Effective Board Governance

understanding your finances

Wednesday 29th January 2014

1pm – 2pmNeal Trup (Locality)

neal.trup@locality.org.uk

Outline of session

1 Development of Strategy and Business Plans

2 Financial reports3 Decision making

Strategy and Business Plans

• Having a clear and up to date organisational strategy and one that is led and understood by the board

• Effective systems, controls, budgets and management reporting

• Performance and financial information properly understood by the board with robust challenge and supporting decision making

GOOD FINANCIAL GOVERNANCE IS ABOUT:

Reasons for choosing this session

Initial Poll

1 Strong financial governance but always interested in improving

2 Some areas of weakness, but generally financial governance is good

3 There is a real need to improve some important areas of financial governance

4 Just attending for personal interest / development

In the organisation you work for, or trustee or advise, which best applies to your reasons for attending this Webinar?

• Lack of an up to date strategy and/or one where trustees have little understanding or visibility of performance.

• Unclear or lack of financial reporting (such as cashflow forecasts, management accounts and balance sheet).

• Loss of a stable source of funding and contracts but without a strategy for new income sources and/or making savings.

• Ineffective governance and management of a major capital project (leading to overspends and disputes)

• Over-reliance on one or two people with financial knowledge.

FIVE MOST COMMON ISSUES WE SEE

Early Warning Guide• Questions developed with extensive

consultation with community organisations

• Aimed at senior management and trustees

• Applies to community organisations large and small

• Has been widely used by a large number of organisations and with very positive feedback

• Simple to use and highlight potential weaknesses or areas to address

Early Warning Guide

• Review the your existing strategy (even if informal) at the next board meeting. Ask how is the organisation performing? Is the strategy still relevant of does it need a proper update?

• Use the Locality Early Warning Guide and/or conduct a proper strategic review, possibly incorporating scenario planning (what if?).

• Review the most recent audit letter, even if not near year end and ensure points have been dealt with.

ACTIONS YOU CAN TAKE

Questions

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Financial Reports

What do your financial reports look like?

Poll

1 Yes, a good clear understanding2 I understand the main issues but feel

less clear on some specific parts.

3 I am not confident in my understanding but there are others who do and I (to a lesser or greater extent) rely on this.

4 There is a general lack of understanding by myself and/or others

Do you have a good understanding of the financial reports that you (or the board) receive?

Midchester Income & ExpenditureThe Midchester CentreINCOME AND EXPENDITURE AND PROJECTIONS for year to 31st March 2014

Mar-12 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Total£ £ £ £ £ £ £ £ £ £ £ £ £

Actual Actual Actual Actual Actual Actual Budget Budget Budget Budget Budget Budget Year EndINCOMEGrant from MCC 15,000.00 - - 15,000.00 - - 15,000.00 - - 15,000.00 - - 60,000.00 Room hire & Rental income 1,675.23 1,432.20 13,897.30 895.47 799.32 13,997.20 3,000.00 3,000.00 15,500.00 3,000.00 3,000.00 15,500.00 75,696.72 ABC Trust 15,000.00 - - 15,000.00 - - - - - - - - 30,000.00 Other grants - - - - - - - - - - 15,000.00 - 15,000.00 Service contracts 2,607.87 4,509.85 3,102.60 3,058.64 1,852.36 2,750.80 5,525.00 5,525.00 5,525.00 5,525.00 5,525.00 5,525.00 51,032.12 Cafe 1,751.28 2,028.97 1,867.87 2,405.67 1,754.00 1,832.34 1,950.00 1,950.00 1,950.00 1,950.00 1,950.00 1,950.00 23,340.13 Donations 6.87 250.00 88.00 - - - - - - - - - 344.87 Fundraising event - - - 4,513.64 - - - - - - - - 4,513.64 Other 3.66 - 5.09 - - - - - - - - - 8.75

36,044.91 8,221.02 18,960.86 40,873.42 4,405.68 18,580.34 25,475.00 10,475.00 22,975.00 25,475.00 25,475.00 22,975.00 259,936.23

