Transparency in the Third Sector

							 The rise of transparency in third sector accounting
 - How can the finance function adapt?

 This paper looks at the the drive for
 greater transparency within the Third
 Sector and how this can be the catalyst
 for strengthened financial operations, and
 offers a shortlist of actions that can help
 work towards greater transparency.

 A recent survey commissioned by chief
 executives body Acevo (Association
 of Chief Executives of Voluntary
 Organisations) reported that a large sector
 of the general public do not understand
 charities. If polls are to be believed then
 there is growing scepticism over how
 voluntary sector organisations are run and
 naturally in turn there is a greater demand
 for transparency.

 There appears to have been a number of catalysts
 behind this. The furore over MPs’ expenses, for
 example, has highlighted awareness of the need to            need to be armed with clear figures and statements about
 be more open. This was echoed in the third sector            how the charity is performing and how cash is being
 where an independent body was set up to consult with         spent. As the official holder of the purse-strings, the
 charities over how they should disclose their expenses.      Finance Director needs to be seen as a reliable source
 Meanwhile the economic climate has increased                 of information which can then be used to persuade
 competition for donations and the need for individual        supporters to give more or maintain existing donations.
 charities to demonstrate that monies are being spent
 appropriately. So what implications does this have for
                                                              Following recent research by the Chartered Institute
 charities and in particular those that are responsible for
                                                              of Public Finance & Accountancy, the body published
 managing income and expenditure.
                                                              suggestions to FDs wanting to gain trust. These included
                                                              becoming a member of the leadership team in order to
     The value of trust                                       implement & develop strategy, becoming more involved in
 Reaching acceptable levels of transparency isn’t often       business decisions to ensure that long-term implications,
 easy, but building trust is a good place to start. Not       opportunities and risks are considered and maintaining
 only do your supporters need to have faith in what the       good financial management so public money was spent
 charity is doing, but other personnel such as the Chief      effectively. To achieve the latter, it was recommended
 Executive or other departments such as marketing             that the finance function should have sufficient resources




November 2009                                                                                             Page 1/3
to process transactions on time or deliver accurate        financial data lies firmly with the Finance Director.
information. Overall though the Financial Director is      So how can the finance department provide
expected to control and manage money well so they          more transparency?
can inspire confidence and trust amongst colleagues,
trustees, stakeholders and Joe Public.
                                                              Better systems and processes
                                                           If you feel it is difficult to be transparent then the
   Be Open                                                 chances are your systems and processes are letting
For any organisation, trust can only be achieved by        you down. It shouldn’t be difficult to provide accurate
being open and honest. This holds true for charities       and timely information on areas such as performance,
too and one of the most effective ways of building         division of costs, breakdown of expenditure, forecasts
trust, whether it’s from trustees, benefactors or          and so on. However what often holds backs finance
supporters, is to be transparent. This means that          teams are outdated or ill-fitting methods for producing
everything you do has to be accountable with the           such data.
ability to produce clear and accurate financial reporting
that is understood by a range of different groups. A       One of the worst accusations that potential
recent survey commissioned by Office of the Scottish        benefactors might make is that the charity does not
Charity Regulator found that members of the Scottish       provide sufficient evidence to show that monies are
public were particularly sceptical about charities’        being directed and managed in the right way. Without
administrative costs and what proportion of donations      clear and accurate reporting which is easily understood
were being spent on this, rather than going towards the    by these parties, then the claims could be perceived
actual cause itself. This is an example of how charities   as justified.
could offer greater transparency by calculating exactly
what proportion of costs go on administration and
                                                           Yet better reporting will only be achievable if you
allowing these type of figures to be publicly available.
                                                           have the systems and processes in place to support
The quality of charity reporting has certainly improved
                                                           it. One of the main challenges for finance departments
over the years particularly with the introduction of
                                                           is collecting the raw data in the first place. Often, the
concepts such as SORPs, but there are still calls for
                                                           core accounting system stands alone from other
greater regulation and monitoring of the sector. The
                                                           applications or departments where the relevant
Charity Commission recently gave its support for
                                                           information is held. This means that finance staff can
concepts such as the PQASSO mark, saying that those
                                                           spend days just moving information from one silo to
organisations that reach level 2 or 3 will be given a
                                                           another, usually with the aid of spreadsheets. Not only
charity commission seal of approval.
                                                           is this hugely time-consuming it is also open to errors
                                                           and duplications that can give misleading results.
However, until greater regulation is introduced with
perhaps a charity specific accounting standard along
                                                           The way that these reports are distributed can also
similar lines to the global IFRS rules, the onus of
                                                           affect trust amongst colleagues, trustees and other
responsibility for providing clear and understandable
                                                           parties. Many finance departments produce monthly




November 2009                                                                                               Page 2/3
 reports which are sent out either electronically or          • Devolved accounting could dramatically reduce
 by hard copy, but typically these are lengthy, hard          administrative costs and make your charity more
 to decipher and are out of date by the time they             favourable in the eyes of potential supporters.
 are collated.
                                                              • Project Accounting tools can show which
 If you identify with any of these problems then              campaigns are most profitable and identify those
 re-assessing your procedures could be the first step          that perform poorly.
 towards transparency. Firstly you need to evaluate
 which areas could be improved and then look for              By embracing transparency, not only can you be
 ways in which these can be addressed. Here’s a               confident in meeting any sector-specific requirements
 quick shortlist of actions that could help work              now and in the future, but it also gives the finance
 towards greater transparency:                                department the chance to lead the change towards
                                                              a more effective and efficient operation.
 • Real-time integration of core finance system with
 other information sources such as CRM means that
 information is always accurate and up to date.
                                                              For further information and advice on how to
                                                              become more transparent please contact bluQube
 • Introduction of Activity Based Costing can reveal
                                                              on 08456 44 77 88 or visit www.bluqube.co.uk.
 what cost centres are spending the most money and
 which are giving the best return possible.
                                                              bluQube is a fully integrated, 100% browser-based
 • Automated creation and scheduling of customised            financial management accounting solution.
 reports to be sent to different recipients electronically
 keeps everyone informed with the latest information.

                                                                                                   SHOW ME
 • Give access to staff and trustees via on-line reporting.
 Personalised web-based Portals can be easily set up
 to provide headline information that is easy to access
 and understand.




                                                                                               1 hr demonstration
           Valuable guides & tips for
           Finance professionals, plus
           a little extra.




November 2009                                                                                              Page 3/3