Reading the warning signs:
Knowing when your group's finances may be ailing
It is your job as a board member to ensure that the organisation your
board is overseeing remains financially healthy, so it is of vital
importance that you remain vigilant to any situations that may spell
Below we have listed some warning signs or indications that may help
you to recognise when your board may be heading towards financial
difficulties. By no means do any of these situations mean there is a
problem, rather they indicate circumstances in which questions should be
- Any deviation from the budget
approved by the board at the start of the financial year
Changes to the budget can mean a change to the organisation's bottom
line – and if this is the case, you need to know about it. However, bear
in mind that a budget is really no more than a plan, and things don't
always go exactly to plan. You need to make sure you are receiving
regular updates on how the organisation is performing in relation to
the budget so you can keep on top of problems if and when they crop up.
- An unexpected reduction in
revenue in comparison with previous years
Unexpected is the operative word here. Reductions in revenue are not of
themselves a reason to be alarmed; income streams are often lumpy.
However, being aware of fluctuations (particularly if they are not
anticipated in the budget) will ensure you can be one step ahead of any
potential problems and take steps to overcome them.
- An unexpected increase in costs
in comparison with previous years
This could include a telephone bill that is usually $100 a month that
suddenly jumps to $500, or a wages bill that suddenly becomes much more
expensive than usual. Again, it is the unexpected nature of the increase
that should set the alarm bells ringing, rather than the increase
- The incurring of any unusual and
unexpected but significant expenses
A large cost that appears out of the blue can throw a budget right out
of whack. When this happens it is important to confirm that the expense
is a one-off and that it can be covered.
- A failure to obtain independent
valuation of major assets
The key feature of this statement is the word "independent". Changes in
the value of any assets that come under your board's responsibilities
need to be assessed "at arm's length" by a third party before any
changes are made to the accounts.
- Significant variation in the
amount of liability (or debt) in comparison with previous predictions
Spiralling debts are often the first sign of ill-health. If the
organisation is spending too much, it's vital to get to the bottom of
the problem sooner rather than later.
- A reduction in the value of net
Net assets are the value of total assets minus total liabilities. Any
change in the net assets, therefore, indicates a change in the
- Poor performing fundraising
If fundraising activities are not bringing in the expected revenue, it
may be time to start pulling in belts or thinking about other
- A lack of clarity as to the source of funds
It is wise to know exactly where
your organisation's funds are coming from as there may be conflict of
interest, legal or ethical considerations to take into account.
- Late reports
Late reporting is often an indication of deceptive behaviour,
misleading practices – deliberate or otherwise – or an attempt to avoid
accountability. Even at its most benign, late reporting still
constitutes a failure of duties and may prevent you from detecting a
problem early enough to fix it. It is therefore vitally important that
the cause of the delay is uncovered immediately and that processes are
put in place to prevent it happening again.
- Vague answers to questions
regarding financial capacity
Board members are duty-bound to ask questions and continue asking them
until they are completely satisfied with the answers. If you are being
put off by the person responsible for safeguarding your organisation's
financial health, you would be foolhardy if you did not find out why.
Refer to the Board responsibilities help sheets for more
information about your financial responsibilities.