What are grant makers looking for in the governance of the charities they fund?

Grant makers are increasingly concerned to ensure that the organisation they support are well governed. Recently we have been working with a few funders to help them develop approaches to governance due diligence when assessing grant applications. We thought it would be interesting to share some observations on what they see as indicators that a charity’s governance may not be up to scratch.

It is clear from our discussions that funders are checking out the governance of applicants even if they don’t ask much about it in their applications form. They do this by reviewing not only the documents they ask you to submit with your application but also publicly available materials including the online records published by the various regulators, (Companies House, the Charity Commission for England and Wales, the Office of the Scottish Charity Regulator, the Charity Commission for Northern Ireland and the Financial Conduct Authority).

What they often look for are indicators in these records and the documents that all might not be as it should be with your charity’s governance. These include:

• Financial management and annual reporting:

  • Are accounts and annual returns consistently filed on time?

  • Are the right types of accounts being filed? For example, if your charity is a company, are you filing full accounts and not micro-entity accounts?

  • How easy is it to understand your accounts and other financial information? This includes both annual accounts and any management accounts they have asked you to provide?

  • Do you have adequate financial controls in place? They may ask to see your policy or just check the Charity Commission record to see if you have one.

  • Does your annual report provide enough information on what you do and the difference it makes?

  • Are there any concerns about outstanding debts?

• The board:

  • Do you have enough Trustees and is there reasonable turnover on the board to strike a balance between corporate memory and fresh ideas/perspectives?

  • How diverse is your board?

  • Are there any signs of dominance by one person or a small group (e.g. if you have a very small board or your Companies House records show “Persons of Significant Control”)?

  • Do Charity Commission records match Companies House records?

  • Are there any indications that Trustees have conflicts of interest in their dealings with related parties (which may be identified in your accounts, online records or application form)?

• Governing document:

  • How up to date and how clearly presented is your governing document?

  • Does the document you provide match the online records or have you made changes without telling regulators (in which case your changes may not be valid)? Do Charity Commission records match Companies House records?

  • Does what you are applying to do fit within your charitable purposes (objects)?

• Other potential signs of poor governance:

  • If your charity is a company, have any compulsory strike of procedures been initiated (e.g. because you have not filed accounts)?

  • Do you have a trading subsidiary and are its records in good order?

  • Do you have a complex group structure or other complex arrangements with other organisations that might cause concern or need further explanation?

  • Do you have the right policies in place and are they bespoke to your charity (not just templates with your name inserted)? Does your Charity Commission record of policies match what you say in response to application questions?

  • Are there any other compliance concerns indicated in your records?

This growing scrutiny shows that good governance is not only important for ensuring your charity is run well and legally, but also it is increasingly important for securing grant funding. Therefore, it emphasises the need for regular review and continuous improvement in governance, including benchmarking against accepted standards such as the Charity Governance Code.

If you would like to know more about governance reviews and health checks or any of the other governance support and training we offer, please contact us at julian@almondtreeconsulting.co.uk to arrange free initial telephone discussion.