Good Governance

13 May 2016

“Good governance is all about the effectiveness of the board. The world in which we operate does not stand still and boards need to continually challenge themselves to ensure that the desired outcomes are being achieved in an ethical manner with the optimum use of resources.”

Key priorities for the coming months are:

Optimising the contribution of board members

Good induction and ongoing briefings on current and emerging developments, for example changes in financial reporting, ensure that members keep up-to-date with issues affecting their organisation. Undertaking a skills audit can highlight gaps, which in turn can focus recruitment efforts, ensuring that board composition is appropriate in terms of diversity, skills and expertise. Adequate preparation enables healthy discussion and good collective decision making in board meetings. Issuing the agenda and papers at least a week in advance and minutes shortly
after the meeting is good practice. Establishing an annual plan, with meetings timetabled a year in advance, enables individuals to allocate time in their diaries for attendance and preparation. An annual plan also ensures significant matters are given adequate time for discussion at the appropriate meeting.

Reviewing fraud prevention measures

Sadly, an economic downturn increases incentives to commit fraud, for example where individuals are under personal financial pressure or there is pressure to achieve budgeted financial results to meet shareholder or funder expectations. Good fraud prevention measures ensure a culture of honesty and ethical behaviour is established, and remains in place, with active oversight of the internal controls through regular, independent internal audit. Boards need to review their fraud prevention measures to ensure these continue to work effectively, particularly where there have been changes in personnel or increased workloads.

Risk management

All businesses need to accept a level of risk in order to take advantage of opportunities – the key is to determine the risk appetite of the board and identify and manage risks, not only financial but also operational, strategic, compliance and reputational risk. Reviewing the risk register and considering emerging risks, such as cyber-security, should be a standing item on the board agenda.

Managing conflicts of interest

Successful business people are often highly valued members of many boards which can create potential conflict of interest situations which need managing to ensure they don’t become an unintended issue. This includes using a register of interests, declaring and documenting potential conflicts, and having minutes which clearly set out how the board has collectively managed the matter. The process also needs to ensure that
relevant transactions are identified and reported in the financial statements.

Conclusion
By continually asking ourselves if we are doing the best for our organisations, we will ensure that we are doing so.

For more information contact Elaine Parr, Audit Senior Manager, elaine.parr@aab.uk

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