Charity annual reports and accounts are one of the key unifying features of the charity world.
All but the smallest charities have to produce them. They set out their income, their expenditure, their reserves, their salaries above a certain level and much more. Indeed, the rules governing charity accounts are over 100 pages long.
Except for small charities doing simple cash accounting, the format of accounts is set by the SORP (Statement Of Required Practice), and changes are driven by changes in accounting standards and co-ordinated by a Committee on which I have sat for the last 18 months.
The requirements for charity accounts set by SORP have evolved over many years. In attempts to pin charity finances down more clearly, the requirements have got more detailed. Grant-makers are typically one of the groups who like more detail in charity accounts, so they can do due diligence before making grants.
Listening to debates on the SORP committee, I find that my fellow committee members, who are mostly finance and accounting folk, talk a language that I can barely understand sometimes.
My interest in charity accounts is the window they provide on charities and their activities. Our research at nfpSynergy has consistently shown that the public are as concerned about how charities spend their money as how they raise it.
Around 60% of the public say that a charity spending too little on the cause would put them off giving. Around 50% say that too much spent on staff salaries, or not knowing how their donations were spent, would put them off giving.
The good news is that charity reports and accounts do show all this kind of information. The bad news is that the information is not easy to find either on charity websites or in charity accounts.
Our research, published in our free report ‘Searching for Answers’ in 2014, showed that it’s very difficult to find out things such as how much a charity spends on fundraising, or how many staff are paid over £60k a year except in the accounts.
The problem is that charity accounts are very long to find any specific information in. One of our lucky researchers analysed over 50 annual reports and accounts found that the length was typically 50-60 pages, and while the shortest was a positively skinny 23 pages, the longest was around 177 pages.
An analysis of the research showed that there was no relationship between the length of reports and accounts and the organisational income. Some charities just like to go on a bit.
Accounts are used by a variety of stakeholders, people who they are designed to be for: the Charity Commission, the SORP regulations, trustees, staff, beneficiaries, donors and the public. The conundrum is what to do when these interest conflict. The more detail provided because its’ required by grant-makers, the less likely it is that donors will even to try and find what they are looking for.
My solution to this is to have an executive summary in charity accounts: a key facts section if you like.
This would cover income and expenditure on key areas such as trading and fundraising. It should also cover the number of staff who are paid above £60k, as well as other information such as staff numbers, reserve levels, and this year’s figures compared to previous years.
Indeed, what I am suggesting is not a million miles from what is already on the overview of a charity on the Charity Commission for England and Wales website. And I found a good example of a ‘key facts’ section from another sector in the Yorking Building Society annual report.
It covers finances, but it also covers customer service and awards. So while a charity would have certain features that it had to cover, it wouldn’t have to be all about money, and it would have the freedom to cover things it was particularly pleased about.
All the coverage and repercussions that came to light in the wake of the tragic death of Olive Cooke show that public trust is shaken by these kinds of events, and that there is a gap between the public perception and the reality.
The problem is that charities have tended to shy away from being transparent about their finances and salary structures. This disconnect between what charities do and what the public think they do has meant that charities have fallen harder, and public disillusion is even greater when the reality comes out. We need systemic improvements in transparency, and a key facts section required by SORP is one way to do that.
If you want to respond to the consultation its here. The information is on the excellent SORP microsite. The consultation is open until December 2016, and there are many other ideas for how SORP could change. Please respond especially if you agree with me on a ‘key facts’ section in charity accounts. The shape of charity accounts is far too important to be left just to the accountants and grant-makers. They matter to everybody concerned with charities.