Good Governance requires charities to use good quality financial information for decision making and accountability. The year-end financial statements prepared by charities provide the following minimum benefits:
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An annual feedback on use of reserves and financial activities. This is often a year old and may not represent the current state.
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If audited, then independent certification to confirm whether the financial data held by the Charity is materially ‘true and fair’ – meaning there are no ‘big problems’ in the accounts.
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The Executive and Trustees can be held accountable for income and spend.
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A discipline is enforced for keeping records and maintaining audit trails of income and spends.
In addition to the above, charities that aspire to improve their governance should use their financial statements as effective tools to improve control, inform strategy and achieve transparency, for example:
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The financial statements should make sense to trustees and those charged with governance. They should inform decision making and strategy otherwise there is a risk that decisions may not reflect ground reality. This could potentially lead to disastrous consequences or waste of resources.
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Charities should use the year-end process to take stock of their financial controls. Financial controls and financial statements are interlinked. Late or poor quality financial statements are often as a result of inadequate financial controls.
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The financial statements must be user friendly, reflecting the nature of the charity. This raises the charities profile and credibility among its donors and external bodies such as banks, institutional funders and regulators.
By Nasir Rafiq (Founder and Principal Dua Governance)
An Expert in Governance and Internal Control
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