Many organisations find themselves in serious financial trouble due to financial haemorrhaging. This can be prevented or minimised through effective Board financial oversight. Through this oversight, the Board also assures shareholders, key stakeholders and the public, that all funds invested and all returns from the business are used strictly to support the vision and mission. Financial oversight is one of the most important Board responsibilities. Organisations run the risk of making headlines when Boards overlook or fail to relentlessly focus on this key responsibility.

Financial Oversight Defined

Financial oversight entails appropriately stewarding the financial resources of an organisation to prevent or minimise financial haemorrhage and ensure financial soundness of an organisation on a sustainable basis.

Sources of Financial Haemorrhaging

The Board should be alive to some notable sources of financial haemorrhaging in order to play its stewardship role more effectively. Below are some of them:

Lack of Financial Expertise

A Board that lacks financial expertise will be handicapped in discharging its financial oversight role. Every Board must, at a minimum, have one Finance expert who can read financial statements, assist with the budgeting process, help with budgetary control and keep an eye on cash flows as well as systems and internal controls.

Lack of Financial Fluency

For effectiveness, a Board should have a good balance of skills. This, in essence, means that Board members will come from a diversity of backgrounds. Therefore, not all Board members will feel comfortable or competent interpreting financial statements or conducting a budget review. Providing Financial Fluency training to Board members is therefore, an imperative to build Board capability for financial oversight.

Lack of an Effective Finance and Audit Committee

A Finance and Audit Committee not only makes a ‘deep dive’ into the financial affairs of the organisation on behalf of the Board but also makes an objective look into the organisation’s degree of compliance with its systems and internal controls. A lack of an effective Finance and Audit Committee significantly lowers a Board’s effectiveness in its financial oversight role.

Poor Review of Financial Statements

For most Board meetings, the following financial information is provided as part of the Board Pack:

• Income Statement;
• Balance Sheet;
• Cash Flow Projection; and
• Current Annual Budget.

Reviewing of this financial information by the Board is a key component of any Board meeting – a financial health check for the organisation. A poor review of this information can only spell disaster for the organisation.

Lack of Financial Policies

A financial policies document – a document jointly developed by management and the Finance and Audit Committee, is an important financial oversight tool for the Board. Such issues like who is allowed to open/close bank accounts, who can sign cheques/make bank withdrawals, how expenses are reimbursed, etc. are included in a financial policies document. This is key in the provision of financial oversight by the Board.

Absence of  a Procurement Policy

Horrendous financial leakages are often reported in organisations that do not have a procurement policy. At a minimum, such a policy must have a list of approved suppliers and provide for how to manage conflict of interest in the procurement process. A procurement policy is another important financial oversight tool for the Board.

Financial haemorrhage in organisations can be prevented or minimised, through a relentless focus on financial oversight by the Board.