15 May 2015
Developing an action plan can help charities generate positive responses
The current charity governance climate is challenging. In recent years, there have been high profile financial charity collapses and there is a perception that scandal and mischief stalk the sector. The Charity Commission has also faced a barrage of criticism from several Parliamentary Committees, the media and a small but vociferous portion of the general public. Whether these attacks are unwarranted or largely unfounded, their impact is significant, which subsequently influences the regulatory direction of travel.
Speaking at a Westminster Social Policy Forum seminar, the Charity Commission Director of Policy and Communications said there needs to be ‘a strong, constructive relationship between the Commission and the charities we regulate … Our relationship with the sector should never be cosy. We are the sector’s regulator, not its defender or champion.’
This distinctive refocused approach from the Commission, as public registrar and regulator of registered charities in England and Wales, is reflected in its activities. For example, the number of new investigations into charities quadrupled in 2013/14 compared to the previous year. It is also reflected in the tone and content of stronger guidance notes issued on matters such as conflicts of interest.
A Charity Commission review last year found some charities are at risk of being unable to fund the deficits on their staff pension schemes. Around 740 charities with income over £500,000 were identified as being at risk, with an eye watering sum of £617.4 million – that equates to 16% of the total income of the affected charities. The research also found that many failed to report clearly that they were aware of the issues or what they were doing to deal with them. Following a number of major charity fraud incidents, the Charity Commission has also issued a statement urging charities to self test their resilience against fraud.
The Commission’s recent sampling of charities’ annual accounts and trustees’ annual reports show that 32% of those accounts were not of a standard to meet accounting regulations and obligations, and 65% of trustees’ annual reports failed to report public benefit adequately. This is of great concern as the provision of charitable public benefit goes to the heart of what a charity is and why it exists.
Those who work, volunteer or advise in the charity sector are subject to concerns around the right use of money and resources, as well as criticism about what they do, where funds come from and how they are spent. There is also criticism surrounding their credibility, amid a rising trend of public scepticism about key aspects of how charities operate. These are often inaccurate perceptions, based on rumour and lack of understanding.
Public confidence and trust has however remained relatively high – only doctors and the police are ranked higher – but there are downward trends, as evidenced by the Charity Commission’s research, which found:
The research indicates the most important influencers of trust and confidence are:
Charities can expect the tougher regulatory approach to continue. The Commission is likely to gain most of the additional regulatory and intervention powers it has been seeking when the Protection of Charities Bill is formally introduced to the new Parliament. Charity trustees must catch up with the fact that, with severely reduced resources and refocused priorities, the Charity Commission can never again provide the kind of one to one general support for charities it once did.
The Charity Commission recognises that, despite its best efforts, its key messages are not reaching many charity trustees. As Sarah Atkinson, Director of Policy and Communications at the Charity Commission, said: ‘The fact that we see the same problems occurring again and again in charities – poor financial controls, poor decision making – tells us that too many trustees don’t understand their basic duties. We have to change that. So we are getting smarter, more creative and more innovative in reaching trustees and preventing serious problems from arising…’
To its credit, the regulator has adopted a new strategy to improve the reach of its key messages, through bodies such as ICSA; charity sector events; and specialist charity advisers including chartered secretaries, lawyers and accountants who specialise in advising and supporting the charity sector.
In this challenging charity governance context an action plan can help charities generate positive responses for those they seek to help.
Be transparent about where funds come from, how much your charity spends generating those funds and who it pays to help it generate them. You should also be clear on what the charity spends and how, why and what the outcomes of that expenditure are, and who benefited and how they did so. It is imperative that you are upfront about what did and did not work, and how the charity has learnt from both.
There is a major education task to help the public recognise the reality of life in the charity sector. There is a need to be mindful that very few people have a basic understanding of what charities are, what they do and how that contributes positively to our world. We cannot assume people know the key facts or understand the implications of those facts – for example that 81% of registered charities in England and Wales have income under £100,000 per annum and only 1 in 6 have any paid staff at all. It is also important to remember that public scepticism is in part fuelled by some of the charity sector’s failures to communicate effectively and to practice the transparency and integrity that the sector holds dear.
The new Statement of Recommended Practice (SORP) offers charities the opportunity to make a more effective case for their cause by focusing on the right optional reporting aspects and in giving the required ‘fair, balanced and understandable review’ in the annual trustees report.
Against this background, the launch of the new Level 4 ICSA Charity Law and Governance qualification, available from January 2016, is timely. The qualification seeks to improve understanding of the laws that govern charities in order to strengthen stewardship among key charity people and to improve the sustainability of charitable organisations.
Cecile Gillard is the author of How to Run a Charity and Charity Checklists, visit www.icsa.org.uk/shop to order your copy of these books. She is also a regular speaker at ICSA events, visit www.icsa.org.uk/events to stay up to date with the latest.
Cecile Gillard is Charities Legal Manager at Burton Sweet