Whether you are a large publicly listed company or a small Not-for-Profit organisation, the need for good governance practices is extremely important as the duties, responsibilities and also the liabilities are often similar. In addition, Not-for-Profit organisations such as sporting clubs, environmental groups, charities, public health care services and other local groups have responsibilities to manage community based investments and members’ interests.
In most cases, the benefits derived and the quality of the services provided for the community are based on the competence of the organisation, how well it is managed and how well the Board governs. It can be argued that this places a greater need for Not-for-Profits to have good, strong and effective governance.
The Australian Institute of Company Directors (AICD) provides information on the characteristics of good NFP governance including main elements.
Govern, Don’t Manage
Be clear about the roles and responsibilities of the Board and have a clear set of policies and procedures that reflect these. It is important to understand that the Board’s role is to govern and not to manage the day to day operations of the organisation and this should be reflected in the policies and procedures.
Know the Values and Strategic Direction
Make sure that the organisation has a clear purpose that is linked to values and a well defined strategic direction that is communicated to key stakeholders.
Understand the Legal Framework
Understanding the legal framework the organisation must comply with is vital. Depending on the structure of your organisation you may need to comply with the Corporations Act, Associations Incorporation Act (this differs from state to state) or maybe you are an unincorporated association.
New legislation in Victoria was introduced on 1st of July 2012. Now, board and committee members of incorporated associations face penalties of up to $20,000 for breaches of new legal duties, including allowing their organisation to trade while insolvent. The key new duties of Committee or Board members have been clarified and added to.
- A duty to exercise powers and discharge duties with care and diligence
- A duty to act in good faith in the best interests of the association and for a proper purpose
- A duty to prevent the organisation from trading while it is insolvent
Aim for Best Financial Management Practices
Have strong financial management practices to ensure the ongoing viability of the organisation and that the funds are used for their intended purpose. Having a set of policies that specifically outlines delegations, spending authorities as well as a reporting framework that is also linked to key performance indicators is critical.
For a Board to be confident they are discharging their responsibilities they need to have a strong reporting framework so they are able to make informed decisions. They must ensure they are not trading while insolvent and with the changes to the legislation the need for a cashflow forecast will be essential. This issue was discussed in an earlier post titled Not-for-Profit Boards demand cashflow forecasts. Going over KPIs on a regular basis helps in maintaining an overview of the organisation’s performance whilst reviewing Budget vs Actual comparisons helps to get a good idea of over and/or under spending and identifying variations.
Collaboration Amongst Board Members
Ensure the Board has a mix of skills, expertise and knowledge that is relevant to the purpose of the organisation. Focus on the strength of individual board members.
Insure Against Risk
Ensure there is adequate insurance to cover the operations and identified risks of the organisation and that there is adequate Directors’ and Officers’ insurance in place. A good risk management policy will help minimise exposure.
So at the end of the day, to govern well, good financial reporting is essential. It allows you to be well informed on the organisation’s performance. You don’t have to be an accountant to understand these reports or wade through pages of detailed accounts and spreadsheets. Simple summarised reports will serve you well. Calxa’s Account Tree feature which lets you arrange and rearrange your accounts for board reporting, simplifying the process and delivering accurate reports. This feature will enable you to view your accounts in the way that meets your specific needs.
To find out more how you can improve your board reports, contact us as at Calxa or join us for one of our upcoming Web Chats.