What makes good governance in charities?

02 December 2019

A founding principle of good charity governance depends on Trustees having a good understanding of their roles and responsibilities.

This was explored further by Not For Profit Director, Stuart McKay at the recent ICAEW Governance for Charities conference, where he gave his insights on Financial Governance, and how trustees can improve their effectiveness in this area.

In this article Stuart recaps the key points from his session:

“My talk began by giving an overview of our 2019 Financial Competency Survey with the Charity Finance Group (CFG), undertaken in late 2018 and published in March 2019. There were 200 respondents to the survey, from a wide spread of charities with income of £1m-£100m+.

The survey asked charities a series of questions, aimed at Trustees, to assess the Financial Competence of the Trustee board.

Two key findings from this survey were:

  1. only 57% of respondents said their Trustees understood the financial governance matters “well”
  2. only 56% of charities make finance training available to Trustees.

The survey highlighted areas for improvement in financial governance and it illustrates the deficiencies that have arisen due to a lack of commitment to trustee competency and diversity.

More details can be found here: Trustee charity finance competency Annual Report 2019

Diversity is a key driver for improving decision making based on a diversity of thought.

This is one area where our survey findings showed complacency and lack of self-awareness of competencies.

What makes these figures translate into reality is the 2019 finding from the Charity Commission Accounts annual review, that 45% of charities sampled (from a sample of 296) were found not to be compliant with their minimum compliance benchmark. Whilst most of these issues were found in charities within lower income levels, the compliance rate with larger charities still showed nearly 25% were non-compliant.

How can the effectiveness of Financial Governance be improved?

I took the audience through our joint publication (written in collaboration with the Charity Finance Group) entitled Essential Charity Finance for Trustees. The guide looks at 8 key areas where Trustees can improve their effectiveness in financial governance:

  1. Responsibilities of Trustees
  2. The law
  3. Accounting & external scrutiny requirements
  4. Financial Strategy & Governance
  5. Policies & Information
  6. Financial Reporting
  7. Relationship with Auditors/Examiners
  8. Relationship with regulators and stakeholders

The real attributes that make effective governance

The overriding conclusion that can be drawn is that, despite all the checklists and procedures available, the real difference to improving effective governance is made by the behaviour and tone from the top of organisations.

In particular, the ideal behavioural attributes of a Treasurer should be:

  • Purposeful
  • Knowledgeable
  • Inquiring
  • Objective
  • Analytical

I personally enjoyed my ICAEW conference session and I hope others found it useful. Let’s hope that each member can take away some new practices that help improve financial governance in charities.

Find out more

If you have any questions about the topics raised in this article or would like to discuss your charities accounting and business advisory needs with one of our specialists, please contact Stuart McKay or a member of the Not for Profit team directly, or alternatively send us an online enquiry.