Governance challenges: the CA as a charity trustee
Colin Kerr CA reflects on public expectations of the CA as a charity trustee and shares some informal good practice guidance.
As the charity sector finds itself in the spotlight again for high profile governance failures, Colin Kerr CA reflects on public expectations of the CA as a charity trustee and shares some informal good practice guidance. Colin is a charity sector FD and a member of the ICAS Charities Panel.
Many CAs will find themselves acting for charities as trustees, 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 trustee, you must 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 management 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) 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 10 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?
2018 and reputational risk
The sector currently finds itself under scrutiny like never before, with several iconic names now finding themselves – justifiably – in a position of catastrophic reputational risk. Inevitably, this will trigger real concerns across the sector that individual charities must – somehow – be able to demonstrate to their supporters, to their stakeholders – and to their staff – that their house is in order.
CA trustees will find themselves being asked for answers.
There are two fundamental issues here: the first and obvious issue is the absolute requirement for a code of behaviour, with the relevant mechanisms for training and reinforcement. This is something that every board must be doing now.
The second issue is arguably the nub of the current crisis and is one where the CA trustee should be well placed to add real value. This is the fact that good policies can be in place, but that they may not be monitored adequately, management handling may be poor and the overarching governance mechanisms not fit for purpose. For a CA trustee familiar with assurance mapping, integrated audit plans and appropriate mechanisms of corporate governance, the way through this should feel like familiar territory.
However, boards must first look back. Identify staff dismissed on issues of behaviour over the last 5-10 years and ensure that any references (past or future) have identified transparently any issues of concern. Trustee boards must deal with this quickly and comprehensively. Going forward, there must be clear unambiguous policies on references, to ensure that the recent issues could not happen again, in your charity.
Returning to the broader issue of the wider processes, boards must ensure that the relevant governance is put in place and is watertight. There already exists an excellent model in the care sector, linked to ensuring that mistakes are; identified and reported and; that learning is formulated and cascaded. Finally, assurance mechanisms then test every stage of the key processes, with reporting back up through the layers of risk reporting to the full board. The same processes should exist already for breaches in health & safety legislation and for data security breaches. CAs will also recognise the processes as being very similar to the handling of internal control weaknesses.
So, for CA trustees, the message is to check that the existing assurance and risk mechanisms are sufficient to ensure that breaches of codes of behaviour and/or dismissals for those breaches are reported and processes of learning are fully in place, all underpinned by comprehensive assurance coverage and risk reporting through to the board.
