Many of you will have heard of the Good Governance Code, published in June this year by the governance hub. However, like me, you may have overlooked it at first.
I commend it to all Third Sector readers as an excellent, high-level summary of the key issues. There's no doubt that it is comprehensive - ranging from the trustee board's responsibilities for leadership and delegation, to bigger issues such as openness and integrity. But it is, in my view, somewhat light in its guidance on internal control.
For most trustees, this is the area of greatest difficulty. They come from widely varying backgrounds and there is almost always also a gap, both of experience and viewpoint, between the trustees and executives.
The prime purpose of a system of internal control is, of course, to provide the means by which the management ensures the organisation is being run in a way that is consistent with its values and procedural rules. However, from the board's point of view, the evidence that the system of controls is working properly also provides crucial assurance that the management is carrying forward the operations in a manner calculated to achieve the strategic objectives of the organisation.
This dual nature of internal control systems is the cause of many misunderstandings and disagreements between trustees and staff. Although trustees should not interfere in the day-to-day running of the charity, they should properly enquire into the elements of the system of control, challenging their appropriateness and offering guidance on those matters where they have specialist expertise. This requires a rather more subtle appreciation of the twin roles referred to above than one is likely to glean from the very brief internal control section of the code in its present form.
One of the best bits of the code is the recommendation to 'comply or explain', coupled with the advice that it is not likely that all charities will be able to comply with all of its provisions. I have had a lot of experience recently in persuading boards to do just this - and it is not always a task to which trustees or management warm easily.
Many trustees feel an understandable reluctance to reveal that their organisation does not follow best practice. Perhaps they do not appreciate the benefits of saying so clearly, together with the reasons why and, if appropriate, an indication of the steps being taken to comply and the timetable for action.
However, stakeholders, beneficiaries and donors in particular increasingly value this type of disclosure and are beginning to distrust organisations that keep quiet on these matters - usually with some justification.
- The Good Governance Code was published by the governance hub in June
- The code lacks sufficient detail about internal controls
- One of its best is its recommendation to 'comply or explain'.