Responsible Financial Stewardship for Charities

An important principle I’m realising whilst working in the charity sector is:
“Spending more in a calculated way to preserve the trust (amanah) is more important than saving money and not fulfilling it.”
At the risk of ruffling some feathers, I am aware there will be camps from both extremes who will argue their position. However, there are a few key words to consider for context:
1) ‘Calculated’ – Not willy-nilly signing off payments without research and due diligence. If it’s a software, getting quotes from different suppliers, comparing features and deliberating with senior management objectively. Ensuring VFM with your needs (and financial ability).
If it’s recruiting a Finance Manager, then consulting agencies or individuals of the going salary relevant to the job. Don’t limit it to £28k if you need him/her to also oversee governance and compliance within the job role. Similarly, you don’t need a £100k p/A ex-investment banker to manage a £5 Million income charity.
2) ‘Preserve the trust’. This is the crux of the responsibility of a charity. They are tasked as custodians of donor’s money to spend on the welfare of the beneficiaries.
Back-end operations & programmes are sometimes under-invested in our sector. Everyone is looking for the next fund-raising idea and happy to spend with low 1:3 or even 1:2 ROI if it generates ‘awareness’. But essential systems – solid processes & procedures, child safeguarding, finance systems etc are generally overlooked.
Anything which can safeguard the organisation from disrepute, incompetency or malpractice should be on the priority list.
3) ‘Saving money and not fulfilling (the trust)’ – All charities *should* try to save money. Altruism is a key aspect and with that comes greater accountability of how money is spent.
If you can operate efficiently at low cost, that is excellent and well done! At the same time, if cost saving is at the expense of fulfilling an obligation then it is blameworthy. Examples:
– Not discharging the donor’s Zakah to the beneficiary within a year of the donation.
– Not knowing how much Zakah you have collected to the penny.
– Not doing the Qurbani within the days of Eid/Tashreeq without reasonable excuse.
– Not delivering funds to orphans/guardians within reasonable agreed timelines etc
In any case, we’ve all seen our fair share of scandals and financial mismanagement in the news worldwide. This is not to call anyone out, but just to say that whilst wasting money is extremely serious, so is promoting under-spending IF you’re unable to discharge the responsibility.
Of course, there are many charities who may have extremely limited income and this post is not aimed at them. A charity with low income or company not breaking even will lean towards extreme cost-cutting which is natural.
But once you’re out of that situation, it’s important to take stock of taking a middle path.