Focus: Finance and Governance - Outlook - Future plans must match resources

Paul Palmer

Recently, I have been leading seminars on Sorp 2005. Discussions have shown the charitable sector at its best and its worst.

I always begin my talk with the observation that Sorp 2000 made a big step in moving from Accounting by Charities to Accounting and Reporting by Charities. The introduction of the word 'reporting' means that Sorp goes beyond being simply an accounting standard.

Sorp 2005 continues this movement but, as with the risk requirement introduced in Sorp 2000, I am already seeing reactionary bad practices emerging.

Whenever in the past four years I have been asked to help out charities that have problems, I have found time and time again that many would have been resolved if they had followed Sorp 2000 and undertaken a proper risk assessment. Instead, in all the cases I was involved with, the risk assessment had not been properly carried out.

This was due to a number of factors, including management failure at both trustee and paid staff level. However, I was also surprised by the attitude of external auditors. Instead of checking for a robust process, some auditors were simply writing the statement themselves.

My financial management class at Cass Business School last month examined the annual reports and accounts of a recent charity accounts prize winner.

We concluded that the future plans outlined in the final page were completely unsustainable given the charity's current - and planned - resources. Quite simply, the resources and plans did not correlate.

Charities must take care not to make statements and plans that cannot be properly verified. Similarly, auditors should make clear their concerns if processes are not in place.

However, I have also had great pleasure in seeing the voluntary sector working at its best. One grant-making charity established in the 19th century really took on the challenge of the Sorp. The charity in question asked itself whether what it was doing was relevant, and then ensured that these questions were answered before the next stage of evaluating whether it was actually any good at what it was doing.

In essence, like many voluntary organisations, the running of a project had become the raison-d'etre for its existence. In its case, the project had arisen some 40 years before because of a legacy. When we got down to looking at finance, the original legacy had now expired and the project was taking up more and more of the charity's other resources.

For me, the starting point about Sorp 2005 is reassessing fundamental issues such as this.

- Paul Palmer is Professor of Voluntary Sector Management at the Cass Business School's Centre for Charity Effectiveness.

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