Few charity leaders will look back on 2015 fondly – this was the year when some media outlets seemed to declare war on the sector, publishing news stories that have undermined public trust in charities, just at the point when the prevailing financial climate means public support is more important than ever.
But although some coverage was unfair and inaccurate, there were some horrifying abuses of fundraising techniques revealed, while the Kids Company debacle underlined the over-riding importance of good governance. We asked experts across the sector how those issues should be addressed in 2016 and which other issues should be on the charity leader’s agenda.
Fundraising and funding
In November 2015 the Cabinet Office announced the appointment of Lord Michael Grade as interim chair of the new fundraising regulator. “The biggest challenge facing fundraising organisations in 2016 will be developing new relationships with a brand new Fundraising Regulator,” says Ceri Edwards, director of policy and communications at the Institute of Fundraising (IoF). “There is no time to waste in rebuilding public confidence in charity fundraising.”
With few further details available at present one concern must be the additional cost burdens paying for a new regulatory system will place on a third sector already experiencing significant financial difficulties, says Andrew O’Brien, head of policy and public affairs at the Charity Finance Group.
With income from government contracts and grants falling rapidly, charities must now look at all possible appropriate income sources, warns David Hopkins, senior advisor at the Charities Aid Foundation (CAF). This includes individuals and foundations, legacies, corporate donors and trading activities.
Robin Osterley, chief executive at the Charity Retail Association (CRA), believes charity retail will play an important role. “We see charity retail as a way of helping to take up some of the slack that comes from other fundraising opportunities being lost,” he says. Issues charities running shops need to be monitoring in 2016 include possible changes to business rate relief. “In the Budget the Chancellor announced that business rates would be devolved to local authorities,” Osterley explains. “It is really important to us that the mandatory relief aspect is preserved. The indications we have had from the Treasury so far are that it will be, but we will be keeping a very close eye on that. In Northern Ireland there are very strong indications that business rate relief could be under threat.”
For some charities, social investment may become a more important source of funding. “There is almost more money available than there are investable opportunities in social investment at the moment,” claims Jonathan Jenkins, CEO at Social Investment Business (SIB). “There is a growing social investment ecosystem, a growing opportunity and community of those looking to invest in charities and social enterprises to help them grow.”
However, he stresses, social investment should not be seen as a replacement for grant funding or donations.
“The bottom line is, people need to think commercially,” Hopkins concludes. “We need to understand the markets we’re in, we need a compelling proposition, we need to understand what gets [donors] excited. Charities that aren’t going to make that transition are going to struggle.”
Administration, accounting, and reporting
As ever, changes to the Statement of Recommended Practice (SORP) will need to be understood. In 2015 charities have had to decide whether to prepare accounts under the Financial Reporting Standard for Smaller Entities (FRSSE), or the Financial Reporting Standard FRS 102. The FRSSE will be reviewed again during 2016. CFG’s O’Brien is confident that efforts to educate the sector in the use of the new arrangements have been successful. “The biggest issue seems to be pension deficits going onto the balance sheet,” he says. “If people don’t understand how annual reports work they may think charities are in a worse position than they were the year before.”
Another big theme in charity accounting is demonstrating the impact an organisation is having upon beneficiaries and within broader society. Iona Joy, head of the charities team at consultancy and thinktank New Philanthropy Capital (NPC), which advises charities on developing effective impact measurement processes, reports healthy growth in this area. This includes well-produced impact measurement reports on some charities’ websites. She cites The Children’s Society as an example.
In 2016 she would like to see more charities working directly on operational and strategic changes they could make following the analysis of impact measurement data. “It’s rare we get strategy work about what an organisation has learned from impact data,” she notes. “But more people are using big data, using digital channels to collect data, and becoming more interested in analysing and using data to drive decisions.”
These activities are no longer the preserve of only the largest charities. “We’ve seen some smaller organisations that are really committed and trying to do this,” says Joy. “There’s quite a lot of self-help going on too.” Online diagnostic tools for assessing the competency of impact measurement methods continue to improve.
HR, staffing, recruitment, and governance
Charities need to beware of benefits in kind to volunteers and interns that could be interpreted as according those individuals employee status – which would mean the organisation would need to comply with minimum wage legislation and auto-enrolment pension obligations. The consequences of an error of this kind could be significant, for an organisation’s finances and reputation.
The best way to avoid many problems is to avoid ambiguity in the relationship between the organisation and the individuals in question, says Phil Pepper, employment partner at legal firm Shakespeare Martineau.
Which skills are most likely to be in short supply in the sector during 2016? Myles Kunzli, advice coordinator at the NCVO says that financial and legal skills are always in demand. “But also, with the reduction in grant income and the need to diversify income streams, more commercial skills are required, at a strategic level and operationally.”
