REAL LIFE GUIDANCE FOR TRUSTEES
SARAH RAMSEY &
7 NOVEMBER 2016
This session will provide practical guidance and share real
life experiences to help trustees understand their
charity’s finances, ask the right questions, and ensure the
pertinent issues are discussed. The objective is to help
Board members in achieving the right balance of financial
oversight and risk management with maximising social
good, ensuring the organisation’s resources are used to
BWB Impact & Advisory Services
An experienced COO / FD /advisor for a range of charities,
social enterprises and NGOs. Specialising in strategic planning
and change management, social impact and sustainable
Recent MSc research includes a study of entrepreneurial
leadership within non-profit organisations.
Director, Head of Charities, Wealth & Investment Management
Barclays Wealth and Investment Management
A financial partner within the UK charity sector previously as a
funder and now as a financial specialist. Kathleen provides
strategic and operational insight to the trustee boards she sits
on, as well as support on fundraising and investment
WHAT ARE YOUR OBJECTIVES?
AS A TRUSTEE REVIEWING CHARITY FINANCES
Effective use of
A specific Board role?
A DYNAMIC FAST CHANGING ENVIRONMENT
• Evolving role of the State and Brexit
• Prolonged austerity and significant
• Shift from grant to contract culture
Earned income now accounts for 55% of charity revenue
• Digital revolution
Need for agility, responsiveness and resilience
Increasing and changing needs for services
Drive for bold, calculated risks (NPC, E3M)
Wide ranging social entrepreneurial activities
“pursuing a social mission through pursuit
of new opportunities, by continuously
innovating and adapting, acting boldly
without being limited by current resources,
and demonstrating accountability to
SOME BIG PICTURE QUESTIONS
Are we horizon scanning - anticipating and responding to
changing needs, opportunities and risks?
Do we truly understand our business model, and are we
realistic about future income direction?
Are we innovative, developing effective solutions, plus
adapting or stopping services which are no longer a good use
Are we taking action early, building the needed skills/culture,
relationships and track record?
Don’t unconsciously wait for a burning platform!
THE ENABLING FRAMEWORK
Do the Board and Management Team have the needed skills,
experience and up-to-date knowledge
E.g. Commercial skills, Bringing in of up to date sector knowledge
Is our strategic and operational decision making framework
timely and responsive?
- Information flow and decision making approach
- Board and Committee Structures, Roles and Terms of Reference
- Level of delegated authorities
- “Managerial wisdom”
Are we encouraging an innovative, autonomous, learning culture,
within strong governance systems and processes?
CHARITY COMMISSION GUIDANCE
• An era of increasing public distrust, media scrutiny and
• Trustees are the “guardians of purpose”
with a duty to act in the best interests of the charity
and protect and safeguard its assets
• Trustees “must engage with finance guidance” (Jan ‘16 updates)
- CC12 : Managing financial difficulties and insolvency in charities
- CC19 : Charity Reserves – Building Resilience
- Charity governance, finance and resilience : 15 questions charity trustees
• Challenge is to focus on impact as well as risk
balancing boldness and innovation with stability, resilience and
ENSURING FINANCIAL RESILIENCE
• Review and challenge cashflow forecast assumptions
Probing of income certainty and timing
Distinguishing between restricted and unrestricted cash (with pragmatism)
• Ensuring level of reserves is appropriate for what you are
enabling and/or protecting against
New opportunities, drop in income levels, loss of particular contracts
Orderly wind-up – level of commitments (staff, pensions, leases)
• Diverse income streams and commitment timeframes
• Efficient cost base, full cost recovery, value pricing
• Sound investment and asset management decisions
CONSIDERING FINANCIAL OPPORTUNITIES
Is our financial expenditure aligned with our strategic priorities
and impact or should we redirect resources?
Would mergers, acquisitions or collaborations help maximise
What is the need for growth or
investment? Would additional
fundraising or borrowing assist
in achieving the organisation’s
THE GROWTH PARADOX
Does Growth now = Increased financial exposure?
Contracts and Joint Ventures => Increased Risk
Payment by results => Higher working capital requirement
A duty to grow is achieving sustainable, social impact?
“Why invest in fundraising which gives 4:1 return when we can
borrow the money cheaper and not have the distraction?”
FINANCIAL PLANNING IN UNCERTAIN TIMES
Build in adaptability to allow responsiveness to opportunities
and problems as they arise
Holistic decision making process for opportunities and unexpected issues
outside of the annual plan
Consider traffic lighting of initiatives and expenditure
e.g. projects, new staff
Understand your cost base with a transparent P&L
Review salary commitments and central functions costs,
together with their growth trajectory,
Clarity on organisational costs which are covered by unrestricted income
Scenario planning – determine impact of different events to
understand risk profile and
FINANCIAL OVERSIGHT QUESTIONS
How secure are the components of the income budget/forecast?
