Financial management in the internal environment

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You can achieve effective financial management only by establishing a suitable internal environment. To a large extent this depends on the size of the organisation. If your organisation is without paid employees, you will probably rely heavily on volunteers and trustees to undertake financial management. In larger organisations this work will be undertaken by paid staff.

Good financial management assigns discrete responsibilities to people within the organisation. The larger the organisation, the more scope there will be for people to play different roles. It is therefore essential that you plan ahead so that as your organisation grows, a structure develops in which it is clear 'who does what'.

Effective financial management is dependent on the constantly evolving relationship between:

• financial strategy
• financial management systems
• capable trustees, managers and staff (including non-trustee volunteers).

The role of the board of trustees in financial management

Trustees are responsible for the direction and performance of their charity. They have a legal responsibility for the management and decision making in a charity. They have a legal duty to ensure the application of the charity assets for the charitable purpose of the organisation.

For more information see Guidance CC3 - the essential trustee: what you need to know (Charity Commission).

Day-to-day responsibility for financial management

As the board of trustees only meets a few times a year it delegates authority for the day-to-day management to the director of chief executive who it has appointed. The role of the chief executive is to support the development of a strategy and implement it, once it has been agreed by the board. The chief executive, with the staff, is responsible for converting the board's intentions into action and for managing the systems and procedures needed to achieve results.

While it is acceptable for the board to delegate authority, it can not delegate total responsibility. The board must therefore set up monitoring mechanisms to ensure its instructions are being carried out.

Questions to consider about internal financial management

• Are the trustees, the chief executive and managers clear about their discrete financial responsibilities?
• Are there systems in place to enable each party to exercise its responsibilities appropriately?
• Have necessary committees been established to handle financial responsibilities?
• Are the trustees fulfilling their financial accountability?
• Are there clear separations of financial responsibilities between finance and non-finance staff? For example, there should be a separation of duties between staff who place orders for goods and services and those who authorise payment.

Source: Published with permission from Cass Centre for Charity Effectiveness. This material is taken from "Tools for Success: doing the right things and doing them right", published in October 2008. Download or buy your copy from Cass Centre for Charity Effectiveness.

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