Trust and transparency in the Charity sector

Transparency

It was reported that a trustee received remuneration in excess of £2million whilst the financial statements disclosed that no remuneration was paid to any trustee.  In addition to questioning this inconsistency, members of the Association asked why such high payments were being made, instead of these funds being put toward the charitable purposes.

This story shows that a lack of understanding of a charity’s accounts, as well as how charitable funds are being spent, can have a damaging effect on a charity’s public profile.

Trust

Negative press for one charity can impact the charitable sector as a whole.  In July 2018 the Charity Commission released research into the level of public trust in charities.  Participants were asked to score their trust in charities out of 10 and the mean result was 5.5, lower than in previous years.  This is particularly of interest as research found that trust levels are closely linked to people’s willingness to make charitable donations.

So how should a charity react?

The same research identified that transparency about how a charity spent its funds was the most significant factor that impacted the public’s level of trust.  If higher trust will increase an individual’s inclination to donate to a charity, then trustees should aim to be an open as possible with the public.

Trustees’ reports

The Trustees’ report provides an annual opportunity to explain a charity’s activities.  Providing a clear breakdown of how funds are spent and the portion that goes to charitable sources is key.  Demonstrating how this spending level is achieving the charitable purposes should also be an important component of the Trustees’ report.

Openness and accountability

Openness and accountability is one of the 7 principles of the Charity Governance Code, recommended practise for trustees to create a strong governance environment.  In addition to a well-constructed Trustees’ report, two internal processes that will help a charity meet the recommendations of the Code and protect its public image are:

Risk register

By performing a risk analysis of operational and financial procedures, trustees can identify potential threats and design processes to help prevent them, serving to create a strong control environment within the organisation.

Conflicts of interest register

Identifying links between trustees, key management and other stakeholders, be it suppliers or donees, will help to avoid, or suitably control, transactions that could damage the reputation of the charity.  The Board should also be aware of trustees’ interests not yet linked to the charity, to manage potential future conflicts.

How we can help?

Ultimately Trustees are accountable for the use of all charitable funds.  They are also responsible for all information delivered to the Charity Commission and made available to the public. Working with an independent examiner or auditor, even when not statutorily required, can provide a level of support beyond the SOFA and balance sheet.