I am often asked by charity chairs "How do I know that I have all the
financial information I need?" It is a fundamental question for financial governance. Recently, I helped the boards of three charities that had not received full information and, in one case, where they had been severely misled.
In the first case, the chief executive was usually the only member of staff to attend all board and committee meetings. He actively kept other staff away from board meetings, although the board did not realise this. If staff attended meetings, it was only for a single agenda item: they spoke as briefed by the chief executive, as we discovered later, and he always answered all the questions.
Members of the board were under the impression that the chief executive was
doing a brilliant job, probably because he told them so and he was their only source of information. Finally, a senior member of staff blew the whistle and the chair learned just how "edited" the version of the truth fed to the board was.
In the second case, the finance director was wholly trusted by the chief executive and the board to get on with everything to do with finance. The finance director took his responsibilities seriously and was trying to fix the finances when the charity was not recovering full costs on contracts, running up a deficit in the meantime.
A lack of diversity in team members can result in a lack of challenge. We must be respectful, but ask questions
The problem was that he didn’t tell anyone. He did not provide straightforward
information to the chief executive or the board, so they had no idea that there was a financial problem. On the contrary, he assured them all would be fine, and they were happy to receive this message.
The truth emerged after a visit from the bailiffs instructed by HM Revenue &
Customs, which was seeking to recover months of unpaid payroll taxes. In the course of the subsequent investigation, the head of HR made an astute observation: both the treasurer and the finance director were "big picture" people, so no one was looking at the detail.
The final example was unusual because it involved fraudulent documents but there was no theft of funds. Like many charities, this local organisation was reliant on securing funding from a range of trusts and foundations. In reality, some bids had failed, but the chief executive told the staff and board that they were in the pipeline and even manufactured fake grant confirmation letters from funders to provide evidence to the auditors that the funds were on their way. The pyramid came crashing down when the chief executive became ill and had to take some time off.
Lessons from these cases? Chairs need to ensure that boards are hearing from different members of staff and other sources, such as delivery partners, funders and peer organisations. Remove the filter of an over-zealous executive. A lack of diversity in team members both on the staff and board can result in a lack of appropriate challenge. We need to be respectful, but we should also ask questions.
Kate Sayer is senior consultant at specialist auditors Sayer Vincent