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Statutory reporting – is this an answer to public trust?

 

For the last four years, we’ve heard a lot about public trust in charities, and how it’s in decline. We’ve also heard that charities must be more transparent and accountable as a means of combatting a fall in trust.

Is this really true? Do we need to change the charity reporting regime to increase public trust?

By David Ainsworth, Sector Specialist, CFG

Post byGuest blogger

For the last four years, we’ve heard a lot about public trust in charities, and how it’s in decline. We’ve also heard that charities must be more transparent and accountable as a means of combatting a fall in trust.

Is this really true? Do we need to change the charity reporting regime to increase public trust?

Is there really a crisis of trust?       

When we look at the Charity Commission’s top-line measure of trust in charities, it looks like bad news. It seems to show a sharp decline in public feeling about trust.

If you dig into the numbers, though, they show that people are really only thinking of big fundraising charities when they consider that question. And both times the research was conducted, there had just been a big charity scandal in the papers. And actually, we can’t really be sure they’re talking about trust at all. So the value of the survey is limited.

This isn’t to say there’s no problem, though.

The Charity Commission research shows that when people are asked about what they trust charities to do, the picture doesn’t look as good. They trust us to be ethical, but not to be effective. And there’s suspicion about charities funded through contracts, or investments, and about professionalism in the sector.

For me, the most important data point is not any trust barometer. It’s simply the number of people who read charity stories. It tells us that people are very eager to see charities scrutinised, and they are not wholly happy with the current scrutiny regime.

They do not want to do the work themselves, but they want someone, somewhere, to examine charities’ public benefit.

We can argue about whether this desire for scrutiny is wholly fair, but it certainly exists.

There appears to be some justified scepticism about whether scrutiny is taking place. After all, the Commission only has a budget of 40p a day for each registered charity. It struggles to read the accounts it is sent. And it is empowered only to check whether charities comply with minimum legal standards.

Underperformance is more widespread than is necessarily recognised. Over the last few years, I’ve read several hundred regulatory case reports, and it’s clear that bad practice is often unidentified for long periods of time, and that there is neither the scrutiny regime nor the resources to tackle it.

If you believe that children and vulnerable adults should be safeguarded in any institutional setting, then regulating that alone would cost far more than the current Commission budget.

Even if you just wanted someone to read all the annual reports, that would need more budget.

It feels odd that the voluntary sector – turnover £50bn, 400,000 organisations – is similar in scale to the education sector – turnover £75bn, 100,000 organisations – but has one-sixth of the regulatory spend.

So there may be a scrutiny problem.

 

Is better charity reporting the answer?

It’s a curious fact that charities exist for the public benefit – and the public are mostly interested in what benefit was delivered – but we are required to account mostly for what happens to the money we receive. Public benefit is relegated to a boilerplate.

Better scrutiny of public benefit is the whole answer. The last few years have identified two genuine, serious and systemic problems – fundraising practice, and safeguarding. These were problems of scrutiny, for sure, but they wouldn’t necessarily have been solved by better reporting.

Elsewhere, though, there are indications that something needs to be done. Our sector has quite variable feedback and accountability mechanisms. Some charities are strongly answerable to members and beneficiaries, or to regulators who assess performance, such as Ofsted or the CQC. But others have assessment only of compliance, not performance. Others go years without much scrutiny at all. Most famously, the third big charity scandal of the last four years – Kids Company.

This is a charity which continually claimed that it was trustworthy because it was audited. Essentially, however, the auditors were assessing simply that the accounts were a true and fair reflection of a very poorly run charity.

Here, it could be argued, is a failure which could have been prevented with proper scrutiny.

The press is fumbling towards this idea of scrutiny. The papers are full of hit-and-miss pieces which highlight a vague disquiet about our sector, full of ropy metrics. Particularly that dreaded phrase: efficiency ratios.

If we want to do away with the efficiency ratio, with its simple and compelling misrepresentation based on the idea that front line is better than back office, then first we must stop using the tool ourselves, but also we must offer something else in its place. We need to move the focus from transparency about what we spend, to accountability for what we do.

Perhaps the annual report is the right tool for this.

 

What would an excellent report look like?

A transparent annual report has to start with public benefit. Or impact, if you prefer – the two phrases are synonymous.

I previously worked on the Charity Awards, which brought together experienced charity leaders to identify high-impact charities. In the end, our panel of CEOs boiled it all down to a few simple questions:

 

  1. Who are you trying to help?
  2. How are you trying to help them?
  3. What outcomes did you deliver?
  4. How much did they cost?
  5. How did you measure success?
  6. What did you do that didn’t work?
  7. What are you going to do differently next year?

 

All the best annual reports I’ve read tend to answer these questions, completely and honestly. They also compared year-on-year, acknowledged failure, contained independently verified data, and put the beneficiary front and centre.

Among the best current reports include CLIC Sargent, WaterAid and Street League, who are all reporting using elements of these structures.

But there are incentives which tend to prevent strong reporting. Charities are constantly seeking funding, and are therefore incentivised to exaggerate results and cherry-pick the data they include in annual reports and impact reports to show that they are successful. It means outcomes data in annual reports isn’t comparable year-on-year.

 

Is the wider environment helpful?

If statutory reporting of public benefit was to be used as a vehicle to increase trust and accountability, it would ideally be standardised as far as possible and audited. This would obviously come with some expense, and would be hard to do, so it is not a given that the benefits would outweigh the disadvantages.

If it were to happen, it would need regulatory support. Without the agreement of the SORP-making body, changes to the annual report to give a greater focus on impact will happen in a very partial way.

There is gradual but glacial movement in this direction. The Charity Commission has indicated enthusiasm. But there are serious constraints, including reluctance from the bodies which control accounting standards.

In truth, it is likely the lurking public disquiet over scrutiny will, in any case, come to nothing. People have more important things on their mind than charity reporting. It is very unlikely they will stop giving or volunteering, whatever happens.

So development of stronger scrutiny of charities’ public benefit is likely to happen very slowly.

Unless, of course, there is another crisis.

In more normal times, with a parliament more able to legislate, we might encounter another scandal – one Oxfam too many – and have an altogether more draconian regime foisted upon us.

If we are already thinking hard about best practice, and reporting as best we can, we will be in a better position to shape that debate.

This was originally part of David's speech at our 2019 CFG Northern Conference

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