Chapter 3 : Financial Control & Transparency and Accountability

Welcome to the third chapter of the sport governance course, where you will learn about the Board's role in managing the financial assets of an organization and the importance of communicating with stakeholders the decisions and actions being made.

In this chapter we will explore:

Financial Control

Overview

Managing the financial assets of the organization is an essential governance function because effective financial management plays an important role in enabling the organization to accomplish its mission, values and strategic plan.

The Board must ensure that the financial management is undertaken according to generally accepted accounting principles (GAAP), that financial reporting provides sufficient information, and that the finances are aligned with the strategic plan. The Board must also be committed to providing financial oversight and be prepared to challenge areas of concern.

How is this done?

  • The Board ensures that a comprehensive financial management system is in place with appropriate financial controls and approved financial policies
  • The Board regularly reviews the organization's financial position and takes action as necessary
  • Each Director is knowledgeable about the financial affairs of the organization
  • Appropriate disclosure is made of financial information to members, stakeholders, and the public
  • Financial management is guided by specific rules, ensuring complete and accurate records for review by a public accountant.

Recommendations

  • Oversee the financial situation
    Many Directors do not have the expertise to provide meaningful oversight to the financial area so the responsibility is delegated to a few individuals. This is a dangerous practice. Each Director has a legal and moral responsibility to oversee the finances. Orientation of Directors should include training in financial literacy. Also financial reporting should be done in a clear and simple manner. It is important for Directors to understand the difference between restricted and unrestricted funds and make sure that monitoring mechanisms to ensure funds are spent accordingly are in place.
  • Establish a Finance and Audit Committee 
    Establishing a special committee, operating on behalf of the Board, with financial expertise provides an additional level of scrutiny, and additional support for both the Board and the CEO/Senior staff.
  • Plan for financial sustainability
    Most sport organizations are heavily dependent on government funds to operate. If government priorities or requirements change, the organization can be in jeopardy. The Board should establish contingency plans that look at broadening the financial base of the organization through securing other sources of revenue, and reducing dependence on public funds.
  • Financial accountability and reporting
    Receipt of public funds demands higher scrutiny and increased public disclosure of financial information. Directors can use this reporting as a tool to build trust and confidence in the overall organization, rather than setting up a climate of divisiveness and 'we versus they'.

Transparency and Accountability

Overview

Sport people care passionately and have high expectations of the organizations to which they contribute their time and energy. Members, partners and the broader sport community want to be informed and are more likely to contribute to an organization they understand, respect and support.

It has become increasingly apparent that sport organizations must demonstrate and communicate to their stakeholders what they are doing, why they have chosen certain approaches, and what results are being achieved. Accountability for actions, decisions and funds is essential.

How can this be done?

  • The Board, committees and management operate in a manner that is transparent and open, and accountable to its members and participants
  • The Board identifies anticipated outcomes and evaluates progress
  • The Board seeks ways to communicate and engage directly with its members and stakeholders
  • The Board commits to building effective and mutually beneficial partnerships
  • The Board seeks to strengthen the reputation of the organization and build credibility within the national sport community.

Recommendations

  • Understand public trust
    The law requires that independently incorporated not-for-profit organizations be governed by a Board with individual members referred to as Directors. A Director is a fiduciary - one that accepts and holds a "public trust". Directors are able to receive and use public funds to serve a public good, as defined in their constitution, by-laws. Public trust is the obligation placed on Directors to ensure that the organization's activities remain in the public domain to benefit this and future generations. It refers to the obligation placed on Directors to provide governance for the benefit of the organization's publics.
  • Ensure accountability to funders
    It is important to appreciate that external funders need to see that an organization is carrying out its mission and serving the public good, i.e., public trust. Where organizations do not receive public funds they should still be exercising effective controls in fulfilling their mission, in order to benefit this and future generations.
  • Measure and report on performance
    The Board needs to determine what the organization intends to accomplish over a period of time. Describing what difference the organization wants to make and establishing indicators to measure this difference, provides Directors with the essential tools for measuring and reporting on performance. The Board should prepare a comprehensive annual report on how it fulfilled its governance roles, and how the organization progressed toward its vision and strategic plan, including achievements and aspirations. Open, honest and transparent communication of results and challenges can help build a climate of respect and trust.
  • Maintain confidentiality
    Directors are required to maintain a level of confidentiality on many issues. This should be an agreed upon norm, and reinforced during particularly sensitive discussions. Also, Directors should remember that regardless of the discussion and individuals' positions, when a decision is reached, everyone supports the decision and speaks with one voice outside of the Board meeting.
  • Establish a Conflict of Interest Policy
    A conflict of interest policy should be in place and declarations of interest updated at least once a year and declared in relation to agenda items at each Board meeting. This is a simple tool but essential in this era of perceived conflicts of interest.

Summary

In this chapter we learned:

  • How to ensure there is financial control
  • Recommendations for financial control such as Oversee the financial situation, Establish a Finance and Audit Committee, Planning for financial sustainability and Financial accountability and reporting.
  • How to ensure there is Transparency and Accountability
  • Recommendations for Transparency and Accountability such as Understand public trust, Ensure accountability to funders, Measure and report on performance, Maintain confidentiality and Establish a Conflict of Interest Policy.

Quiz

Now that you have completed this chapter, go to the quiz and test your knowledge.