Posted by Peter Barretto on June 7, 2017
Over the past few years charities have been subject to more scrutiny than ever, with increasing news coverage and scandals having a significant impact on public confidence in the charity sector.
As part of its ‘Audit insights’ series, the ICAEW has published a report looking into how charities can demonstrate the positive contribution they make and how to help turn the tide on public perception. A full copy of the report can be found here.
The report finds that many charities fail to sufficiently explain the positive outputs, outcomes and impact of their work. A lack of description can lead to key financial figures being taken out of context which can add to confusion over financial performance.
“To improve engagement with stakeholders, charities need to be more open and discursive in their reporting” adds the report. Including information on the key performance indicators can help the charity towards achieving greater transparency and commitment."
Transparency does not always equate with more information, “the focus should be in providing meaningful and relevant information to demonstrate a charity’s impact”.
Invest in operations
Charities can often fail to invest in areas such as IT, training, governance and management due to the perception that all monies should be spent on the beneficiaries. Charities can also be concerned with ratios, such as proportion of expenses spent on administration and fundraising, which again can give unrealistic views of performance.
“Cost ratios and measures of how, and where, funds are distributed are often used as a proxy for effectiveness and efficiency. The fact is that in almost all cases such measures are flawed and lead to inaccurate conclusions”
The investment decision should be measured based on the predicted results, not the perception of the spend. Spending on infrastructure to improve efficiencies will enable the charity to be more effective at delivering its objectives.
It can be difficult for charities to attract trustees with the right skills and experience. Many charities do not help their cause by having restrictive criteria on who can be a trustee.
“Charities also need to ensure there are fresh perspectives on the board. Diversifying the board can boost public confidence, bring additional expertise and generate new ideas that improve the impact of a charity’s work”
Charity boards should regularly self-review, and consider if they have the correct skills in the right places, and identify if there is a need for further training.
Developing and reviewing the charity’s reserves policy is essential to ensure the trustees understand the level of reserves the charity needs to retain. “Too many charities have reserves policies to justify their existing reserves rather than really considering what reserves are needed."
Charities should explain the longer term trends in their reserve levels to give stakeholders a better view and understanding of the charity’s reserves policy.
The charity commission publishes guidance on such policies, which can be found here.
If you would like to discuss any of the matters above, please contact your local Bishop Fleming advisor.