Charities under pressure

09 Oct 2015

Charities are under increasing pressure to be accountable to a broad range of stakeholders, as well as to justify their spend, while managing risks and demonstrating impact. So how can your Charity ensure its finance function meets these demands?

The Charity Commission interprets transparency and accountability as providing 'relevant and reliable information to stakeholders in a way that is free from bias, comparable, understandable and focused on stakeholders' legitimate needs.'

Yet, despite the widespread acceptance that charities have a duty to discharge such accountability to stakeholders, there is seemingly limited knowledge of their information needs and whether the financial and performance information currently being disclosed to them fulfils these.

The accountability of your charity is all about being answerable to those who have invested their trust, faith, and money in you.

To gain a better insight into the perspective of key stakeholders, with regard to such accountability, we should perhaps break these interested parties down in to four groups: donors, trustees, beneficiaries and the media…

Donors:

To make sound giving decisions, donors are increasingly waiting to see measurable results. Without the trust of the public there would be no charitable sector and so accountability is both good stewardship and good for the bottom line. The simple fact is that a donor should be able to assess what their donation will do for a beneficiary and that their money is being used wisely.

Trustees:

Trustees should receive timely information in a format they can understand and use. So while they might not be involved in day to day operations, they will remain collectively responsible for all decisions that are made and actions that are taken. So Trustees should be able to comprehend, consider and comment on financial information and therefore advise on the action to take in response to it.

Beneficiaries:

Beneficiaries will want to know that a charity’s activities meet their stated objectives, has a track record of allocating funds effectively and can meet its current commitments. Not least those organisations seeking support from grant-making charities. If they are already receiving such support, beneficiaries will want to make an assessment, based on transparent accounting, that the charity's current allocation of funds will enable the support to be repeated, should the Trustees deem it appropriate. In this way, beneficiaries can rest assured and plan ahead.

The Media:

To foster public confidence there should be available well-defined, easily measurable and easily reportable information, which show how well the charity is performing

Accountability enables charities to ensure they have ready answers for all these stakeholders.

The good news is that there are steps that charities can take to make their financial processes more effective and their activities more transparent to assist stakeholder groups in making decisions, commenting and sustaining support.

With the right framework in place, stakeholders can easily access information about all significant activities of a charity. For example...

• how they spend their resources and the proportion spent on charitable activities
• an explanation of income and year on year changes is good practice that ensures all stakeholders understand the resources a charity has had at its disposal
• some charities give sparse commentary on financial matters, referring the reader instead to the ‘attached accounts’. Others provide considerable commentary, explaining the major elements of the accounts and the reasons for significant changes year on year
• comment in the Annual Report on the effectiveness of fundraising activities, when they are significant, is specifically required by the Charities SORP and is essential for stakeholders' understanding of how a charity derives its income, e.g. new fundraising initiatives may have high start-up costs that impact on fundraising performance
• most charities receive benefits for which they do not pay, or for which they pay at a substantially discounted rate. The Charities SORP requires that, where this occurs and is quantifiable and measurable, it should be reflected in the Accounts either at cost to the donor or at a valuation made by the trustees
• by reviewing your charity's accounting policies to ensure they are still the most appropriate and reflect the charity's current circumstances and external requirements

Finally, we can help charities on all the above and more to demonstrate to all stakeholders that the charity has identified opportunities for improved financial planning, cash flow management and accountability, bringing the transparency to make the most of your income and mitigate risk. In short, that you have fully considered all stakeholders’ interests.

Contact us to hear more. No pressure!