A Challenge to Charities

At this moment, there are 161,848 registered charities in England and Wales. They have a combined worth of £53.2 billion, with investments of £77.7 billion.

Charities of course come in all sizes, and seek to address a vast range of issues. You have the small charity that just works in a local community such as a housing estate; those who concentrate on issues in their village or town; others who cover a larger region, on either single issues, or multiple issues; then there are the charities who cover the whole of the country. The very small charities often have no paid staff, and rely solely on volunteers, while the very large charities will have thousands of staff, and hundreds of buildings. Here's a rough idea of the breakdown by size of registered charities in England and Wales.

• Small: income under £10,000 = 52% of charities 
• Medium: income £10,000 - £99,999 = 31% of charities
• Large: income £100,000 - £999,999 = 13% of charities
• Largest: income £1 million + = 4% of charities

The vast majority of charities fall into the category of having income of less than £100,000 a year. However, whatever the size, all charities have a number of things in common. They all have a Board of Trustees who oversee the charity, and they are all required to report on their activities and financial position to the Charity Commission, under the terms of the Charities Act 2006. The ultimate responsibility within charities lies with Trustees, and not paid staff. In the last couple of weeks the Charity Commission has published two important documents. One is a research paper on public benefit, and the other is the content of a speech by the Chairperson of the Charity Commission on the subject of charity overheads.

Sheffield Hallam University were commissioned by the Charity Commission to assess how well registered charities were reporting on public benefit in their Trustees' Annual Report.

For many years, Trustees have been required by law to produce an annual report of their activities (called the Trustees' Annual Report), to accompany a statement of their annual accounts. Since 2008, there has been the requirement to report on public benefit in their Trustees' Annual Report, and for charities with over £25,000 income, these are made available for public scrutiny on the online Register of Charities.

In its analysis of the research, the Charity Commission notes that overall, charity Trustees have made progress with the new requirement. Charities with income of over £500,000 were particularly successful, with 94% partially or fully addressing public benefit in their Annual Reports. However, the research also showed that there is room for improvement, and many smaller charities are still not meeting the reporting regulations. A breakdown of the figures shows that for charities with an income of over £500K, 26% had prepared Trustees' Annual Reports (TAR's) which were awarded the highest scores of four or five, out of a maximum of five; this fell to 10% of charities with an income of between £100K and £500K; 2% of those under £100K and 2% of those under £25K. A higher number of charity TAR's were awarded a score of three or more, which meant they had at least met the basic legal requirements, but lacked clarity in some areas. This accounted for 67% of charities over £500K; 36% of those in the £100K to £500K band; 15% of those between £25K and £100K, and 13% of those under £25K.

But what is public benefit reporting? Put simply, it is about explaining:

1. What a charity's aims are, and what it has done to carry them out
2. Who it seeks to benefit
3. How people have benefited

Charities are good at explaining the 'what' and the 'who', but not so good at explaining the 'how'. The 'how' outlines the impact of a charity's work.  People mostly give to charity because they believe that the charity will make a difference to peoples' lives. The public is becoming more questioning; with less money available to donate, people are looking more closely at the work of charities. Research has shown that trust in charities is not what it once was, and many more people are looking for charities to demonstrate full accountability and transparency. And this is the right thing to do.

The question to ask charities is not what are they doing, but what are they achieving? This is the 'how' people have benefited. It is easy for a charity to write down its Aims and Objectives, and to say who it seeks to work with. It can also fairly easily describe what it has provided (Outputs) to achieve those Objectives. So there is a short list of Aims; a longer list of Objectives, and a still longer list of Outputs. BUT, what difference has all of this made to the lives of the charity's beneficiaries? (Some call this Outcomes). Public benefit reporting helps to show this to the wider society. Charities can only do this, and prove it, by having a good record keeping system.

