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Charities reputational woes continue

17th Dec 2015
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A recent article published by the Telegraph of the UK, 1,000 charities ‘spent less than half’ of funds on good works, suggested that, according to a recent report, one in five of the largest UK Charities spent less than 50% of funds raised on charitable activities (indeed there are more news reports regarding ‘Charity pay’ today in the Times of the UK – see:

Many of the charities mentioned in the article came out defending their reputations stating that the data used to compile the report was misleading due to accounting anomalies that misrepresented the true amount spent on charitable activities and over stated costs.

Charities have taken a rough ride recently with reports of fraud, mismanagement by Trustees and dubious fund raising techniques by volunteers. To say they have suffered another blow to their reputation is an understatement. Reputation is a huge concern for charities as they rely on people’s goodwill and social conscience for donations. Should the public no longer trust a charity then they are very unlikely to donate. Charities are not banks (see Public Trust in Charities article to see how weak public trust in charities was – even before the reported Telegraph article) – They cannot simply ignore the reputational damage currently being caused.

So what can charities do to regain some trust?

Charities need to ensure that they have in place systems and procedures that can minimise the risks that have been highlighted:

Fraud: Whilst you can only minimise the risk of fraud (if someone is determined to conduct fraud they will likely try), there are systems you can put in place to help combat the ability of someone to do so. Any trustees in charge of a charity need to ensure there are systems in place that reduce the possibility of fraud taking place. A Cloud Accounting system can help this in the following ways:

  • Increase security of your systems through the increased economies of scale offered by Cloud Accounting Systems and their security arrangements. This will reduce the possibility of hacking and other fraudulent behaviour.
  • Ensure that access to the accounting system has controls, checks and a full audit trail to ensure system users can only access the functionality they need access to. User profiling can ensure that access is restricted and controls are in place. One such example is a recent case of fraud where supplier bank account details had been altered by a system user to conduct fraud.
  • Have secondary approval procedures in place to ensure that the approval of purchasing and payments needs secondary consent. This will ensure that there is no lone wolf being able to purchase goods and pay suppliers for illicit transactions.
  • Cloud Accounting systems will also enable you to have your accounts properly monitored by auditors. Traditional auditing methods include taking a subset of data and analysing just this subset under the assumption it properly represents the entire set of accounts for the charity. With Cloud Accounting auditors now have the ability to set-up checks and data filters that highlight outlying transactions – ones that would not be expected to have occurred, which once detected can be easily highlighted and investigated. It offers greater monitoring for auditing purposes and will ensure that any fraudulent activity is quickly detected. This is a very real benefit of Cloud Accounting.

Once you have implemented such a system, tell people about it and the benefits. Charities need to regain trust and should be highlighting this to their potential donors.

Use of Funds: Reporting where and how you spend funds is essential for improving the trust placed in of your charity. Increasing transparency can help this and with a Cloud Accounting system you can have real-time, personalised KPI’s that report exactly what percentage of funds have been used for charitable activities. Of course, the KPI’s do not have to be real-time but can be released monthly or quarterly. The better the transparency the more trust you will instil. They can also be automatically sent to websites for promotion. Such KPI’s can also engage volunteers and employees to keep a control of costs, being conscious of the fact that such data is being monitored constantly by senior management and trustees. There really is no other solution on the Use of Funds issue other than transparency and reporting. Cloud Accounting systems allow you to monitor, control and report on this area.

In addition, reporting detailed accounts at both a consolidated and individual funds basis can allow people to see a true and accurate reflection of the accounts in summary and detailed formats. All this reporting can be undertaken in real-time with a Cloud Accounting system.

For more information on selecting and implementing a Cloud Accounting system please view here.

AccountsIQ is a Cloud Accounting system suited to the requirements of the charity sector. It can handle multi-fund consolidation, separation of funds requirements and SoFA reporting. It also has established integrations with websites (for donation receipts) and CRM systems such as SalesForce. To receive more information please contact [email protected] or view