I recently attended a charity AGM and as part of the Chair’s introduction to the charity’s annual report and accounts he said, ‘Of course, I don’t do finance’.
Frankly I was amazed that a Chair should not only admit to such a weakness but should announce it at a public gathering, as if it was something to be proud of!
From my training experience I have come across a number of charity trustees who admit to a lack of understanding about finance or a phobia about figures. However it is a collective obligation of the board of trustees to manage the charity’s resources (including money) responsibly; what the Charity Commission calls a ‘duty of prudence’. It cannot be left to the Treasurer!
The main purpose of financial information is to enable trustees to make sound, informed decisions about the activities of the charity, to ensure the charity isn’t over-committing its resources. Sadly there are several recent examples of the trustees of high profile charities failing to undertake this responsibility, resulting in the closure of charities that simply ran out of money.
Financial information needs to be:
Recent – trustees need figures that are up-to-date – information on the cash in the bank from three months ago is useless.
Relevant – trustees don’t need to know how many second class stamps were used last month, but they do need to know how much income is coming in against expenditure for the same period and what the money is being spent on.
Reliable – trustees have to be confident that the information supplied is complete and accurate.
Trustees require financial information for the past and the future. An income and expenditure budget for the forthcoming year should be produced, ideally before the start of that year. Then a monthly report of actual income and expenditure against the budgeted figures can be provided to trustees which highlights where the figures differ (known as variance).
In terms of the future an annual cashflow forecast showing income and expenditure by month can help trustees to see in advance peaks and troughs and the months where income is unlikely to cover expenditure. Decisions can then be taken in plenty of time about how this will be tackled.
So what about the trustees who ‘don’t do finance’ or have a phobia about figures? One way is to present summary information in a visual format. Colour pie charts and bar graphs can be a useful way of highlighting key changes in data and can make the variances more striking than the figures alone.
Any financial information in tabular form should be accompanied by a summary of the key points, as the figures themselves tell only part of the story. It’s the narrative that helps to explain why the figures have changed from the original projections which enable trustees to decide what actions they need to take as a result.
To go back to my opening comment I’d recommend training or development support for the Chair and indeed any other trustees who see finance as an area of weakness. An annual trustee performance review would have identified this as a development area for individual trustees, or in the case of some high profile charities that went into liquidation, for the whole board!
Further information on trustee financial responsibilities can be found in the Charity Commission publication ‘The essential trustee’ (CC3), which can be downloaded from their website.