Financial oversight in charities should go beyond simply reviewing accounts, with financial responsibility also extending beyond the nominated treasurer.
In fact, everyone, not just the person responsible for the day-to-day finances, needs to take responsibility for charity funds.
Understanding the risks, compliance, governance, legal requirements, external factors, and more.
Charity boards, now more than ever need to be fully active and involved at all levels. This means, trustees need to be asking questions, building on their financial understanding, and communicating goals and future strategy with transparency – having robust controls in place and rigorous risk management procedures is only the start.
Financial oversight: a core trustee responsibility
As a trustee, it’s vital that you understand your charity’s financial state. Not only is it your legal duty, but by understanding every aspect of your finances, you are in a stronger position to make the most informed and best decisions, to mitigate and manage risk better, and build sustainability.
It allows you to be 100% confident that resources are being used appropriately and effectively, and projects and campaigns are meeting the charity’s overarching aim and purpose.
Above all else, high levels of financial transparency builds trust. Trust between board members, staff, service users, and donors. This in turn builds your charity’s reputation, your donors, and potential funding opportunities.
However, as a trustee, if you are getting the financial information in a format you don’t understand, please ask for more clarity. Don’t stay in the dark; you have a responsibility to use the numbers to better support the charity.
Differences between governance oversight and operational management
For all we stress that everyone has a responsibility to be aware of the charity’s finances, there are still key differences between governance oversight and operational management.
For example, your board is set up to focus on strategy and future planning. In comparison, operational management involves day-to-day bookkeeping and accounting, which is often handled by a specific member of staff, team, or even an outsourced team (like Beyond Profit).
They are also in a position where they can advise the board; however, it is the trustees who are responsible for deciding how money is spent, on what projects, and how much will be kept in reserves.
Where governance focuses on long-term goals, setting strategic direction, and policies, operational management focuses on the short-term, the day-to-day running of the charity, and executing the strategy that has been set by the board.
What financial information should boards review regularly?
Management accounts showing your income and expenditure, of course, are a must to review, but within these accounts trustees should also monitor:
- Actual vs budget, analysing performance and factors that have potentially affected this. This allows boards to make adjustments in year and plan for the future better.
- A full breakdown of funds so you can see the split between unrestricted and restricted funds, with this information also brought forward from previous years.
- A summary balance sheet, providing a snapshot of the charity’s position and overall financial health.
- Cashflow forecasts, allowing boards to see where there could be cash shortfalls, and where there could be growth opportunities.
- Key KPIs that are specific to your charity, and how the finances mirror these.
Remember, if you don’t understand the information being presented, ask for further clarity or for the information to be presented in a different format, for example, graphs can help non financially minded trustees understand the figures better and the direction of travel.
Questions trustees should ask about charity finances
Let’s start by saying, there are no stupid questions. In fact, we bet someone else around the table has the same question but is scared to ask it!
Some key questions to help get the ball rolling:
- Is the information we have up to date?
- What are our free reserves?
- Are we reliant on a single or limited source of income?
- Do we look beyond the current financial year?
- What are some of our key costs?
- Do we have the right policies in place? Are these up to date?
Note: You can also find further information on building financial resilience from the Charity Commission here.
How can boards monitor financial risk throughout the year?
Be proactive in your approach. This means reviewing accounts regularly, monitoring and updating your risk register as required, identifying the level of risk, and having internal controls and robust policies in place.
Communication is also key. Having clear, open, and honest communication across the board is vital. Everyone needs to understand the financial position of the charity and how this can be affected or impacted by external changes and influences.
Charity managers should also feel confident that they can go to their board with concerns, questions, or information that they feel is relevant to the running of the charity.
By receiving regular updates and asking the right questions, as a Trustee you can stay one step ahead and manage risk with a clearer perspective.
What financial oversight should really look like at Board level
Ultimately, it should look like confident financial discussions taking place at board level, which is continuously encouraged and promoted. Where boards support each other and understand that for the charity to build sustainability and continue with its success, financial oversight goes beyond the responsibility of the treasurer and day-to-day accounts.
Ask questions, receive regular updates (in formats that you understand), and use this information to your charity’s advantage.
Trustees have a lot of responsibilities and legal duties that they must fulfil and understanding the finances and being aware of income and expenditure, free reserves, and more all fall into this area.
If you’re unsure of what your position entails or if you would like further information on how boards can support their charity further, check out the Charity Commission’s Guide on “The Essential Trustee,” which contains useful and detailed guidance.
We also have a post on Trustee responsibilities which you can find online, here.
