The recent governance review of the Statement of Recommended Practice has come to some very welcome conclusions. For too long charity accounts and the Sorp process behind them has been dominated – indeed, captured – by charity accountants and finance folks. So for the panel to now conclude that Sorp must meet "new public expectations" is very welcome news.
I sat on the Sorp Committee for three years and have pushed for change for several years. I was one of only two non-accountants on the 20-strong Sorp advisory committee. It seemed to be a body where normal governance rules did not apply: I certainly don’t think it would meet the strictures of the sector’s Charity Governance Code. It wasn’t diverse: everybody was an accountant or charity sector finance professional. And it didn’t tackle conflicts of interest, given that so many on the committee were both producing charity accounts and being asked to pass judgement on the standards for producing those accounts.
The irony is that many finance professionals don’t like the Sorp either. They say it’s too cumbersome and its requirements too onerous. They are probably right: the key Sorp document is more than 100 pages long. However, given how the charity finance professionals have dominated the Sorp process to date, they have nobody but themselves to blame.
The Sorp isn’t just about the accounts that charities produce in ever-increasing length and complexity. It is the basis for the financial information that is used to tell the public how a charity is doing. And in this sense the Sorp is going backwards. The most recent version doesn’t require charities to separate out fundraising costs, trading costs and investment costs.
So if a member of the public goes to the website of the three UK charity regulators, the financial headlines are based on Sorp information. This means that those headlines are at best confusing and at worst downright misleading.
For example, Oxfam raises £120m a year in "donations and legacies", but the Charity Commission website says it spends £100m a year on "raising funds". Any Oxfam donor looking at those figures would be livid. The reality is that the £100m includes trading costs too, but the Sorp has combined those figures and the Charity Commission website spews out misleading, Sorp-based nonsense. That is why we need the Sorp to change.
Another area that the committee covers is financial data that is not in the annual report and accounts. There is currently no requirement for the data on a charity’s website or in its annual review to be Sorp-compliant. Why does this matter? Because I have seen three household-name charities that produce pie-charts on "how we spend your money", but leave fundraising costs out of the picture. This is a practice that Del Boy from Only Fools and Horses might think is acceptable – but charities really shouldn’t. So it’s welcome that the Sorp governance review has said all financial information should be Sorp-compliant.
I don’t underestimate how long it will take to get Sorp governance and Sorp-based accounts back in a shape that does the public justice. The timescales for Sorp to change are worthy of a supertanker. It will probably be five, maybe even ten years before we see any change in the accounts that charities produce.
The good news is we do have the opportunity to deliver a win/win for charities and the public.
Charity accounts could produce the core data that we know the public are interested in, while taking charities less time and energy to create. If that can be achieved, we will have taken a major step towards improving the public’s confidence in charities and reducing the overheads it takes to run a charity.
Joe Saxton is the founder and driver of ideas at the research consultancy nfpSynergy