Charities reporting: navigating the trust journey

As charities come under greater scrutiny from the public, media and funders, reporting and financial statements are an important way to maintain public trust. There has been a tendency within the sector to view the preparation and publication of the Trustees’ Annual Report and Accounts solely as a regulatory requirement, taking away valuable time and resources from the delivery of charitable activities.   However, as charities are on a journey towards clearer, more balanced and understandable reporting, it is important to recognise this as a key channel to engage a broad spectrum of stakeholders.

We think that the following are the key areas for charities to consider when navigating the trust journey in their reporting:

Balanced impact reporting

Charities are rightly keen to celebrate success and achievements are often included in the Trustees’ Annual Report. The context of these achievements is clear when they are linked explicitly back to the charities’ objectives, however to be transparent, readers must be provided with a fair and balanced review of the year which includes narrative on where specific objectives have not been met.

There should also be clear linkage between the achievements set out in the Trustees’ Annual Report and the reported financial information for the charity’s financial year in review. Readers should not need a financial background in order to make the connections between the front and back half of the accounts.

Often charities set out some form of key performance indicators, however, there is limited measurable impact reporting in the sector. It is widely recognised that there are major challenges associated with the ‘measurement’ aspect, but effective impact reporting is fundamental to engaging with the public and telling a compelling story of a charity. 

Corporate governance and risk

Linked with balanced reporting, is the reporting of a charity’s specific risks which are aligned with its objectives and future plans. Many charities include either a broad statement informing the reader that the risks have been considered and mitigated or at best a list of generic risks with limited or no commentary on how these are being mitigated. Risk registers are crucial risk management documents to support strong corporate governance and are ultimately owned by the trustees, but these risks are too often not translated and disclosed in the accounts. Trustees are considered to be the ‘keeper of the keys’ and therefore the Trustees’ Annual Report is a prime opportunity to publicly state the good governance structures in place which underpins the management of the charity and allows for the successful delivery of their objectives.

 

 

Sustainability

Statements on the impact of the decline in statutory funding are often included in accounts, as charities mention that they will or are diversifying their income streams and identifying new mixed funding sources. However one sentence with  limited disclosure on what the plans are for future-proofing the organisation are limiting for the reader. Just as a corporate entity needs to articulate their capital management risk strategy, there is a need for a clear explanation from charities to articulate the levels of their reserves and why they’re not currently spending the funds on charitable activities.  Fund levels are increasingly under closer scrutiny, especially for large donors who are more commonly awarding grant funding in arrears rather than in advance of spend.

Strategic reporting

There is a key requirement to provide insight into the charity’s main objectives and strategies and the principal risks it faces and how they might affect future prospects. Charities must be able to  clearly articulate the whole story to the public by setting out their strategic priorities, aligning these to their charitable needs, identifying the associated risks and discussing how the risks are managed. Comprehensive future plans should also be included, which set the scene for the next chapter in the charity’s story.

More can be done by charities to embrace new digital technology. Reports need to be easy to digest with key messages being more easily shared through the use of graphics and visual representations. Given that accounts are being viewed online, charities are currently missing educational and publicity opportunities in signposting readers to the wealth of information that they have.

As voluntary and community organisations which exist for public benefit, charities should be building on the trust and integrity which is afforded to them by the public. The public expects that charities can demonstrate how they are governed and how they hold themselves to account. Preparation and publication of the Trustees Annual Review can no longer be seen as a ‘tick box exercise’ and roll forward of prior periods reports. With both the regulatory changes of the SORP 2014 and FRS102 upon us and heightened public scrutiny over the impact of charities there has never been a better time for us to critique our stories.