Governance is a term used to describe the trustees’ role in:
• the long-term direction of the charity, including its objectives or purposes
• implementing policies and activities to achieve objectives
• complying with legal requirements
• accountability to those with an interest or stake in the charity.
Good governance should be embedded throughout a charity. The trustee board is responsible for good governance, but they rely on many different people to be able to govern well: staff, volunteers, advisors and stakeholders.
Oversight of directors: Governing is about:
• agreeing the purpose of the charity
• agreeing broad strategies to carry out the charity or non-profit’s purpose effectively
• accounting for the non-profit’s performance
• ensuring it operates within the law.
Management is about implementing the strategies agreed by the board e.g. by detailed planning, putting procedures in place and by raising money.
What does good financial governance look like?
Good governance enables and supports a charity’s compliance with relevant legislation and regulation. It also promotes attitudes and a culture where everything works towards fulfilling the charitys vision.
- Clear roles
- Effective meetings
- Annual strategy
- Effective risk management
- Use of sub committees- finance and audit
- Financial planning
- Financial controls
- Financial reporting
- Oversight of directors- delegation of day-to-day responsibility
Trustees also have responsibilities for the financial statements. These include;
- To prepare accounts for each financial year that give a “true and fair” view of the results and financial position.
- Keeping proper accounting records that disclose with “reasonable accuracy” the results and financial position at any time.
- Safeguarding the assets of the charity.
- Taking reasonable steps for the prevention and detection of fraud and other irregularities.
In preparing the financial statements the trustees are required to assess the going concern position.
In doing so they need to consider:
• Availability of cash
• Net current asset/(liability) position
• Levels of unrestricted reserves (the use of restricted reserves to cover unrestricted
costs could be regarded as a breach of trust)
• History of past results – regular losses is an indicator of an ongoing problem
• Future plans and budgets, how are things going to look moving forward
Even if one or more of the conditions exist that gives some doubt, financial statements can still be prepared on a going concern basis, BUT the conditions that exist and what the trustees are doing about it must be disclosed in the financial statements.
In summary, there are extensive legal, regulatory and financial requirements of trustees. As such the effectiveness of trustees and boards need to be measured. Senior management teams, CEO’s and directors are imperative in delivery of the strategic plan, day to day operations and meeting of charitable objectives. Other stakeholders, Accountants, Legal teams, HR specialists are also key in meeting both the legal and operational requirements. Trustees skill audits/ training can assist in ensuring the effectiveness of a board in meeting these responsibilities.
Our experienced team can provide advice and support for trustees on all aspects of governance. Please contact a member of our Charity team for more information.