Transparency in the Third Sector
The rise of transparency in third sector accounting - How can the finance function adapt? This paper looks at 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.
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