Cost ratio data on regulator's beta website is misleading, experts warn

Sector figures criticise the Charity Commission's beta website for posting inconsistent and potentially confusing data on charitable spending ratios

Charity Commission beta website
Charity Commission beta website

Voluntary sector experts have described the cost ratios used on the Charity Commission’s beta website as "misleading" and "unhelpful" after a Third Sector study of the data on the site.

The commission launched the new-look beta website in 2014. The newer version of the website includes charitable spending ratios to help the public make better-informed decisions about charities.

However, analysis conducted by Third Sector of the ratios of 20 of the leading fundraising charities displayed on the commission’s beta website found inconsistencies in how data is presented and ratios that could be confusing to members of the public.

For example, Third Sector found the website shows that Great Ormond Street Hospital Children’s Charity had a charitable spending ratio of 54 per cent, while Breast Cancer Care had a spending ratio of 55 per cent.

Experts said this might give the incorrect impression that the charities were much less efficient than other organisations with higher charitable spending ratios, such as St John Ambulance, which had a ratio of 98 per cent.

The differences could be attributed to differences in how the charities operate and the difficulty in using spending ratios to make comparisons between them.

The site says some charities have charitable spending ratios of more than 100 per cent, including Help for Heroes on 146 per cent, BBC Children in Need on 123 per cent and Cancer Research UK on 104 per cent.

The website defines this ratio as charitable spending, including governance costs, as a percentage of the group’s total income available for charitable activities.

Four of the 20 charities studied included data under the heading of "income generation", but the remaining 16 had data for "group income available for charitable activities".

Critics of the beta website have said that this could be misleading because the two categories are not directly comparable.

Roberta Fusco, head of policy and engagement at the Charity Finance Group, said that, although there was "clearly a desire and a need for stakeholders to better understand the many ways charities operate and enable them to exercise their choices as to who to support accordingly", ratios had to be treated very carefully and not in isolation.

"Charities as a sector are a wide and diverse group in terms of income, business models, structure and governance, and that diversity is to be valued and celebrated in all aspects of charity governance," said Fusco.

"However, it is very difficult to meaningfully compare different models, so ratios without context can be misleading. 

"Meaningful comparison requires an understanding and explanation of variations in the business models, legal structures and operational practices of charities to help us step away from unhelpful value judgements based on incomparable information."

Joe Saxton, founder of the think tank nfpSynergy, said the way the data was presented on the beta website was misleading.

He said: "All our research shows how important fundraising costs are to donors. So for the new Charity Commission website to group together all costs for ‘raising funds’ is really misleading and unhelpful.

"It’s hard to believe that the commission has taken so long, and spent so much, to produce a website with such unhelpful data."

The Charity Commission’s beta website has undergone a number of consultations and reviews in the years since 2014.

The website attracted heavy criticism in 2015 and 2016 when the cost ratios used by the website featured in a report by the True and Fair Foundation, the charity set up by the philanthropist and Brexit campaigner Gina Miller.

That report was widely condemned in the charity sector as being inaccurate and a response to the foundation’s work from Pesh Framjee, global lead on non-profits for the accountancy firm Crowe, also singled out the commission’s statistics for criticism.

The commission said that the beta website used data contained within the annual return part B, which is collected only from charities with gross incomes of more than £500,000 a year.

According to the commission, if a charity’s charitable spending exceeds its total income in the year, the result will be more than 100 per cent expenditure on charitable activities in the statistics displayed on the beta website. For example, this might occur in charities with large reserves or because of timing differences in receiving or making payments.

Differences in the data supplied in charities’ annual returns were behind the use of the two different categories showing either group income available for charitable activities or income generation.

The commission has included an explainer for the cost-ratio figures on the beta website, which asks readers to put the figures in context and to read the figures alongside the charity’s accounts.

A spokeswoman for the commission said in a statement: "We are constantly reviewing and making changes to the beta version of the register based on users’ comments.

"The current beta version applies a metric to charities’ information in order to create easy-to-read information that helps the public make informed views about charities.

"As the explainer makes clear, this metric needs to be put into context when looking at cost ratios. Users need to engage with information contained in a charity’s accounts in order to gain a full picture of how a charity spends its money."

The spokeswoman said that the commission’s new strategy "prioritises informing public choice about charities", which meant it would be "looking very closely at how we communicate charities’ information in the future".

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