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4 steps for NFPs to implement a governance framework

4 steps for NFPs to implement a governance framework

In February 2022, we surveyed senior professionals at not-for-profit organisations to develop a deep understanding of the sector. In this article, you’ll find simple steps for implementing a sound governance framework.

Survey findings at a glance

Most common governance priorities:

  • 64% say clarity of Purpose and group strategy
  • 48% says clear Risk Management Framework
  • 47 % say sufficiently resourced management roles
  • 43% say open communication between board, management and broader organisation
  • 40 % say organisational compliance with policies and confidence incidents are resolved appropriately
  • 35% say board structure and composition

Governance priorities

Clarity of purpose and group strategy were the top identified governance priorities of responding NFPs, emphasising the increasingly professional and formal approach adopted by the sector. Furthermore, the growing sophistication and diversity of Boards, together with an increasingly risky operating environment has encouraged Boards to demand additional frameworks to oversee and manage risk exposures, aimed at:

  1. Improving organisational sustainability, and
  2. Mitigating potential director liability.

Although such risk frameworks are important, the challenge for many organisations has been having sufficient resources (people, skills and financial) to implement these risk frameworks, without impacting the capacity to deliver on group strategy and ‘business as usual’ operations.

NFP governance has evolved as the professional community have increasingly decided to ‘give back’ seeing them take active roles within the sector.

This has led to an increase in professional and formalised governance models, which have benefited NFPs with more defined and measurable strategies that deliver on the vision and purpose. Although overall clarity in strategy and purpose was the highest ranked priority, there were significant differences in responses based on organisation size, with it rating as the highest priority for smaller organisations.

This likely reflects medium and larger organisations already having this organisational structure in place, whereas smaller organisations with fewer resources and a higher percentage of volunteers are still working through this process.

With NFPs experiencing an increasingly complex and higher risk operating environment, understandably Board member’s sensitivity to potential personal exposure is increasing. In response to this environment boards are increasingly prioritising the identification and management of risk.

However, this awareness of the need for risk management frameworks has not translated into universal action, with approximately 20% of respondents not having anything formal in place.

Good governance frameworks require having the right structures in place including:

  • Appropriate involvement of the board and/or relevant board committees,
  • Tested systems for identifying business and financial risks, and
  • Policies and procedures for guiding operational compliance, monitoring and decision-making

Although creating the frameworks is the first step, the responsibility for delivering and implementing these often falls to management, which can create resourcing challenges.

Governance needs to support and guide operations whilst maintaining focus to deliver on the NFPs mission. Therefore, boards need to plan for adequate resourcing, to allow the strategic direction to be achieved, whilst balancing this against the need for a structured risk management framework (to ensure key strategic risks are identified, prioritised, and managed).

What this means for you

When implementing a sound governance framework NFPs should consider these simple steps:

  • Ensure purpose and strategy flow through the organisation to guarantee engagement of staff, volunteers and other key stakeholders. Surveys can be an effective means of assessing internal engagement and seeking honest appraisal.
  • Develop a risk management framework which details potential threats and opportunities, and assesses the risks, as this will assist in prioritising strategies and allocating resources.
  • A risk framework should be formally overseen by an internal committee and should be regularly challenged by the board and/or board committees.
  • Have an independent party (either internal or external) complete checks to provide oversight and assurance to management and the board to strengthen governance.

Return to the not-for-profit survey insights hub here.

This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your professional advisor. To the maximum extent permitted by law, neither Pitcher Partners or its affiliated entities, nor any of our employees will be liable for any loss, damage, liability or claim whatsoever suffered or incurred arising directly or indirectly out of the use or reliance on the material contained in this content. Pitcher Partners is an association of independent firms. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. Liability limited by a scheme approved under professional standards legislation.

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