The information to stay financially viable

Effective governance and financial management depends on good quality, timely and relevant information, which forms the basis for decision making, scrutiny and action planning. The role of the finance committee is key in ensuring that the body with ultimate responsibility for an academy’s, college’s or university’s finances (referred to in this article as the governing body) has adequate information to enable it to discharge its financial responsibilities and that the institution remains financially viable at all times.
Although the governing body is responsible for the institution’s finances, it can delegate specific powers and processes to committees who are accountable to the governing body. Monitoring of the institution’s financial position and financial control systems is normally undertaken by a finance committee. Although this is not mandatory, it is regarded as best practice. A committee examines annual estimates and accounts (including the accounting policies upon which they are based) and recommends their approval to the governing body. It can ensure that short-term budgets are in line with agreed longer-term plans, and that they are followed. A committee also has the ability to consider any other matters relevant to the financial duties of the governing body and make recommendations accordingly.

The role of the finance committee
To be effective, a finance committee must have a clear remit and written terms of reference, clearly stating the extent and limits of its responsibilities and authority. The interface between the role of the finance committee and that of the audit committee (where it exists) should be clear. The role of a finance committee in overseeing financial matters is different from the audit committee which oversees risk management, control and corporate governance and the economy, efficiency and effectiveness of the institution’s activities. The role of the audit committee is to scrutinise and review these areas across the institution, including financial matters.

In smaller institutions such as some academies, the role of the finance committee is sometimes combined with that of an audit committee. Similarly, some small institutions do not have a finance committee and the governing body undertakes this role. In such instances, there may be members of the audit committee present when issues associated with the finance committee role are being discussed. In both such cases, the potential for conflicts of interest need to be very carefully thought through and addressed appropriately.
A finance committee must take care not to exceed its terms of reference. It should distinguish between issues on which it is empowered to take decisions, and issues that must be referred to the governing body for decision. In deciding which tasks should be delegated to a finance committee, the governing body should retain a formal schedule of matters reserved to it for its collective decision. For example, final decisions on the review and approval of the institution’s annual budget.
It is important that finance committee members attend meetings on a regular basis. Continual non-attendance will reduce the committee’s overall effectiveness and may risk the meeting(s) not being quorate. Where this occurs, the institution should take appropriate action in accordance with its usual procedures.

The institution should have appropriate arrangements in place for the induction and ongoing training of finance committee members and a senior officer such as the clerk should have the responsibility for organising this. Induction could be carried out through a detailed training and briefing session with the chief financial officer (or equivalent), sometimes as part of a more comprehensive induction programme.
The training could include, but not be restricted to understanding the committee’s responsibilities, including the respective roles of members and officers; funding body requirements for the institution such as those included in the financial agreement between the two parties; and the future funding landscape, particularly any trends of growth opportunities for funding or possible cuts in funding. Training could also include the key elements of the budget and the longer term financial forecast for the institution, particularly the institution’s main grant from the funding body; the financial accounts and reporting processes; course costing information; and other key financial functions such as purchasing and insurance.
The finance committee should meet at least three times in each financial year, usually once per term. And its terms of reference should cover the following areas: constitution, membership, quorum, attendance at meetings, frequency of meetings, authority, duties, reporting procedures and clerking arrangements.
The terms of reference should include provision for urgent approval of items, such as major contracts, that cannot wait until the next meeting of the committee. Such provision could for instance be approval by the chairman of the committee and another non-executive member, with the requirement to report for information on the decision to the next meeting of the committee. Alternatively, it could be via a telephone conference call with all committee members.

A source of guidance
The finance committee clearly undertakes a key role in an institution and in recognition of this fact, CIPFA’s Academies, Colleges and Universities Panel is producing a guide to their role that will provides a practical source of guidance and advice for finance  committee members in academies, further and higher education. It will also be valuable to other governing body members who retain some financial responsibilities and to other interested parties. It describes finance committee members’ roles and responsibilities in detail and provides the context in which such committees operate.
There is emphasis throughout the guide on ‘questions to ask’ to help committee members to assess the effectiveness of their own committee. Answers to these questions will also form a useful basis for any future actions. This guide will be available in Autumn 2015.

Further information