As the initial research exercise on the next SORP nears its conclusion, Gareth Jones summarises some of the key talking points.
Is it November already? That means we are now four-fifths of the way through the SORP Committee’s initial research exercise for what the next SORP framework might look like.
The consultation is the first stage in a road map which will culminate in a new SORP, taking effect from 2019.
What is notable is that while the last SORP update was pre-occupied with the need to align charity accounting standards with FRS 102, this latest review advances some more ambitious and controversial ideas.
Naming of donors
One of the most notable is the suggested requirement to name all your “material” donors and the amounts they give. These would include individual, corporate and statutory donors.
On one level, this could be a good thing, as it would force secretive think tanks like the Institute of Economic Affairs to disclose which business interests are funding their lobbying and research activity.
However, for most charities this conflict of interest is fairly benign, and the fear is that the requirement will merely discourage giving among those donors that place a high value on their privacy.
Key facts summary
The latest research exercise brings a new approach to simplifying financial data via a "key facts summary".
However, while there is some merit to providing key stats such as income, expenditure and number of staff in a clear format rather than expecting lay users to interrogate complex financial statements, it is the suggestion that charitable expenditure could be quoted as a percentage of income that is worrying.
In essence, this would be a crude measure of what money is going to “the cause” and what is going to “administration costs”. Such as figure would be prone to misinterpretation without sufficient context to back it up.
I wrote about this in more detail in the latest edition of Charity Finance magazine, but in essence, this measure is simplistic and fails to account for charities’ specific needs and ways of working.
Continuing on the theme of back office costs, the SORP Committee appears willing to abolish the definition of “support costs” as it “encourages unhelpful comparison”.
However, it suggests replacing it with more specific definitions of “fundraising” and “administrative” costs.
While these terms are perhaps easier to understand for the lay person, the figures are just as likely to be used to make comparisons between charities that fail to reflect those organisations’ specific needs and operating models.
Locations of spending
The regulators state a desire to understand how much charities are spending overseas each year and in what countries they operate.
It therefore suggest that any charitable expenditure could be disclosed where it falls outside of the jurisdiction that the charity is primarily registered in.
It is not stated why the regulators are interested in this, but it may relate to the need to prevent charities being used to support terrorism.
If so, then forcing all charities to report this information seems disproportionate compared to the small number of charities at risk from this form of misuse.
The consultation proposes increasing disclosures on executive pay so that the SORP comes into line with NCVO’s recommendations on the subject in 2014. This would mean naming the job role and exact salary of all senior staff.
NCVO’s report was thorough and thoughtful, but plenty of charities have ignored its recommendations. Not all may welcome being forced to make this enhanced disclosure.
A new tier for larger charities
The consultation suggests creating a new tier of reporting for the very largest charities, which could apply to those with annual income above £10.2m.
This would allow those in an intermediate tier of £500,000 to £10.2m to benefit from reduced reporting requirements, although in practice such as change may also give scope to increase the burden on those in the larger tier.
So how firm are these proposals?
If you speak to Nigel Davies, head of accountancy services at the Charity Commission, he will tell you that these are just ideas. He says that if respondents to the consultation say they don’t like them, they won’t go ahead.
However, the Charity Finance Group (CFG) is more sceptical, perhaps understandably. Most policy officers learn pretty quickly to take these sorts of promises from statutory bodies with a pinch of salt.
CFG says that if proposals are in the consultation, then the regulators and the SORP Committee want to go ahead with them and will push to do so.
Whoever is right, it is incumbent on charities to make their voices heard in the consultation and ensure that the right outcome is reached.