The Nuts and Bolts of Good Governance

So what are those nuts and bolts?

We highlight some key issues for charity trustees below.

Understanding your Governing Document, Duties and Responsibilities 

It is still the case that many trustees are unfamiliar with the governing document of their charity. Trustees should be familiar with the charitable objects of the charity and should know where to find the other key elements of the constitution including:

• the rules on the composition of the board of trustees;
•  the membership structure of the charity; and
•  the rules governing meetings of the trustees and, where applicable, the members of the charity.

Trustees will want to know whether the legal structure of the charity protects them from personal liability. They should also understand the main limits on the powers of the charity and when they may need to seek external consent or additional advice in order to carry out a particular activity. For example, the rules on:

• when and how trustees may sell, mortgage or otherwise dispose of land or buildings owned by the charity;
• whether and, if so, how trustees may be paid or otherwise remunerated for work done for the charity; and
• how to manage conflicts of loyalty arising because trustees have roles in other organisations.

Governance concerns that can be surprisingly disruptive include:

• failures to follow precisely any procedures specified in the governing document for the appointment of trustees.
• failure to understand the membership structure of the charity – and to properly record the admission or resignation of members.

It is not unusual for trustees to lose track of these procedures over time. This generally causes little or no difficulty while things are going well but if a dispute arises or the charity goes through a significant change such as a merger or the sale of a property, the status of the trustees may be scrutinised and any uncertainty as to whether they have been properly appointed can be very costly.

This highlights the need for a thorough induction process for trustees as well as regular training for trustees on their duties and responsibilities and other aspects of their role. The passage of time creates further risks for trustee boards and suitable succession planning for trustees can help protect against the sudden loss of a vital board member or key information, procedures and policies getting lost in the mists of time.

Appropriate Allocation of Responsibility- Delegation

The division of responsibilities between the staff team and the trustees can easily be confused. It is helpful to have a written ‘scheme of delegation’ to ensure that everyone knows the scope of their authority.

The scheme of delegation will need to be supported by appropriate reporting mechanisms such as regular management accounts, project reports and agreed Key Performance Indicators.

Appropriate Allocation of Responsibility- Taking Advice

Whilst trustees have a duty to act personally and have a full grasp on operational, financial and legal matters, they need to be able to recognise when to take external advice and act on it.

Financial Management  

It is tempting for trustees to rely on external advisers or one or two trustees on the board who have expertise or experience of financial matters when managing the money of a charity. However, in the face of financial mismanagement (or worse) that is no defence. Whilst it is appropriate at points to rely on the expertise from advisers and trustees with specific expertise have an increased duty of care, It is the responsibility of every trustee to familiarise themselves with the financial position of their charity, understand the finances and threats that are posed to the charity.

Whoever manages the day to day finances of a charity, there should be appropriate financial controls and checks to protect against mistakes or misappropriation.

It is widely recognised that not every charity has the ability to maintain the sort of reserves they may like, but, where possible, maintaining an appropriate level of reserves should be the aim and where it’s not possible or desirable, the reasons should be clearly documented and reviewed regularly.

Good Administration and Record Keeping

Most trustees are volunteers and with all the pressures on trustees’ time, keeping a rigorous paper trail can be difficult.  However, it is essential to demonstrating good governance so trustees should:-

• have in place a suite of policies and procedures suitable for their organisation;
• file their accounts and trustees’ reports on time. A large number of the Charity Commission inquiries opened, are initiated by failings in this area; and
• record decisions, and the process by which they were reached. The records should indicate why decisions reached were both reasonable in the circumstances and in the best interests of the charity

The Commission is very unlikely to take action against trustees who have acted honestly and reasonably in the circumstances, but if you don’t have proper records, you may be unable to demonstrate that and protect yourselves.

The Changing Role of the Charity Commission

Since the financial crisis of 2008 and budget cuts for the Charity Commission’s budget, the Commission has increasingly been emphasising the responsibilities and duties of charity trustees and focussing on its role as regulator. The Commission’s objectives, set out in the Charities Act 2011, include:

“… to increase public trust and confidence in charities.”

and

“… to promote compliance by charity trustees with their legal obligations in exercising control and management of the administration of their charities.”

Recent years have seen an increasing number of inquiries opened by the Commission and its powers are set to widen further with the introduction of the Charities (Protection and Social Investment) Act (moving ever closer to Royal Assent), which has led some commentators to warn of the possibility of the Commission making even more unpredictable and overly cautious decisions to take regulatory action and intervene in charities. The Commission chief executive’s declaration that “trustees will no longer be given the benefit of the doubt” won’t have done much to alleviate those fears.

Add to that the increased scrutiny of the sector as a whole in the wider media, and charity trustees need to ensure that they are aware of their role and are in a position to defend their decisions.

What can we do?

To quote the Hitchhiker’s Guide to the Galaxy “Don’t Panic”!

The Charity Commission’s revised guidance on the role and responsibilities of trustees “The Essential Trustee” is a great starting point - and should be compulsory reading for trustees. However, you should treat Commission guidance with caution and remember that it may differ from the strict requirements of the law.

If you want to take further steps towards good governance but need a helping hand, whether that involves producing a trustee induction pack, drafting some basic policies, concerns over the appointment of trustees or managing conflicts of interests, updating your governing document, trustee training or a full governance review, we would be happy to discuss the options open to you.

For more information

Contact Sarah Tomlinson.