The task ahead is to make sure the final SIR does this in a pragmatic and genuinely useful way without overloading charities.
CASE STUDY: MEASURING IMPACT AT THE RNID
The RNID has been a pioneer in the charity sector of explaining its activities and performance.
For three years, the charity has published an impact report, detailing its progress on meeting various objectives.
"We welcome the Standard Information Return because the principles behind it are the same as those behind our impact reports," says communications director Brian Lamb. He says he has been dismayed to see the criticism of the SIR made by many in the voluntary sector: "It smacks of defensiveness. After all, the public has a right to know what charities are doing."
But there are significant differences between the 36-page RNID report and the two-page SIR. "Getting the information down to two pages will be challenging because it's hard to pick out the crucial elements and express them in a meaningful way," says Lamb.
Usually a charity's success or failure in a particular area is not clear-cut, he says, but this ambiguity will be difficult to communicate in a brief statement.
"The risk is that statements on performance become rather crude and can be turned into information for league tables." Lamb believes that the SIR should contain a mixture of quantifiable and less quantifiable information and that it should not be stuffed full of performance indicators.
"You need a balance between what you can easily measure and what is less quantifiable." There is a danger, he believes, that areas such as fundraising ratios could cause problems.
"The public has a right to transparency but, in the case of fundraising costs, there are problems in the fact that different charities use different definitions. For example, some will include some PR costs in fundraising and others won't.
"But I believe that consistency in the SIR reporting will emerge over time."
The forthcoming Standard Information Return is meant to increase the transparency of charities, but critics say this will prove too crude a method.
Charities have had to comply with increasingly rigorous reporting requirements since the Sorp accounting framework was introduced following the Charities Acts of the early 1990s.
Since its first incarnation, the Sorp has been updated to include requirements for charities to explain their activities and achievements. But soon a new tool, the Standard Information Return (SIR), will be added to the reporting requirements for charities.
The SIR was proposed by the Strategy Unit in its report on charities in 2002 in an attempt to raise transparency and accountability in the voluntary sector. It will be a two-page statement, including a range of topics such as the charity's achievements over the reporting period and what it aims to achieve in the forthcoming year. It will also include information on the charity's spending and where it gets its money from.
The SIR, which will only be applicable to charities with an income of over £1m, will also feed into the Guidestar online charity information website. The Charity Commission, which is responsible for drawing up and implementing the SIR, hopes it will be up and running by the beginning of next year. The main idea behind the SIR is that donors, funders and other stakeholders will be able to quickly understand what a charity does, its financial base and how well (or not) it is doing in meeting its objectives.
The Strategy Unit argued that the report and accounts of charities submitted to the Charity Commission were "inaccessible and often ill-suited to the public's needs". It was particularly difficult to find credible information about performance or outcomes, the commission added, and anything enabling meaningful comparison between similar organisations.
But the SIR has raised concerns among some charities and accountants, who argue that it will be extremely difficult to sum up a charity's work in such a short space and they are worried it could lead to crude rankings of charity performance. "It raises the spectre of league tables, which is something a lot of people are uneasy about, and that it could become a tool for the regulator," says Belinda Pratten, policy officer at the NCVO. The umbrella body, in partnership with the Charity Commission, has been consulting with focus groups of charities and donors about the format of the SIR.
While Pratten welcomes the SIR, she says putting it into practice will be a challenge: "There are obviously tensions, such as whether it will be used to compare charities," she says.
Another issue that must be tackled, she says, is the large number of topics that the Strategy Unit said should be included in the SIR, and the limited space available. The Strategy Unit proposed that nine categories of information should be contained in the SIR, including achievement against objectives, stakeholder involvement, governance, fundraising, trading and, reserves and investment.
"I'm not sure it's practical to try to cover all the headings proposed by the Strategy Unit in a two-page statement," says Pratten. Another issue is whether the SIR should be professionally audited, in the same way as accounts. The Strategy Unit said that, "in order to confer some external scrutiny, the information provided should be professionally audited, and where possible should make use of accredited processes (such as use of accredited quality tools)".
But the Charity Commission's head of policy Rosie Chapman says the SIR will not be externally audited, but instead will be "certified" by the charity.
This lack of audit raises the risk that SIRs will lack credibility among the public. Pratten acknowledges there is a danger that the SIR could be seen as a marketing exercise, unless charities can back up their statements in the SIR with credible evidence.
Some accountants, however, believe that a compulsory audit could happen in time. "Funders are now requiring detailed reports from charity applicants, and increasingly they expect the information in those reports to be verified by accountants," says Sally Kirby, head of charities at accountants Chantrey Vellacott.
