It is something of an understatement to say that it hasn’t been a great few months for the charity sector. Public patience with so-called “chuggers” who look to solicit donations from passers-by on the street has long been wearing thin. As an isolated practice, it seemed the public were just about able to bear it given the good causes this collecting invariably supports. But coupled with the case of Olive Cooke – who tragically killed herself after being overwhelmed by requests for cash from charity callers – and the Kids Company scandal, which is rumbling on with no end in sight, 2015 was an annus horribilis for the sector.
The charity sector is undoubtedly experiencing some very testing times. But it can seek solace in the fact that it has taken a huge amount of negative press for public opinion to turn against it.
Not-for-profit organisations are invariably set up to serve an important social purpose – in many cases quite literally to save lives. The work these organisations do is clearly far too important to be jeopardised, even if the mess they currently find themselves in is almost entirely of their own making.
The crux of the issue is that all charities need money to do their good work. There is nothing shameful in admitting this – after all you can’t cure cancer, put an end to homelessness, or give much-needed respite to a young carer without financial backing. But as competition for cash has become fiercer and fiercer, the lengths to which charities feel compelled to go to get it are stretched to breaking point. Something had to give. And it did.
Role of the finance function
I believe charities are too important to be lost to society. And I believe we now have an opportunity to help them change how they work for the better.
What the unfortunate recent events involving the sector have shown us is that, now more than ever, good financial management is of vital importance to the effective running of a charity. With that in mind, ACCA commissioned a survey of not-for-profit organisations which sought to ascertain the most important aspects of a robust finance function, the findings of which we are releasing today.
Our research shows that there is wholesale recognition in the sector that the finance function should play a driving role in not-for-profit organisations. Despite this, those we asked reported that the finance function is subject to underinvestment and is not a priority.
Instead, our survey found that resources tend to be directed towards short-term planning and objectives. Understandably, given the landscape in which they operate, simply keeping the wheels turning is the focus for most charities. With short-termism so prevalent and the fact that relatively low numbers of senior managers in the sector currently come from a financial background, however, it is no surprise that we have encountered problems such as those seen at Kids Company.
Unfortunately, when the role of the finance function in a charity is sidelined – be it for reasons related to capacity, funding, staff and management skill sets, or even culture – ultimately the organisation’s ability to fulfil its social mission is compromised.
By way of contrast, in “for-profit” SMEs, the finance function has been found to play a central role in phases of growth and transition. Recognising this, firms develop and invest in their finance function in order to reach the next stage in their lifecycle.
In the not-for-profit sector, however, fulfilling the social mission is the top organisational priority, and financial management is currently viewed as secondary to this mission – rather than its driver.
What charities can do
Yet we know that good financial management enables not-for-profit organisations to carry out their missions efficiently, and to achieve value for money. While a number of factors will enable an organisation to fulfil its mission successfully, financial management, at the very minimum, allows the organisation to keep its doors open, and good financial management plays a role in securing that all important new funding so sought after by charities.
From our research, we have been able to identify a number of factors that will help charities to develop a robust and embedded finance function. Above all, proactive, internal cultural change towards prioritising finance – and using the data and insight it provides to make informed management decisions that are based on financial planning – is core to this.
Simply put, for the finance function to have the intended impact within the organisation, there must be a culture that prioritises finance, driven by the governance of the organisation. Having finance as a standing item on the board agenda should be the minimum requirement for any charity chief executive.
Secondly, industry bodies can also offer support, through strengthening knowledge-sharing networks and training opportunities. And finally, funders and government, driving much of the environmental change for the non-profit sector, could simplify their requirements to enable non-profit organisations to operate more efficiently. Together, these measures will enable charities to maximise the social value they have been set up to deliver.
When it comes to the crunch, if they are to survive, charities must commit to driving their own cultural change. We see time and time again that organisational culture – both positive and negative – is typically driven by an individual, usually from the top down, through regular engagement with other senior managers and trustees.
Alongside culture, weak governance, underpinned by a lack of trustees with a finance background, is a major barrier to a strong finance function. That is where we come in. ACCA is committed to doing all we can to assist in the recruitment of qualified directors with a finance background into the sector, through referring and advertising trustee opportunities to our members and students.
Young charities in particular will benefit from this, as qualified trustees appointed at an early stage will contribute hugely to setting the right tone in the long-term development of the organisational culture when it comes to finance.