The Charity Commission has published the results of its latest Accounts Monitoring Review. Despite identifying overall improvements in charity accounting and reporting it has found that many charities (predominantly small charities) have been failing to fulfil their public benefit reporting duty.
This serves as a reminder for charity trustees to invest time in preparing their annual reports. It also provides useful guidance on good practice and possible reform in getting charities to ‘tell their stories well’.
Reporting – where charities fail
The review found that just over half of annual reports 'demonstrated a clear understanding of the public benefit reporting requirement'.
This requirement has two key parts:
- a standard statement that the trustees have considered the Charity Commission's published guidance on public benefit, and
- a more in depth explanation to illustrate the public benefit that has derived from the charity's activities in the period.
Failure to properly understand this requirement by 49% of charities meant they missed – as the review says - the 'opportunity it provides for charities to ‘take stock’ of how well they are meeting their objectives and the difference that they have made to their intended beneficiaries'. The themes of the Charity Commission’s review also build on research it has published previously on trustees’ approach to their duties and public confidence in charities.
In particular, the review differentiates between the quality of reporting and accounting by ‘small’ and ‘large’ charities. It notes that 74% of 'larger' charities (with income over £25,000 per annum) against 64% of smaller charities (falling below the £25,000 threshold) produced adequate reports and accounts.
It also considers the need for charities to inspire trust and confidence in the public, which was touched upon in its report on 'Trust in Charities 2018'. The Charity Commission has identified reporting a key tool for charities to restore and maintain trust and confidence in the public.
The key message in this regard is that annual reporting does not just need to be a burden but can be a positive opportunity for charities to build trust amongst their beneficiaries/donors.
Time for reform?
While the Charity Commission’s review provides helpful guidance for good practice it does not add to or simplify the existing law.
In preparing accounts and reports charities still need to ensure they follow the correct Statement of Recommended Practice (‘SORP’) developed by the Charity Commission and Office of the Scottish Charity Regulator’s SORP Committee.
However there is the possibility that in the long term these SORP rules could change to reflect the Charity Commission’s concerns and provide a legal basis for a new approach.
This year current and former members of the SORP Committee have expressed a desire to update the SORP to meet the same concerns the Charity Commission’s review identifies:
- accommodating smaller charities’ concerns; and
- allowing the public to understand public benefit more easily.
We also note conclusions of a working party set up by the SORP Committee which suggested in June that charitable companies with income below £250,000 could be allowed to prepare simpler accounts to reduce the administrative burden on many of them, and which might allow a better emphasis on public benefit.