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Is there a golden formula in charity reporting?

Ensuring financial information can be used in a meaningful way to reinforce public trust in charities was the theme of this year’s Charity Accountants Conference in Nottingham.

Our guest speaker Kate Lee, CEO of CLIC Sargent, who describes herself as the ‘self-appointed fairy godmother of charity reporting’, led the opening discussion on honest and transparent reporting.

Kate said that while the importance of transparent reporting has been discussed for many years, charities still need to focus more on their external audiences and not hide anything.

Impact reports are the obvious way to do this – they should not only discuss what a charity does but how they do it. She said donors like to fund causes directly but they want to know the whole story.

Kate highlighted that impact reports have become very trendy in recent years but that many read like marketing documents. As a result, do they tell the whole story – what works and what needs to improve?

She said, “Impact reports really need a heading that says, ‘Hands up, we’re not perfect’. This is the approach taken by CLIC Sargent in its 2017 when it listed openly the things that hadn’t worked well.

The Golden Formula for generating trust?

Discussing declining public trust in charities in recent years, Kate acknowledged that the issue of Chief Executive pay will run on in the media, however, it is possible to educate people about how much of the £1 donated goes into frontline services.

For example, she said, the public needs to know that charities like CLIC Sargent invest its funding in charity shops, resources, supporting and thanking donors or they may need to buy accommodation centre for young people with cancer and they need reserves – all of which comes out of the £1.

She also said that people need to understand that comparing charity gross expenditure is misleading and too complex. There are around 185,000 different charities, all with different services and funding pressures and there is no standard way of reporting, which makes it impossible for the public to compare them.

Instead, people could be encouraged not to compare charities by what they spend but their work and their impact to get a sense if they are honest. How do they do that? Kate recommends what she calls the ‘golden formula’: reach vs resources vs impact.

She highlights that if we want people to assess a charity in a more meaningful way than penny-in-the-pound ratios, they need to be encouraged to ask three questions:
1. How many people do we reach?
2. What sort of impact do we have?
3. How much do we spend doing that?

She said that if the answers are truthful, transparent and credible, then it’s not unreasonable to ask them in return to trust charities to work out exactly how they spend their money to get the most incredible impact for that cause they care passionately about – from cycle paths to otter conservation (or children with cancer of course). But, essentially this all comes down to honest reporting that is open both about successes but also the mistakes/areas for improvement.

Commenting on Kate’s comments, Jonathan Orchard – partner at Sayer Vincent said; ‘This is a real opportunity for charities to use the opportunity of their trustees’ annual report to answer Kate’s three golden thread questions. We do need to move the debate on charity performance forward and this is a simple yet effective way of doing that. And what’s more it is perfectly in line with what the SORP expects in these reports. The SORP says that trustees’ reports should “tell the charity’s story in a fair and balanced manner, acknowledging both significant successes and failures”.