EXPENDITURE

Salaries & NI 18,125.27 18,288.69 17,987.36 17,268.41 22,687.32 16,697.23 18,000.00 17,000.00 17,000.00 17,000.00 17,000.00 17,000.00 214,054.28 Rates 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 250.00 3,000.00 Café purchases 788.08 913.04 840.54 1,082.55 701.60 769.58 585.00 585.00 585.00 585.00 585.00 585.00 8,605.39 Water 268.00 268.00 268.00 268.00 268.00 268.00 268.00 268.00 268.00 268.00 268.00 268.00 3,216.00 Gas & Electricity 782.36 782.36 782.36 782.36 782.36 782.36 782.36 782.36 782.36 782.36 782.36 782.36 9,388.32 Office equipment 236.89 755.23 180.36 662.31 251.00 223.65 200.00 200.00 200.00 200.00 200.00 200.00 3,509.44 Travel expenses 324.78 238.90 178.89 167.91 123.87 89.99 100.00 100.00 100.00 100.00 100.00 100.00 1,724.34 Volunteer expenses 236.78 129.48 97.66 167.10 85.97 56.23 75.00 75.00 75.00 75.00 75.00 75.00 1,223.22 Insurance - - - 325.00 - - 2,572.00 - - - - - 2,897.00 Repairs and renewals 22.36 1,089.34 665.24 264.97 75.25 834.67 250.00 250.00 250.00 250.00 250.00 250.00 4,451.83 Security 87.33 87.33 87.33 87.33 87.33 87.33 87.33 87.33 87.33 87.33 87.33 87.33 1,047.96 Telephones 185.26 185.26 185.26 185.26 185.26 185.26 185.26 185.26 185.26 185.26 185.26 185.26 2,223.12 Bank Charges 73.25 - - 66.99 - - 150.00 - - 75.00 - - 365.24 Cleaning materials 187.36 23.55 225.67 302.11 65.00 163.74 121.89 100.00 100.00 100.00 100.00 100.00 1,589.32 Stat/printing 250.32 118.11 5.67 287.41 26.78 167.34 150.00 150.00 150.00 150.00 150.00 150.00 1,755.63 Loan interest 247.36 247.36 247.36 247.36 247.36 247.36 247.36 247.36 247.36 247.36 247.36 247.36 2,968.32 Depreciation 1,250.00 1,250.00 1,250.00 1,250.00 1,250.00 1,250.00 1,250.00 1,250.00 1,250.00 1,250.00 1,250.00 1,250.00 15,000.00 Legal/professional 2,400.00 - - - - - 250.00 250.00 250.00 250.00 250.00 250.00 3,900.00 Accountancy & Audit 127.00 63.00 246.00 - - 2,500.00 2,345.00 100.00 100.00 100.00 100.00 100.00 5,781.00 Other costs 417.96 230.88 111.89 986.33 237.68 449.99 250.00 250.00 250.00 250.00 250.00 250.00 3,934.73

- 26,260.36 24,920.53 23,609.59 24,651.40 27,324.78 25,022.73 28,119.20 22,130.31 22,130.31 22,205.31 22,130.31 22,130.31 290,635.14

Surplus / Deficit 9,784.55 16,699.51- 4,648.73- 16,222.02 22,919.10- 6,442.39- 2,644.20- 11,655.31- 844.69 3,269.69 3,344.69 844.69 30,698.91-

Midchester Income & Expenditure (Alternative format)The Midchester Centre

Summary Income & Expenditure for Board (Actual and Budget for year to 31st March 2014)

Mar-11 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Total£ £ £ £ £ £ £ £ £ £ £ £ £

Actual Actual Actual Actual Actual Actual Budget Budget Budget Budget Budget BudgetUNRESTRICTED INCOMEGrant from MCC 15,000 - - 15,000 - - 15,000 - - 15,000 - - 60,000 Rental income 1,675 1,432 13,897 895 799 13,997 3,000 3,000 15,500 3,000 3,000 15,500 75,697 Contracts 2,608 4,510 3,103 3,059 1,852 2,751 5,525 5,525 5,525 5,525 5,525 5,525 51,032 Other income 1,762 2,279 1,961 6,919 1,754 1,832 1,950 1,950 1,950 1,950 1,950 1,950 28,207

