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Charity Commission's Chief Executive speaks at the Institute of Chartered Accountants England & Wales's (ICAEW) annual dinner.
First, let me pay tribute to the extraordinary work charities do in Britain. We have 165,000 charities in England and Wales working to: improve our health, education and the environment; care for animals; support the arts or provide international aid. But they all strive to make our world a better place. Equally remarkable is the generosity of British people as donors and volunteers. 850,000 trustee positions are filled helping govern a sector worth nearly £71bn.
Which brings me to Sir Gerald and his ICAEW Outstanding Achievement award. Gerry has given so much to charity. He’s a shining example of going over and above the call of duty – the sort of trustee charities really depend upon. He is certainly not alone in the ICAEW in this regard. Hilary, at the Samaritans, you must have helped many people who were really struggling. And I’m told one in five of you – 30,000 members – volunteer, and no doubt many of you will also be making similarly extraordinary contributions.
In fact, I heard first hand from a trustee earlier today that the national mental health charity, Bipolar UK, would undoubtedly have gone under were it not for one of you. Daniel Ross, CEO of the Royal College of Pathologists, who I believe is in the audience, joined as treasurer, even though the charity was nearly bankrupt. He played, I’m told, a vital role sorting out what was a terrible financial mess and turning the organisation around. So thank you Daniel – thank you all of you – for your contribution, whether it is as trustees, professional advisers or as supporters.
But your help supporting the good governance and stewardship of charities is needed now more than ever before. We are experiencing increased media, public and parliamentary focus on the role of charity trustees, their capability and effectiveness. MPs have made clear responsibility for charities lie with trustees, while the Etherington Review of fundraising concluded that “charity trustees have too often been absent from discussions on fundraising practice or values.” Our ten-year-long research study tracking public trust and confidence in charity found last year – for the first time – that public trust in charities had fallen significantly. We have to respond to this.
So what has shaken the public’s trust and confidence in charities? The public still overwhelmingly believes charities play an important role in society. People told our researchers they were concerned by pressurising fundraising practices, a lack of clarity about where their money goes, a perception that too much money is spent on salaries or advertising. In short, it seems the public has not lost trust in the role of charity, but it has lost confidence in the practices and management of charities.
So how does the sector restore public confidence? So our survey provides a clear road map for regaining trust: meet high standards for raising and managing money, explain what you do clearly, and show how you are making a difference to the cause.
Good trusteeship is critical to achieving all of this. We know that through good governance, charities can get themselves through very difficult situations. We also know that poor governance is at the heart of many of the issues of concern we deal with day to day, such as unmanaged conflicts of interest, unauthorised trustee payments, breaches of governing documents or vulnerability to fraud and financial crime. The tell-tale signs of poor governance are commonplace. One in 10 charities filing accounts with us file late. All too often the annual report is missing, the accounts don’t add up or the report does not identify the charitable activities.Too many trustees aren’t familiar with the charity’s governing document, don’t understand the finances, fail to ensure control and procedures are in place and work, and don’t ask the difficult questions.
So what is the Charity Commission doing to address poor governance? The Commission is becoming a proactive, risk-based regulator, with a focus on identifying and robustly tackling the most serious risks. We’ve also strengthened our regulatory toolkit, which previously included weaknesses and loopholes preventing us from taking the robust action expected from modern regulator. The Charities (Protection and Social Investment) Act 2016 closes those gaps and will make us more effective and targeted in our case work with charities.
But we do much more than just enforce. We enable. We’ve revised our regulatory statement of approach, which now puts greater emphasis on our enabling work. Enabling trustees to run their charities better is key to restoring public confidence in charities. So we’ve overhauled our guidance on essential trustee responsibilities, making it easier to read and digitally accessible. Last year, I’m pleased to say, 100,000 people, new trustees, read the Essential Trustee, the foundation of all our guidance. Tomorrow, we will publish our updated advice on financial management, Charity finance: trustee essentials.
Robust financial management is vital to ensure that charities are able to meet the needs of their beneficiaries and also to increase public trust and confidence in the charitable sector. We’ve seen in our casework that weak financial governance can be extremely destabilising for charities, affect their ability to operate, and leave them vulnerable to fraud and abuse. It is vital that trustees are familiar with the charity’s governing document, understand the finances, ensure control and procedures are in place and work, and ask the right – and sometimes difficult - questions.
So we are making a concerted and deliberate effort to support trustees where we identify weaknesses and providing readable and easily understandable guidance is vital to this. We also recognise that trustees often don’t have the time or resources to read multiple lengthy documents on good practice. We are publishing tomorrow Charity finance: trustee essentials. This updated guidance will act as the ‘go-to’ financial publication that trustees and charity staff can refer to, to address any knowledge gaps or get assurances on whether they are doing the right thing.
I am asking ICAEW members, trustees and those engaged with charities as auditors, advisers, or supporters, to play your part in improving standards and stewardship. We want to see you helping raise trustees’ game, really making a difference to charity governance and financial management.
Our expectations are in line with the Institute’s work in this area and broader ambitions. Your charity manifesto calls for the same improvements in trustee competence that we are trying to bring about. Another of the Institute’s calls to action is to provide effective education for all trustees via online modules. We are talking to the Institute, as a professional membership body, about how it can do more to support and promote adherence to the revised Code of Good Governance for the Voluntary Sector. Our partnership is important and we value it.
The Institute has broader ambitions too. Hilary set out the ambitious, global vision for the ICAEW. Making organisations accountable, improving leadership and making finances transparent – the same aspirations we have for the voluntary sector. And she said she knows you all want to go above and beyond in your day jobs, and equally in any voluntary capacity. No-one here tonight wants to do just the bare minimum to get by – then head for home. You expect more of yourselves.
We, of course, expect you to raise the alarm when you see malpractice or incompetence, and to challenge inadequate leadership. So often it is basic governance failings that lead to disaster: maintaining financial records, having effective internal financial controls, managing conflicts of interest, making reasonable decisions, ensuring any private benefit is reasonable. Act when you see what is needed is not happening. It doesn’t have to be a matter reportable to us as a matter of material significance for you to tell us. Auditors are empowered to report at their discretion relevant matters to us. Exercise that power, don’t walk away.
As chartered accountants, your commercial and business skills and acumen are, of course, sorely needed. But it is less the big charities, ones like the Royal Horticultural Society represented here tonight, who really need trustees with these skills. It is the smaller, less well known charities, up and down the land, that really struggle. Typically trustees will be passionate about their cause and will really want to make a difference, but may lack the necessary administrative, financial and organisational skills. Less glamorous perhaps, but this is here where you are really needed, if you are considering becoming a trustee.
And we also know the good management I’ve just described is not just important for its own sake. It is the best route to rebuilding public confidence in charities. Our research shows that knowing charities are well managed – that competent people are in charge and that the money given to them is spent wisely – is what restores people’s confidence in charities more than anything else.
So I am making a call to arms for the profession to engage more and do more to raise skills in the sector. I know many of you do so much already, but I believe as a profession you can do more. And it’s not, of course, just the financial skills you bring – it’s general management, strategy and leadership.
So finally, I urge you, those of you who are not yet trustees, when you get home take a look at ICAEWvolunteers.com. There’s no shortages of opportunities out there, with 342 roles advertised. Whatever it is that matters to you – caring, children, education, social justice, international development, get involved. Become a trustee.