What variability is there in the cost base?
What overhead recovery /profit margin is being achieved on grants
What is the fundraising return on investment?
What are the key variances against budget and why?
What are the risks in our cashflow forecast?
What are our key financial risks?
What is our long term outlook and risks?
THE HUMAN FACTOR
On whom are we reliant within the charity:
• For information?
• For controls ?
• For expertise ?
• For decisions ?
Do we trust them?
• What’s the right level of trust and how do we build that?
What happens if they’re not there?
LESSONS FROM SOME CAUTIONARY TALES
• The importance of looking at multi-year trends of income, core costs,
staffing costs and reserves
• Not to rely on a few key funders, including patrons/close supporters
• To develop and test new income streams well in advance of need
• To ensure reports compare actuals with the approved budget rather
• To provide appropriate “critical friend” challenge of the FD, without
• To ensure the FD has the appropriate skills, experience and personal
qualities for the role, and is focussed on strategic issues
• To ensure reporting is transparent, with finances understood more
widely than one or two people
• To widen Board/SMT communication beyond the CEO, but without
over-attendance at Board meetings
FINANCIAL CONTROL KEY QUESTIONS
1. Who is signing off major purchases and multi year
2. Who has control of the bank accounts?
3. Who is signing off the payroll?
4. Is there an open dialogue between FD and Treasurer?
5. Are restricted funds being managed appropriately?
6. Does the Management Letter from the Auditors highlight
CC8 Internal financial controls document has a complete list
MANAGEMENT ACCOUNTS : 5 SUMMARY PAGES
Clearly showing staffing costs and core costs
actuals and forecast compared to budget
distinguishing unrestricted and restricted funds
Clearly showing unrestricted, designated and restricted funds
actual and forecast
Cashflow – sample format follows
Restricted funds summary – sample format follows
KPIs – Key indicators and graphs
CASHFLOW FORECAST – SAMPLE FORMAT
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
Opening Balance 570,297 435,834 318,372 220,910 170,910 805,910 794,910 563,670 408,670 458,670 208,670 -41,330
Income line 1 20,000 20,000 20,000 30,000 50,000 50,000 30,000 30,000 30,000 30,000 30,000 30,000
Income line 2 0 0 0 0 50,000 0 0 75,000 0 0 0 0
Income line 3 30,000 10,000 0 200,000 800,000 0 0 0 300,000 0 0 0
Income line 4 33,000 40,000 0 0 15,000 219,000 18,760 20,000 0 0 0 0
Debtors Unrestricted 0 30,000 100,000 0 0 0 0 0 0 0 0 30,000
Core Costs -217,462 -217,462 -217,462 -280,000 -280,000 -280,000 -280,000 -280,000 -280,000 -280,000 -280,000 -280,000
Unrestricted closing balance 435,834 318,372 220,910 170,910 805,910 794,910 563,670 408,670 458,670 208,670 -41,330 -261,330
Opening Balance 387,000 647,194 707,388 587,582 567,582 667,582 877,582 857,582 1,037,582 1,017,582 997,582 977,582
Restricted Income line 1 300,000 100,000 0 0 120,000 230,000 0 200,000 0 0 0 300,000
Restricted Income line 2 200,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000
Debtors Restricted 0 150,000 0 0 0 0 0 0 0 0 0 0
Restticted programme costs -239,806 -239,806 -169,806 -70,000 -70,000 -70,000 -70,000 -70,000 -70,000 -70,000 -70,000 -70,000
Restricted closing balance 647,194 707,388 587,582 567,582 667,582 877,582 857,582 1,037,582 1,017,582 997,582 977,582 1,257,582
Understand level of certainty and conservatism of income forecast
Alternative pragmatic method to assess unrestricted cash levels if systems do not make this easy
is based on Unrestricted Cash = Total Cash balance
– Restricted fund balance
+/-changes to restricted debtors/creditor balances
FINANCE KPIS AND USEFUL CHARTS
- Admin ratio Free reserves (in months)
- Fundraising ratio
- income, core cost and reserves
across years to see trends
15 QUESTIONS TRUSTEES SHOULD ASK
GOVERNANCE, FINANCE AND RESILIENCE
Does the organisation have the funds it needs?
Is the organisation spending its money wisely, on the
activities it was raised for?
Is it following the law, producing reports and accounts and
sending to the Charity Commission?
Is it meeting the rules in its governing document?
ACCORDING TO THE CHARITY COMMISSION
15 Questions Trustees should ask
NPC’s “Boldness in Times of Change”
NCVO’s UK Civil Society Almanac 2016