Stronger charities through good leadership: the CA as a charity trustee

Business leadership
By Colin Kerr CA

9 November 2016

As Trustees’ Week 2016 celebrates the UK’s 1 million trustees and promotes the benefits of volunteering to be a trustee, Colin Kerr reflects on public expectations of the CA as a charity trustee and shares some informal good practice guidance.

ICAS continues to issue guidance to independent examiners who are involved in charities, often in a pro bono capacity. However, many CAs will find themselves acting for charities in a non-executive capacity, often as Chairmen, Chairs of Audit Committees or Honorary Treasurers.

The challenges are different in these roles, but what is consistent is a public expectation – both within and without the relevant charity – that having a CA on the Board brings with it expectations of professional skill, integrity and – above all – judgement.

What am I joining?

It is human nature to be flattered when approached to join a charity’s Board as a trustee, particularly if the aims of the charity resonate strongly with your own values. But start by being clear why they want you.

Are you replacing an older person in an equivalent role (fine – but be sure that you speak to them); are you there in response to anxieties from the bank or from the Charity Regulator (less fine) or is it because they are beginning to spiral out of control and the cash is running out (definitely not fine). Be sure that you understand completely the basis for the approach.

Be clear exactly what your role is and that you are comfortable with that role: don’t be a square peg in a round hole. Particularly, don’t be coerced into a role heavy on fundraising and networking if you are not that sort of a person.

Do your own due diligence. Ask to see the last set of audited or independently examined accounts and the most recent management accounts (if these are produced: if not, scan the last year’s bank statements). Are there any banking covenants and, if so, are they being complied with?

Financial governance

Whatever the precise nature of your role as a Trustee, your professional background brings expectations. It is essential that you make it clear what financial and related information you would have to see produced for each meeting. The detail will be contingent on the size of the charity, but should include:

  • An overall strategy document, setting out basic objectives for the next few years and how they are to be achieved. There would have to be high level financial numbers linked to each of the years. It would be essential to see that the Trustees understood these objectives and numbers and that the staff had ownership of the numbers. Even in the smallest charity, these basics must be in place.
  • There must be a budget for the year, consistent with the strategy. Again, be satisfied that there is ownership of this budget by the staff (if not, it will become apparent very quickly). Specifically, look out for “heroic” assumptions on income generation and/or cost cutting: they won’t happen.
  • From the budget should come a high level cash flow forecast for the year.
  • As a non-executive you have to be inherently comfortable with these three documents: your fellow Trustees will look to you for assurance and your objectivity is of fundamental importance. It is essential that you challenge any aspect where you have misgivings and only “sign off” when you are comfortable. If you have reservations or caveats to your approval, make sure that they are clearly recorded and flow through to the risk process.
  • Turning to the flow of management information, you will want to see management accounts (i.e. performance against budget) and a cash statement (i.e. performance against the cash flow). However small the charity, you must have this sort of information (quarterly at least) in order to fulfil your responsibilities as a Trustee. Don’t hesitate to say how you want to see these data presented. Again, your fellow trustees will look to you for assurance.

Risk management

Unless the charity is quite large, it is unrealistic to expect a “bells and whistles” risk management system.

But what is essential for good governance is to get an agreement on what constitutes the top ten risks to the organisation: what would make for “sleepless nights” if they went wrong.

Once defined, the chief executive (or equivalent) should provide a credible update at each trustee meeting. What matters is not so much the paperwork, but that there is a real and robust discussion at each meeting on the key risks. All of this should be minuted and actions clearly set out.

Objectivity

Arguably the toughest call for a CA Trustee is the “Emperor’s New Clothes” role. To be able to look at the data objectively and to draw realistic conclusions.

Not so much about imminent disasters, but more about continually negative trends: less cash, less market share, less success in tenders, less skilful staff.

This could be about poor management, but it could also be about the emergence of bigger and better charities operating in the same environment. It could be the consequence of fiscal tightening by Local or National Government.

It is about having the courage to point out that things need to change. “Going concern” should be seen beyond the normal financial reporting criteria: do we - do you – have confidence that your charity has a future? And if not, what are the options?

Topics

  • Charities

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