Surveying trustees’ annual reports in the charity sector

Balancing act

High quality reporting which demonstrates sound financial management and good governance continues to be an important differentiator. The challenge for each charity is how to tell their story and successes in a balanced and forward looking way.

This is our sixth and final survey under SORP 2005 and we look at the progress made and consider the areas of focus for charities to become compliant with either the FRSSE SORP or the FRS 102 SORP.  

This year seems to have been one of little change: public benefit, going concern and reserves reporting show only small variations from the prior year; and structure and governance reporting demonstrates a similar steady state. In none of these areas is there 100% compliance. We suggested last year that a key element in this is the use and reporting of key performance indicators (KPIs) so that users can understand how the charity is performing against metrics the charity itself considers important. In 2015, only 34% (2014: 36%) of larger charities surveyed took up this challenge and included a KPI in their report (where a target was clearly set and reported on, excluding fundraising, investment and reserves reporting). However, some charities in our sample have already started to address the new requirements.

42% of charities are already including mitigating factors for their significant risks; 17% of our sample included some comment on key management personnel pay; and 7% discussed or hinted at those areas where the charity did not achieve its aims during the year, as well as the positive achievements.

Of those reports reviewed, some of the most powerful were those that were closely linked to the aims and objectives of the charity and the strategy being used to achieve them. Use of pictures, case studies and graphs, clear reporting of KPIs and risk mean that charities can make an impact, differentiate themselves, show good governance and appeal to their readers, both existing stakeholders and those stakeholders of the future. The annual report can and should stretch beyond the regulatory requirements and allow a charity to demonstrate its place and value to the society in which it operates.

If you are a charity, we recommend that you study the findings of this survey and then attempt to benchmark your own reporting against it. The result may surprise you; it may also give you more ideas as to what you could include in your annual reports. However, while a survey is full of interesting information, the result of any survey that is based on the random selection of samples ought to be treated with care.

The new SORP requires linkage between the activities reported and the financial information displayed but only 29% of our surveyed charities were judged to have a strong correlation between the narrative in the front half and the accounts in the back half. Partial information, a target without a specific result, the year’s result and a comparative do not tell the whole story. It is not always clear whether the intervention or activity was successful or whether it more or less successful than anticipated or hoped. Charities should start considering now how they will address the challenge of presenting failures or difficulties, explaining targets not met: this will be expected best practice, along with reporting on KPIs, under the new SORPs. As ever the production of the annual report is not just about finance it presents and represents the whole of the organisation and will require inputs from all areas of operation.

This year almost half the charities sampled produced accounts that we found visually stimulating or a separate annual review. However, although use of pictures, headings and colour is improving, there remains poor use of graphs (25% of charities sampled) and only 35% presented a highlights page or chairman’s summary to give an overview of the activities and results for the year.

Our survey showed that there have been improvements in reporting in some key areas and some charities are beginning to move towards the requirements of the new SORPs. However, we continue to challenge trustees to understand fully their audience and to consider the desired impact of their individual reports. Reports are not just a statutory requirement, they are available on the charity commission’s website and for just over half on the charity’s own website. They can reach a wide range of stakeholders and targets, funders, service users and volunteers.

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