I met a taxi driver in Belfast last year. He told me he wants to give more to charities and he had spent a couple of nights trying to work out which charities to give to. He tried to compare financial performance of various charities and how much they spent on salaries. He’d given up because he couldn’t find the information he wanted on the charities’ websites.
I am not surprised. Our approach to the financial reporting of UK charities is a mess, and our new report ‘SORPed out’ released today says it’s time for fundamental change. For three years I sat on the SORP Committee and resigned last autumn. I learnt more acronyms than I could ever need: FRC, FRED 67, FRS 102, GAAP, FRSSE, TAG, SoFA to name but a few. I also learnt a lot about how financial reporting in charities works, or more exactly doesn’t.
The heart of the problem is that while SORP says its primary stakeholders are the public and donors, its mechanisms have been captured by charity finance professionals. The SORP Committee only has two people on it who aren’t finance professionals or representing finance professionals. The processes are deeply technical and filled with jargon. There are no donors or members of the public on the Committee.
For me this looked eerily close to the self-regulation standard setting of the fundraising profession pre Olive Cooke: the regulated deciding what regulation they receive, with no research budget for primary stakeholders to input, or to understand how these stakeholders felt.
This matters, because financial reporting is a critical tool for increasing public trust. In nfpSynergy research the top three barriers to giving are centred around how charities spend their money, with the biggest barrier being ‘too little money going to the cause’. We recently carried out (pro-bono) focus groups where donors told us how they wanted summary information and found annual reports fascinating, but just too long.
Equally inexplicable is that the only regulated aspect of financial reporting by charities are the annual reports and accounts. Any other information, such as website or magazine highlights are unregulated. So, charities are highly regulated in the forms of financial reporting that the public and donors rarely touch, and unregulated in the areas that donors and the public are most likely to encounter. So much for SORP addressing the needs of its primary stakeholders.
The charity sector has a habit of not addressing its flaw until after the horse has bolted and is galloping down the road. We have previously seen this with fundraising, and we are seeing it now with safeguarding after the Oxfam revelations. People in the sector knew about the weaknesses but it took a media firestorm to force action.
We have the opportunity to take action before the firestorm, to make charity finances more transparent. Our report, SORPed out, details both the weaknesses and our proposed solutions to the current situation. It will undoubtedly be painful and take time and commitment to reform the current situation. However, if we want people like my Belfast taxi-driver to be reassured that charities spend their donations effectively we need to act, before the media or political spotlight is on us again.
Joe, you raise some good points about accountability and transparency in charitable fundraising and how they account for the money they recieve. Trust is critical as you say.
can I offer a slightly jaudised comment or two.
1. Fundraising and the truth are not good companions ...if we knew the truth about who so many people are poor (i.e the politics behind self interest) we woould not give to many causes because they do not address the real issues. Charities are ecomomical with the truth and want to play on emotions rather than reality.
2. Many charities are not honest in their reportingas they collude with accountants to financially present information to their advantage. Its easy to say we spend less that 10% on fundraising but how they come to that figure is through not counting in many costs they transfer eleswhere.
3. with 160,000 voluntary organisations there is no way to scutinise them and only the big headliners make the bad news such as Oxfam and Kids Company
there..I feel bettter now
I wonder if your taxi driver would find a UK version of US Charity Navigator useful.
I wonder if he & others would donate to an independent charity that provided such info. (And if not, who might fund it.)
I am aware of at least one very larger charity which has actually gone out of it's way to disguise/hide information that would be of interest to supporters. I am one of those few people who at one stage was taught about Annual Accounts and when challenging some dubious reporting have been depressed by the stonewalling by the ICAEW, and the apparent lack of comprehension by the Charity Commission.
I will be digesting this much-needed report to make a fuller reply.