Andrew Hind has some advice for charities in the process of writing their annual reports.
With the majority of charities having financial year-ends in December or March, the process of producing the audited report and accounts is in full swing at this time of year.
Not surprisingly, as the editor of Charity Finance I read a lot of these documents. Despite worries in some quarters that Sorp 2015 will add yet another layer of complexity for the lay reader of accounts, the key messages about a charity’s culture and the strength (or otherwise) of its financial governance can actually be identified very quickly.
In addition to reviewing the primary financial statements (the statement of financial activities and balance sheet), here are the first four things I look for to give me an initial feel about any charity.
1. Objects – A charity which starts its trustees’ report with a strong and heartfelt statement about its core mission always makes a favourable impression. How much better that is than one which runs through a whole list of administrative details before it tells you anything about what the charity is there to do.
It’s important to realise that although the Sorp stipulates the items which must be disclosed in the trustees’ report, the order in which the information is given is entirely up to you.
For example, the 2013 trustees’ report from Action on Disability and Development, a medium-sized charity with an income of £3.5m, opens with these ten words: “About ADD: Empowerment, inclusion and positive change for disabled people.” That picture paints a thousand words, as the saying goes.
2. Public benefit statement – Contrary to what some might think after the 2011 independent schools case in the Charity Tribunal, public benefit has not gone away.
A recently published analysis by the Charity Commission, Public benefit reporting by charities, found that only 30 per cent of charities report adequately on public benefit. Here is another great opportunity to win over the reader and tell your charity’s story.
Many reports I read simply say: “The trustees have had regard to Charity Commission guidance on public benefit”. Such a statement effectively tells a reader that the trustees have actually had no discussion on the subject at all.
3. Reserves policy – A really wellwritten and detailed reserves policy is an excellent primary indicator of a charity which has a coherent financial strategy and is well governed.
As with point 2, those charities which lamely trot out the fact that their reserves are required to cover three, six or 12 months’ expenditure, with no underlying rationale, are clearly just going through the motions and fail to impress.
Apparently ‘gratuitous’ designated funds are often another sign of a charity which might have something to hide when it comes to reserves.
4. Salary disclosure – NCVO’s recommendations last year on the disclosure of senior executive pay set a new benchmark for charities to follow. It will be interesting to see how many rise to the challenge in the months ahead.
So if you are preparing your trustees’ report and accounts in anticipation of the reporting season about to unfold, do think hard about the impact you want your reporting to have on readers – and don’t just be a slave to the template of the Sorp.
