How to prevent financial mismanagement

2. Set up your systems

 

The next step is to develop a financial infrastructure.

 

You will probably already have some kind of process in place. Start by reviewing your existing protocols.

 

Ask yourself whether they are secure, whether they are efficient, and whether they could be improved. Take note of any ad hoc processes that are being used so that you can develop a more formal procedure.

 

If process-owners seem resistant to change, be sure to stress the potential benefits of having a more robust process in place, focusing on how it could reduce risk to them.

 

The aim should be to create a sort of financial panopticon. No single person should assume sole responsibility for any process or transaction from beginning to end. All expenditures should be signed off by someone else and adequate records should be kept and reviewed at the year’s end.

 

The Charity Commission’s self-assessment checklist is a useful tool that can be used to assist you in building these processes.

 

This process of financial review and authorisation is most important when it comes to transactions authorised by trustees. All transactions conducted by one trustee (Trustee A) should be reviewed and authorised by another trustee (Trustee B).

 

It is important that these processes are not too arduous, as this will put people off and may lead to workers bending the rules to save time and effort.

 

 

3. Monitor ongoing activities

 

In order to ensure that these processes operate effectively, you will need to monitor them continuously. There are several monitoring activities that you should consider.

 

The simplest of these is to check that processes are being followed. This will be increasingly important after the initial excitement of the project begins to wear off. If you are going to see the benefits of proper financial procedures, then you will need to ensure that policies are adhered to over an extended period of time.

 

One simple process that you will need to implement is bank reconciliation. This is a process by which you check your organisation’s bank account balance against your most recent statement. Any difference between the two figures must be reviewed and rectified. Think of this as an extension of existing processes of review and authorisation, but on a greater scale.

 

You should monitor financial performance against your budget. This will provide a greater degree of accountability and ensure that you are using supporter’s donations for their stated aims.

 

You should also consider establishing an internal audit committee to review your accounts at the end of the financial year. If your organisation lacks the skills or personnel to conduct such an audit, then you can hire an independent contractor to review your accounts.

 

Charity Financials’ ‘Auditor Spotlight Report’ provides details of the most reputable firms. You should also consider the difficulties of conducting such an audit remotely, and take steps to address them.

 

 

4. Review and refine

 

It is important to remember that, although this project will be a process of codification, any policies you do implement will ultimately evolve over time. This is especially true in today’s age of rapid technological advancement.

 

That’s why is important to regularly review the policies, processes, and procedures you put in place: to assess what is working, what isn’t working, and what could be working better.