She adds: "I think that trend could end up affecting the SIR, if funders, beneficiaries, the Charity Commission and so on say, 'what's the use of the SIR if the information contained in it is not verified?'"
But if charities do end up asking their accountants to audit the SIR, will that not mean higher audit fees? Murtaza Jessa, a partner at accountants Trustient, thinks any rise in fees would be minimal: "If an auditor knows his client well it will not be too difficult for him to form a judgment on the contents of the SIR.
"If you've audited the charity's report and accounts you're familiar with the numbers, so you can judge the validity of statements in the SIR that are based on those numbers."
But some accountants believe that getting involved in auditing the SIR would not be the best use of their time. "I feel strongly that I wouldn't want to charge extra fees to audit the SIR," says Kirby. "I'd rather my time was used for more constructive purposes, such as advising a charity client on VAT or tax planning."
Jessa acknowledges that there are difficulties in the concept of the SIR: "It will be very hard for charities to communicate often complex activities in a few lines. There is also the issue of qualitative versus quantitative information, as so much that charities do is difficult to measure in a statistical way."
But despite these caveats, Jessa believes the SIR presents the sector with opportunities and that, once the changes have settled down, charities will see the benefits.
"A lot of charities are already collecting much of the information that would go into the SIR but they're not publishing it all in one place. It's a bit like risk management a few years ago, in that charities were often doing it but hadn't collected it all together and described it."
The requirement to look at the impacts of a charity's work will also prove beneficial, says Jessa. As an example he cites a client, a charity involved in training unemployed or disabled people. "They can provide lots of statistics on how many people they train but I helped them carry out an experiment, in which we looked at the proportion of those trained who found jobs or started their own business. Then we looked at the proportion of those people who were still in those jobs or businesses six months later.
"What we found was that a large number were back on the streets after a few months, so the charity discovered that the long-term impact of its work was being reduced by a lack of aftercare." Jessa argues that if the SIR persuades a growing number of charities to examine more closely the impacts of their work, both in the short and long term, then the effectiveness of charities will be improved.
Rosie Chapman of the Charity Commission agrees: "Some charities are already reporting on the impact of their work, while for others it will be a major change."
She acknowledges that it can be difficult to assess the impact of some activities because their success may only be evident 10 or 15 years later.
But she stresses that voluntary organisations still need to try to measure their work. One issue that charities will have to wrestle with is how the proposed SIR links in with the existing reporting requirements of the Sorp.
The NCVO's Pratten says the information required by the SIR will not conflict with that on other parts of a charity's annual report and accounts: "It will be more a case of picking out key points from the annual return that charities must currently submit to the commission."
The SIR, she says, will provide an overview, and point readers to the more detailed annual return and accounts.
The commission's Chapman agrees, adding that the requirements on charities concerning the trustees' annual report are to be reviewed in the summer.
"The Sorp currently requires charities to explain their activities, their performance and so on in the trustees' annual report and we'll be expanding on those issues in our review of the report," she says.
Chapman says that, ideally, the requirements of the SIR and the trustees' report will be aligned. She adds that the SIR will probably not ask for bald statistics showing, for example, the percentage of a charity's spending that goes on management.
"We want the SIR to link a charity's income to its various activities, to look at what activities a charity is involved in and how much it's spending on them."
However, Chantrey Vellacott's Kirby is unconvinced about the value of the SIR. She argues that it would not be needed if charities were following the spirit of the Sorp. The problem, she believes, centres on issues such as the lack of clarity in the Sorp on areas such as assigning costs.
"From what I've seen of the initial proposals for the SIR, the reporting requirements that already exist should be able to provide most of that information. I'd rather the sector focused on improving the current system of statutory reporting by charities, rather than introducing this new return," she says.
But whatever some of its critics think, the SIR seems destined to become part of future charity reporting and, according to its supporters, will help the voluntary sector communicate more effectively with the public.
Chapman is hopeful for the SIR: "I know we won't get it perfectly right the first time round, but I'm optimistic it will prove its worth before too long."
Trustient's Jessa agrees: "The Sorp was widely criticised when it was introduced, but now it's accepted across the sector, and I think that we'll see a similar process with the SIR."
The SIR, whatever form it eventually takes, is a response to a much-needed demand for charities to tell their story, show how well they are achieving their aims and drum up support among stakeholders.
Its genesis was a clear response to a lack of quality information on what charities actually do and how they achieve this. Charities are weary of the misconceptions and barriers to fundraising and public support.
The sector should, therefore, welcome the SIR as a means of overcoming this.It offers a chance for people to see what charities do in a way that's clear, accessible and meaningful, and is another incentive for charities to continue to evaluate and improve their performance.