Financial Governance for Charity Trustees: Why It Matters
Strong financial governance is one of the most important responsibilities of charity trustees.
Charities exist to deliver public benefit, but they can only do that effectively if their finances are properly managed, their risks are understood, and their trustees have enough information to make sound decisions.
Good financial governance is not just about producing annual accounts. It is about ensuring that charity funds are used properly, assets are protected, internal controls are effective, and trustees can demonstrate accountability to beneficiaries, funders, donors and regulators.
The Charity Commission’s guidance on internal financial controls explains that financial controls help charities protect assets, make informed decisions and meet legal duties, including managing the charity’s resources responsibly. It also states that all trustees remain responsible for financial management and for implementing and monitoring internal financial controls, even where detailed work is delegated. Internal financial controls for charities – gov.uk
This is why financial governance should be seen as a board-level responsibility, not simply a task for the treasurer, finance officer or accountant.
At its best, financial governance gives trustees confidence that the charity is financially sustainable, compliant, well controlled and able to deliver its charitable purposes over the long term.
What Is Financial Governance in a Charity?
Financial governance refers to the systems, controls, reporting arrangements and oversight processes that help trustees manage a charity’s finances responsibly.
It includes how:
- financial decisions are made;
- budgets are set and monitored;
- income and expenditure are controlled;
- risks are identified and addressed;
- trustees receive and challenge financial information;
- charity assets are protected;
- fraud and error risks are reduced;
- reserves are reviewed; and
- the charity demonstrates accountability.
In practical terms, good financial governance helps trustees answer important questions such as:
- Are we using funds in line with our charitable purposes?
- Are restricted funds being used correctly?
- Do we have enough reserves?
- Are we financially sustainable?
- Are our controls strong enough?
- Are trustees receiving the right information?
- Are we complying with our governing document?
- Are there any fraud, cash handling or authorisation risks?
- Are conflicts of interest being properly managed?
These questions are not just technical accounting questions. They go to the heart of trustee responsibility.
Charity Trustee Financial Responsibilities
Trustees have ultimate responsibility for ensuring that the charity is properly run and financially accountable.
This does not mean every trustee needs to be an accountant. However, every trustee should have enough understanding to ask sensible questions, challenge financial reports and recognise when professional advice is needed.
Trustee responsibilities commonly include:
- ensuring the charity keeps proper accounting records;
- reviewing financial performance during the year, approving budgets, monitoring reserves;
- ensuring funds are spent in line with the charity’s purposes;
- safeguarding assets;
- approving significant financial decisions;
- managing financial risks;
- ensuring appropriate internal controls are in place;
- preventing and detecting fraud where reasonably possible; and
- ensuring accounts and reports are prepared and filed correctly.
Why Governance Failures Happen in Well-Intentioned Charities
Most governance failures do not happen because trustees are careless or uninterested.
In many cases, trustees are committed volunteers who care deeply about the charity’s mission. Problems often arise because governance arrangements have not kept pace with the charity’s growth, complexity or risk profile.
Common causes include:
- trustees relying too heavily on one person, typically the chair, or the main or sole employee, or the CEO;
- financial reports being too limited or too infrequent, or untimely/ late;
- poor documentation of decisions;
- outdated policies;
- weak authorisation procedures;
- poor cash handling controls;
- unclear delegation of responsibilities;
- inadequate trustee skills mix;
- failure to follow the charity’s own constitution;
- conflicts of interest not being properly recorded;
- trustees not receiving enough training; and
- assumptions that “this is how we have always done it”.
These issues can build gradually over time. By the time trustees become aware of a problem, the underlying weakness may have existed for several years.
This is why financial governance should be reviewed regularly, not only when something goes wrong.
What Financial Information Should Trustees Receive?
Trustees should receive financial information that is clear, timely and useful.
The aim is not to overwhelm trustees with accounting detail; it is to provide enough information for trustees to understand the charity’s financial position and make informed decisions.
Depending on the size and complexity of the charity, trustees may need:
- management accounts;
- budget versus actual reports;
- cash flow forecasts;
- reserves reports;
- restricted fund reports;
- income pipeline reports;
- grant monitoring reports;
- debtor and creditor updates;
- payroll cost reports;
- bank reconciliation summaries;
- risk registers; and
- narrative commentary explaining key movements.
