On #TrusteesWeek, one of our senior auditors discusses the importance of charity governance.
In running any council, school or business, good governance is extremely important to help the organisation to achieve its objectives and drive improvement, as well as maintain legal and ethical standing in the eyes of shareholders, regulators and the wider community.
It is no different in the running of a charity. When working with charities it is not just the financial position of the charity that needs to be considered. A review of the overall governance of the charity could provide you with the early warning signs of potential problems in the future.
Those responsible for the governance of a charity are the trustees. In the context of this article, a trustee is a voluntary role.
There is lots of detailed information on the Charity Commission website. The Charity Commission list the responsibilities of trustees as including:
• Ensuring that the charity is carrying out its purposes for the public benefit.
• Complying with the charity’s governing document and the law.
• Acting in the charity’s best interest.
• Managing the charity’s resources responsibly.
• Acting with reasonable care and skill.
• Ensuring that the charity is accountable.
As you can see, it is not just a matter of turning up for the monthly meeting and checking the finances. A well-governed charity will have a number of trustees on the board who have different skills and abilities. They will be able to keep an oversight of the running of the charity in order to fulfil their responsibilities. They will also be prepared to challenge the charity CEO on the running of the charity.
Over the years, it has been found that problems with a charity’s performance can often be because the board does not have the right skills mix, or the CEO is being allowed to run the charity without appropriate challenge. The collapse of Kids Company is one of the most high-profile cases in the last few years. The trustees were found to have ‘failed to do their work in ensuring the financial viability of this inefficient charity’.
It is also important to consider the legal structure of the charity; is it incorporated as a company or a charitable incorporated organisation? If not then you should check that the charity have some form of trustee liability insurance. If the charity is an unincorporated body then any financial risk will have to be borne by the trustees themselves. Trustee liability insurance will offset some but not all of this risk. However, if the trustees were found to be negligent then even the limited liability involved in incorporation may not apply.
Source: National Audit Office