Kate Sayer: Does your board neglect the finances or micromanage?

To be effective, the different ways of handling the finances have to be balanced

Kate Sayer
Kate Sayer

Charities have to operate in an environment where there are high levels of uncertainty. Different people on a board will have different personal attitudes to uncertainty: some can tolerate it and will become frustrated with those board members who request further information. Those who are uncomfortable with a high level of uncertainty might become anxious about the financial position.

Another perspective on board conversations about finance is the level of trust for each other. At one extreme, people can be very trusting but bordering on naive and unaware of risks. At the opposite extreme, mistrustful people will constantly be checking up on staff or volunteers and trying to control every aspect of the finances.

To be an effective board, you need to balance these individual traits and achieve an organisational norm to make sure you can have constructive discussions about finance at a strategic level. If you are close to one extreme, you might find your financial governance fits one of these patterns.

Benevolent neglect

Likely if the board is weighted towards people who are trusting but need to feel the finances are certain. The board accepts the papers presented and their attitude is that they think the finances are for the treasurer and finance officer. The board does not want to spend time on finances in meetings.

Holding to account

People who are mistrustful but need to feel that the finances are certain will expect to see plans and forecasts that do not change, even if the external environment does. The board holds managers to account for the financial performance of the organisation. Being intolerant of changes to the numbers, you are likely to have a blame culture, driving managers to be less open with the board.

Micromanagement

Mistrustful trustees combined with an understanding that the finances are uncertain leads the board towards micromanagement. The board is regularly drawn into detailed analysis of the financial reports and staff have to seek board approval for everything. Board behaviour is anxious, so that there is a lack of financial confidence in the whole organisation, making it timid and unprepared for taking risks in its work. Staff might also feel there is no point in taking responsibility for financial decisions because they are changed by the board.

A balanced view could be described as "adaptive". This is a board that trusts managers to be open and honest about the finances. The board understands that forecasts are prepared to a degree of probability and on the basis of the information available at the time. The board is prepared to receive reports, learn from the feedback and make changes as necessary. The board approves a financial framework, understanding the key metrics for the finances. Members of the board receive regular updates to show how things are going, forecasts and options for the future so that they can adjust plans as necessary. ?

Kate Sayer is senior consultant at specialist auditors Sayer Vincent

Have you registered with us yet?

Register now to enjoy more articles and free email bulletins

Register
Already registered?
Sign in
Follow us on:

Latest Charity Finance Jobs

RSS Feed

Third Sector Insight

Sponsored webcasts, surveys and expert reports from Third Sector partners

Markel

Expert Hub

Insurance advice from Markel

Charity property: could you be entitled to a huge VAT saving?

Charity property: could you be entitled to a huge VAT saving?

Partner Content: Presented By Markel

When a property is being constructed, VAT is charged at the standard rate. But if you're a charity, health body, educational institution, housing association or finance house, the work may well fall into a category that justifies zero-rating - and you could make a massive saving