1.1 The role of trustees in financial management
Trustees or members of the organisation’s governing body oversee the organisation. They have specific responsibilities relating to the organisation’s constitution and meeting relevant legislation in the UK. They are entrusted to look after the organisation’s money and other resources, and to ensure that these are used effectively and for the purpose they were given. These responsibilities (for trustees in registered charities) are legal requirements laid down by the various Charities Acts and regulatory bodies.
In some circumstances, trustees are personally liable for the charity’s debts. Even when an organisation is not registered, trustees would normally be expected to take their responsibilities and liabilities seriously and ensure accountability to their stakeholders.
Box 1 outlines some of the things a trustee could be liable for.
Box 1 Trustee liability
Personal Liability:
- Breach of trust under charity law
- Acting as a charity trustee when disqualified
- Failure to comply with statutory requirements such as health and safety, etc.
- Failure to deduct an employee’s PAYE
- (In some circumstances) the debts and other liabilities of the organisation
Breach of Trust includes:
- Spending the charity’s money on activities outside of the charity’s objects
- Failure to prudently protect the trust property
- Carrying out unpermitted political activity
- Fraud
- Serious negligence
- Trustee receiving personal benefit
Liabilities are likely to arise in two main areas of responsibilities:
- Operational: arising from what the organisation does. Example: where the trustee signs a lease for the organisation that fails to pay the rent.
- Governance: arising from the duties that a trustee has. Example: where a trustee had entered into a contract with an organisation that benefited him and he had to repay the improperly obtained profit.
If you are interested in becoming a trustee, hopefully this list of liabilities will not deter you! It shows the importance of financial and risk management in voluntary organisations, but if trustees act in good faith it is unlikely they will be held personally liable. Usually there will be one or two people with substantial financial experience on a board of trustees. They can help to check that the organisation’s financial procedures meet formal regulations, as well as generally providing transparency and accountability.
As Miller (2014) states:
Even the smallest charity needs someone with good financial skills and knowledge to ensure good financial management – they could be a trustee, a volunteer or staff member. The responsibility for managing finance needn’t fall on one person’s shoulders – the responsibilities can be shared among different people with different skills in the organisation.
A common misconception is that finance managers need specific charity accounting experience. In reality, it’s more helpful for them to have good financial knowledge, and the ability to communicate well so they can translate and interpret financial information into meaningful information for others and ask the right questions.