While the Federal Government’s Royal Commission highlighted serious governance and culture issues within banks, superannuation funds and financial services companies, it’s an opportune time for other sectors to conduct their own reviews.
Governing boards and sub-committees within the not-for-profit (NFP) sector, in particular, should be assessing the findings handed down by Commission Kenneth Hayne QC against their own processes.
The complexity and risks associated with many NFP entities may be substantially less than those of banking and financial services organisations; however all boards still need to ensure they are effectively fulfilling their roles and compliance obligations. The NFP sector is no different.
Commissioner Hayne’s final report identified a number of shortcomings within boards, including:
- Sufficiently challenging management
- Doing all they can to satisfy themselves that they are receiving the right information and inputs from management to make complex decisions
- Monitoring, measuring and assessment the organisation’s culture and governance
- Providing rigorous oversight of risk including non- financial risks.
Board members should be regularly reviewing and reinforcing their understanding of their role within the organisation, and carry out their obligations accordingly.
The presentation of a budget is one simple example of governance to work through. While management may prepare the budget, the board should then play a key role to ensure there is an appropriate level of rigour within the budgetary setting process.
The board should seek address issues such as:
- how does the budget assist the organisation to achieve its objectives and strategies
- whether the board understands the key assumptions, estimates and the key budget variables
- does the budget have sufficient supporting information
- does the budget provide rigorous oversight of risk, including non-financial risk?