Don Bawtree: Managing the financial fallout from Oxfam

Also: Charity Commission guidance on non-charitable organisations; and OSCR's guidance on annual reports

Don Bawtree
Don Bawtree

Events surrounding Oxfam have dominated the news recently. It is not the job of this article to consider all that this entails, but here are three initial thoughts relating to finance.

First, it is a reminder that reputational damage sooner or later turns into financial damage. Sadly, there is now probably enough experience across the sector to begin to get a handle on quantifying that damage and consider appropriate mitigations. This might mean holding more in reserve, identifying more precisely the costs of closing specific activities or accepting that some reputational risks have less financial impact than imagined, at least in the short term.

Second, charities need to accept that there will be additional cost attached to processes such as safeguarding and internal processes. For instance, it is clear that there needs to be an accessible way of generating whistleblowing reports and complaints, and these will need resource if they are to be properly handled. Some charities will feel that more collaboration, or even merger, is required to provide such a resource.

Third, the Charity Commission inquiry's terms of reference talk about governance, leadership and culture. This provides a spur to think about how staff, volunteers and trustees manage the organisation, including the financial aspects. If people take a relaxed view on safeguarding, are they relaxed on financial matters? Or is there too much focus on finance and not enough understanding other risk areas?

Meanwhile, the commission’s response on the Presidents Club has to tread a fine line when dealing with the idea of returning donations. The fact is that trustees cannot just decide that a source of funds is personally distasteful, and many charities either need the money or have already spent it. The key is whether or not there is genuine reputational risk or conflict between the source of the funds and the charity’s objects.

Somewhat more prosaically, the Office of the Scottish Charity Regulator has issued guidance on writing annual reports. It is a useful and clear summary, if a tad whimsical. That annual reports "should be eye-catching and easy to understand" is surely wishful thinking given the amount of statutory information and limited budgets involved.

The guidance says that reports should cover the following key concepts: why your charity was set up; who your charity helps; what was done (outputs); what was achieved (outcomes); and what difference was made (impact).

All good stuff, but this is an overlay on the statements of recommended practice, which is not so didactic. Perhaps that is why the guidance uses the word "concept".

Non-charitable organisations
Recently the Charity Commission issued its snappily titled draft guidance Charities That Are Connected With Non-charitable Organisations: maintaining your charity’s separation and independence. This guidance will affect a great number of charities because it applies to all that have connections – a widely and loosely defined term – with one or more non-charitable organisations.

The guidance, which is long, is based on the principle of keeping the charity separate. Key features of this principle are: the charity is always actively in charge of how its funds and resources are spent, and actively protecting its image and reputation; and the charity is always working on achieving its charitable purposes, which can involve the non-charitable organisation.

Other key points are that the charity is not supporting – or funding – non-charitable purposes or projects or promoting private benefit of the connected organisation; and that the relationship is always in the charity’s best interests, including to its public image and reputation.

This is accompanied by several appendices and a 15-page checklist for trustees to work through particular situations, as well as a short crib sheet. For some charities this will present no new challenges – however, there is undoubtedly a spikier tone to the document. It is yet to be seen how the consultation works out: at places the guidance seems contradictory and occasionally impractical. But the message is clear, and reinforces legal and good practice principles that have been around for many years.

Don Bawtree is lead partner for charities at accountants BDO LLP

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