Grant Thornton: Clear charity reporting rebuilds trust

21 July 2015 Consultancy.uk

Public trust in UK charities and NGOs decreased from 67% in 2014 to 51% this year, with unjustifiable ‘overheads’ – among which executive pay – a leading concern. In a recent report from Grant Thornton the potential to rebuild trust is considered. Clear and transparent annual reporting about the activities and governance of charities one way to go, another is to secure the funding streams associated with a trust in the good of charitable performance.

Many UK charities found themselves placed under considerable pressure in 2014. As public sector services continued to be wound back due to austerity, there was an ever increasing demand on their giving. Recent research from Grant Thornton, titled ‘Charity Governance Review 2015: Navigating a changing world’, looks into the way in which 100 of UK’s top charities report their state of affairs in their annual reports and discloses that the biggest risked faced by the charities is a loss of funding streams.

As part of transparent reporting practice, charities are recommended, in the 2005 Charity SORP, to disclose the major risk factors that might affect their organisation, and how those risks are to be managed. Grant Thornton’s study finds that in 2015 the number of risks disclosed by charities varies considerable, with 5% disclosing more than 8 and 16% disclosing none, the average for the sector came in at 3.7 risks. For 2015, the key risk, as cited by 47% of charities, is loss of funding streams, up from 9% in 2013. Delivery of services again ranks highly, at 37%, up from 17% in 2013. More certainty around the economy has surfaced however, with 34% highlighting it as a going concern, compared to 58% in 2013.

Charity risk analysis

Funding streams
The risk to funding streams comes from two distinct avenues. The first relates to the volatility of government streams. Funding is more and more based on ‘payment by results’ and other changes occur in the way public sector contracts are awarded. It is not only the public purse pulling its cord tight, with the trust accorded to charities by the public receding. The public, for many charities, remains the second pivotal funding stream.

Public trust in UK NGOs, and with it potentially their willingness to donate, reduced from 67% in 2014 to 51% this year. One of the biggest concerns highlighted by the public is the use of their money on unnecessary or seemingly unjustifiable ‘overheads’, with chief concern the remunerations of executives. The research highlights that remuneration conditions vary considerable across charities, from around £60,000 to almost £800,000 for the highest paid employee, which comes down to an average of £196,000.

Annual charity reporting value disclosure

Building public trust
To allay public concerns about overheads expenses, the research highlights the important role charities themselves have in disclosing the success and failures of operations in their annual reporting as well as communicating this to stakeholders through social media channels. Integrity, including ethical organisational practice, is the main thing that builds trust, according to Edelman’s trust barometer. Paula Sussex Chief Executive Officer, Charity Commission, remarks: “It is vital that larger charities go beyond complying with the letter of the SORP and take the opportunity of annual reporting to tell a compelling story about how they are run and what they have achieved.”

According to the research, another important way to rebuild public trust is to clearly communicate the values under which a charity operates. Of the charities surveyed, over a third (37%) does not discuss the charity’s values, compared to 17% that does mention it extensively in their Trustees report, either in the main body (8%) or foreword (11%), and 44% that mentions it briefly.

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