Charities - Tunnel vision

Modern-day charities have moved a long way in terms of financial management in the last decade. Once deemed to be the province only of Womens’ Institute types counting paper clips in oak-panelled rooms, the sector now boasts a forward-thinking outlook.

In larger concerns, finance departments may have a range of roles with management accountants, financial controllers plus support staff. A charity worth #50m, for instance, may have positions for ten or more staff. Smaller charities, meanwhile, offer a great deal of responsibility and a hands-on role. Both need management skills and offer work as varied for accountants as commercial organisations of comparable size.

‘Charities are now operating in a business-like manner. They are aware that they have to face up to the realities of the commercial world and included in that has to be employing people with good business skills to look after accounting functions in the way that any ordinary business would do,’ says Shirley Scott, spokeswomen for the Charities’ Finance Directors Group, and a former official custodian at the Charities Commission.

Charities will probably need a minimum income of #750,000 before they can afford to employ a full-time accountant. But the need for qualified accountancy personnel is growing. David Callaghan, director of Reed Accountancy Personnel, puts this down to the growing sophistication of the sector.

‘As charities become more professional and their turnover increases, they need professional financial assistance – so the demands on accountants in charities are similar to those in other fields,’ he says. ‘And like all areas of finance, they are now affected by skills shortages. Demand is greatest for newly qualifieds, particularly in the South of England.’

Scott can think of plenty of reasons why a newly qualified or part-qualified accountant should opt for charities. ‘One is the desire for variety. If they stay in a practice, they could get stuck in the audit or tax function and just work for several clients. In a charity, they may well work on a range of tasks,’ she says.

‘There is also the challenge, because charities are looking for ways to handle their finances efficiently and creatively, just as companies are.’ There are, of course, more altruistic reasons for working within the charity sector. ‘Accountants move into the charity sector for the same reasons as most charity workers. They see an opportunity to use their skills in roles that fit in with their personal beliefs,’ says Callaghan.

Many people who come in from outside the sector say they move because they’ll gain a position with greater responsibility but without the pressure to satisfy a whole host of clients at once – so instead of being under pressure to complete audit work for several clients, they will be working on audit work for their own organisation only. And while the quality of their work in the private sector may go unnoticed, corporate donors often base their donation decisions on a close scrutiny of the charity’s books.

Of all the attractions of joining the charity sector, salary comes pretty low down the list. According to Scott, around 20% of charity FDs will be earning around #40K, but most will be in the #25K to #35K bracket.

Opinions vary as to whether moving into charities is a one-way ticket.

Simon Hebdige, policy director at Charities Aid Foundation, is upbeat.

‘It’s becoming easier to make the leap from one sector to the other, as charities are becoming more professional,’ he says. Hebdige concedes that moving back into the private sector can be difficult and puts this down to a rather jaded view of charities on the part of commercial outfits.

‘It is more difficult to make the leap back, because accountants have to convince private-sector employers that their skills have been properly used. There is an assumption that the skills in the charity sector are not as good or as developed,’ adds Hebdige.

Private-sector lack of understanding

He says this is due to a lack of understanding of the complexities of financial reporting for charities. ‘People have diverse ideas about what charities are. They have no idea of the intricacies involved. The private sector tends to be patronising; they think charities are tin-pot organisations rather than businesses. It would be difficult trying to convince companies that an accountant from a charity handling a turnover of #100,000 could cope with a turnover of #1m, but for accountants from larger charities, who handle those kind of accounts, it would be quite simple.’

Martin Birch, head of finance at ActionAid, is more blunt. ‘The private sector assumes individuals become de-skilled when working for a charity.

This perception may restrict the very best wishing to work in the sector, because they are worried that it is a one-way ticket,’ he says.

At all events, the duties of senior finance officers in either sector are the same: to lead the financial and strategic planning of the agency, to ensure strong financial controls are in place, to remain accountable to trustees or shareholders and to ensure within the financial structure that there are quality staff and career development opportunities.

The Charity Commission maintains the key difference is that the main focus of charity accounting is not the shareholder but the trustees, donors, supporters and beneficiaries.

‘The charity finance director must make decisions which consider the needs of the trustees, donors, supporters, beneficiaries and others who have an interest in the charity, bearing in mind that he or she is acting on behalf of the trustees, in whom ultimate responsibility lies. This job must often be done with little help,’ says Joyeeta Dhar of the commission.

Accountants from smaller charities agree, but larger charities say their accounting systems are more like those in the private sector. The turnover of large charities equates to that of publicly quoted companies but most charities operate on a shoestring. Only 2% of registered charities have annual income of over #1m.

‘The finance function is in a less powerful position in a development agency than in a commercial company because there is no bottom line. This means we have to work in partnership with other functions within the organisation, rather than being the driving force,’ says Birch.

‘In ActionAid, our bottom line should be the impact of our development, not our market share or healthy balance sheet. There is a greater focus on translating our ‘values’ statement into how we behave as a team: focused on devolution of responsibilities, working in partnership through teams and respect for the views of all individuals.’

But Witold Sawin, partner at chartered accountant Cooper Lancaster Brewers, argues that similarities between the sectors became clearer after the introduction of the 1996 statement of recommended practice. ‘Training should transfer quite well from private to charity, but the new SORP made charity accounting a specialist area. Charities are more interested in running along business lines; the same controls are there,’ he says.

Earlier this year, CLB conducted a survey to determine how charities had coped with the new SORP. The survey revealed many charitable organisations were facing a bleak future because of a lack of proper financial management controls. Sawin says: ‘Accounts departments in many of the charities were being run by devoted individuals who admitted they did not recognise looming tax and VAT problems, issues of charitable status, tax planning, fiscal issues or running a commercially viable operation.’

‘Most admitted they were focused on today’s problems without time or resources to plan for tomorrow. All charities hold funds in trust and are required to account separately for funds that are legally separate. Opportunities for administration and financial efficiency were frequently overlooked,’ he adds.

COMMISSION UNDER FIRE

The Public Accounts Committee has criticised the Charity Commission for failing to help charities cope with the SORP.

A recent report by the PAC criticised the commission for spending too much energy on advising charities on other matters, rather than taking them to task for non-compliance of basic rules, such as filing accounts on time.

Most charities agree that the commission did not regulate enough and say they would welcome proper regulation, especially of charities not complying with the rules.

‘The general public expects the commission to regulate the activities of charities effectively,’ says Kate Sayer, partner at Sayer Vincent, a charity accounts specialist.

‘There are grave concerns about illegal fundraising and bogus fundraisers.

The commission has no jurisdiction in this area, its powers being limited to taking action against charities which are registered with the commission.

Only the police can take action against bogus fundraisers, and this can be difficult to achieve.’ Several charities complain that if the commission had more powers to deal with those falsely claiming to be fundraising for charity and other malpractice in this area, things would be easier to handle.

Charities are also concerned about the growth of new bodies claiming to monitor charities’ finances. The Accreditation Bureau for Fundraising Organisations, set up earlier this year, denied that these organisations were all in competition with the Charity Commission.

‘All we are doing is giving charities further guidance, we offer a different and complimentary service. We have a wider coverage, including Scotland and Northern Ireland,’ says John Beishon, chief executive of ABFO.

But the Charities’ Finance Directors Group is concerned about the fact that the new organisation charges substantial fees for a charity to become accredited.