Bigger is not always better, but it can be useful

Consortia can be effective tools, but need to be managed carefully, says Chris Harris, of the Chartered Institute of Public Finance and Accountancy

I love stories - especially those that have become so widely known that they stand for more than just their original narrative.

In the story of the Tower of Babel from Genesis, the people of Babylon are scattered across the earth after they build an enormous tower that is dedicated to the glory of man rather than God.

This story of setting boundaries on man's ambition seems particularly relevant in the aftermath of the credit crunch, which has seen so many banking institutions that were built up in the race for scale brought low after overreaching themselves.

So does that mean small is always beautiful and scale is always bad? The charity sector consists mainly of small entities, with a small number of fairly large organisations at the top. As noted in recent Charity Commission figures, 1 per cent of charities bring in 66 per cent of income to the sector.

Even the largest charities tend to be smaller than equivalent private or public sector bodies. Few charities can enter purchasing agreements with the confidence that their scale alone allows them to pressure suppliers into reducing prices, as some supermarkets do. The public certainly views charities as small.

The challenge for any organisation should be to make best use of its scale. In some situations where scale is required, such as purchasing, a solution can be to join other like-minded bodies to form consortia. However, they add a level of complexity to the task. Consortia can work, but they can result in differing expectations about short and long-term gain.

They can also cause interdisciplinary and inter-service rivalries. Much of the responsibility for keeping the peace will rest with the chief executive, but it is down to the finance director to ensure that when the organisations are put together, they add up to more than the sum of their parts.

My own organisation sets accounting frameworks and guidance for accountants in parts of the public sector. The following quote from our guidance to local authorities on setting reserves is helpful: "The finance director has a fiduciary duty to local taxpayers, and must be satisfied that the decisions taken on balances and reserves represent proper stewardship of public funds."

The key point is that the finance director does not have primary responsibility for maintaining the scale of the organisation, but does have a duty to the taxpayer to ensure proper stewardship is being carried out.

Charities have a similar duty to donors and to beneficiaries to ensure that resources are used in their best interests.

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