The Charity Commission’s financial controls guidance states that all trustees should have access to clear, accurate and up-to-date financial information, including the latest management accounts. Internal financial controls for charities as outlined by the Charity Commission can be found here – gov.uk
A good financial report should help trustees understand:
- what has happened;
- why it has happened;
- whether it creates a risk;
- what action is needed; and
- who is responsible for follow-up.
Trustees should not simply receive reports. They should discuss them, challenge them and record key decisions.
The Role of the Treasurer
The treasurer often plays a vital role in charity financial governance. However, the treasurer should not be treated as the only trustee responsible for finance. The board as a whole remains responsible.
A good treasurer can help by:
- reviewing financial reports before board meetings;
- explaining key financial issues to trustees;
- supporting budget preparation;
- monitoring reserves;
- liaising with accountants or independent examiners;
- highlighting control weaknesses;
- helping trustees understand financial risks; and
- advising on finance policies.
However, other trustees should still read the financial papers, ask questions and understand the key financial position.
A common governance weakness is where the board relies completely on the treasurer without meaningful challenge. That creates risk for both the charity and the treasurer.
Financial Controls for Charities
Financial controls are the practical checks and procedures that protect charity funds and assets. They help ensure that money is received, recorded, authorised, spent and reported properly.
Examples of financial controls include:
- dual authorisation for payments;
- clear approval limits;
- segregation of duties;
- bank reconciliations;
- cash counting procedures;
- expense claim policies;
- procurement procedures;
- conflict of interest declarations;
- restricted fund tracking;
- reserves monitoring;
- payroll review controls;
- secure online banking access;
- documented finance policies; and
- regular reporting to trustees.
The Charity Commission states that internal financial controls are essential checks and procedures that help protect charity assets, identify and manage risks, keep good accounting records and prepare timely and relevant financial information. More on internal financial controls for charities can be found here – gov.uk
The key point is that controls must work in practice. It is not enough for a charity to have a policy document sitting in a folder if staff, volunteers and trustees do not follow it.
Trustee Responsibilities for Preventing Fraud
Fraud prevention is an important part of financial governance.
Charities can be vulnerable to fraud because they often rely on trust, volunteers, public donations and limited administrative resources. Fraud can come from inside or outside the organisation.
The Charity Commission’s fraud guidance states that fraud can affect any charity and that trustees have a duty to manage charity resources responsibly. It says trustees should identify fraud risks, take action to protect the charity and check that those actions are working.
Fraud risks in charities may include:
- unauthorised payments;
- cash donations not being banked;
- misuse of restricted funds;
- false expense claims;
- payroll fraud;
- procurement fraud;
- online banking fraud;
- cyber fraud;
- fake supplier invoices;
- conflicts of interest;
- grant fraud;
- misuse of charity property; and
- diversion of donations.
Trustees are not expected to eliminate every possible risk. However, they are expected to take reasonable steps to reduce risk and respond properly when concerns arise.
Practical fraud prevention steps include:
- having clear financial policies;
- using dual authorisation for payments;
- limiting cash handling where possible;
- reconciling cash collected to records and bank deposits;
- reviewing bank statements regularly;
- checking changes to supplier bank details;
- maintaining a conflict of interest register;
- ensuring restricted funds are monitored separately;
- reviewing unusual transactions;
- training staff and volunteers;
- encouraging people to speak up; and
- documenting concerns and decisions.
The Charity Commission’s guidance also states that if trustees discover or suspect fraud, they should act quickly, follow procedures, preserve evidence, keep records and consider whether the matter needs to be reported to the Charity Commission.
Our article on how to spot and address fraud warning signs is recommended reading for charity trustees, regardless of the size of your charity: Charity Fraud Warning Signs: What Every Trustee Should Look For (coming soon).
That article can explore the practical red flags trustees should watch for, including missing documentation, unexplained cash differences, unusual supplier payments, resistance to scrutiny and poor segregation of duties.
Financial Governance and Independent Scrutiny
Financial governance is closely linked to external scrutiny. Some charities require an independent examination. Larger or more complex charities may require a statutory audit. However, trustees should not see independent examination or audit as a substitute for good governance.
