FINANCE NEWS: Finance chiefs urged to trim fat

Charities should be more ruthless about cutting costs and consider operating without reserves, the sector's financial community will be told today.

In a keynote address to the Directory of Social Change's Charity Accountants Conference in Manchester, Joe Saxton will say charities have the potential to shave 5 per cent off their costs without impacting on services.

Saxton, co-founder of voluntary sector think-tank nfpSynergy, will argue that charities can cut costs through a combination of collaborative purchasing, outsourcing and "getting rid of jobs that are no longer needed".

He told Third Sector: "Cost-cutting needs to be more ruthless ... there is a lot of fat in the larger charities."

Major charities such as the RSPCA and RNIB have been forced to lay off large numbers of staff recently because of the fall in the stock market.

But Saxton will argue that rather than just cutting jobs in response to financial crises, charities should regularly review whether they employ more staff than necessary.

"What is needed is a continual re-evaluation of whether people who did this job last year are still needed to do it the next," he said. "Charities aren't as keen on pruning staff as the commercial sector. Unless there is a real crisis, charities don't prune staff or make sure that every post is really necessary."

Saxton, former communications director with RNID, also argues that "holding reserves is no longer an effective financial strategy".

The three-year decline in investment values and the effect on charities with previously high levels of reserves indicate that "financial soundness through reserves has been shown to be thoroughly discredited."

He claims Charity Commission guidelines, which advise a reserve level of between six months and two years expenditure, lulled charities into a false sense of security.

"The response of many people in the sector to financial problems has been 'if only we'd had bigger reserves'," Saxton said.

He questions whether reserves of any kind are needed at all and argues that charities should instead invest in fundraising. "The most effective charities, such as Oxfam and Friends of the Earth, are run with minimal reserves. If they can do it, others can too."

The conference will also hear Paul Palmer, professor of charity finance at South Bank University, challenge fund managers to design investment portfolios appropriate to individual charities, rather than following the pension fund model.

"The strategy that most investment portfolios follow is based on the long-term endowment model and is the same as a pension fund. It's based on a 30-year strategy and is nothing new," he said.

"Charities need to decide what income level they want. They need five-to-10 year horizons, not 30-year horizons. They need to tell fund managers what they want rather than the other way round."

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