9. Glossary

Accounts: Accounts represent the organisations finances for a particular period (usually a year). They show how much money was received and how much was spent, broken down into different categories. Charities must prepare accounts each year and must send a copy of to us (the Scottish Charity Regulator) each year.

Assets: This means everything a charity owns; property, money, equipment, including heritable property (such as land and buildings and rights attached to it).

Benchmarking: this refers to a way of measuring investment performance by comparing against a standard. Different standards are used depending on the type of investment.

Capital growth: this refers to an increase in the value of the investment. For example a property whose value goes up due to the property market going up or a portfolio of stocks and shares that have increased in value because the stock market is doing well. Capital growth can be temporary and will depend on the nature of the investment held.

Charitable purposes: A charity’s purposes are usually set out in the objects, aims or purposes section of its governing document. The purposes say what your organisation has been set up to achieve, and should reflect its broad aims rather than the day-to-day activities. Each purpose your charity has must fit within at least one of the 16 charitable purposes set out in section 7(2) of the 2005 Act.

Charity Trustee: ‘Charity trustees’ are defined in section 106 of the 2005 Act as people having the general control and management of the administration of a charity. Charity trustees can also sometimes be known as committee members, directors or board members.

Conflict of interest: A conflict of interest may arise in a situation where a charity trustee may obtain personal benefit from a particular decision in relation to the charity. A policy setting out what a conflict of interest is and how you will manage situations where a conflict arises is strongly recommended.

Collective responsibility: Charity trustees are not only responsible for their own actions, they are also responsible for the actions and decisions taken by the charity trustees when acting together.

Financial buffer: this refers to the amount of money that the charity has available to use if investments do not perform as expected – like a financial ‘safety net’ for the charity.

Financial planner: this term describes a professional adviser who provides regulated financial advice. A financial planner can help a charity select investments or an investment manager, and can help a charity by managing an investment manager interview process.

Governing document: A governing document (or constitution) is the document (or set of documents) that sets up an organisation and says what its purposes are. It will usually deal with other matters, including who will manage and control the organisation, what its powers are, what it can do with the organisation’s money and other assets, and membership of the organisation.

Investment consultant: this term describes a professional adviser who tends to work with charities whose investments run into many millions of pounds, such that the charity is a ‘professional investor’. An investment consultant usually gives advice on the appropriate mix of investments for a charity and helps a charity select an investment manager, by managing the investment manager interview process.

Investment manager: this term describes a firm that manages portfolios of stocks, shares and other assets on behalf of charities, among other clients. Some charities use a financial planner or investment consultant for help in selecting an investment manager. Some charities liaise directly with investment managers to manage the investment manager interview process themselves.

Liquidity: a term used to refer to how easy it is to access cash or convert an investment into cash – that is, how quickly can an investment be sold if cash is needed by the charity?

Material (or materiality): When we talk about a charity having material investments this means that the value of these investments is so significant that the overall picture of the charity’s finances or activities would be distorted if they were not taken into account. It is the responsibility of the person preparing the charity’s accounts to decide whether an item is material or not.

Portfolio of stocks, shares and other assets: a term commonly used to refer to a diversified collection of different types of investments that are grouped together and belong to an investor. What is contained within a portfolio can vary. For example, a portfolio might include a mixture of stocks and shares held in different companies, assets that generate a fixed income from governments or companies, cash and other types of investment.

Trustees’ Annual Report: The Trustees Annual Report is a part of the annual Accounts and contains information about the charity and its activities and achievements in that year.