In this briefing paper observations are drawn from the Baker Tilly Voluntary Sector Governance Survey 2008 in association with CharityFinance and Governance magazines.
With the largest 250 charities accounting for approximately 40% of the charity sector’s income, this briefing is intended to highlight areas of governance interest relevant to larger charities.
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Board papers should be timely, clearly presented and circulated well in advance of meetings
Trustees in 92% of the largest charities receive management reports at least quarterly leaving only 8% producing management reports less frequently. For this minority there may well be short-comings although any firm conclusion would very much depend on the nature of the individual charity, its activities and finances.
In terms of what is being provided, just over half of larger charities manage to keep their management reports to between 4 to 8 pages contrasting with the 29% that exceed 15 pages.
There is clearly some correlation between the level of detail required and the frequency of production. In terms of content, there is scope for improvement in larger charities with more than half omitting either an income statement (55%) or balance sheet (69%).
A further concern, given the current stage of the economic cycle, is only 16% are providing a cash flow statement and little more than a third attempt a forecast to the end of their financial year. However, some larger charities have clearly attempted to align their reporting to incorporate a focus on beneficiaries with 35% including key performance indicators.
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Act independently as a trustee and not as the representative of any group or organisation
A clear conflicts of interest policy exists in 86% of larger charities. For the others, trustees should be mindful of the Charity Commission’s Guide to Conflicts of interest for Charity Trustees which recommends having a policy on how to deal with any conflicts which arise as a result of the work which the charity undertakes.
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Keep trustees away from direct involvement in decisions that have been properly delegated to staff
Consistent with the presumption that larger charities have more remunerated executives than their smaller counterparts, only 4% reported ‘a great deal of involvement in operational decisions’. A further 63% had ‘not much involvement’ but 17% had ‘quite a bit of involvement’, which is unexpected as it suggests an inappropriate balance between management and governance, something larger charities should aspire to resolve to focus attention on strategic issues.
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Efficiency savings to maximize beneficiary impact should be high on the agenda through consideration of mergers or collaborative working
In contrast to smaller charities, where merger activity is negligible, 18% of larger charities have undertaken a merger or acquisition in the last 2 years. Larger charities are therefore more likely to benefit from economies of scale with approximately a tenth sharing back office services or having partnering arrangements with other charities. Nevertheless, there is clear potential for more to be done in this area.
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Regular reviews of governance arrangements reflect best practice
The vast majority, 87%, of larger charities have undertaken a governance review in the last three years although 9% of respondents ‘didn’t know’. It is not clear why they didn’t know! It is also important that there is a tangible benefit from such reviews and that they are not just a “tick box” exercise.
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Trading subsidiary companies may be required (but not always!)
Nearly two-thirds of all charities did not have a trading subsidiary but the larger the charity, the more likely it is to have one due to more substantial charitable and non-charitable activities being undertaken. This is borne out by the fact that 76% of larger charities have at least one trading subsidiary. As with all sizes of charity, the rationale for subsidiary companies should be regularly reviewed.
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Induction and training for trustees is best practice and in order to comply with SORP 2005 charities must disclose their stated policy
The evidence from the Governance Survey suggests that formal induction and training processes are better established in larger charities. This is particularly true for induction processes where 88% of larger charities have a formal induction programme for their trustees.
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Long-term strategic direction is fundamental
Larger charities are acutely aware of the need for a clearly defined vision for long-term sustainability with 95% having a strategic plan in place that has been derived from the charity’s objects with clear objectives.
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Legal considerations fundamentally impact on the operational framework
With the introduction of the Charitable Incorporated Organisation about 10% of all charities indicate that they will convert to a CIO as soon as possible. Given the delays in finalising the legislation, this will not be an option until at least 2010. Some 12% of larger charities have set up a subsidiary as either a Community Interest Company or social enterprise although three-quarters had not considered this. About three-quarters of all charities have reviewed their governing documents in the last three years indicating account has been taken of recent changes to the Charities and Companies Acts.
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Young children and vulnerable adults have special considerations but not all charities working with these beneficiaries undertake CRB checks on all their trustees
Some 86% of larger charities routinely carry out CRB checks for all trustees. Although CRB checks may not be required for all the remainder, where applicable, charities must consider these mandatory checks and should be aware of the changes to be introduced by the Independent Safeguarding Authority.
Statistics quoted in this briefing are taken from the Governance Survey and relate to charities in the Top 250 ranked by annual income. Read the full survey.
Copies of the Good Governance Code are available from the NCVO website (external link).
Copies of Hallmarks of an Effective Charity and Guide to Conflicts of Interest for Charity Trustees are available from the Charity Commission website (external link).