Feature / Introduction to...governance

Governance is a cornerstone of the management of any organisation. It assures stakeholders – staff, patients and taxpayers – that their interests are protected and the organisation is well managed. Though finance departments often lead many aspects of governance work, governance covers all that an organisation does and, as such, should be the concern of all staff.

‘Corporate governance’ only came into common parlance after it was used in the 1992 Cadbury committee report. It defined governance as ’the system by which companies are directed and controlled’ – how an organisation is led, structured and held to account.

More emphasis has been placed on governance in recent years following a number of high-profile failures – Monitor intervened at Mid Staffordshire NHS Foundation Trust partly because of a lack of good governance. As part of its regulatory framework, Monitor assigns a governance risk rating to every foundation trust. And it is considering using adverse governance ‘events’ to adjust financial metrics under its new risk assessment framework (see news analysis, page 8).

Governance can broadly be split into three areas – people, policies and control frameworks. The first is essentially about an organisation’s culture and values, including style of leadership and codes of practice. Policies include its structures and processes, such as arrangements to meet statutory and regulatory requirements, while controls include risk management and audit.

Financial governance focuses on areas including: risk management and assurance; the statement on internal control submitted as part of the annual accounts; and internal and external audit. The finance director has a key role. The Finance Staff Development Board guide, The role of the finance director in a patient-led NHS, says their three key roles are to provide financial governance and assurance; provide business and commercial advice to the board; and to perform their corporate duties as an executive member of the board.

This means finance directors will be involved in corporate management; they will be accountable to the chief executive and the board for financial management; they must manage the finance directorate; and they must prepare the annual financial statements and ensure there is probity in the use of public money.