FINANCE NEWS: Sector warned on hidden costs

MATHEW LITTLE

The Charity Commission is considering strengthening the SORP because some voluntary sector accountants are deliberately allocating fundraising costs as charitable expenditure in their accounts.

In its first annual review of the SORP 2000 (Statement of Recommended Practice), which lays down accounting standards, the Commission issued a warning to charities that are disguising expenditure in their accounts in order to improve fundraising cost ratios.

Ray Jones, policy accountant at the Commission, said: "Just as in companies there is a natural bias to show profit, in charities there is a bias towards charitable aims.

"A small number of accountants are becoming rather inventive when it comes to allocating certain costs incurred in connection with fundraising to charitable expenditure in their accounts. The SORP committee will continue to observe accounting practice and will consider strengthening the SORP if inappropriate cost-allocation practices continue."

"Inappropriate

practices include allocation of publicity costs. Publicity can be either educational, which is considered charitable expenditure, or fundraising if it merely backs up a demand for money. But in cases where publicity material serves both an educational and fundraising purpose, some charities are allocating all costs to charitable expenditure.

Adrian Randall, charities management consultant and member of the Commission's SORP working party, said media exposure of excessive spending on fundraising was encouraging the misallocation of fundraising costs.

"The media are very interested in how much is spent on fundraising and charities don't want to get publicity for spending 90p in the pound on fundraising,

he said.

He conceded that the Commission did not have a "crystal clear

definition of what constitutes educational and fundraising publicity, but argued for strong action against any charities found to be deliberately misallocating costs.

"If it could be shown that there is a case to answer, the Commission should come down hard on those charities. It should name and shame them in the same way it does charities that don't submit accounts,

said Randall.

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