A reminder of the legal requirement for (virtually all) not for profit organisations to have two signatories on financial transactions, including in the digital space:

Virtually all trustees and not-for-profit committee members will be aware of the requirement for two signatories on all cheque payments. This is called for by the Charity Commission and most grant givers, and is widely accepted as being best practice.  

But when was the last time you wrote out a cheque? One year ago? Three years ago? And did you fully understand why two signatories were required or was it seen as just a bureaucratic hurdle? Did you go so far as to get a few cheques signed in advance, before the payment details were completed, to reduce the frustration at having to wait until a second signatory was available?

Payments have moved on, and at quite a pace. Most of us are using online banking systems for payments, but have you set your online banking up to mirror the requirement for two signatures on cheques?  

What does the Charity Commission say?

Make sure that more than one person is involved in all financial transactions - This means having a different person authorising a transaction to the person who made it.

You should make sure that duties are split to prevent any single person from being able to control charity funds exclusively.

You should use a dual-authorisation system for your bank or building society accounts - It allows one person to create a payment request and another to authorise it.

Why are two signatories required?

The need for two people to be involved in payments is to protect the organisation from fraud and error. When fraud or large errors occur, the trustees or management committee are responsible and even being an Incorporated Charity will not protect trustees, if there has been negligence. 

Having one person making payments by cheque or using online banking leaves a charity exposed to fraud. However honest the individual is considered to be, things can change over time. Most of the cases that end up in court involve individuals whose integrity was undoubted, until they were caught. 

Having two people involved in every payment, also helps to protect trustees and treasurers from simple errors. For example: an expenses claim for a £6.50 car parking charge, has been known to go through online banking, where control rests with just one person, as £650.00. Fortunately the recipient repaid the excess. With a dual-authorisation system, the second signatory would have questioned the high expenses payment before it was made and the error would have been rectified.   

Failing to set up a dual authorisation system while telling grant givers that all payments are subject to dual authorisation (i.e. two signatories) would be dishonest. Where there was a clear intention to mislead, it would be grounds for a grant to be repaid. 

What do Charities and Not-For-Profits need to do?

Make sure cheques require two signatories

Do not sign cheques in advance to circumvent the checks that the second signatory should make to ensure that the payment is correct

Set your online banking up so it is a dual-authorisation system - One person creates a payment request and another person logs in to authorise it. Both leave a digital footprint equivalent to two people signing a cheque. Only then does the payment enter the clearing system.

*Our sincere thanks to Peter Hurst, Chair of Swansea Bay Fibromyalgia Support Group, who has provided this editorial. Prior to his retirement, Peter was the CEO of a not-for-profit that acted in the fraud prevention space.

If your group has any questions relating to the information above, or needs support around the governance of your organisation, please contact our Development team on [email protected]