21,045 8,221 18,961 25,873 4,406 18,580 25,475 10,475 22,975 25,475 10,475 22,975 214,936

EXPENDITURE (on Unrestricted activities)Salaries & NI 16,025 16,189 15,887 15,168 20,587 14,597 15,900 14,900 14,900 14,900 14,900 14,900 188,854 Building & utility costs 1,633 2,536 2,314 2,315 1,563 2,421 4,367 1,773 1,773 1,773 1,773 1,773 26,014 Café purchases 788 913 841 1,083 702 770 585 585 585 585 585 585 8,605 Office & other costs 1,472 1,427 486 2,240 650 912 850 700 700 775 700 700 11,613 Loan interest 247 247 247 247 247 247 247 247 247 247 247 247 2,968 Depreciation 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 15,000 Legal/professional/Audit 2,527 63 246 - - 2,500 2,595 350 350 350 350 350 9,681

23,942 22,625 21,272 22,303 25,000 22,698 25,794 19,805 19,805 19,880 19,805 19,805 262,736

Net unrestricted (2,897) (14,404) (2,311) 3,570 (20,594) (4,117) (319) (9,330) 3,170 5,595 (9,330) 3,170 (47,800)

RESTRICTED INCOMEABC trust 15,000 - - 15,000 - - - - - - - - 30,000 Other grants and donations - - - - - - - - - - 15,000 - 15,000

15,000 - - 15,000 - - - - - - 15,000 - 45,000

EXPENDITURE on restricted activitiesSalaries & NI 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 25,200 Gas & Electricity 150 150 150 150 150 150 150 150 150 150 150 150 1,800 Travel expenses 68 45 88 98 75 75 75 75 75 75 75 75 899

2,318 2,295 2,338 2,348 2,325 2,325 2,325 2,325 2,325 2,325 2,325 2,325 27,899

Net restricted 12,682 (2,295) (2,338) 12,652 (2,325) (2,325) (2,325) (2,325) (2,325) (2,325) 12,675 (2,325) 17,101

(30,699) UNRESTRICTEDOpening balance 34,512 31,615 17,210 14,900 18,470 (2,125) (6,242) (6,561) (15,891) (12,722) (7,127) (16,457) Closing balance 31,615 17,210 14,900 18,470 (2,125) (6,242) (6,561) (15,891) (12,722) (7,127) (16,457) (13,288)

RESTRICTEDOpening balance 2,400 15,082 12,787 10,449 23,101 20,776 18,451 16,126 13,801 11,476 9,151 21,826 Closing balance 15,082 12,787 10,449 23,101 20,776 18,451 16,126 13,801 11,476 9,151 21,826 19,501

Total Funds 46,697 29,997 25,349 41,571 18,651 12,209 9,565 (2,090) (1,246) 2,024 5,369 6,213

Midchester Income & Expenditure

Midchester Income & Expenditure

Midchester Income & Expenditure

Looking at things differently(Example cashflow)

The Midchester CentreSummary Income & Expenditure Cashflow to 31st March 2014

Mar-11 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 TotalUNRESTRICTED INCOME £ £ £ £ £ £ £ £ £ £ £ £ £

Actual Actual Actual Actual Actual Actual Forecast Forecast Forecast Forecast Forecast ForecastConfirmed / Likely incomeGrant from MCC 15,000 - - 15,000 - - 15,000 - - 15,000 - - 60,000 Rental income 1,675 1,432 13,897 895 799 13,997 1,250 1,250 13,500 1,250 1,250 13,500 64,697 Contracts 2,608 4,510 3,103 3,059 1,852 2,751 2,500 2,500 2,500 2,500 2,500 2,500 32,882 Other income 1,762 2,279 1,961 6,919 1,754 1,832 1,600 1,600 1,600 1,600 1,600 1,600 26,107

