There is a lack of knowledge and focus on finance in the voluntary sector, especially among new and small charities, according to a report by the Association of Chartered Certified Accountants and the community finance charity Responsible Finance.
The report, State of the Non-profit Finance Function, says that although charities recognise the importance of good finances, finance departments are "subject to under-investment" and not prioritised.
Resources are instead directed towards short-term planning and objectives, it says.
The report, which is based on a survey of 153 ACCA members in charities and clients that receive social investment from community development finance institutions, plus 11 interviews with finance directors and representatives from social investors and grant-makers, says too few senior managers have backgrounds in finance, which risks the long-term development of the finance function.
It says that among organisations that are less than three years old, 50 per cent say that fewer than 10 per cent of their board members have finance experience; 75 per cent of all the charities surveyed have a senior management team in which more than half do not have a finance background.
Charities also appear to be spending less on financial management, HR, IT, governance and legal systems, which the report says is worrying and a problem that is most noticeable among small charities.
But it also says that many new charities are prioritising financial management and governance.
An overall lack of financial knowledge is exacerbated by a patchy business support network for charities and training and continuing professional development courses that vary in availability and quality, the reports says.
It says that 44 per cent of the organisations surveyed have no budget for their finance officers’ professional development.
The report concludes that charities need a culture that prioritises finance and more management decisions that are based on financial planning. It says industry bodies can offer support through strengthening knowledge-sharing networks and training opportunities.
Ben Hughes, chief executive of Responsible Finance, said: "Understandably, given the landscape in which they operate, simply keeping the wheels turning is the priority for most charities. With short-termism so prevalent and the fact that relatively low numbers of senior managers in the sector currently come from financial backgrounds, it will be a challenge for these organisations to grow in a structured and sustainable way.
"Unfortunately, when the role of the finance function in a charity is sidelined – be it for reasons related to capacity, funding, staff and management skill sets, or even culture – ultimately the organisation’s ability to fulfil its social mission is compromised."