Issues related to pensions may cause charities some headaches in 2016. Aside from the challenge many smaller organisations will face with auto-enrolment, many in the sector continue to lobby for to changes to Section 75 debt legislation. At present organisations with a handful of employees who are members of collective defined benefit pension schemes can be trapped with an impossible choice: withdraw from a scheme that imposes unaffordable costs and unacceptable financial risks, or face huge costs if they attempt to exit the scheme.
CFG, the Pensions and Lifetime Savings Association (PLSA, formerly the NAPF) and other organisations have all been asking the government to make it easier to exit these schemes. “There was a consultation by the DWP [Department for Work and Pensions] over the spring and summer but the government has said it won’t report on it until 2016,” explains CFG’s O’ Brien.
For Gareth Hopkins, pensions consultant at GJH Pensions, the most important development charities should be considering in relation to pensions during 2016 is the changes made to the employer’s covenant guidance issued by The Pensions Regulator, which should help guide trustees through triennial pension fund valuations.
The other major governance issue that will loom large for many charities in 2016 is the possible need for mergers. Richard Litchfield is chief executive at the not-for-profit specialist consultancy Eastside Primetimers, which publishes the annual Good Merger Index for the sector. Although one might have supposed prevailing financial conditions made such mergers more likely, the number of mergers completed during 2015 was the same as in 2014, while the notional financial value of those mergers fell.
But this hides higher incidences of mergers within certain sub-sectors, says Litchfield, citing the example of leisure trusts: there are 100 in England and five were involved in mergers during 2015. He thinks we will see more mergers in sub-sectors affected by reductions in local authority funding.
Public relations and reputation management
“This year the trust between national media and charities has been virtually destroyed,” says Jenny Turner, managing director of charity specialist PR agency Turner PR.
She would like to see the sector explaining the way it works more effectively. “There’s a worrying void in the understanding of how charities are run these days,” she says, pointing to stories in the national media claiming a small proportion of an individual donation gets spent on a cause once fundraising costs have been paid.
“If that person already had an understanding of how charities fundraise that would not be a story. I’d like to see charities standing up confidently proud of their work and their fundraising and happy to explain their practices in an open and transparent way,” she says. “Done well it could even generate support.”
One of a number of initiatives upon which Acevo and NCVO will be working together in 2016 will be an attempt to improve the reputation of the sector as a whole. “We should start telling our story more effectively,” says Acevo chief executive Sir Stephen Bubb. “Individual charities are often brilliant at telling their own stories, but there’s never been that overall media campaign for charity as a whole.”
Meanwhile, CharityComms and NCVO will continue to coordinate the Understanding Charities project, a long-term programme designed to educate the public about the way charities work. “We’re creating a positive narrative for the sector about why charities matter,” explains CharityComms director Vicky Browning. “We can draw down very specific examples of the positive impacts that charities can have.”
Finally, 2016 should also see further progress in the innovative use of social media within the sector. “Social media is a fantastic opportunity for donors to engage with charities and beneficiaries,” says Browning. “In previous times communications was a push mechanism. Social media and digital has made it two-way. That’s a hugely powerful opportunity that many charities are embracing.”
Politics and regulation
If 2015 was a tumultuous year in politics, 2016 could yet prove even more significant for the charity sector in terms of political and regulatory change. At the time of writing the House of Commons is about to begin the second reading of the new Charities Bill.
Jay Kennedy, director of policy and research at the Directory for Social Change (DSC), thinks its full potential impacts are not yet widely understood, particularly provisions to automatically disqualify trustees with certain types of criminal record. This will cause problems for charities who use ex-offenders as trustees, sometimes because of the understanding they have of the issues facing beneficiaries or service users. It is not yet clear how the system of waivers that will supposedly help organisations in this position will work in practice.
“An even greater worry is that the bill gives the commission powers to disqualify anybody from being a trustee, if you’ve ever done anything to ‘damage public trust and confidence in charities’, or if they think it is ‘in the public interest’ for them do disqualify you,” Kennedy continues. “The Charity Commission would say they would only use these powers judiciously, but this is a big change which will have repercussions.”
Sir Stephen Bubb shares those concerns. He is also still very concerned about the implications of the lobbying act. “I think you heard much less from charities than you would have expected otherwise around the election,” says Bubb. “It seems that many trustees said ‘It’s all too difficult, let’s keep our heads down.’ That is a major problem.” A promised review of the effect of the impact of the lobbying act, commissioned by the previous government from Lord Hodgson, should be published in 2016.
Finally, we may see another consultation in 2016 on the future funding of the Charity Commission, possibly via a levy to be imposed on charities at some point in future. The DSC and Acevo are among organisations that have already stated clear opposition to this idea.
A spokesperson for the Charity Commission told Charity Times: “We are seeking a more sustainable funding base for the commission ... and are continuing talking to charities about how this might be achieved. While we will begin to consult soon on the options for future funding of the commission a levy isn’t something that could be implemented until 2018 at the earliest.”
David Adams is a freelance journalist