Following an annus horribilis for the sector, a new report from ACCA and Responsible Finance calls on charities to shape up - by placing finance function at the heart of decision making.

Public patience with so-called ‘chuggers’ who look to solicit donations from passers-by on the street has long been wearing thin. Coupled with the case of Olive Cooke, who tragically killed herself after being overwhelmed by endless requests for cash from charity callers, and the Kids Company scandal which is rumbling on with no end in sight, 2015 saw something of a perfect storm hit the UK charity sector.

A timely new report from ACCA and Responsible Finance, titled ‘State of the Non-Profit Finance Function’ examines how placing the finance function front and centre in organisational strategy can help get the sector back on track.

Commenting on the report, Helen Brand, ACCA’s chief executive said:

“Not-for-profit organisations are invariably set up to serve an important social purpose – in many cases quite literally to save lives. The work these organisations do is clearly far too important to be jeopardised, even if the mess they currently find themselves in is almost entirely of their own making.

“The crux of the issue is that all charities need money to do their good work. There is nothing shameful in admitting this – after all you can’t cure cancer, put an end to homelessness or give much-needed respite to young carers without financial backing.

“However, these vital funds must be handled in the right and proper way. Following a turbulent year for the sector we now have an opportunity to change things for the better. Now more than ever, good financial management is of vital importance to the effective running of a charity.”

The report found that those asked believed the finance function to be subject to underinvestment and not a priority for their organisation. Instead, resources tend to be directed towards short-term planning and objectives.

Responding to the findings, Ben Hughes, chief executive at Responsible Finance said:

“Understandably, given the landscape in which they operate, simply keeping the wheels turning is the priority for most charities. With short-termism so prevalent and the fact that relatively low numbers of senior managers in the sector currently come from a financial background, it will be a challenge for these organisations to grow in a structured and sustainable way.

“Unfortunately, when the role of the finance function in a charity is sidelined – be it for reasons related to capacity, funding, staff and management skill sets, or even culture – ultimately the organisation’s ability to fulfil its social mission is compromised.  Given these trends the business support and finance that our members – responsible finance providers – provide is more important than ever.  They help organisations build strong foundations, including their finance function, so that they can take on finance, invest in their mission, and grow.”

According to ACCA and Responsible Finance, charities should take their lead from ‘for-profit’ SMEs, as Helen Brand explains:

“The finance function has been found to play a central role in phases of growth and transition. Recognising this, firms develop and invest in their finance function in order to reach the next stage in their lifecycle.  In the not-for-profit sector however, fulfilling the social mission is the top organisational priority, and financial management is currently viewed as secondary to this mission – rather than its driver.

“Yet we know that good financial management enables not-for-profit organisations to carry out their missions efficiently, and achieve value for money. Financial management, at the very minimum, allows the organisation to keep its doors open, and good financial management plays a role in securing that all important new funding so sought after by charities.”

From the research, ACCA and Responsible Finance have been able to identify a number of factors that will help charities to develop a robust and embedded finance function. Ben Hughes explains:

“Above all, proactive, internal cultural change towards prioritising finance and using it to make informed management decisions that are based on financial planning is core to this. Simply put, for the finance function to have the intended impact within the organisation, there must be a culture that prioritises finance, driven by the governance of the organisation. In my view, setting finance as a standing item on the board agenda should the minimum requirement for any charity chief executive.

“Secondly, industry bodies can also offer support, through strengthening knowledge-sharing networks and training opportunities. And finally funders and government, driving much of the environmental change for the non-profit sector, could simplify their requirements to enable non-profit organisations to operate more efficiently. Together these measures will enable charities to maximise the social value they are so driven to deliver. We aim to work with our networks and members who provide social investment to build this supportive environment.”

When it comes to the crunch, if they are to survive, charities must commit to driving their own cultural change says Helen Brand:

“We see time and time again that organisational culture – both positive and negative – is typically driven by an individual, usually from the top down, through regular engagement with other senior managers and trustees. Alongside culture, weak governance, underpinned by a lack of trustees with a finance background, is a major barrier to a strong finance function. That is where we come in. ACCA is committed to doing all we can to assist in the recruitment of qualified directors with a finance background into the sector, through referring and advertising trustee opportunities to our members and students.

Ben Hughes agrees:

“Young charities in particular will benefit from this, as qualified trustees appointed at an early stage will contribute hugely to setting the right tone in the long-term development of the organisational culture when it comes to finance. This will contribute to a healthy non-profit sector and a thriving social investment market.”

The full report can be downloaded here:

http://www.accaglobal.com/content/dam/ACCA_Global/Research/ea-non-profit-finance-function.pdf

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Notes to Editors

About ACCA

ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. It offers business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management.

ACCA supports its 178,000 members and 455,000 students in 181 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. ACCA works through a network of 95 offices and centres and more than 7,110 Approved Employers worldwide, who provide high standards of employee learning and development. Through its public interest remit, ACCA promotes appropriate regulation of accounting and conducts relevant research to ensure accountancy continues to grow in reputation and influence.

Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity, innovation, integrity and accountability. It believes that accountants bring value to economies in all stages of development and seek to develop capacity in the profession and encourage the adoption of global standards. ACCA’s core values are aligned to the needs of employers in all sectors and it ensures that through its range of qualifications, it prepares accountants for business. ACCA seeks to open up the profession to people of all backgrounds and remove artificial barriers, innovating its qualifications and delivery to meet the diverse needs of trainee professionals and their employers. More information is here: www.accaglobal.com