The danger of outsourcing charity financial services

The closure of Charity Business has raised questions and left some charities facing difficulties, says Peter Gotham of Macintyre Hudson

Peter Gotham
Peter Gotham

We have all seen the press coverage of the sudden collapse of the accounting outsourcing firm Charity Business, which announced last month that it was ceasing its operations with immediate effect.

The company provided services including payroll, accountancy and bookkeeping to more than 200 charities, which now face the challenge of recovering their data and handling these services in-house.

The business ran its operations remotely from Swindon, despite many of its clients being based in London or further afield.

This might have been a cost-effective solution, but I always wondered how tenable it was to operate an outsourced finance business with little or no contact with what was happening on the ground. Project accounting requires close liaison with project staff. In my experience, project and finance staff find it difficult to communicate at the best of times, and placing an 80-mile gap between them was only going to make this worse.

On the other hand, the increasing need for a good understanding of each project's finances, and the overall effect on the charity's balance sheet and viability, makes the prospect of a 'quasi-finance director' very appealing. Many providers are now offering this service (including, in the interest of disclosure, my own) - some more effectively and economically than others.

Providing the trustees and senior management team with high-quality, timely information is key if they are to manage better the risks and opportunities their charity faces.

So why have the alleged problems taken so long to bring the closure of Charity Business? Some have suggested that the need to improve charity accounting standards at a time of increasing pressures, both on costs and on fundraising and performance, can make outsourcing seem an apparently low-risk option. Slick marketing and an impressive-looking client base could easily lull a board into a false sense of security. Once signed up, however, it is potentially much more difficult to pull out.

Charity Business's clients now need to look at how they will find ways to maintain continuity in their accounting. They will need to use the information they hold in-house, or find ways to obtain the information held elsewhere. Otherwise, problems in funder reporting or debt collection could give rise to short-term cash-flow problems. There is also an increasing risk of longer-term problems, including loss through fraud.

At first sight Charity Business had an impressive client base, but we now understand that this was not necessarily completely as portrayed. For an accounting company to close in such a disorganised fashion seems of a piece with our experience and some reports of its operation in recent years. Several accounting firms are now offering to help, but time alone will tell what the fall-out from this failure will be.

At a minimum, a lesson to learn is the importance of charities choosing outsource support partners carefully and having full ownership of their financial information - whether managed in-house or outsourced.

Peter Gotham is a principal at MacIntyre Hudson

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