Friday, August 07, 2009

Board members, finance committees and financial monitoring – need to know basis?

I recently heard a partner of an accountancy firm (and provider of audit services to the housing sector) say that housing association board members did not need any quarterly financial reports – as long as the board had a finance committee doing the board’s financial monitoring. My immediate response was one of both disagreement and disbelief.

In case I had missed something. I thought I would consider Treading the Boards (pdf available) – the Housing Corporation’s self-assessment framework for board performance. (A guide to housing association governance published in 2001 but still relevant. It also informed the Corporation’s regulatory expectations).

Treading the Boards stated that the “key roles or functions” of a board include:

Monitor[ing] the association’s performance against agreed targets and milestones through regular critical appraisal of financial, operational and development information

It made it even clearer saying that the board should be able to demonstrate that it:

regularly and critically reviews management information on financial and operational performance against budget /targets, the previous year’s figures and external benchmarks

It interprets regularly as monthly or quarterly.

But can board members contract out their financial monitoring role to a finance committee?

Larger, more complex, associations may have established business activity sub-committees that can address the critical issues in more detail than would be possible for the main board.

I read that as giving finance committees a role of detailed scrutiny – not the rest of the board ducking out of this key function. (While I am a great believer in the value of committees in governance structures, I’ve seen governance failure arising from boards being oblivious to the concerns being raised about financial issues in committees.)

What about guides to good practice outside the world of social housing? The 2003 Review of the role and effectiveness of non-executive directors by a committee headed by the now late Sir David Higgs noted:

Non-executive directors should scrutinise the performance of management in meeting agreed goals and objectives, and monitor the reporting of performance.

That report considered this to be a “key element”. Subsequent events in social housing as well as the wider world have surely proven this and reminded everyone that we live in financially hazardous times.

Anyone suggesting that board members can pass the buck of financial monitoring to a finance committee should also pause and consider the fact that housing association board members will generally have the duties of a company director and/or charity trustee. These cannot be evaded in some kind of governance pass-the-parcel.

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