A long time coming
If Hind’s comment suggests a little frustration, it should not be surprising; this is not the first time the Commission has highlighted the problem. Previous campaigns have seen it target tardy auditors, ask solicitors to advise clients making legacies to consider charities’ filing records, and urge local authorities to withhold street fundraising licenses from those filing late. It has also occasionally raised the prospect of introducing fines for those failing to meet the deadline, and, since 2004, has listed all charities submitting late on its website. Still, more than a quarter of all charities that have to file reports and accounts failed to do so on time in the last year.

We might reasonably ask why. After all, charities with income and expenditure under £10,000 (accounting for more than half the sector) don’t have to file at all, and of those that do, most have an income below £100,000, meaning that they can generally prepare simple receipt and payment, rather than full accrual, accounts. Those with incomes under £250,000, meanwhile, can opt for independent examination of their accounts rather than a full audit.

At the same time, it has probably got easier for charities to file. They can, for instance, now do so online, and the Commission has streamlined the process for those with income under £250,000, demanding less information. For small charities, meanwhile, accounting support services have grown up in recent years so that there are now, for instance, about 80 community accounting projects in England, represented at a national level by CANN, the Community Accountancy National Network. Furthermore, the Association of Charity Independent Examiners has also helped address some of the difficulties in finding an independent examiner.

The suspicion, therefore, is that for many of those filing late it is simply down to a lack of focus. “Some charities may well see it as an aspiration to get within the ten months, so that it’s viewed as a target rather than the actual deadline,” says Shiela Birch, the Commission’s head of information compliance.

Others dispute this, however. They argue that the Commission is underestimating the challenge accounts present to smaller charities, and say it is not doing enough to help them. NAVCA, the National Association for Voluntary and Community Action (previously NACVS), for instance, has long opposed the Commission’s policy of “naming and shaming” charities that fail to submit on time.

“We are talking about organisations with one or two staff, or run entirely by volunteers,” points out Kevin Curley, NAVCA chief exec. “The failure to get their report or accounts in on time is often just an indicator of the overload that small organisations are faced with. It would be much better for the Charity Commission to approach the local infrastructure organisations such as the local CVS and ask them to get in touch with these charities.

You’ll probably find that they need support with a whole range of governance issues, not just with reporting.” Simply naming and shaming charities doesn’t make them more likely to comply with the deadline, he says; it only reduces their confidence in the Commission, making them less likely to ask for its advice and guidance.

Certainly this is the case with Martin Gomez at charity the Caring Cancer Trust. He has been at loggerheads with the Commission for some years over – among other things – late accounts, which he says were the result of the Commission’s delay in approving the charity’s proposal to submit receipt and payment rather than accrual accounts. He claims that the experience has left him, as others before him, doubting that the Commission can fulfil its dual function as a regulator and support provider for the sector.

“The best analogy I’ve come across is that of a bank manager; if you have an overdraft and you experience a cashflow problem, you don’t go to the bank manager for advice because the first thing he’ll do is pull the plug on you,” says Gomez. “Similarly, the last person you should go to for help with compliance is the regulatory authority.”

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The full account
While many charities might have genuine issues in preparing their accounts and reports, this is not a convincing explanation for the scale of the problem.

For a start, as the Commission’s recent publicity suggests, it is not just small charities that file late. Although larger groups do better, even among the biggest charities there were still 15 per cent submitting late in the most recent year. It is also interesting to note that the £6 billion of income accounted for by the 26 per cent of charities that were late filing equates to a similar proportion (23 per cent) of the total income of all those that must report, suggesting the problem is spread across the income ranges.

Even among smaller groups, though, lack of resources can only be part of the explanation.
Thomas Fitch is director of CASH (Community Accountancy Self Help), one of the community accounting projects mentioned earlier. It advised about 700 charities in London last year, and Fitch points out that many of those already meet fairly onerous reporting requirements from independent and local government funders. And while they may complain about the burden, they still comply. “If the funder wants their report in October, then they get their report in October,” he says. So why are so many late for the Charity Commission? “It’s just not a priority.”

In many ways, this is fair enough. There are, indeed, other priorities – even in terms of governance. Fitch, for instance, says he is much more interested in getting charities to be able to manage their accounts, budgets and cash flows: all the things that actually help trustees and others run the charity well and make good decisions. Charities’ accounts and reports, drawn up six to nine months after the end of year, are not a lot of use in this regard.

Similarly, it probably matters more what’s in the accounts than when they are sent to the Charity Commission. After all, the proportion of charities failing to file entirely remains low among medium and large charities, comparing favourably with the three per cent of companies that fail to submit returns to Companies House (although some of these will also be charities), and nowadays as much of the Commission’s work is concentrated on trying to improve the quality of reporting as its timing.

This is primarily what concerns the best charities as well. For example, according to Alex Jacobs, director of finance support group Mango (Management Accounting for Non Governmental Organisations), it is charities themselves that are leading the efforts to improve accountability and meet the challenges presented by Guidestar and the development of the Standard Information Return. For them, filing with the Charity Commission is just the first step – the real challenge is developing tools that give a clear account to stakeholders about what they do.

“Most of those we work with are trying to take steps two, three, four or five,” he says.
But, in a way, that is exactly why charities should begin to focus on getting their returns in on time: the increasing professionalism achieved by so many charities over the years has made the proportion failing to file on time seem anachronistic. They have raised the bar. As Les Jones, the former director of finance at WWF and current executive director of the Charities Treasurers Forum, puts it, nowadays filing late just looks “sloppy”.

“Now the Charity Commission is cracking the whip a bit, and I think charities ought to take notice,” he says. However, as the sector faces up to the challenge of doing so, it can be comforted with the thought that it only has itself to blame.

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