A regular check-up is important for a person’s health. The same principle applies to healthy communities. Strong financial governance is key to prosperity, self-sufficiency and community resilience in today’s economic world.
What is financial governance and why is it important?
Financial governance is how communities and people gather, manage, monitor and report back on the wealth generated by successful economic development initiatives. It involves tracking financial transactions, managing performance and controlling data, compliance, operations and disclosures. Good financial governance is the backbone of any entity or organization. Without it, an organization simply cannot achieve its goals.
An organization that practices good financial governance has the following characteristics:
Conducts transparent engagement
follows a due process and system
Employs qualified professionals.
On the contrary, weak financial governance systems can lead to misappropriation, theft, fraud, penalties, lack of confidence and poor decision-making.
So you are ready to give your organization a check-up. Here are the 6 things to look for.
1. Regular and timely engagement with ultimate beneficiaries
Communication is key. Regularly scheduled meetings and open and ongoing two-way communication in any form are strongly encouraged. Understanding from the community members’ perspective – what is working and what is not.
Ask these questions:
How to get people together?
How often and when should the community meet?
How can authority, decision-making and accountability be established?
2. SMART financial plans and strategies
When setting direction for the future, first create a vision (“where”) followed by the mission (“why”). This will guide your strategies and action plan. You’ve probably heard this many times before but here it is again. The plans need to be Specific, Measurable, Achievable, Realistic/Relevant, and Timely. You know the basics so let’s look at some hard questions you should address.
Ask these questions:
Do the action plans contribute to my vision and mission? If they are, is this the right time?
Do I have the resources to actualize the plans?
Have the strategies been broken down to specific actionable items?
What metrics will I use to measure whether I’ve made progress or reached my goal?
What is the timeframe for reaching milestones on the plan?
3. Strong financial laws, policies, procedures and internal controls
Rules rule. Plans and strategies won’t work if you don’t have laws, policies and procedures to guide all the moving parts. Start by establishing rules at the highest level followed by policy and procedures that work for your leadership and community. This is critical to establishing transparency and trust.
Ask these questions:
Who gets a voice in community financial matters?
What is our decision-making body? Who makes financial decisions?
How are financial decision-makers held accountable?
How can we separate politics from business, and decision making from implementation?
Are the laws, policies and procedures aligned with our community values and code of conduct?
4. Qualified team members
The saying “you are only as strong as your weakest link” may be old but still rings true. Assess the state of your management and administration team and fill the holes in success equation. Remember your team is larger than your immediate team.
Ask these questions:
Are my team members suited for the role they have stepped into?
Is the system facilitating the growth and empowerment of young community members who are interested in leadership role?
Do I have a network of extended team members that include: legal advisors, financial advisors, business partners, and planners?
5. Tracking, validation and security of data
Information is power but useless if you cannot use it to make decisions. Make your data and information management systems work for you and not the other way round. Put thought into the design of your financial data management systems because you rely on the information it generates to make key decisions.
Ask these questions:
Are you using an application that is made for organizations such as yours?
Is your accounting system aligned with your organization’s strategy and plans?
At any given time, can you tell precisely what your financial position is at an entity and sub-entity level?
6. Internal and external audits
Having an independent set of eyes look at your organization’s accounts, systems and processes can go a long way to provide assurance to the ultimate beneficiaries of your organization. Internal audits can help improve your organization’s internal controls, governance systems and operational procedures where as an external audit can provide an opinion as to whether your financial statements show a true and fair view as well as if they prepared in accordance with accounting standards.
Ask these questions:
Do your beneficiaries want an independent opinion on your organization’s performance?
Is your organization big enough to implement both internal and external audit?
Are your current auditors independent?
Congratulations on completing a full diagnosis, here is a recap on why strengthening your financial governance systems is not a step to be skipped.
What will good financial governance practices do for you?
By having good financial governance practices in place, you will
Create a fine balance between earning, spending, saving and investing wealth conducting
Promote confidence of different people and stakeholders involved in the organization
Create real and meaningful ownership
Create transparency, fairness and accountability.
Allow for separation of decision-making from implementation, and of politics from business.
Foster better, informed and more ethical decision-making.
Bring improvement in the overall communication within an organization
To find out more on the subject and get other insights on governance, strategy and planning, management and capacity building, find us at ZN Advisory.