The Charity Commission lists the use of charitable funds as a key responsibility of a charity Trustee, only in furtherance of the charities objects and managing its resources responsibly. Whilst it is a responsibility for all Trustees on the board, the task of ensuring this happens falls typically at the feet of the Trustee with the strongest finance skill-set.
Our experience shows that there is a myriad of different approaches taken by charity Boards to ensure they manage the finances and financial governance of the charity effectively, as well as ensuring assets are protected and funds used appropriately. This can range from no finance representation on the Board, or finance subcommittee, to several finance professionals, such as accountants, bankers and business owners, as well as the presence of a finance committee and audit and risk committee. Clearly, the former approach carries with it a greater exposure to risk and poor financial oversight, and the latter can be over complicated for smaller charities. With greater risk comes greater personal consequences for the Board, so getting the right balance for the specifics of your charity is key.
Based on my experience in the charity, education and not for profit sector, what surprises me is the amount of charities that have little or no finance representation on the Board, or any detailed discussion around financial strategy or performance. This can be due to the difficulties in finding good quality finance people who are willing to be Trustees. In the past there have been plenty of corporate and charity financial failures, and a feature that is present in most of them is a lack of challenge from those charged with governance. Disinterest is not a direction any Board should allow the charity to travel in if they wish to be successful and stay off the Charity Commission’s radar.
The Charity Commission does try to encourage charities along the way with their financial governance. Checklists such as ‘CC8: Internal Financial Controls for Charities’ and ‘CC25: Managing charity assets and resources: an overview for Trustees’, amongst others are useful tools to assess where the charity is lacking. A management letter point that crops up more often than it should is that charities rarely review the Charity Commission CC checklists to ensure they are complying with what the Charity Commission perceives to be best practice.
From my experience, the charities that have the best governance are those that have a competent finance individual, as well as a separate finance or resource subcommittee. The finance Trustee’s role should be to understand, interpret and challenge the monthly management accounts (another vital aspect of charity management which is not the staple for a number of charities). On an annual basis they should be actively involved in the budget setting, including developing the assumptions that are built into the budget. The finance Trustee should also be driving financial risk assessment and response process, which should include reviewing the CC checklists. The finance Trustee should then report into the full Board and give them comfort that robust procedures are in place and that financial oversight is effective.
As much as we see the finance Trustee as a critical platform, it is still vital that the tone is set from the top. The Board needs to be engaged with the finances and have a commitment to ensuring there are robust financial controls in place and effective monitoring. This commitment to good financial governance will then permeate throughout the organisation and embed in its culture, even where a Board may be lacking in the financial expertise.
The above are observations from across a broad portfolio of charity, education and not for profit clients.
If you have concerns around your charity’s governance, please contact me or your usual Bishop Fleming contact.