Good financial governance
21 March 2025
Joanna Watson argues that you don’t need to be a finance expert to balance the books, but you do need good governance
When I previously wrote about financial governance—first in 2017, and then again in 2023—the focus was very much on the NHS, where financial pressures have been serious for some time. Financial pressures are now far more widespread and are impacting public-purpose organisations of every type.
You might recognise Charles Dickens’ quote about money from David Copperfield: ‘Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.’
Mr Micawber’s warning applies to organisations just as much as it does to individuals. When income is less than expenditure, misery follows for those who work in finance and are trying to balance the books, for boards as they look at making difficult decisions, and for those using services—and that’s you and me. And let us not forget the impact on the seldom heard, who are even less likely to be able to access services than they did before.
What are the options?
In this situation, organisations have three options: overspend, cut expenditure, or a combination of the two. And that is exactly what we’ve seen in the NHS.
NHS funding growth began to slow down in 2010/11, and since then:
- overspending has increased, with local NHS systems overspending by £1.4bn in 2023/24[1]
- waiting lists doubled from 2010/11 to December 2019, just before the COVID-19 pandemic[2]
- health outcomes have worsened – Sir Michael Marmot’s report, ‘The Marmot review 10 years on’ reported that from 2010-20 life expectancy has failed to increase, health inequalities have widened, and people spend more time in poor health
But what about other sectors? A survey[3] by the charity finance group in November 2024 found that 84% of charities are very or moderately concerned about being able to afford the rise in employer national insurance contributions. Universities are making significant cost reductions, with around 90 universities currently implementing redundancy schemes[4]. Spending per student in further education colleges in 2024/25 is about 10% below 2010/11 levels[5]. I could go on…
Good financial governance
I feel the topic of financial governance has a bit of a bad press. It’s something for the accountants on the board, isn’t it? In carrying out governance reviews, or supporting governance improvement, I often hear finance committee members who are not finance professionals comment that they don’t know why they are there, because they are not accountants.
But this isn’t about understanding accounting policies or financial forecasts – although those are of course important – it’s about making sure that the decisions being made about how money is spent are wise, and well-informed. It’s about good governance.
Good financial governance ranges from the operational:
- are our financial controls sound?
- is our in-year reporting reliable, useful and timely?
through to the strategic:
- are our financial plans consistent with our strategy?
- in our reporting can we see the relationship between how we spend our money and the achievement of our strategic goals? Or to put it more simply, is our money being spent on the right things?
Every member of the board matters when the finances are concerned. It’s important that all board members – whether or not they have financial skills and experience – understand the information being presented to them, and the implications of the decisions being made.
If you set a deficit budget for next year, what does that mean for future years? What will the funder or regulator say? If you have a plan for cutting costs, can that be done while maintaining – or perhaps improving – quality? And what does that mean for our strategy?
Dealing with information overload
All too often, and in every sector, we hear of tensions between those on the board who are not executives (non-executive directors, governors, council members, trustees) and the director of finance or chief financial officer. Here’s a recent real-life example: the finance director is unhappy that they are having to spend time producing huge finance packs for the board, whereas the non-executive directors aren’t happy that the information isn’t easy to follow, and they can’t find what they are looking for, so ask for more information. It’s a downward spiral that, without action being taken, will quickly end with wasted time and increasing levels of frustration on both sides.
This is where lean governance comes in – what GGI calls making meetings matter. It’s about stopping and taking time to rethink your approach to governance and decision-making. The principles can be used in any sector and any setting – and apply to financial governance as much as any other type of meeting. The approach involves:
- Discovery: Identify what meetings you have which focus on financial matters. Where does each meeting report? Is it clear what the purpose of the meeting is? Who’s attending? How effective do attendees feel the meeting is?
- Redesign: What assurance does the board need on the finances? That should inform the work of the finance committee. Who should attend the finance committee? What should be in the committee workplan, and what papers are needed to enable discussion and decision-making? The same questions can be applied to the management groups (reporting to the executive) that focus on financial matters
- Implementation: How do your meetings need to change to improve their maturity? What needs to happen to make those changes happen? What training, awareness-raising, and communications are needed so that meetings run effectively?
Experience has shown us that by following this approach, not only will your financial governance be more effective, but executive time will be saved too.
While it’s challenging to invest time in improving financial governance when there are so many financial pressures to address, it’s better to take action now, when you will see improvements almost straight away, than to plough on with increasing levels of frustration and run the risk of making poor financial decisions in the future.
Questions to be considering
Here are a few questions for board members to consider:
- Are our financial governance arrangements in line with best practice? How do we know?
- In making financial decisions that involve cutting costs, are we thinking through all aspects of the impact – on the quality of what we do, on our reach, on our reputation, on our ability to innovate
- Are we focused on financial sustainability? This isn’t just about the financial outturn for this year and next, it’s about considering quality improvements which reduce costs, transformation programmes which are truly about transformation rather than just cost-cutting, and taking a longer term view where possible, such as investment in digital which provides efficiency savings for years to come
And finally…
There really is no such thing as a silly question. Whether you are a financial professional or you consider yourself to be financially illiterate, questions asked by board members who have read the papers and have thought through what else they know about the situation are likely to be very perceptive. That’s a key part of good financial governance.
[1] https://publications.parliamen...
[2] https://ifs.org.uk/publication...
[3] https://cfg.org.uk/knowledge-h...
