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No mandatory reporting needed on expenses, decides expert group

Finance | Tania Mason | 3 Mar 2010

The independent expert group on sector expenses says there is no significant evidence of expenses abuse in the sector and so charities should not be required by law to publish their trustees’ and managers’ expenses.

While disclosure of expenses is “desirable”, it should not be mandatory, the group concluded in its report and recommendations published yesterday.

Lindsay Driscoll, the former Charity Commissioner who chaired the group, said: “We want the sector to be open and transparent and we would encourage all trustees to consider publishing expenses, so long as it is done in a meaningful way. But we did not find enough evidence to make it a legal requirement for charities to disclose this kind of information.”

The independent group was set up by NCVO and CFDG last autumn after Civil Society invited the chief executives of the major sector umbrella bodies to publish their expenses in the wake of the MPs’ expenses scandal. The group launched a consultation with the sector which attracted more than 600 responses.

While 44 per cent of respondents felt greater disclosure would improve public trust in charities by demonstrating openness on the part of the sector, the same proportion felt it would have no effect. The other 12 per cent thought it would damage trust, citing the general lack of public understanding of the sector and the risk that information might be misinterpreted or inappropriate comparisons made.

In its report, the group wrote that “responses suggested that the lack of transparency in expenses practice was not seen as a particular problem in the sector. There was also no evidence that expenses abuse is a matter of public concern.”

Unlike the MPs’ expenses scandal, where dozens of MPs had claimed for unnecessary or highly expensive items or milked the system to extract maximum sums, voluntary sector cases of abuse appeared to be few and far between.

The group gave three reasons for not recommending expansion of the current disclosure rules: that there is little evidence of concern about charity expenses either within the sector or among the public; that there is little evidence that greater disclosure would increase public understanding and confidence in charities; and that greater disclosure might actually risk damaging public trust in charities by elevating the issue out of proportion.

Also, ‘one size’ of compliance level would not fit all charities.

“Compliance would arguably involve a cost and distraction from charities’ mainstream work without clear proportionate benefits in relation to public confidence,” the group decided.

Existing guidance ‘not always followed’

However, although there was no evidence of any “structural problems” with the handling of expenses, there was some evidence that existing guidance, from the likes of Sorp, HMRC, the Charity Commission and the Code of Good Governance, was not always properly observed.

The Sorp already requires certain charities to disclose how much is being claimed by trustees but also how much is being incurred on a person’s behalf, even if they did not have to personally fork out for the expense. Yet responses to the consultation suggested that only half of charities complied fully with this requirement.

Recommendations for improvement

The group made a number of recommendations in relation to improving management of expenses.

One-fifth of the charities that responded to the survey did not have an expenses policy at all, though 98 per cent of the larger charities did; the group recommended that all charities should have one.

The group also recommended that trustees should, as a matter of good practice, claim any expenses they are entitled to.  Some of the trustees that responded to the consultation said they did not claim expenses even if they incurred them, but the group frowned upon this practice “in the interests of promoting diversity and to avoid disincentives to volunteering”.

“If trustees do not wish to retain their expenses they incur they should considering gift aiding the claimed expenses back to the charity,” they wrote.

The group also recommended that the Charity Commission should review the level of compliance by trustees with Sorp requirements, and that audit and accountancy firms should remind their clients of these requirements. It said the Sorp Committee should consider how expenses disclosure should be addressed in the next Sorp. And it suggested that sector bodies should devise model expenses policies for charities to use.

Despite concluding that minimal change is needed in the sector’s approach to expenses, the group insisted its work had been justified by the high level of interest in the subject.

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