An independent examination or audit takes place after the financial year ends. Good governance must operate throughout the year.
That said, independent scrutiny can help identify:
- incomplete records;
- unusual transactions;
- weaknesses in controls;
- poor documentation;
- restricted fund issues;
- inconsistencies in accounts;
- governance concerns; and
- matters requiring trustee attention.
This is why our related article, Independent Examination vs Audit: What UK Charity Trustees Need to Know (coming soon), explains the difference between the two forms of scrutiny, current thresholds and the September 2026 changes.
For trustees, the key question is not simply whether an independent examination or audit is legally required. The better question is whether the charity’s risks, funding arrangements and governance needs justify a higher level of assurance.
Real-World Example: Governance Review for an Oldham-Based Charity
A practical example shows why financial governance reviews can be so valuable.
ATS Accountants was engaged to carry out an independent governance review for an Oldham charity.
The review was intended to provide assurance to those charged with governance that the charity’s governance arrangements and skills were adequate, and that the organisation was ready to meet future challenges and regulatory requirements. The remit also stated that we would gather views from key stakeholders in the local community and assess the adequacy and effectiveness of internal controls in relation to governance arrangements.
As part of the review, we considered the charity’s constitution and governance policies, reviewed whether the charity was complying with its own rules, conducted stakeholder interviews to understand the views of key stakeholders, and mapped trustee skills to identify gaps in the trustee pool.
The review identified areas where governance arrangements could be strengthened. These included gaps in trustee skills, weaknesses in cash handling procedures and other internal control issues.
As a result, the charity made significant governance improvements. These included addressing trustee skills shortages, improving cash handling procedures and strengthening controls around financial management and decision-making.
The key lesson from this example is that governance reviews should not be seen as criticism. They are a constructive tool to help trustees improve oversight, reduce risk and strengthen public confidence.
Often, the most valuable outcome is not a report itself, but the changes that follow.
Are you part of a charity that would benefit from a similar review? Contact ATS Accountants today to arrange a free consultation.
Trustee Skills and Board Composition
One area that is often overlooked is trustee skills.
A charity board may have committed and experienced trustees, but still lack the range of skills needed for effective governance.
Common trustee skill areas include: finance, legal, safeguarding, fundraising, human resources, property, education, health and care, digital and cyber security, community engagement, governance, risk management, and lived experience relevant to the charity’s work.
A trustee skills audit can help identify where the board is strong and where it needs support.
This does not always mean recruiting new trustees immediately. Sometimes it means training existing trustees, bringing in advisers, creating subcommittees or strengthening induction processes.
For charities handling significant funds, property, staff or statutory responsibilities, a lack of financial governance skills can become a serious risk.
Policies Are Only Useful if They Are Followed
Many charities have policies. Fewer charities regularly test whether those policies are being followed.
A financial governance review should consider whether the charity’s policies match what actually happens in practice.
Important policies may include:
- finance and reserves policy;
- expenses policy;
- procurement policy;
- cash handling policy;
- conflict of interest policy;
- safeguarding policy;
- serious incident reporting policy;
- complaints policy;
- data protection policy;
- investment policy;
- trustee induction policy; and
- scheme of delegation.
Trustees should periodically ask:
- Are these policies up to date?
- Are they consistent with the governing document?
- Do staff and volunteers understand them?
- Are trustees following them?
- Are breaches recorded and addressed?
- Do policies reflect how the charity now operates?
A common governance issue is that a charity has grown or changed, but its policies have not been updated. Another common issue is that the charity has policies on paper but day-to-day practice does not match them.
That gap between policy and practice is often where risk develops.
Cash Handling: A High-Risk Area for Many Charities
Cash handling remains a risk area for many charities, particularly where donations, events, places of worship, membership payments or community fundraising are involved. Cash is inherently harder to control than bank transfers because it can be lost, miscounted or misappropriated before it reaches the bank.
Good cash handling procedures may include:
- two people counting cash together;
- written cash count sheets;
- prompt banking of cash;
- reconciliation of collections to bank deposits;
- secure storage;
- numbered receipt books where appropriate;
- separation between cash collection and record keeping;
- trustee review of cash reports; and
- periodic spot checks.
