Financial governance is a topic that often takes centre stage in conversations around charity structuring and accounting.
Effective governance is the backbone of any successful charitable organisation.
While various stakeholders are involved in this crucial aspect, trustees play an indispensable role.
Their decisions and oversight not only impact the charity’s financial health but also its reputation and ability to fulfil its mission.
Fiduciary responsibility
First and foremost, trustees have a fiduciary responsibility to the charity.
This means they are legally obligated to act in the best interests of the organisation.
They must ensure that the charity’s assets are managed effectively and that its financial obligations are met.
This fiduciary duty extends to making sure that the charity complies with statutory accounting requirements and that its financial records are transparent and accurate.
Often, the best way to ensure compliance is by outsourcing the accounting and secretarial work to a qualified accountancy firm.
Strategic financial planning
Trustees work closely with the management team to develop a sustainable financial model, including setting budgets, forecasting income and expenditure, and identifying potential risks and opportunities.
Their insights and approval are crucial in shaping the charity’s long-term financial strategy and ensuring that the organisation continues to benefit society.
Risk management
Trustees are responsible for identifying financial risks and ensuring that adequate measures are in place to mitigate them.
This could involve anything from diversifying income streams to implementing robust financial controls.
Trustees must also ensure that the charity has a risk management policy in place and that it is reviewed regularly.
Again, many charities will outsource this responsibility to ensure compliance and free up valuable trustee workloads.
Financial reporting and accountability
Trustees are responsible for the preparation and approval of annual accounts and financial statements.
These documents should be prepared in accordance with relevant accounting standards and should provide a true and fair view of the charity’s financial position.
Trustees are also accountable to the charity’s stakeholders, including donors, beneficiaries, and regulatory bodies, and must ensure that financial reports are readily available to them.
Ethical considerations
Trustees must also consider the ethical implications of financial decisions.
This includes ensuring that the charity’s investments align with its mission and values.
For example, a charity focused on environmental conservation should avoid investing in companies that contribute to pollution.
Ethical financial governance enhances the charity’s reputation and can also have a positive impact on fundraising efforts.
Oversight and monitoring
Finally, trustees are responsible for the ongoing oversight and monitoring of the charity’s financial situation.
This involves regular reviews of financial reports, budgets, and cash flow statements.
Trustees must also ensure that external audits are conducted as required and that any recommendations are implemented promptly.
The role of trustees in financial governance is multi-faceted and carries significant responsibilities.
From strategic planning and risk management to reporting and ethical considerations, trustees are central to ensuring the financial health and integrity of the charity.
Their active involvement and diligent oversight are crucial for the charity’s success and its ability to make a lasting impact.
If you’re a trustee looking to enhance your understanding of financial governance or a charity seeking expert advice, consider consulting specialist accountants.
An accountant with expertise in charity finances can provide valuable insights and guidance, helping you navigate the complexities of financial governance in the charity sector.
To learn more please contact one of our accounting professionals, or visit our website.
