Welcome to Benefacts ‘Perspectives’ blog series. We’ve asked a group of thought leaders from the nonprofit sector and beyond to pick a finding from our 2017 Nonprofit Sector Analysis report, and develop it with reference to their own direct experience. We’ll be sharing their insights and reflections with you over the next few months.
“Notwithstanding the public demand for transparency, more than a quarter of non-profit companies chose in 2015 to publish abridged financial statements.” #BeneFACTS17
Richard Dixon, Chair of Charities Institute Ireland, wonders what’s going on.
There’s a pincer movement in charity reporting.
At one end, the number of charities publishing to the gold standard – Statement of Recommended Practice or SORP for charities – has increased to just under 400 (out of 8,000 or so charities, of which half are registered as companies). SORP is mandatory for charities in England, Wales and Scotland but remains optional in Ireland. A disproportionate number of the charities that publish to SORP standards in Ireland are those that generate funds outside of the jurisdiction: 40% of international aid organisations reporting in Ireland use charities SORP. In most other sectors, only about 10% choose this higher standard.
At the other end of the disclosure scale, there’s an increasing number of organisations who’ve chosen to publish abridged accounts, with the latest analysis showing that nearly a quarter of charities who have company registration choosing this route (a three-fold increase over the last couple of years).
First things first: any small company, including charities, is allowed to file abridged accounts. This means even though the company has adopted a full set of financial statements, they are allowed under company law to file a summary (little more than the balance sheet, the names of the directors, and the audit opinion) when they send it to the Companies Registration Office for publication. What’s missing is information about the income and expenditure – this means the reader gets only limited information about their financial profile.
But while they might be allowed to do this, you’d wonder why they would choose to.
Notwithstanding unprecedented public and media interest in accountability and transparency, in 2015 the boards of almost 1,000 charities deliberately chose to ignore one of the more obvious tactics at their disposal which would address issues around public confidence.
The preparation of an annual report, including a narrative on performance, sources of income and, for instance, details on governance arrangements, is an incredible opportunity to influence public opinion and inspire trust.
And I would have a personal (but yet to be investigated) proposition that there is a strong correlation between charities who assume the highest standards (CII’s Triple Lock approach to reporting, fundraising standards and governance standards for instance) and public confidence, income and, ultimately, impact.
Where’s the Charities Regulator in all of this? Thankfully, crystal clear – new reporting standards will ensure that all charities will be obliged to report to minimum standards – standards in excess of those required by abridged accounts. It can’t come quick enough.