Joe Saxton, co-founder of the think tank nfpSynergy, has called for major reform to the way accounting standards for charities are set.
In a blog published today, Saxton, founder of nfpSynergy, said that although the committee that set the accounting standards for the sector said its primary stakeholders were the public and donors, "its mechanisms have been captured by charity finance professionals".
The blog has been published alongside a report by nfpSynergy, called Sorped Out, which says financial reporting by charities should be made more transparent and accessible to the public, with better regulation of all methods in which charities advertise their financial performance.
The report specifically examines the Statement of Recommended Practice, the regulations that cover charities’ annual reports and accounts and which is developed by the Sorp committee.
The report says that too many members of the Sorp committee come from the finance sector, with all but two of the 20-strong body either working as or representing finance professionals. It says it also takes too long, at five years, to reform the Sorp.
The report complains that most public-facing financial reporting, such as charities’ websites or magazines, are outside the scope of Sorp, and charities have too much of a say in what the Sorp requires them to disclose.
The report makes five recommendations, including the creation of a new financial reporting board that incorporates the Sorp committee but also takes into account the interests of the public and donors.
It says there should be a set of "metrics" that highlight areas of public concern, such as the salaries of senior staff, the percentage of income spent on fundraising and the proportion of donations that goes to the cause.
The report also calls for the regulation of all methods used to communicate charities’ financial performance, a single, integrated process of collecting financial data from charities and more transparent and accessible ways of communicating charity finance to the public.
In his blog, Saxton said that the Sorp committee, of which he was a member for three years until resigning last year, had processes that were "deeply technical and filled with jargon".
Citing research that suggested many people found annual reports and accounts too long and confusing, Saxton said it was "inexplicable" that they were the only regulated way of charities communicating their finances.
"The charity sector has a habit of not addressing its flaws until after the horse has bolted and is galloping down the road," said Saxton.
"We have previously seen this with fundraising, and we are seeing it now with safeguarding after the Oxfam revelations. People in the sector knew about the weaknesses, but it took a media firestorm to force action.
"We have the opportunity to take action before the firestorm to make charity finances more transparent."