TT20 Financial governance

Guide to Financial Management

Top Tips 20

Top Tips for Financial Governance

This Top Tip covers the financial governance role of the members of your NGO’s governing body (often referred to as ‘the Board’). It is also available in French.

The board has ultimate legal, moral, and financial responsibility for the organisation. Board members therefore represent and protect the interests of the beneficiary communities that their NGO works with, which is why they are often called ‘Trustees’.

Governance is the legal authority of a board to establish policies that will affect the life and work of the organisation while holding the board accountable for the outcome of such decisions. [from: www.boardsource.org]

Financial governance refers to policies and decisions that affect the financial life and health of organisations. There are five key roles for board members to fulfil this duty:

1. Making sure funds are used to help beneficiaries effectively

  • Making sure the organisation has practical strategies for analysing and responding to social problems
  • Monitoring that the organisation is actually doing a good job, putting its strategy into practice and achieving value-for-money
  • Making sure the organisation has appropriate internal procedures (such as internal controls and accounting systems) to empower front-line staff to make good judgements
  • Regularly checking that internal procedures are followed in practice (eg carrying out internal audits)
  • Taking an active role in internal controls as necessary (eg authorising large payments)
  • Regularly monitoring financial reports, including the income and expenditure statement and the balance sheet
  • Monitoring whether the organisation is being accountable to its beneficiaries (eg presenting financial reports to them).

2. Making sure the organisation has enough funding

  • Approving a realistic annual budget and fundraising plans
  • Monitoring the amount of income received
  • Actively working out how to ensure the organisation will be sustainable, including approving a financing strategy
  • Monitoring relationships with donors (eg if reports are submitted on time)
  • Monitoring fund balances including general reserves (if any fund balances are negative, this could have serious implications for your credibility.)

3. Making sure the organisation has effective senior management

  • Recruiting a Chief Executive with financial management skills for their role (or supporting the Chief Executive to develop these skills)
  • Supporting the Chief Executive to develop a culture of good financial management (eg leading by example and encouraging finance and programme staff to work together)
  • Making sure that the most senior finance manager is a member of the most senior management team
  • Encouraging an open culture that recognises problems and aims to learn from them; and holding senior managers to account for the results of the decisions that they take and the initiatives they launch.

4. Making sure that the organisation operates within the law

  • Understanding the organisation's legal requirements, including Labour laws, Tax laws and Health & Safety legislation
  • Making sure that the management team meets legal requirements (eg paying taxes, filing annual reports)
  • Appointing external auditors, overseeing the audit and approving the audited accounts and annual reports
  • Filing reports with government departments.

5. Making sure the board can handle its responsibilities effectively

  • Appointing a Honorary Treasurer, with specific responsibilities for financial management and the skills to carry them out
  • Making sure that all board members understand their financial management responsibilities and supporting them to develop appropriate skills
  • Making sure there are no conflicts of interest between the organisation’s operations and board members work or business interests
  • Making time at board meetings to discuss the financial management aspect of all major decisions.

Want to learn more?

Mango’s Training Course Financial governance in practice is a one day course that can be run as an in-house event. Contact us for more information.

View our calendar of courses around the world here: www.mango.org.uk/training/opentrainingprogramme

See Mango’s Guide to Financial Management for NGOs for free advice and tools, including a section on financial governance. See: www.mango.org.uk/guide.

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Mango helps NGOs to make more of their money by: running practical training, supporting people in finance roles, advising NGOs and donors, and publishing free tools and guides: www.mango.org.uk