As an example; you're a charity working in the field of social care. A client turns up with a number of issues that are affecting their life. There needs to be an assessment done, so that those issues are clearly noted. This is followed by setting up a Support or Action Plan, that shows how the client, will address those issues. There needs to be regular reviews of the Action Plan, so that progress can be measured, and any other actions agreed. At the end of an agreed period, you are able to see where the client is now; where they started from, and the journey they took between the two points. Not only is this good for the client to see the progress they have made, but it is good for the charity to be able to show the difference they have made to individual lives. Donors are more likely to support a charity if they can see the outcome of the charity's work for themselves. These are the things also that can go in the Trustees' Annual Report.

As the Charity Commission says, "The Trustees' Annual report is not only a statutory requirement, it is an opportunity for charities to 'tell their story well'. As most charities will already know, funding bodies in all sectors take great interest in the impact of charities' work. Evidence of this often needs to be provided in application forms and tender bids. A clear, concise report will make this job easier for charities and their Trustees". So the message to charities, particularly the smaller ones, is that although you are required by law to show public benefit in your Trustees' Annual Report, don't see it as a burden; see it as an opportunity and a valuable exercise, that will allow you to keep the focus of your charity on your original aims. I say this as a retired Charity Chief Executive of a small to medium sized charity, who has helped Trustees to write scores of annual reports. Here's a question to sum up this subject. How would you articulate the contribution made by a charity to the lives of beneficiaries and to the wider public?

Dame Suzy Leather

On the 6th July 2011, Dame Suzy Leather, Chair of the Charity Commission spoke at a charity conference at Westminster Central Hall, where she urged charity Trustees to help the public to understand why charities can't operate on 'thin air and love alone', and that most charities can't make an impact on their beneficiaries lives without spending money on overheads.

She said that Trustees have a responsibility to educate the public about the realities of charity work, to explain how, why and with what effect the charity spends its money. But she said that many were reluctant to speak out.

"I think it's fair to say that charities sometimes feel uncomfortable about this issue. Many worry that the public simply doesn't understand how modern charities operate. Charities worry that people just don't want to understand that, for example: you can't provide effective support to young offenders without having well-qualified, full-time professionals on board. You can't provide sophisticated healthcare in remote parts of the world without accruing transport costs, security costs or paying doctors. Its not helped when charities claim that 'every penny donated goes to the cause'. Not knowing that means the administration is simply paid for in another way. The public is encouraged to believe charities can live on thin air and love alone. But here's my view: the public will never understand why charities have 'overheads' unless Trustees themselves have the courage to talk about them. Overheads are part and parcel of being effective. The public and funders aren't going to suddenly 'get it' unless it's explained to them. Charities have to construct that narrative both about effectiveness and the costs of delivering impact".

I experienced the difficulty of this over many years of work. It was not always easy to get money to go towards 'administration', because people expected that their donation would go directly to the beneficiaries. That view still prevails, and Dame Suzy Leather is correct. Without overheads there would be no organisation, and no service to beneficiaries. Without it being shown by charities, and acknowledged by the public and funders, how is the likes of rent, utilities and salaries etc going to be covered? As Dame Suzy said, "Overheads are part and parcel of being effective". Most charities that I have known over the years have kept their overheads to a minimum; they have not been an excessive percentage of overall costs, but they are part of what it takes to run an organisation for the benefit of its client group. Trustees in their work and in their reports should not be uncomfortable about this.

Dame Suzy Leather had made a suggestion a few weeks earlier that an index could be developed that shows people at a glance, what charities spend on administration, and what they spend broadly on the 'cause'. A poll run in Third Sector magazine revealed that 42% voted in favour of the suggestion, and 58% voted against. Some in the no camp, apparently felt that by raising the issue, the Charity Commission was stirring up trouble. I disagree.

There's work to be done by charities and the public alike. Charities receive both public money and money from the public, so they therefore have a duty to explain what happens to that money. The public and funders need to be in the real world also, and understand what it takes to run an effective charity.

What do both the above issues have in common? The need for charity Trustees to demonstrate full accountability and transparency to supporters and the public. While I believe that some charities have taken on the work that should have been provided by Government, there is no doubt that the world would be a poorer place without the charity sector.