The standard of financial management in our bigger charities has come on in leaps and bounds over the past 25 years, but small charities - which constitute the vast majority of our sector - continue to struggle in this area.
A recent report by the Charity Finance Group, Making It Count, shows that financial capability remains elusive or challenging to a large number of charities at the smaller end of the scale. That is not to say that small charities are on the brink of destruction or fail to serve their beneficiaries because of these challenges. The overwhelming majority of them do amazing work, have the very best of intentions and fare relatively well, given limited resources. But if local groups are to survive and thrive in an environment of increasing need and restricted funding, this is one area where skill gaps need to be addressed and we must drive up standards.
Some years ago I had a disagreement with the chair of a small community group. He was irked by my insistence that financial management mattered, irrespective of the tiny sums involved. From his perspective, it wasn't that important. As long as we had enough money, "little things" such as risk management, budgeting or future-proofing the organisation were not necessary and talk of restricted funds or the impact of fiduciary duty was inappropriate. But I think financial management goes to the heart not only of the success of an organisation but also of people's trust in it.
My disagreement with this chair resulted from the attempted transfer of funds, raised for the organisation in question and for a specific purpose, to a separate organisation - albeit one with similar objects. Although I avoided terms such as 'fiduciary duty' or 'restricted funds' in dealing with the matter, my representation was not welcomed. In my view, the transfer of sums to another organisation needed more than an agreement between the chair and his friends who ran that organisation. The fact it was only a few hundred quid was irrelevant.
Caron Bradshaw, chief executive of the Charity Finance Group
Now we're not talking about someone who was trying to defraud the charity or line his own pockets. This person had good motives but lacked the skills or knowledge relevant to the role he had undertaken. If the transaction had gone ahead unchallenged, any incoming trustees would have rightly been unhappy that the funds they thought would be available to them had been diverted to another cause, leaving them with a very slim bank account.
It can be difficult to attract the right level of skills if the sums of money involved are small and the relative complexity of the organisation is overlooked. A small pre-school group I once chaired, for example, might have had an income of only £40,000, but it employed five staff, had accommodation needs and had to comply with a raft of safeguarding and educational requirements.
When organisations do secure seemingly skilled individuals, it's no guarantee that this is backed up with adequate knowledge of the sector. In my example, the chair was a successful businessman. It wasn't that he didn't know how to manage money - he just had no appreciation of the concept of restricted funds or charitable objects.
We've made massive inroads in raising standards across the sector. I have no doubt that this has led to greater efficiency and effectiveness, and to organisations having a greater understanding of their impact. It has also helped keep levels of public trust high. Now, more than ever, donors expect transparency about how their money is being spent - an expectation that won't apply solely to the bigger players in the sector. If we could help small organisations improve the management of their finances, then we could serve our communities even better.