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Infrastructure bodies criticise ‘regulatory overkill’ in Charities SORP

12 Dec 2016 News

The Charities SORP has become too complex and steps should be taken to ease the burden on smaller charities, according to two bodies that represent the sector. 

The Charities SORP is the set of accounting rules which sets the framework for charities' annual reports and accounts. A research exercise on its future was launched in May, and the deadline for responses passed yesterday.

Responding to the consultation, the Directory of Social Change accused policymakers of “regulatory overkill”, saying they are increasing regulatory burdens on trustees “often with insufficient justification or a clear rationale for effectiveness”.

It suggested a dedicated phone and email helpline for smaller charities, along with a “frequently asked questions” section on the regulators’ websites and improved search functionality to make it easier to find guidance.

“Smaller charities are saturated with information for legal and reporting requirements from various regulators, which are often in the form of lengthy and complex documents," the response said.

‘Overly onerous’

This view was echoed by the Association of Charity Independent Examiners (ACIE), which called for the reporting requirements for small charities to be reviewed and relaxed. 

It said: “A number of the requirements imposed by the SORP on small charities are overly onerous without adding significantly to the reader’s understanding of the charity and its financial position. 

“These requirements can lead to accounts for smaller charities being at least 20 pages long, significantly reducing their usability as readers are put off reading them.”

It added: “The reporting requirements for small charities (income under £500,000) should be further relaxed. 

“ACIE would support a review of the all SORP requirements for small charities taking as the starting point for small charities the FRS 102 requirements plus the minimum number of SORP specific requirements for transparency and accountability.

“This can then be built on with more requirements for medium and large charities.”

Key facts summary

DSC’s response was also critical of a number of other proposals in the research exercise, including the proposal for a “key facts summary” to be included as an annex to the annual report.

It said the suggestion was “bizarre” given that the summary information return was scrapped a few years ago on the basis that it was a duplication.

“Regulators should focus on educating the public about what they do, and how to understand this information, rather than looking for a ‘silver bullet’ solution based on an assumption that a few bits of information will educate the public. 

“Despite the intention that a key facts summary would provide greater clarity, it may actually obfuscate a fair analysis.”

Fundraising and donations

Furthermore, DSC said a proposal for a more specific definition of fundraising costs was “disingenuous”.

“Fundraising overheads are not a proxy for charity effectiveness or even necessarily fundraising effectiveness – some charitable causes by their nature are more popular and a less challenging fundraising ‘ask’ for the public, hence perhaps requiring less investment or generating higher returns relative to investment. 

“Fundraising can be extremely complex and attempting to strictly standardise reporting requirements on costs to make it ‘easier’ to compare charities’ fundraising practices is disingenuous.”

However, DSC gave a cautious welcome to a proposal that charities should name their “material” donors and the amounts given. 

It said that the principle of transparency outweighs the potential for donors to be put off from giving, although that disclosure should be best practice rather than mandatory. 

This would mean the names of individual donors being declared unless there is a compelling reason not to do so, such as religious beliefs, sexuality or health conditions, it explained.

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