Trustee Responsibilities: committed to the cause but no finance expert?

The closure of Kids Company has put the financial responsibilities of charity trustee into sharp focus. Karl Wilding has drawn on his own experiences as a trustee to reflect on the wider lessons to be learned. Below, I’ll focus on the practicalities.

Financial information can seem daunting to the inexperienced or the non-financial expert; don’t let it be. As a trustee you have a duty to ask questions and take advice when you need to.

Some trustees will not have previous experience of dealing with a charity’s finances. They should be given support by the treasurer or the charity’s finance officer or in another way.

All trustees should either have, or be prepared to develop, basic skills in financial management. In particular, trustees should know how to:

  • read budgets and accounts so they know if the annual accounts properly summarise their charity’s activities and state of affairs
  • interpret financial reports and advise on appropriate action in response
  • guide professional advisers entrusted with property and financial reserves
  • assist and monitor fundraising activities
  • recognise actual or pending insolvency.

Getting meaningful information

Trustees should ask for financial information to be presented in a form that they can understand (eg. tables, charts and graphs) and the information should be accompanied by a written commentary. Some charities give new trustees a glossary of the terms used in their accounts.

Key questions to ask at board meetings

  • Are we running a gain or a loss?
  • Are key expenses under control?
  • Do we have sufficient reserves?
  • Do we have an investment policy (if appropriate)?
  • Is cash flow adequate?
  • Where are we compared to budget?
  • Is our financial plan consistent with our strategic plan?
  • Are the staff satisfied and productive?
  • Are we filing reports on a timely basis?
  • Are we fulfilling our legal obligations?

(How much are charities keeping in reserve?  Our researcher David Kane has the latest numbers)

Can financial responsibilities be delegated to a treasurer, financial advisers, staff or volunteers?

Your charity may have an honorary treasurer, financial advisers or a committee that co-ordinates its financial management. You may appoint staff, volunteers or an outside agency to undertake day-to-day financial duties (such as bookkeeping or payroll).

All trustees, however, should take an active interest in the financial affairs of the charity and exercise care when appointing or supervising anyone to manage its finances. You cannot escape your financial responsibilities by delegating control and supervision of the finances to someone else; you remain responsible for the financial affairs of the charity and would share liability for any financial wrongdoing.

How will the financial management exercised by trustees be judged?

You have two principal duties when fulfilling your financial responsibilities.

  1. ‘Proper care and diligence’: A trustee will not, for example, be held personally liable for wrongdoing by any financial agents if the board of trustees has given proper attention to the appointment, duties and supervision of the agents.
  2. ‘Prudence of ordinary men and women of business in the management of their own affairs’: This requires trustees to satisfy themselves that the financial affairs of the charity are being properly handled in the same way that they would manage their own finances or those of someone else for whom they were morally responsible. Ignorance of what is happening, or the absence of dishonesty on the part of a trustee, is not accepted as prudent behaviour. As a trustee, it is your responsibility to find out all relevant information.

Charities that are established as companies have detailed general duties of directors that must also be observed (see the Companies Act 2006, Chapter 2).

NCVO’s tips for financial governance

Examine your governing document. Does it give you powers to delegate financial matters?

Do you know the terms on which individuals or committees have been delegated financial responsibility by the board of trustees?

Are you satisfied that the charity’s financial agents are properly supervised and accountable to the board?

Have you made sure that you know who is responsible for each aspect of your charity’s financial management?

Have you made sure that reporting requirements have been agreed and maintained?

Does your board need to organise any training to strengthen the financial skills of the trustees?

Does your charity give all trustees a guide to its accounts that covers items such as designated or restricted funds, and gives any necessary explanations, for example clarifying if amounts raised at fundraising events are shown at gross or net value?

Does your charity give all trustees a list of any significant assets, and any obligations attached to them?

To help you stay on top of your financial responsibilities, here is some further information and useful resources:

 

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Myles Kunzli Myles currently leads on NCVO’s practical support offer and was previously an NCVO governance consultant. He has spent most of his career in the UK and Australian voluntary sectors. Myles is a former chief executive of both a local law centre and the Community Legal Centres Association of Western Australia. He is also an experienced trustee and chair of various frontline organisations and umbrella bodies in the legal aid, human rights and health sub-sectors.

4 Responses to Trustee Responsibilities: committed to the cause but no finance expert?

  1. barbara roymacauley says:

    This is a valuable an insightful piece of advice and will no doubt provide sound discussion topics /on relevant matters in all charities and community support organisations. Thank you for this bulletin.
    Barbara

  2. Bárbara says:

    As trustees how do we ensure we have continued updated training.

  3. Bárbara Clarke says:

    How may we ensure we have updated training regularly

  4. Malcolm Bloor says:

    I found the article very interesting and helpful. The Bedale Community Minibus in which I am a trustee.Decided to appoint a Treasurer who is not a trustee.We prepared a job description and post details which the Treasurer accepted,and the relationship works well.