21,045 8,221 18,961 25,873 4,406 18,580 20,350 5,350 17,600 20,350 5,350 17,600 183,686

Committed / Essential costs (excl staff)Building & utility costs 1,633 2,536 2,314 2,315 1,563 2,421 1,425 1,425 1,425 1,425 1,425 1,425 21,332 Café purchases 788 913 841 1,083 702 770 702 702 702 702 702 702 9,307 Office & other costs 1,472 1,427 486 2,240 650 912 600 400 400 400 400 400 9,788 Loan repayments 600 600 600 600 600 600 600 600 600 600 600 600 7,200 Legal/professional/Audit 2,527 63 246 - - 2,500 1,500 350 350 350 350 350 8,586

7,020 5,539 4,487 6,238 3,515 7,203 4,827 3,477 3,477 3,477 3,477 3,477 56,214

Net before staff and other costs 14,025 2,682 14,474 19,636 891 11,377 15,523 1,873 14,123 16,873 1,873 14,123 127,473

New or additional income potential - 1,500 1,500 2,000 2,500 2,500 10,000

Salaries and other costsSalaries & NI (16,025) (16,189) (15,887) (15,168) (20,587) (14,597) (15,900) (13,000) (10,000) (10,000) (10,000) (10,000) (167,354) Other costs - - - - - - (750) (750) (750) (750) (750) (750) (4,500)

Net surplus / deficit (2,000) (13,507) (1,413) 4,467 (19,697) (3,220) (1,127) (10,377) 4,873 8,123 (6,377) 5,873 (34,382) 2,000- 15,507- 16,920- 12,453- 32,150- 35,370- 36,497- 46,874- 42,001- 33,878- 40,255- 34,382- 68,764-

Cumulative (2,000) (13,507) (1,413) 4,467 (19,697) (3,220) (1,127) (10,377) 4,873 8,123 (6,377) 5,873 Bank balance 25,000 23,000 9,493 8,080 12,547 (7,150) (10,370) (11,497) (21,874) (17,001) (8,878) (15,255)

23,000 9,493 8,080 12,547 (7,150) (10,370) (11,497) (21,874) (17,001) (8,878) (15,255) (9,382)

Financial Reports

• Focus on the wider picture and strategic information• Cut the clutter - “less is more”• The main substance should be clear to all trustees / managers rather

than everyone seeing things very differently• Reports should contain cashflow (as a chart), income & expenditure

(actual, budget and forecast), restricted funds, working capital and a commentary focussed on strategic and decision making information.

• Capital projects need proper financial and project reports as they are often accounted for outside of main reports

Questions

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Decision Making

Poll

1 Yes, there is a clear rationale for significant decisions

2 Most of the supporting analysis is available and combined with verbal detail this is usually fine.

3 Decisions often have to be made urgently and reliance is placed on senior staff or particular board members (e.g. chair or treasurer)

4 I/we do not feel that we have sufficient information and/or analysis to make informed decisions.

Do you feel you have/are provided with sufficient information to make informed strategic and board level decisions?

• Decisions for the board should be those of a strategic rather than detailed operational nature

• Major risks, options, financial implications and opportunities need to be understood

• The wider context of the impact of decisions need to be understood as one decisions could have implications elsewhere

• A consistent approach can help and there needs to be proper time and space for discussion and challenge

SUPPORTING DECISIONS

• Ask board members if they feel that the financial information they have meets their needs and is effectively understood. If not, then what improvements would they like to see. REMEMBER to focus on strategic decision making information rather than operational detail.

• Encourage board members to ask questions and challenge information they do not understand. Have a rule “all questions welcome – none are silly”.

• Set aside some development time for training or have an external facilitator at a financial discussion

ACTIONS YOU CAN TAKE

Questions

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• Locality www.locality.org.uk• Your accountant• Your trustees• Charities Commission

FINDING FURTHER SUPPORT

THANK YOU

SUPPORTING DECISIONS

More webinars coming up