Where a charity relies heavily on cash donations, trustees should ensure controls are practical, proportionate and consistently followed.
Cash handling should also be considered as part of wider fraud prevention, which is discussed further in our soon to be published article Charity Fraud Warning Signs: What Every Trustee Should Look For.
Reserves and Financial Sustainability
Financial governance is not only about controls. It is also about sustainability. Trustees should understand whether the charity has enough reserves to manage uncertainty, respond to funding changes and continue delivering services.
A reserves policy should explain:
- why reserves are needed;
- the target level of reserves;
- how the target was calculated;
- whether reserves are restricted or unrestricted;
- when reserves may be used; and
- how the policy is reviewed.
Reserves should not be treated as an arbitrary figure. They should reflect the charity’s risks, commitments, income volatility and future plans. Trustees should also monitor whether the charity is becoming too dependent on one funder, one contract, one donor or one income stream.
A financially sustainable charity is not necessarily one with the largest reserves. It is one where trustees understand the risks and have a realistic plan to manage them.
Governance Experience Beyond Accountancy
Many accountants can prepare charity accounts. Fewer have direct governance experience across charities, education and public-sector environments.
At ATS Accountants, our advice is informed by practical governance experience as well as technical accounting knowledge.
ATS director Shahed Alam FCPFA currently serves as Trustee, Treasurer and Chair of the Audit and Finance Committee at Rochdale & District Mind. Shahed was also a founder of London Enterprise Academy, a free school in London, and has served as a school governor at various Oldham schools in the past. These roles provide practical experience of governance, accountability, oversight and board-level decision-making in regulated organisations.
Earlier in his career, Shahed trained as a public sector auditor. That background adds a further layer of insight into internal controls, accountability, public funds, governance frameworks and financial scrutiny.
This combination of charity, education and public-sector audit experience helps ATS Accountants advise trustees not only on compliance, but on the wider governance challenges that charities face. More information on ATS Accountants’ work with charity clients can be found here – Charity Accountants | ATS Accountants
How ATS Accountants Supports Charity Trustees
ATS Accountants supports charities across Oldham, Rochdale, Greater Manchester, St Helens and beyond.
Our charity support includes:
- charity accounts preparation;
- independent examinations;
- trustee financial reporting;
- governance reviews;
- internal control reviews;
- developing or reviewing charity finance policies including reserves policy support;
- trustee skills mapping;
- support with Charity Commission reporting;
- review of suspicious or unsupported transactions;
- charity VAT and tax advice; and
- practical financial governance guidance.
Our approach is not simply to prepare accounts and move on. We help trustees understand what the numbers mean, where risks may exist, and what actions can strengthen governance.
You can learn more about our specialist charity support on our Charity Accountants | ATS Accountants page.
Practical Financial Governance Checklist for Trustees
Trustees can use the following checklist as a starting point.
Financial Reporting
- Do trustees receive regular financial reports?
- Are reports clear and understandable?
- Are budget variances explained?
- Are restricted funds reported separately?
- Are reserves reviewed regularly?
Internal Controls
- Are payment approvals documented?
- Are bank reconciliations reviewed?
- Are cash handling procedures clear?
- Are expenses properly authorised?
- Are supplier changes checked?
- Are duties separated where possible?
Governance
- Does the charity follow its constitution?
- Are conflicts of interest declared and recorded?
- Are trustee decisions documented?
- Are policies reviewed regularly?
- Is there a clear scheme of delegation?
Fraud Prevention
- Have trustees considered fraud risks?
- Is there a fraud response procedure?
- Are staff and volunteers trained to spot concerns?
- Are unusual transactions reviewed?
- Are concerns documented and escalated?
Trustee Skills
- Has the board completed a trustee skills audit?
- Are there gaps in finance, legal, safeguarding or governance expertise?
- Is trustee induction effective?
- Do trustees receive ongoing training?
External Scrutiny
- Does the charity need an independent examination or audit?
- Are funder requirements understood?
- Are previous independent examiner or auditor recommendations followed up?
- Is external scrutiny used as a learning opportunity?
FAQs: Financial Governance for Charity Trustees
What is financial governance in a charity?
