Accounting for trust: The role of accountants in upholding public support for charities.
I am delighted to be here at Buckfast Abbey with you.
Buckfastleigh, you might be interested to know, is a suitably charitable town, home to 13 diverse charities. An impressive snippet of information I was able to extract from the Online Register of Charities on the Commission’s website.
Still, I must admit it seemed a little incongruous at first – an event for accountants being held at the home of an order of Benedictine monks, being addressed by a lay woman.
What could modern, worldly charity accountants have in common with followers of a 6th century Saint? And what could connect the two to the Charity Commission, to regulation?
Well there is, in fact, something linking all three - the life of the monks hosting us here, the work you do with charities and the role of the charity regulator.
And it’s in that very word – regulation.
Because we owe one of the most influential pieces of regulation – of rule-setting – in European history to Saint Benedict himself.
His famous Rule – the Regula Benedicti – essentially a set of guidelines for monks, is thought to have introduced the mediaeval Church in Europe to the idea of the written constitution, of the rule of law.
And it’s one of the earliest examples of a set of principles to which all– from the abbot down to the most humble novice – were equally subject.
It is still praised for striking a balance between the needs of the individual and communal demands for order.
You can tell where I’m going with this, can’t you.
Modern regulation, notably charity regulation, owes a historical debt to the Benedictine Rule.
In fact, it is a living relation of it.
The charity SORP is exactly such a framework of good practice – a set of principles designed to guide, to give structure and to maintain mutual trust.
And the proportional approach the Commission takes to regulation also owes a debt to the very human balance of the Benedictine Rule.
Now, I am reliably informed by Ray Jones that you are a plain-talking sort of crowd, that you’re not likely to be thrilled by a theoretical lecture.
So I don’t intend to dwell further on the Regula Benedicti or its relevance through history, fascinating though it is.
But I do think it can be helpful, now and again, to consider the origins of our accepted norms, our values.
Especially at times when – whether due to significant political changes, or economic crises – we start fundamentally questioning the way we do things.
And this is certainly a time of economic difficulty for many charities.
You don’t need me to tell you that when charities see their income decline and demand on their services increase, something, at some point, will have to give.
But I’m not here to spread doom and gloom. Not for the sake of it anyway.
I’m here to talk about the crucial role you play in helping charities work through the challenges they face, and make the most of the opportunities that present themselves.
And to illustrate that point, I would like to start by sharing some good news with you.
The good news is that people still have great trust in charities.
Our Public Trust and Confidence Survey, which measures peoples’ responses to and views about the sector, reveals that charities remain among the most trusted groups in society, third only after doctors and the police.
The survey’s not rigged: it’s carried out professionally and independently by the market research company Ipsos MORI.
This year’s results show people have consistent faith in charities’ ability to make a positive difference to the causes they work for.
And most people continue to believe that charities provide society with something unique, something other types of organisations cannot.
Now, saying charities are well liked can sound obvious.
But in an age of increasing cynicism, in which many of our once respected institutions have taken a battering, it is heartening to learn that we’ve held fast to our trust in charities.
But the Trust and Confidence research also contains some more sobering messages.
They are messages of particular importance to you and to accountants across the country working with and supporting charities.
The survey suggests that people are becoming more discriminating about financial management in charities.
The most important factor now influencing peoples’ trust in charities is the proportion of charities’ income that goes to the end cause.
The last time we asked, back in 2008, the most important factor was a charity’s ability to make a positive difference to the cause it works for.
That, of course is still an important driver. People still care that a charity is effective in the way it operates.
But what happens to charities’ income – especially income raised through public donations – appears to preoccupy people more than it did in the past.
Almost all those asked in our survey – 96% – say it’s important to them that charities provide the public with information about how they spend their money.
And the factor now most likely to make people trust one charity less than others is ‘not knowing how it spends its income’.
The recent media debate about the role of ‘chuggers’ – paid charity fundraisers – only serves to highlight the strength of public feeling in these areas.
Now, not all members of the public understand what running a charity involves.
Some people, unrealistically, are uncomfortable with any proportion of their donation going on overheads, or staff costs, or fundraising.
So the Charity Sector has to do more to explain why it’s not realistic to expect all charities to spend the entirety of their income directly on their beneficiaries.
And to help people consider what ‘the end cause’ might mean: Is the cost of line rental for a charity operating a telephone helpline an administrative cost – or is it money spent on the end cause?
But charities and their advisers will also need to respond to increasing public scrutiny of their finances.
