Liam Kay: The commission should end its failed spending ratios experiment

The regulator's beta website remains misleading and confusing five years on from its launch

Liam Kay
Liam Kay

In the world of computing, the acronym Gigo is widely used. It means "garbage in, garbage out". Essentially, if bad information is put into a system, bad information will come out.

Gigo came to mind when I was analysing the cost ratios displayed on the Charity Commission’s beta version of the website.

The problem with the commission’s use of ratios on the beta website is that most of the data is utterly meaningless as it is currently presented.

Take the British Heart Foundation’s ratios, for example. The commission’s beta website says that 102 per cent of the charity’s income available for charitable activities is spent on the cause, but only 39 per cent of the charity’s group income is available for charitable spending.

But this isn’t really true. That's because of the charity’s network of shops, which bring in £187.8m against costs of £164.4m, according to the charity’s 2018 accounts. Without its shops, the charity would have a better looking spending ratio, but £23.4m less for its charitable activities. To put it in its proper context, BHF spent £130.1m on charitable activities and 75p of every pound it earns is spent on fighting heart disease, with the rest reinvested in generating that income.

Part of the problem with the use of ratios as a measure is that charities operate in wildly different ways. Some are fundraisers, others public service deliverers. Some survive on investment income, others focus on providing services. Some have millions in the bank, others survive on a shoestring.

But you would not realise that from the beta website. Figures are included under vague headings that are not helped by unclear explanations beneath. The Charity Commission has added a note saying that the ratios should be read in conjunction with the charity’s financial statements if they are to be "interpreted correctly and sound conclusions drawn". But this only begs the question why include the ratios at all if "sound conclusions" can be drawn only after reading the charity’s full accounts?

That’s not the only issue. Our analysis found that, of the 20 charities we studied, four had data included under the heading "income generation", while the remaining 16 had data for "group income available for charitable activities". Such inconsistencies do little to allay concerns that the data is "garbage".

Last year, Joe Saxton, founder of the think tank nfpSynergy, highlighted some of the issues with the beta website in a blog. These included the failure to include fundraising or trading costs in pie charts showing a charity’s spending and attributing trading costs to fundraising spending in bar charts featured on the site. Changes have subsequently been made, but the problems identified then have not been fully corrected.

The ratios displayed on the beta version of the website have already caused the sector problems. In 2015, the much-criticised report by the True and Fair Foundation, the charity founded by the philanthropist Gina Miller, cited figures used in the commission’s beta website. The foundation’s report led to a negative front-page article in The Daily Telegraph about charities’ spending on administration costs. However, the article was later corrected by the newspaper after it accepted that some of the data was flawed.

The Charity Commission has a duty to help the public make well-informed decisions about the charities. But the way ratio data is used and presented on the beta website largely confuses, rather than informs. In this instance, its execution is wide of the mark. The time has come to end this failed spending ratios experiment and remove this data from the beta website altogether.

Liam Kay is finance reporter at Third Sector

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