It’s time to transform financial reporting for charities

Does SORP really address the needs of its primary stakeholders? Joe Saxton looks into the issue and talks about what needs to be changed.

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 Saxton


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