ACNC Governance Standards - Duty of Board Members to Manage Financial Affairs Responsibly

This is the fourth in a series of six articles which examine the significant duties of board members of registered charities. We have dealt with the duty of board members:

• to act with reasonable care and diligence;
• to act in the best interest of their charity and for a proper purpose; and
• not to improperly use information or their position.

In the fifth article we will deal with the duty of board members to disclose and manage conflicts of interest. In the final article we will look at their duty not to allow a charity to operate while insolvent.

The topic for this article is the duty of board members to manage financial affairs responsibly.

Together, all these duties form one of the governance standards for charities established by the Australian Charities and Not-for-profits Commission (ACNC). The particular standard states that board members or other responsible persons owe a fiduciary duty to their charities. This is one of the highest standards of care imposed and means that board members must be loyal to their charity and act in good faith. This means that board members have obligations which are similar to those of agents or trustees.

DUTY OF BOARD MEMBERS TO MANAGE FINANCIAL AFFAIRS RESPONSIBLY

Donations and financial management

Most charities receive donations from the general public and may also receive government funding and taxation concessions or exemptions. These different ways of receiving finances mean that charities must have sound financial management practices in place. This is to ensure that a charity’s resources are used effectively and protected from misuse.

But what do such management practices look like? Charities should have appropriate and tailored financial systems and processes in place, which are suitable for:

• their size
• their circumstances; and
• the complexity of their financial affairs.

Conclusion

A good way for board members to gauge whether they are managing financial affairs responsibly is to ask themselves, ‘are there systems and processes in place that ensure that the charity’s resources are being effectively put towards its charitable purpose and are protected from misuse?’ This will help board members to uphold their fiduciary duty and, in turn, ensure that the charity complies with the ACNC governance standard concerning board members.

In the next article in this series we will deal with the duty of board members to disclose and manage conflicts of interest. If you would like further information please contact %9A%99%91%CE%D7%D9D%C0%B5%E0%D8e.