And that’s a particular challenge for you, as their accountants. These results demonstrate just how central the work you do for charities can be.
It is your responsibility to help charities examine the way they report to the public about their spending.
To help them redouble their efforts to be open, to be transparent, to be accountable.
And that starts with the very basics –
Such as ensuring charities submit their annual updates, annual returns or annual accounts to the Commission on time.
Having a red mark appear against its name on our website – which happens automatically when a charity fails to meet the deadline – could have a seriously detrimental effect on that charity’s public standing.
While most charities are well aware of this requirement, we’re still seeing too many failing to file on time.
A quick check on the register before I came here revealed that, as of this morning, there were 9055 charities with incomes of up to £25,000 whose latest documents are overdue. While these charities are not required to send us their full accounts, they are required to send us an Annual Update or Annual Return.
And in Devon alone there are 309 charities that have not sent us their most recent documents…
These numbers may represent a small percentage of the total number of charities in those categories – but I would argue they’re enough to suggest the sector as a whole could benefit from greater reporting discipline.
And Show Charity – the section of our website which allows people to search the register – goes further for the larger charities.
All charities with incomes of over £500,000 see their income and expenditure for the year displayed in pie charts.
This allows the public, at a glance, to find out what proportion of its income a charity raises through voluntary sources, and what percentage of its spending goes on charitable objects.
This function isn’t designed to name and shame charities with higher fundraising or governance costs than others.
Charities operate under different circumstances and there may be very legitimate reasons why one charity spends more on, say, fundraising than another.
Perhaps they need to do more to persuade the public to support their work –often charities working with people with addiction problems cite this as an issue.
But Show Charity is designed to make larger charities accountable for their decisions and answerable for the priority they attach to different elements of their activities.
We urge charities and their accountants to see this as an opportunity to show off, to be transparent and to explain.
Another such opportunity is granted by the annual report, and specifically, the section in which you set out what your charity has done to further its purposes for the public benefit.
While media reports about the public benefit requirement have, sadly, portrayed it as the Commission’s crusade against independent schools, I consider it a hugely important public accountability tool for all charities.
It’s an invitation to say to people:
Here are our activities and impact. This is why we merit charitable status.
This is why we deserve your continued trust and confidence.
And this is why you should consider supporting us financially.
I mentioned these as the basics. Reminding, encouraging, cajoling charities in these areas is a minimal but hugely important service accountants provide.
But in light of the serious crisis financial shortfall many charities could be facing in coming months, you, as professionals, can do more.
The Commission isn’t just guessing when we say many charities are in trouble.
That is borne out by solid research.
The Commission has been conducting an Economic Survey of Charities every six months since the downturn began in 2008.
The survey asks charities whether and how they have been affected by the recession and what they think the future holds.
In March of this year – the last time we carried out the survey, 59% of charities said they had been negatively impacted by the recession.
Smaller charities appear to be faring slightly better – only around half of charities with incomes of less than £10,000 a year had seen a drop in income.
Whereas just over 70% of larger charities, i.e. those with incomes of over £100,000 a year, have seen their income decline.
In many cases that impact has been two-fold: a reduction in the charities’ income coupled with an increase in demand for their services.
So you can see that for many charities, the challenge will not just be upholding their reputation, as important as that is.
For many charities, it is increasingly about survival.
Charities reliant on local authority grants or central government funding may have to look elsewhere for income once the expected cuts come into effect.
And the public, the private donor, is likely to be the place they go looking first. Currently, around a quarter of charities rely on public donations as their main source of income.
We see that increasing.
So it is vitally important that charities meet public expectations and encourage public donations.
But even with an increase in public donations to charities – an outcome we all hope for – many charities will need to cut costs, make efficiencies.
Again, this is an area in which your know-how, your expertise will be crucial. Of course, we can’t expect even the most skilled accountants to magic money for charities out of nowhere.
And making savings can be a painful struggle, a really soul searching process for charities. As it will be for us as their regulator.
Which is why, last year, we published guidance to help charities and their advisers assess how the recession has impacted their organisations, and what they need to consider to get through these difficult times.
The Big Board Talk is based on research we conducted with charities and includes the 15 key questions that we think trustees should be asking.
It’s been endorsed by the CBI and we describe it as ‘the discussion every Board should be having’.
Areas covered include whether a charity can diversify its income, whether it can fulfill its contractual commitments, whether it is making the best use of permanent endowment investments.
