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Governance, regulation and compliance Charity finance policy

CFG responds to the Charity Commission’s consultation on the SORP-making process

Charity Finance Group has made the following response on behalf of its members to the Charity Commission consultation which closed on 4 February.

Question 1 Please explain your role (or the charity or organisation on whose behalf you are responding) including your specific interest in or use of charity accounts

This response is on behalf of the Charity Finance Group (CFG), which is the charity that works to improve the financial leadership of charities, promote best practice, inspire change and help organisations to make the most out of their money so they can deliver the biggest possible impact for beneficiaries. CFG has over 1,450 UK charities in membership. Collectively, these charities manage £22bn of funds – this represents around a third of the entire UK charity sector’s income.

As such our members are responsible for the preparation of charity accounts, so have a clear interest in the composition of the SORP, and charity accounts more broadly.

Question 2 Who do you see as being the main users of charity annual reports and accounts? To whom are charities being accountable when they prepare their annual reports and accounts?

There are a range of stakeholders who use charity accounts, so it is not clear who the main users of a charities annual report and accounts are. On the one hand charity trustees will use them to make strategic decision about the finances of their charity and they have final responsibility for the accounts of their charity. The Charity Commission will use them for regulatory purposes, grant-making organisations and donors will use them to make decisions regarding funding decisions. It is not clear which of these, if any, are the main users of charity accounts. If someone proposes a particular stakeholder is the main user, evidence of this should be required.

Question 3 What do you see as being the main purpose of the Charities SORP? Do you feel it is effective at meeting that purpose? If not, what changes would you suggest to the processes of developing the SORP to improve its effectiveness for those who prepare and use charity accounts?

The main purpose of the SORP is as a financial accounting document, and it is broadly effective at meeting this aim. While there may be a temptation to extend the remit of SORP to cover a much wider range of metrics and measurements, this would distort the its primary purpose. This would be of great concern to CFG, as it would exponentially increase the administrative burden charities already face, and would correspondingly increase costs in meeting these additional requirements. It is our view that these additional costs placed on charities would outweigh any potential benefits. Furthermore, it is far from clear if including additional information in the SORP would be the best way of communicating these messages to a wider audience, as the SORP was never intended to cover this wide a remit. As there are other, better, means of charities effectively demonstrating transparency to donors, beneficiaries and the general public.

Question 5 Do you consider that the composition of the current SORP Committee is appropriate both: (a) to provide the necessary expertise in charity accounting and (b) to reflect the range of stakeholders who use charity accounts and reports?

It is important when considering the composition of the SORP committee what the role of the committee is. While there is value in reflecting a range of stakeholders who use charity accounts, perhaps the most important consideration should be that the committee has members who represent the sector as a whole, rather than the narrow perspective of any single stakeholder. Different views are to be welcomed, but there is a danger that including representatives from every niche part of the sector could dilute the decision making process. If the committee is broadened out, it is important that those on the committee have the qualities of objectivity, bringing an understanding of the issues impacting charities as a whole, instead of trying to be advocates for their particular part of the sector. Furthermore, it is essential that any changes made to the composition of the SORP committee lead to improved conversations and decision making.

Question 6 Do you consider that the work of the SORP Committee is overly technical in its approach? If so, what changes should be made?

We do not think that the work of the SORP committee is overly technical in its approach. By its nature, the SORP committee will inevitably have to discuss technical content. This is not to say that this is its only remit, and that other views should not be heard, but moving away from the necessary technical discussions would not be conducive for the Committee making better decisions.

Question 7 Do you have any other comments on the structure, size or membership of the SORP Committee?

An issue which is of concern is the prominence of the Charity Commission governance structure in the SORP. The SORP is an advisory body to the Charity Commission and should therefore remain independent and removed from the governance structures of the Commission for it to do its job effectively. In recent years the Charity Commission has moved to a more populist approach. So instead of advising, the Commission has attempted to influence the SORP, reflecting its views moving beyond its merely advisory role.

Question 13 Do you think that the SORP development process should cover all forms of financial reporting by charities – both those required by charity law (or company law) and other financial communications issued by charities – for example in a non-statutory annual review, summary financial reports, or visual summaries of a charity’s finances?

CFG does not believe that the SORP should cover all forms of financial reporting and other forms of financial communication. If it were to be expanded to include a wider remit, it would unnecessarily increase the administrative burden on charities, and potentially dilute the SORP.

Questions 16 Do you have any other comments on how the SORP is developed, the SORP-making body, the advisory SORP Committee or the SORP consultation process?

The focus on efficiency as being the most important metric for impact within the SORP is misguided. This ‘one size fits all’ approach confuses efficiency with impact or delivery of mission. The main charitable aim of many charities is not efficiency or maximising profits, but to offer a service to the community. For instance, many charity shops do not operate to make huge profits but have added value of offering volunteering opportunities, local employment, reducing landfill, offering goods to those who would not otherwise be able to afford them, providing a hub of information for the local communities and raising funds for their mission etc… – whether the focus be on medical research, animal rehabilitation or hospice care to name but a few. Efficiency is not a cypher for impact so it should not be made the driver of reporting within the SORP.

 

For more information on this response please contact Richard Sagar, Policy Manager, on 020 7871 5484 or policy@cfg.org.uk

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