Karen Cherrett, a charities and third sector expert at PA Consulting, is quoted in Public Finance’s article discussing the charity sector and how it can win back public confidence.
The article notes that an area that unites the charity sector is the worrying lack of public trust and a growing need for transparency, against a backdrop of growing public expectations.
Karen says: “Continued austerity and media reports about how some charities have experienced high-profile incidents of financial or ethical misconduct have made donors cautious to contribute – especially without a direct connection to the cause.”
She continues: “In response, there has been a noticeable shift among charities to promoting legacy funding and small, regular direct debits, as well as looking at mechanisms such as round-to-the-pound donations or maximising Gift Aid opportunities at the point of giving.”
The article explains that the relative ease with which new cause-led organisations can be set up has seen increasing fragmentation of the market and a proliferation of smaller, specific causes that, instead of creating choice, is confusing donors and diluting funding impact. Karen says: “This is leading to consolidation and divestment by some bigger players and a move to more commercial approaches and sector partnerships. What we are not seeing, on any large scale, is whole-sector collaboration or shared services for back-office activity to reduce running costs.”
The article then talks about how charities often struggle to focus on the right KPIs, notably ratios of cost to investment, such as people to volunteer effort and revenue to reserves.
Karen adds: “Charities typically focus on quantifying where the cash is against the costs. They do not provide a forensic analysis of costs or encourage a discipline of managing for the future. This can lead to a need to use reserves to plug gaps in revenue, fund or top up investment requirements or bail out failing projects.”
Karen then warns: “With financial viability at stake, charities are responding, although change has tended to focus on compliance around cash collection and management rather than the fundamentals of good financial governance.”
“Charities, especially smaller ones, still remain blinded by their cause rather than the need to manage resources to properly serve the cause,” she adds.