Trustee Trends – Charity Risks
Reza Motazedi says it is the time for charities to consider how financial statements can best attract the support they need and tell the charity’s story.
In tough economic times, one challenge for charities is to provide attractive and innovative annual reports that both fulfil reporting requirements and grab their potential supporters’ attention, time and funds. Competition for donors is fierce and an accessible, appealing report clearly demonstrating the achievements of the charity and its value to the wider society is likely to draw more interest.
It is seven years since the publication of the 2005 Statement of Recommended Practice (SORP).The SORP gives guidance on how charities should implement the accounting standards for financial reporting, as set out by the Accounting Standards Board. It would seem to be time to get to grips with its requirements, but evidence from Deloitte’s third annual survey of charity trustees’ reports suggests there is still some way to go both in meeting the requirements and creating an exciting report.
The way charities present their information is key to telling their story. Deloitte’s survey found huge strides taken in the number of charities presenting visually attractive financial statements, rising from 20% in 2010 to 48% in 2012. The number producing a separate annual report, generally proclaiming the charity’s success in pictures, has also risen. Just over one-quarter (28% versus 44% in 2011) of charities produced neither visually-stimulating financial statements, nor a separate annual report.This indicates that, potentially, these charities could be missing out on reassuring supporters, grabbing the attention of new donors or communicating clearly and easily with stakeholders about the value they have added. Given the expected changes to narrative and integrated reporting, charities should examine and assess the impact they can make with a high quality report.
However,‘looks’ aren’t everything and the quality of the reporting is fundamental. Reports resonate most with funders, donors and supporters when a charity shows clearly how money is spent, and more charities are making direct and specific links between activities and related expenses. Despite this, 40% of charities did not provide an obvious link between the expenses shown in the statement of financial activities (SOFA) and their activities described in the trustees’ report.
Current economic conditions will affect the risks charities face and the targets they set, yet the SORP does not go beyond requiring confirmation by charities that risks have been considered. Only charitable companies are required to include principal risks and uncertainties, and key performance indicators (KPIs). However, these risks and targets can paint a broader picture about the challenges facing any charity not just a charitable company.
Encouragingly, almost half (48%) of charities did report on the specific risks they face. The main risks reported were consistent with those noted in last year’s survey, and included concerns about operational risks, income, legislation and regulation. KPIs, on the other hand, were only disclosed by 20% of charities, even though they can help focus on a charity’s objectives and achievements. The most common KPIs related to beneficiaries reached, beneficiary satisfaction and employees. The surveyed showed many charities merely ‘ticked the boxes’ to comply with the reporting requirements, particularly in areas of going concern, structure and governance.
Information on structure and governance is still not given by all charities and less than 60% gave more than a perfunctory indication of their arrangements. For example, many charities simply stated that trustees are elected at the annual general meeting, but did not explain how trustees are nominated or selected to stand. Other charities commented that new appointees receive an induction pack and training, but did not elaborate on what this was and how it informed and integrated a new trustee into the organisation. Whilst these disclosures may be perceived by charities as basic requirements, they can still be used to differentiate the charity, or to express the culture and attitude of the organisation. A final highlight, 58% (up from 52% in 2011) of charities this year acknowledged the support of volunteers and described the help they provided, with more charities in absolute terms giving some quantification of that assistance. Now is the time for charities to consider how the trustees’ report and financial statements can best attract the support they need and tell the charity’s story.
Reza Motazedi is the Head of Charities and Not For Profit Group at Deloitte LLP.