting records
  
• keeping all PCs with access to the online banking facilities secure
• ensuring all PCs are up to date with anti-virus, spyware, and firewall software
• keeping all the password(s) and PIN(s) secret
• changing passwords periodically and following changes in authorised staff and trustees
• adequate training for those using the charity’s computer systems
• treating emails received relating to bank accounts with caution. Trustees and staff should not respond to emails or telephone calls asking for personal security details

Charitable organisations can have more than one bank account. It is the decision of the trustees which banks they hold accounts with, and how many accounts they have. There are benefits and disadvantages in holding more than one account. Trustees should ensure that their charity has the number and types of accounts which are appropriate to its needs. All bank accounts should be held in the name of the charity and never in the name of individuals. It is recommended that the charity have a banking policy which is checked by trustees to ensure they are acting in compliance with it. Controls help prevent the unauthorised opening or closure of bank accounts and ensure the reliability of accounting records for cash.

A credit union, a type of financial institution similar to a (commercial) Retail bank. It is a member-owned and controlled, non-profit financial cooperative. Credit unions provide services to its members like a retail bank, including deposit accounts, provision of credit, and other financial services. All money saved in a credit union is protected by the Financial Services Compensation Scheme up to the value of £85,000 per person – exactly the same level of protection as savings in a bank or building society.

Hull and East Yorkshire Credit Union (HEY Credit Union) offer a bank account for not-for-profit organisations in the East Riding of Yorkshire. 

Debit card transactions debit bank accounts directly, so payments immediately affect bank balances; their misuse or loss can be extremely serious for the charity. Credit and charge card payments are invoiced monthly and there is some ability to intervene in the case of misuse, but controls still need to be in place over their use. Used properly these methods of payment are safe, but The Charity Commission recommends that certain controls are put in place, including:

• setting a clear policy for the use of payments cards, the criteria for their issue, spending limits and their security
• considering the need to place restrictions on, for instance, the types of retailers where the cards may be used, for example, blocking their use in restaurants, food retailers or on certain websites
• communicating the policy for the use of payment cards clearly, in writing, to all trustees and staff using them
• ensuring payment cards are cancelled and destroyed, if the individual ceases to work for the organisation or if the authorisation of the card’s use is withdrawn
• ensuring that debit card expenditure is supported by a voucher and/or invoice and recorded and analysed in accounting records
• copies of all credit or charge card statements being sent directly to the organisation’s finance team and not the individual card holder. The statements are used to record and reconcile transactions in the accounting records and are matched with supporting vouchers and invoices provided to, or obtained by, holders of cards
• periodic review of card uses to ensure consistency of use with set policies

Many institutions offer the facility of a prepaid card. A prepaid card offers a secure and convenient alternative to petty cash. It can be used for contactless payments under £100, replenished (often automatically) in line with budgeted spending. It can also be used to withdrawal cash from ATMs (Automated Teller Machines) and all transactions are recorded and are easily monitored, reducing the risk of misplacement or misappropriation of funds. It is recommended that research is carried out before deciding on a particular card as some cards come with various administration fees.

Payments in cash should be kept to a minimum due to the greater risk that handling cash presents, and difficulties that can arise in controlling cash transactions. Charities should be wary of receiving large or unexpected donations of cash other than through their own or publicly organised fundraising activities and should take additional steps to assure themselves of the origin of those funds.

• Transactions should be for small amounts only
• details of payments should be recorded
• supporting documentation for the cash payment should be authorised by someone other than the person who manages the petty cash or the person making the payment
• the records should be kept securely
• regular spot checks of the account should be made by an authorised person independent of the person who makes the transactions

Organisations should familiarise themselves with rules regarding fraud and financial crime, often referred to as “money laundering”. 

Chapter 3: Fraud and financial crime

https://www.gov.uk/government/collections/protecting-charities-from-harm-compliance-toolkit

There are many factors to consider when choosing a bank, including how the organisation operates, the level of finance that it deals with, and the nature of the donations which it processes. All these factors need to be considered when choosing a bank account. Taking the time to compare the different options is essential.

• What transactions will be made? How often? Who will need access to it?
• Fees – how much the account is likely to cost in a year?
• Ways to bank. Some banks and credit unions have branches which allows for transactions to be made in person; others will be much more online and mobile focused.
• Eligibility criteria. Read the terms and conditions carefully.
• Account features such as the acceptance of card payments, help with budgeting and accounting
• Other banking products such as savings accounts.
• Debit card to make it easier to make purchases of supplies or relevant services.
• Dedicated relationship managers. Many banks offer a relationship manager for the account
  holders.
• Certain number of free transactions.
• Cash counting machines. Some banks accept donations in coins and banknotes in-branch to put them through counting machines and then deposit them into the account.
• Limited free deposits and withdrawals. These monthly limits will usually cover several payments or a set amount.
• Cashback. Some accounts offer cashback on certain types of purchase.
• Overdraft functions.
• Some banks offer their charity customers limited short-term borrowing facilities.
• Interest Rates

Bacs
A not-for-profit, membership-based, industry body owned by 15 banks and building societies in the UK and Europe, handling the schemes behind the clearing and settlement of automated payments in the UK.

Banking licence
Certifies that a bank has met all the legal requirements regarding the protection of its customers’ money and data

Challenger bank
Used to describe any bank operating with a banking license that is looking to challenge the top 4 British Banks (Barclays, LLoyds, HSBC and NatWest)

Charity Commission
The regulator which oversees the charitable sector in the UK.

Dual authorisation system
A function that enables businesses with complex mandates such as charities to use Online Banking. As it lets 2 people from the same business complete a third-party payment electronically.

Financial Cooperative
A member owned non-profit financial institution that operates under a members first philosophy to serve a population’s banking needs

Gift Aid
A government scheme that allows us to reclaim the basic rate tax you pay as a UK taxpayer.

Payment services
Provided by financial firms, allowing the transfer of funds, usually electronically. Either internet-based allowing online transactions or payments using mobile phones. Subject to The Payment
Services Regulations 2009.

Prepaid card
pay-as-you-go debit card. You add money is added to the card and can then be used accepted. Only the money loaded on to it can be spent.

Signatory
A person nominated by the charity who is authorised to transact with the bank.

Trustee
Someone who takes responsibility for managing money or assets that have been set aside in trust for the benefit of someone else. All charity trustees are legally responsible for ensuring the charity’s money is used properly for legitimate purposes and safeguarded from loss.

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