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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Late payment culture cripples productivity of SMEs

29 March 2019 Consultancy.uk

UK SMEs are seeing their efforts to grow stifled by late payments, causing thousands to enter insolvency proceedings each year. According to experts from Duff & Phelps, this also has a major impact on the UK’s economy, meaning late payment culture must be tackled if the country is to dodge yet more economic stagnation in the shadow of Brexit.

Small and mid-sized enterprises in the UK face a myriad of pressures at present. Brexit anxieties are keenly felt by SMEs, with more than nine in 10 suggesting recently that economic conditions have worsened in the last 12 months. 66% of SME leaders also expect conditions to further worsen in the coming year.

At the same time, firms are keen to see value for money from investing in external expertise. Consulting fees which weight much more heavily on smaller firms, who spend £60 billion per year on professional services, but feel that more than £12 billion of that figure is wasted on unnecessary or bad advice.

Late payment culture cripples productivity of SMEs

Above all, however, SMEs are extremely vulnerable to late payments, and, according to a new study, the situation is only getting worse at present. According to corporate rescue consultancy Duff & Phelps, small businesses in the UK are facing a collective bill of £6.7 billion per annum due to late payments by other companies, while the average value of each late payment now stands at £6,142. This has risen from £2.6 billion in 2017, illustrating the plight of SMEs, particularly with uncertain economic times ahead.

Indeed, the spike in late payments has already caused significant productivity issues for SMEs, which in turn compromises their financial stability. With staff wasting hours chasing down late payments and businesses becoming preoccupied with short-term cash flow problems, they are less able to concentrate on creating new value for the firm, which in many cases gradually slides toward insolvency.

Small businesses across the UK are facing major cash flow pressure, leading to increased financial instability as a direct result of a late payments culture. This is likely a big driver of the UK’s 20% boom in insolvencies over the last three years, especially as it has a knock-on effect on other SMEs within the supply chain of those struggling firms. Approximately 50,000 small businesses fail each year because of late payments, amounting to a shortfall of more than £2.5 billion for the UK economy. 

Commenting on the findings, Paul Williams, Managing Director, Duff & Phelps, said, “In this modern era of technology, which is designed to enable business agility, late payments are particularly galling as there are no excuses. The day of the ‘cheque is in the post’ is long over!... More can be done to avoid businesses reaching this situation in the first place. SMEs underpin the economy, so prioritising timely payments will help allow business owners to focus their time and energy on providing good quality products and services and adding value to the customer experience, rather than chasing outstanding payments.”

The UK Government currently promotes its voluntary Prompt Payment Code to encourage good practice, but late payments by larger companies remain a common pain point for many SMEs. There may be hope for an end to late payments, however, following an announcement in the Spring Statement from Chancellor Philip Hammond. The Government aims to crack down on the practice, with Hammond stating big companies should hire a Non-Executive Director to be responsible for reducing late payments to small suppliers. The statement also advises that organizations publish payment practices in their annual reports.