Financial governance is the way trustees oversee and control the charity’s finances. It includes budgeting, financial reporting, internal controls, reserves, risk management, fraud prevention and accountability.
Who is responsible for financial governance in a charity?
All trustees are responsible for financial governance. The treasurer or finance committee may lead on financial matters, but the full board remains collectively responsible for the charity’s financial management and internal controls. The Charity Commission’s guidance states that all trustees remain responsible for financial management and for implementing and monitoring internal financial controls.
Do charity trustees need to be accountants?
No. Trustees do not need to be accountants. However, they should understand the charity’s financial position, read financial reports, ask questions and seek professional advice where needed.
What financial reports should charity trustees receive?
Trustees should usually receive management accounts, budget comparisons, cash flow information, reserves updates, restricted fund reports and explanations of key financial risks. The exact reports will depend on the size and complexity of the charity.
How often should trustees review charity finances?
Trustees should review finances regularly during the year, not just when annual accounts are prepared. For many charities, this means reviewing financial information at every board meeting.
What are internal financial controls?
Internal financial controls are checks and procedures that help protect charity assets, manage risk, keep proper accounting records and ensure financial information is accurate and timely.
Why are internal controls important for charities?
Internal controls reduce the risk of fraud, error, poor decision-making and misuse of funds. They also help trustees demonstrate that they are managing the charity’s resources responsibly.
What are common financial governance weaknesses in charities?
Common weaknesses include poor financial reporting, weak cash handling controls, lack of segregation of duties, outdated policies, poor trustee challenge, missing documentation, inadequate reserves monitoring and failure to follow the charity’s own governing document.
What is the trustee’s role in preventing fraud?
Trustees must manage charity resources responsibly. The Charity Commission’s fraud guidance says trustees should identify fraud risks, take action to protect the charity and check that those actions are working.
What should trustees do if they suspect fraud?
Trustees should act quickly, follow the charity’s procedures, preserve evidence, keep records and consider whether the matter should be reported to the Charity Commission or other relevant authorities. The Charity Commission’s fraud guidance specifically advises trustees to act quickly, preserve evidence and consider reporting obligations where fraud is discovered or suspected.
Does an independent examination check financial governance?
An independent examination may identify issues with records, unusual transactions or matters requiring explanation, but it is not a full governance review. Trustees should not rely solely on independent examination to monitor governance.
Does an audit guarantee that there is no fraud?
No. An audit provides a higher level of assurance than an independent examination, but it does not guarantee that fraud has not occurred. Trustees still need strong controls and fraud prevention procedures.
How often should a charity review its governance?
Charities should review governance regularly, especially when they grow, take on new funding, change activities, recruit new trustees, experience control issues or update their strategic plans.
What is a trustee skills audit?
A trustee skills audit maps the skills and experience of the board. It helps identify gaps in areas such as finance, legal, safeguarding, fundraising, governance, HR, property, digital and community engagement.
Why should a charity review its constitution?
A charity’s constitution sets out how it should operate. Trustees should ensure that decisions, appointments, meetings, voting arrangements and financial procedures comply with the governing document.
Can ATS Accountants help with charity governance reviews?
Yes. ATS Accountants supports charities with governance reviews, financial reporting, internal control reviews, trustee skills mapping, independent examinations and practical advice for trustees. Contact ATS Accountants
Final Thoughts
Financial governance is central to effective charity leadership.
Trustees are responsible for ensuring that funds are used properly, assets are protected, risks are understood and the charity remains accountable. This does not mean trustees must become accountants, but it does mean they must engage with financial information, ask questions and ensure suitable controls are in place.
Good governance is not about creating unnecessary bureaucracy. It is about helping charities make better decisions, protect public trust and deliver their charitable purposes with confidence.
Financial governance also links closely with other important trustee responsibilities.
Our related article Independent Examination vs Audit: What UK Charity Trustees Need to Know explains how external scrutiny supports accountability.
Our article Charity Fraud Prevention: Trustee Guide to Stronger Governance explores practical fraud risks and warning signs in more detail.
At ATS Accountants, we help charity trustees strengthen financial oversight, improve controls and meet their responsibilities with confidence.
To learn more about our specialist support for charities, visit our Charity Accountants | ATS Accountants page.