The charity sector has a problem. According to a recent survey conducted by Charity Finance magazine, 63 per cent of charities say that their core functions (such as finance, human resources, IT, safeguarding and legal support) are under-resourced.
This isn’t a new problem – charities have operated on a shoestring for as long as they have existed. But as the sector has grown, modernised and professionalised, and as regulation has grown and public expectations increased, so too has come the need for our attitudes towards core funding to change.
The sexual misconduct scandal that engulfed Oxfam earlier this year is the most vivid example of how a failure to invest in core functions can have serious consequences. Oxfam has now pledged to significantly increase its spend on safeguarding, even though it already had one of the best safeguarding functions in the international development sector. Others in the international development sector are presumably following suit.
Our survey provides further evidence of the importance of core funding. Charities reported how poor financial controls can lead to fraud going undetected, how inefficient IT can lead to more staff being hired than would otherwise be necessary, how cheap legal advice can mean failing to ensure sufficient funding for public service delivery contracts, and how poor HR can result in staff grievances.
By contrast, the research highlights how investment in finance staff has led to tax refunds, extra Gift Aid claims, financially sustainable contract bids, and clear information for departmental managers to base decisions on.
Making the case
The problem of core funding is a complicated one with many root causes. Government funders, trusts and foundations, and members of the public can all take a share of the responsibility for not being willing to fund core costs.
But charities themselves have been complicit in this state of affairs. By not asking for core funding or pretending they don’t need it, charities have passed up the opportunity to define the narrative and explain why properly funded core functions not only save money in the long term, but lead to better outcomes for the people they serve to help.
Even internally, some charities may have been guilty of seeing “core functions” and “the frontline” as separate entities; favouring investment in the latter rather than viewing them as deeply intertwined and mutually beneficial.
That this problem is largely about attitudes means that a culture change is required. And culture change is not easy to achieve when so many different stakeholders are involved – it requires a long process of talking, talking and more talking.
With this is mind, whenever an opportunity arises, charities must explain clearly their need for core funding and the difference it makes, whether that’s with funders, government, individual donors, trustees and colleagues, or even simply friends and family.
In our report on this subject, Nicki Deeson, international finance director at Amnesty International and chair of the Charity Finance Group, talks of how she had some success with funders in her previous role as head of finance at the Alzheimer’s Society by giving them a calculation of what the charity’s core costs were. Even if the funder wouldn’t pay the full amount, it allowed her to emphasise that they were not contributing fully.
She also reveals how attending a careers fair provided the opportunity to promote the charity sector. Explaining to young people that working in a charity can be a profession and a career generated an enthusiasm and an understanding that those young people then passed on to their parents.
And Sir Stephen Bubb, director of the think tank Charity Futures, believes charities can be more transparent with the public about their core costs, breaking them down into their constituent parts in order to explain their value.
It is interventions such as these that will add up to a changed understanding of how the charity sector operates and how it can best make a difference.
There are already some promising signs in the core costs agenda. The Department for International Development’s decision to pilot full funding for core costs is set to be transformational for the charities involved.
There is also other promising work going on internationally. In the US, a group of major foundations including the Ford Foundation and the Open Society are working to assess the indirect costs of their grantees and then develop a harmonised methodology for calculating and verifying them.
Back in the UK, recent research by data visualisation specialist Xavi Jiminez has shown that the profile of core costs in institutional giving is growing, in large part due to the work of two funders – the Robertson Trust and the Lloyds Bank Foundation for England and Wales.
It’s now time for us all to build on this work and play a part in taking the agenda forward.