Don Bawtree: Charities should report on culture

Whether or not a social investment is being made is determined by the motivation of the charity, so the definition is wide, writes our columnist

The culture of an organisation is important for all sorts of reasons, and the Financial Reporting Council has produced a study emphasising that "a healthy culture both protects and generates value". It says that boards should demonstrate good practice in the boardroom and promote good governance throughout the organisation. The company as a whole must demonstrate openness and accountability.

The regulator said research based on the annual reports of FTSE 100 companies showed that whereas 48 per cent define the values of the company and 35 per cent the purpose, only 14 per cent discuss their corporate culture. One suspects that even fewer charities do this.

Interestingly, this report comes out at the same time as the Charity Commission has announced a plan to rebuild trust and confidence in the sector, telling charities they need to be clear about their impact. In a blog, it explains what charities can do to be more accountable to the public, with five specific topics. They are: to be clear about what you are aiming to do and how you make an impact; decide what you will do with money raised from the public or with the time and energy of volunteers; have clear, simple accounting that explains your support/administration and fundraising costs; file your accounts on time; and keep up to date with Charity Commission guidance.

It is a shame that most of these are easier said than done. For most, accounts prepared under the Statement of Recommended Practice will hardly be clear, and impact assessment has created an entire industry that doesn't always cost-effectively provide a reader with any meaningful information. A balanced, well- written report with topical case studies is probably as effective.

GASDS

The Office of Tax Simplification recently released its response to the consultation on the Gift Aid Small Donations Scheme - the rules that allow charities to collect Gift Aid on small cash donations without obtaining Gift Aid declarations. The OTS says the system is too complex, and it particularly focuses on the eligibility criteria and the community buildings rules. Given the consensus view on these subjects, it would be surprising if they are not addressed in the draft Small Charitable Donations Bill, due to be published later this year.

Social investment

The Charity Commission has issued interim guidance for trustees who make social investment decisions, after the introduction of the Charities (Protection and Social Investment) Act 2016. One of the most important things is for trustees to spot when they are making a social investment. So far this sort of terminology is not used by many trustees; they have simply made financial decisions because they can see it will earn money for the charity and do some good too. Oddly, whether or not a social investment is being made is determined by the motivation of the charity, so the definition is wide and can include actions that would not ordinarily be thought of as investments. An example in the guidance is guarantees, where sometimes no money will change hands, but they will still be social investments. The guidance will be reviewed in 2017, along with the general guidance on investments currently contained in CC14.

Litigation

Litigation can be expensive, whichever side you are on. The Charity Commission has issued new guidance for charities on taking and defending legal proceedings. Charities and Litigation: A Guide for Trustees (CC38) clarifies the issues trustees need to consider and helps them comply with their legal obligations and other duties.

Don Bawtree is lead partner for charities at accountants BDO LLP

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