Don't fear outsourcing: it can help to reduce costs

While you concentrate on core activities, you can get others to do your finances, writes Liam Kay

Outsourcing is often misunderstood, associated more with the transfer of jobs overseas or the privatisation of the public sector than as an option for a charity. But it can work in the voluntary sector, particularly for finance departments.

Career Connect, which provides independent careers advice, is a charity that embraces outsourcing. But instead of outsourcing its finance functions, it provides financial management services to four other charities. The arrangement has helped to cover all but 40 to 45 per cent of the cost of running its own finance department. The charity even won a Third Sector Award this year for the outsourcing initiative.

David Barlow, director of finance at Career Connect, says charities that have signed up to the outsourcing agreement achieve cost savings of between 10 and 35 per cent compared with the cost of running the services in-house. In addition, he says, it has been able to provide improved financial management information to the boards of trustees and senior teams.

The charities included in the outsourcing arrangement have to abide by Career Connect's systems, but Barlow says it has been willing to adapt its approach based on feedback. The improvements have then been rolled out to all of the charities involved in the arrangement.

Watch out for risks

But outsourcing does pose some risks. Five years ago Charity Business, a financial outsourcing company, went bust, leaving its clients with no immediate access to their financial information. The charity Cambridge House was eventually given the data and offered to provide book-keeping services to some of the affected charities. Several clients of Charity Business told Third Sector at the time of its collapse that they had been dissatisfied with how some of their money was managed.

The Charity Business case shows the importance of charities carefully considering the risks and benefits of outsourcing their financial functions, and whether it is an appropriate solution for a charity.

Nevertheless, outsourcing can be a particularly helpful solution for smaller charities requiring expertise that would otherwise be beyond their means.

Bill Freeman, chief executive of the Community Transport Association, says this was partly why his charity outsourced its strategic finance planning to the consultancy firm Counterculture Partnership, while it has kept its day-to-day finance functions, such as payroll, in-house.

Freeman says: "I saw it much more as buying in expertise rather than passing on some functions. Your most mission-related activities as a charity are the things you'd only trust yourselves to do. Everything else you can probably get others to do for you."

Freeman says that a prospective outsourcing partner can help to design the agreement between the two parties if the charity believes it lacks the expertise to structure such a deal.

Most importantly, he says, charities should ensure the deal allows access to strategic finance functions when necessary and that they are happy with not having someone permanently in the office to offer advice on finance matters.

Andrew O'Brien, head of policy and engagement at the Charity Finance Group, says that the outsourcing market can offer a lot of flexibility for charities.

"It is packaging everything together into something that works for your charity, rather than just having the binary situation of a choice between having someone in-house or outsourcing it," he says.

"It really doesn't have to be that black and white. It can be a lot of shades in between."

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