The Government wants charities to be more transparent and accountable.
A review by the Cabinet Office's performance and innovation unit (PIU), a draft of which is due out this month, is expected to suggest a system of performance benchmarking and accreditation of voluntary organisations (Third Sector, 13 March).
The sector will be invited to devise its own measures. The Institute of Charity Fundraising Managers (ICFM), the Charities Aid Foundation (CAF) and National Council for Voluntary Organisations (NCVO) have already started work on developing fundraising benchmarks. Between now and autumn 2002, sector leaders will thrash out other benchmarks based on management costs and impact on beneficiaries.
But how do you make meaningful comparisons in a sector that covers everything from international aid to homelessness?
"There are dangers in comparing organisations that are significantly different,
says Rodney Buse, chair of the NCVO's Quality Standards Task Group. "Schools are uniform, charities are not. Academics tell me that it's near impossible to find a rating system (that works across the whole sector)."
Karl Wilding, NCVO's head of research, is more optimistic. "It's going to be difficult but not impossible,
One basic issue is that some charities will always need to spend more than others in order to raise less money - such as Aids charities as compared to religious ones.
And even comparing charities that deal with the same cause may prove problematic. "There is no point in comparing a huge cancer research charity with a small one involved in service delivery,
Preliminary work has begun on grouping charities together for comparison.
Early groupings include the large cancer research charities and large service charities such as Barnardo's.
It is normal to measure performance in the commercial sector and Wilding thinks it might provide valuable models that allow for variety and diversity.
"Equities analysts in the private sector have grouped businesses together into sub-sectors, such as retail,
he says. "And an equities analyst won't compare a retailer with a water utility or Sainsbury's with a corner shop."
Business could also provide the key to explaining fundraising costs, says Les Hems, director of the Institute of Philanthropy at University College London. Charities could describe it in terms of "investment", he suggests.
The ratio between fundraising and costs is a core issue in performance measurement. Paul Palmer, professor of charity finance at South Bank University, Henley Management College's Adrian Sargeant and Hems are working on a project to find valid methods of comparison (see Finance, p11).
Palmer and Hems' work is based on management accounts, instead of annual accounts. This contrasts with the Directory of Social Change's recent book The Major Charities, which used data from SORP accounting. Many in the sector felt this was a misleading basis for comparison as different charities enter different types of expenditure under different headings.
Hems, Palmer and Sargeant plan to develop fundraising ratios as a percentage of voluntary income and overall expenditure based on data from more than 2000 charities. This information will eventually be posted at www.givinguk.info.
Crucially, the site will also provide information on the context of the fundraising ratios and ideas for questions to ask charities that appear to be spending too much on fundraising.
Sargeant explains: "Fundraising ratios are affected by a range of factors, such as donor recruitment. If you're growing your donor base, you're going to look lousy. So we'll suggest questions to ask charities, such as how much recruitment are you doing?"
He believes the site will do more than reassure. An "opt-to-give
button will appear on the site, so potential donors can both find detailed information and be encouraged to give at the same place.
Whether these developments will be enough to satisfy the National Audit Office, which last year demanded sector league tables, remains to be seen.
Simon Hebditch, director of policy at CAF, believes that any credible benchmarking system will ultimately have to be backed up by some form of external accreditation. He predicts that such a system may be in place by 2003.
He believes that such a system could operate through the Charity Commission, or a separate team of social auditors.
But many in the sector oppose external accreditation. When NCVO's Quality Standards Task Group polled its members three years ago, they were against external accreditation. NCVO's Buse himself favours peer review and performance improvement models.
Lindsay Boswell, chief executive of ICFM, says who regulates is irrelevant.
More important is that charities and fundraisers get to set the regulatory standards.
A three-month consultation period is likely to follow the publication of the PIU report next month. The question is, will this allow the sector enough time to thrash out a consensus that both satisfies charities and an increasingly intolerant general public?
AREAS OF RESEARCH
- NCVO's Quality Standards Task Group, chaired by Rodney Buse aims to help the voluntary sector develop quality systems and benchmarking.
- The Pipeline Project, run by Paul Palmer of South Bank University and Les Hems of University College London, evaluated more than 2,000 published charity accounts, comparing administrative and fundraising costs.The aim is to find realistic ways of analysing core indicators of performance such as fundraising and administrative costs.Twenty big charities, including the RSPCA, Age Concern, the British Red Cross, Oxfam and Cancer Research UK, are involved.
- Professor Adrian Sargeant has been commissioned by the Institute of Charity Fundraising Managers to develop fundraising ratios from the accounts of some of the top 500 charities.