Policy, Policy, campaigns & research

Change is afoot with charity accounting – trustees take note!

There was a consultation on how the SORP is governed last year, and the results are out. Jay Kennedy, Director of Policy and Research, discusses the change afoot.

If you’re a charity trustee, CEO or director, you need to be up to speed on the Charities SORP, or Statement of Recommended Practice. The SORP sets standards for your annual accounts and reports – it covers how you get your funds in and how you spend them, as well as guiding you about what sort of information you should share with the public.
Important stuff!

The thing is, the way these rules are decided may be about to change. There has been a review of the governance structure that oversees how the SORP is produced. This could have an impact on the next version of the SORP.

The four charity regulators in England and Wales, Scotland, Northern Ireland, and Ireland (CCEW, OSCR, CCNI and CR) are collectively the ‘SORP making body’, with responsibility for interpreting international accounting rules. There is an advisory group, the SORP Committee, that feeds in to their deliberations.

A review was set up to recommend possible changes to this structure and the Committee’s composition, and DSC responded to a consultation earlier this year about it. They’ve now published their report, which includes no fewer than 36 recommendations! Some key aspects are explored below.

Small charity representation

The SORP has historically been designed with the needs of larger and more complex charities in mind. However, many smaller organisations use it as the standard of good practice, but their needs have not always been adequately considered or catered for.

The report acknowledges this and there are repeated references to the needs of small charities and their trustees throughout. Indeed, the very first recommendation says, ‘a new approach is needed by the SORP to better meet the needs of smaller charities reporting under the SORP.’

The proof of the pudding will be in the eating, but it’s good to see this message front and centre. It’s one that DSC and many others consistently put forward, and it’s important that we keep making this case as the next SORP is developed.

Representing the ‘public interest’

Considering the needs of ‘the public’ and ‘the public interest’ are also main themes, in terms of being able to interpret and understand charity accounts. To some extent we can never please everyone or make things so simple that every lay reader can understand everything, but there’s an important point here about charities producing future reports and accounts in a more accessible way (but perhaps less focus on the current barriers to doing so).

The report talks about the role of ‘proxies’ for the public interest in SORP governance, although who or what these might be isn’t really clarified or specified further. It could be in theory anybody from journalists, to researchers, to evaluators or even possibly people from government departments. Would that work? How will they be selected? What level of knowledge would they need to make informed contributions?

Much depends on how ‘public interest’ is ultimately interpreted (and by whom). If, for example, the Charity Commission for England and Wales concludes that ‘the public want’ top line data about overheads, or fundraising costs, and the other regulators or representatives from the charity sector say this is simplistic and not informative, who wins the argument?

Finally, there’s the ‘sausage-making’ question. Small charity accounts are often produced by trustees with some professional knowledge or a bit of outside help. The quality of the information and the necessary skills to produce it are inter-linked. The report contends that SORP compliance amongst charities is ‘poor’ but doesn’t really provide any additional supporting evidence or data to corroborate this.

Changing the reporting and accounting structures and requirements won’t necessarily improve the user experience if the data and information put into those structures is lacking in the first place, or the preparers of accounts don’t have the skills or access to sound advice. However, improving the explanations and expectations about what is required surely is part of any future solution.

Changes to the SORP Committee

A key point of the consultation was the governance structure for how the SORP is overseen, and it recommends changing the composition of the SORP Committee, which advises the regulators on producing the SORP. However, it’s unclear when or how this may eventually happen. The report calls for:

• membership to be reduced to a maximum of 16
• at least two members to be drawn from each of the four jurisdictions, with at least one of the two representing smaller charities
• four members to bring additional skills and expertise including donor and government funder perspectives
• one member drawn from each regulator.

As with anything like this, there’s a balance to be struck between adequately representing different interests and having a manageable body that can agree priorities and make clear and practical recommendations. Who makes this call? The regulators, jointly, as part of the ‘SORP making body’?

This slimming down of the Committee seems intended to streamline decision-making, but the report recommends against appointing an independent Chair to oversee things. At the same time, a number of recommendations call for greater consultation with ‘critical friends’, ‘focus groups’ and ‘umbrella bodies’ on particular issues, rather than over-reliance solely on committee members for input.

This is a 47 page report and only a handful of the 36 recommendations are covered above. Read the rest and the full analysis.