The Big Board Talk also provides some ideas for ways of working that can help charities cut costs.
Such as working collaboratively with other charities.
There are many reasons for collaborating – often charities come together on the basis of their shared aims and beneficiaries.
A recent example is the proposed merger between bassac, the umbrella body for community organisations and the Development Trust Association.
They’ve previously worked together on programmes such as the Safer Homes Fund and are both founding members of the Community Alliance.
That work led to a realisation that they might be able to achieve more – have more clout – if they combine their skills and expertise into one body. They’re now consulting with their members on a merger.
But there are also great examples of collaboration far short of merger, which are designed to make savings for charities.
One of my favourite cases involves two household names: the Children’s Society and the NSPCC.
They got together in 2004 to form Charityshare, a consortium to which they outsourced all their IT functions.
Charityshare provides and manages the charities’ information infrastructure and all the associated services, including purchasing and technical support.
And it’s working – the scheme now saves the charities involved around £1 million pounds a year.
And the Children’s Society and NSPCC have been joined by three other household name charities wishing to benefit from the savings.
Those are just a couple of examples of innovative collaborative working.
There are more.
But not enough.
The Economic Survey of Charities I mentioned earlier revealed that only 9% of those asked had considered merging, collaborating or forming consortia with other charities.
So we’re advising more charities to consider how collaborative working can help promote effectiveness and efficiency.
Another area in which we believe charities can cut costs is communications.
So much can now be done online – via email, your website, through twitter.
The Charity Commission recently experienced first hand how powerful the new media can be.
It was a few weeks ago.
We issued a scam alert after being made aware of a number of types of fraud being employed to steal from charities.
It was fairly standard, and we didn’t expect this to be of interest beyond the sector press.
But the alert, like all our updates now do, went out on Twitter as an RSS feed.
And within hours, the message had been ‘re-tweeted’ scores of times, reaching hundreds, possibly thousands of people in a really direct way – and it didn’t cost us a penny.
It’s not for the Commission to tell charities how to talk to their donors.
But we do think that by cutting down on expensive mail outs and shifting some of their comms to Facebook, twitter and their websites, many charities could save small fortunes.
And raise fortunes – just look at the success of the Disaster Emergencies Appeal on Twitter following the Haiti Earthquake. That raised 8 million pounds.
And, of course, these media are available to all charities, regardless of size or budget, which is part of what makes them so exciting.
We’re certainly keen for charities – and their advisers – to access the Commission’s services online.
We certainly don’t think it is ideal for accountants and lawyers to charge charities for the time it takes them to draft a letter and the costs of paper and postage, when they could be dealing with us electronically.
Happily, many accountants already communicate with the Commission online on behalf of their charity customers.
More than 75% of charity annual returns are now sent to us electronically and in August this year, 83% of applications for registration came to us online.
And our website saw an impressive 40 million page views in 2009.
That’s all good news. It saves charities money, it saves us money and it’s a much faster process.
So if you work with any charities that are not yet online, you must, please encourage the trustees, at the very least, to set up an email account on which to talk to the Commission and through which to receive CC News.
So, to summarize –
Your professional focus is crucial in helping charities maintain public trust and confidence.
And you have a unique responsibility for helping the charities you work with survive the recession and think about new, efficient ways of working.
These are not side-issues.
These are not frilly extras.
These issues are absolutely central to ensuring charities remain a powerful force in our society.
I started with some historical perspective, and I’d like to finish with some.
The oldest charity on our register, King’s School in Canterbury, was founded in the 6th century - 1500 years ago and the very time at which St Benedict lived and wrote his Rules.
And over the past week, scores of new charities have joined the Commission’s register, including:
Hope and Chance, a charity aimed at preventing poverty and promoting the physical and mental health of children in Ukraine, Belarus and Russia.
The Hepworth Wakefield Operating Trust, set up to establish and run an art gallery in Wakefield.
And Friends of Oakley Special School in Kent, which will help advance the education of the school’s pupils by developing relationships between members of staff and parents and by providing the school with facilities.
These examples of old and new charities serve to illustrate the endurance and the ongoing social relevance of the charitable sector in our society.
But we shouldn’t take the role of charities for granted – public expectation of charities have risen in line with their expectations of other areas of society.
There is now far greater public scrutiny, far greater interest in impact, far more discussion in public about charities’ finances – especially among those with lighter purses.
We all have a shared responsibility to help charities meet these challenges and shape up for the future.
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