Today nfpSynergy is publishing a new report called ‘Show me the money!’ It is a detailed examination of how charities present financial information on their websites, annual reviews or in their communications (as opposed to formal SORP accounts). Our argument at nfpSynergy has long been that it's bonkers to make charities have such tight restrictions on their formal accounts but none about what they publish about their finances outside of those accounts. It's rather as if banks had very tight controls over selling mortgages online, but could do what they liked face to face.
While not all charities in our sample present summary financial data, here are some of the ways that charities change their financial picture between formal accounts and shorter summary versions. None of the examples in our report break any rules, and our purpose isn’t to demonise individual charities, but more to point out that the system is broken. In this blog, we aren’t naming organisations but the report has examples from specific charities.
The fundraising blind spot
Perhaps the most misleading way that some charities present their financial data is to tell supporters ‘This is how we spend your donation’ but then miss out fundraising from the pie-chart of expenditure, or put the fundraising in very small font. It’s very hard to see how it’s a complete picture of a charity’s expenditure if fundraising is missed out. Fundraising is in the formal accounts for sure.
The strategy jargonistas
While the formal accounts divide expenditure into charitable activities, income generation and the like, some of the summary accounts get all strategic. One charity divides its expenditure by: ‘excellence/quality, voice, access, capacity and raising funds’. At one level its laudable to link expenditure with strategy, but its unlikely those headings mean anything to anyone outside the organisation.
Not joining up the dots
Membership is a cunning way that some charities use which muddies on how much they spend on fundraising. Membership probably seems a lot more palatable to some supporters than fundraising. So while the formal accounts set out the expenditure on raising funds, in one charity the summary version for supporters show a figure for fundraising expenditure that is less than a quarter of the formal accounts.
Gifting the difference
Gifts in kind, where a donated item is given a financial value, provide a mechanism by which charities can present financial figures so that fundraising costs appear a lot lower. Interestingly one charity for whom donated goods are 90% of their income shows their figures with and without the donated goods, even in the summary version. However another brags about how low their fundraising costs are – a figure only made possible by gifts in kind.
Shopping in or out
One of the biggest differences in overall figures for income generation is whether a charity has an extensive shop or trading network. Retail is high cost and low margin (often around 30%) which if the costs are included in total income, can make a charity look very inefficient in turning donations into charitable activities. This is a real weakness of SORP – it treats all types of income in the same way. Charities tackle this by often presenting only the net income from retail. While we sympathise with the reasons behind this it’s again a weakness of SORP that forces this to happen.
Quite an event
Fundraising events are clearly part of fundraising. Their costs are in income generation and their income in voluntary income. So its strange that some charities separate off fundraising events and label them differently in their summary version. Its not entirely clear why they do this, but the effect is to make the costs of fundraising less clear.
Net or gross income
Another cheeky little route where charities tweak their figures between formal accounts and summary version is by the use of net-income as opposed to gross income. So in a description of where the money comes from net-income is presented for some sources of income as opposed to gross income for other categories. This presents two problems: firstly, not all categories of income are treated in the same way, and secondly it makes it possible to make high cost sources of income seem lower cost.
Staff, what staff?
Almost no staff are ever portrayed in any of the summary information or review information in our sample of 24 charities we analysed. This is a shame. Our research with the public shows again and again that they care about what CEOs (and other staff) are paid. So while every charity is forced to include the numbers and bands of all staff earning over £60k in their accounts, almost nobody that we found wants to tell people about staff in their summary info. That’s a shame.
The Charity Commission website is deeply misleading
How difficult it is for donors that all this summary information from charities may be flawed and it is hard to compare financial data between charities. What those donors really need is a single reputable and trustworthy source of charity financial data. It would be nice to think that the Charity Commission could be that source for charities based in England and Wales.
Sadly little could be further from the truth.
The Charity Commission website is deeply flawed whether it’s the main site or the beta site (https://apps.charitycommission.gov.uk and https://beta.charitycommission.gov.uk respectively). It makes it look like charities have no fundraising costs when they do in the main site and lumps income generation costs together incomprehensibly in the beta site. If this site does anything, it reduces trust in charities, and certainly in the Charity Commission.
These differences between formal accounts and summary information matter because if we want the public to trust charities, surely one starting place is accessible summary information that reflects the SORP accounts and provides the financial data that the public want. What is the point of SORP if the vast majority of supporters may see financial information that makes it harder to compare between charities, or may present a different picture from the formal accounts, or may be unable to see any summary information at all.