There is no such thing as a “stupid question”

Board members of a charity take on a leadership role in an organisation. They work to ensure that the charity remains focussed on its long-term strategy and vision and support the management and staff to manage their finances properly and meet their legal obligations.

They do really important work with significant responsibility on their shoulders. For most board members the reputation of the organisation is at the forefront of their minds and they work tirelessly to ensure their organisation adheres to the highest standard of governance.  

It is a daunting task and for some they may feel they are not ‘properly’ equipped to be actively involved in financial oversight and question whether they have the right skills to challenge a decision or ask a difficult question.

Some board members may feel intimidated by the financial wizards on their boards and leave the accounts to a small ‘more experienced’ few to decipher.

The reality is though, that the board, as a whole, is responsible for the financial oversight of the charity and this means that all board members should play an active role in this.

Two areas of particular importance to consider are transparency and communication.

Transparency

In recent years we’ve welcomed the introduction of the voluntary charity Statement of Recommended Practice (SORP) for financial reporting, which many of the larger charities have signed up to.

Unfortunately, we have also seen an increasing trend towards the use of abridged accounts from smaller charities. Whatever way the accounts are reported, and annual reports are compiled, the most significant requirement is that they should be accessible and easy to understand.

It may seem that lots of data, pages of figures and technical notes is being transparent, but in reality, these lengthy explanations can be difficult to follow or understand meaning they’re not transparent.

So, it’s important to ensure that financial information is presented in a format that is understood by board members and the charities wider stakeholders. The use of graphics and showing year-on-year changes can also help to explain or better understand variations.

It’s important that a charity tells its story relating its activities and costs to the outcomes it achieves in a way the public can understand. Telling the story of how the euros were spent and what this has contributed to enables the stakeholders to clearly follow the rationale for decisions and see what their money is doing. It also makes it harder to hide!

Don’t be afraid to provide the information around salaries and how they are set, expenses and benefits, fundraising costs, actual expenditure on services and administration costs: this is the minimum information the public expects. If you describe outcomes and impact, there is less come back on the other issues.

The questions to ask

What is the annual turnover, what is actual breakeven and what does ‘normal’ look like?

What is the budget and is the charity going to achieve it? If there are big movements in the budget, then you need to ask why. Make sure you get a clear explanation.

Scrutinise salaries and expenses and don’t shy away from internal audits.

Familiarise yourself with all the funding streams- statutory, grants and fundraising -and question any changes.

Look at business plans for new projects and seek updates on financial progress and delivery of agreed outcomes.

Familiarise yourself with the beneficiaries of the charity. Is the impact of your charity’s work visible?

When you read the accounts can you get a sense of how the charity is functioning? If you can’t, why not?

The Board should promote fraud awareness and understanding, and ensure it has a plan in place to deal with any issues that may come to light.

Communication

Communication and regular interaction between board members and executive staff is important. Board members need to build relationships that are both critically objective and supportive.  It is important, whether at board meetings or at finance and audit meetings, that board members engage in constructive questioning, seek better explanations of areas they are uncertain about and, ultimately, do not be afraid to ask questions.

It is the “gut feeling” that something is not quite right that can lead to the unravelling of serious issues. If you don’t ask the question you won’t know. Having an effective financial controls framework that can be monitored is critical, and board members need regular updates to ensure it is working.

The things to do

Seek opportunities to engage with staff and create an environment where staff and volunteers feel able to voice concerns.

Ensure whistleblowing or protected disclosures procedures are properly understood and accessible to all staff, volunteers and service recipients.

Engage with the beneficiaries of the charity, attend events and observe what goes on.

Have regular conversations with other stakeholders and service providers specially to understand the environment the charity is operating in.

Sitting on a charity board is a great honour and privilege but it’s important to remember that you are there to protect and support the mission and vision of the organisation - if that means you do that by asking what you think may be a ‘stupid question’ I urge you to do it!

Author: Mo Flynn, Consultant and Cii Governance Committee member.