A guide to third sector trading - WCVA

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It’s an idea, but is it business? A guide to third sector trading 1: Getting started 2: First steps 3: Business planning 4: Legal and governance 5: Funding and resourcing 6: Financial controls 7: Managing growth 8: Management and governance 9: Social enterprise 10: Sources of support Who does the monitoring? Varied approaches: The team which oversees the financial affairs can range from all the directors and senior managers together at regular and frequent meetings, at one extreme, to scrutiny by just the general manager or a junior administrator at the other. In practice, agreed arrangements (which may be far from perfect at the start) sometimes run out of steam and become applied only haphazardly. It is certainly not unknown for the no one to be overseeing the accounts. The full board: In some cases the best way to ensure that finance is being properly managed is to review management accounts regularly at full monthly board meetings. • Advantages: − good for helping everyone to understand and take responsibility for the business, especially in small communitybased enterprises − useful if business, finance and management skills are spread thinly or in short supply on the board • Disadvantages: − people with poor understanding of the business may disproportionately influence monitoring and decision making − care is needed to avoid the board marginalising the chief executive officer. A dedicated finance committee: A finance committee will normally include the paid Manager, the board Treasurer, and one or more other board members. A paid finance officer might attend as a member or advisor. • Advantages: − more intense scrutiny of financial affairs − a more appropriate and effective way to use the skills of professionals on the board such accountants or bank staff − a small standing team can also help with the annual budget and the evaluation of new business ideas − a clearly independent group which, if it meets monthly, can be trusted to scrutinise the finances and the accounts • Disadvantages: − an extra monthly meeting for the Manager and the volunteer members to attend − less detailed reports from the Finance Committee will need to be prepared for the main board 140
It’s an idea, but is it business? A guide to third sector trading 1: Getting started 2: First steps 3: Business planning 4: Legal and governance 5: Funding and resourcing 6: Financial controls 7: Managing growth 8: Management and governance 9: Social enterprise 10: Sources of support − there is a risk that discussions will be repeated when reports reach the main board, leading to duplication and frustration for committee members. A ‘Finance Team’: This might take the form of a very small committee and act like one. Its membership might be limited to the manager and the Treasurer. • Advantages: a potentially tight-knit group with a clear focus which is easier than a larger committee to bring together when needed. • Disadvantages: − the small size means that scheduled meetings may be abandoned if only one member is unavailable − teams of only two people may be efficient, but they do not necessarily provide good scrutiny – members will be less likely to ask searching questions, and may be perceived by the rest of the board to be a clique − the finance team can be an excuse for other board members not taking any interest in finance at all. Scrutiny by the parent charity: As a minimum, a charity should automatically receive the same financial reports as the board of the trading company, and it is free to ask for further information at any time. It is good practice for the charity board to include a director of the trading subsidiary who has good business skills, and can communicate information to the trustees. Independent oversight: • Dangerous suspicion: It is vital that there are routine and recognised systems for checking for and detecting fraud by staff and officers. This is not just a safeguard against dishonesty. Everyone needs to be protected against suspicion of fraud, particularly those whose roles expose them most to this possibility. This is because of the serious damage which is caused to trust and relationships when anyone is suspected of financial irregularity or misusing resources. • The need for ‘backstops’: In practice it means that all actions involving the use of the organisation’s resources in any significant way need to involve at least two people – in the same way that cheques must routinely be signed by two individuals. The personnel providing these roles as backstops do not need to be selected specially, they simply need to be specified by written procedures – a second person to oversee the recording and banking of cash, authorisation for staff to make purchases over a certain value, someone to verify staff and board expenses, and so on. 141
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A guide to third sector trading - WCVA

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