Charities need to do the walk, not just the talk and invest in financial leadership

February 22, 2016 at 12:11

Last week, ACCA and Responsible Finance, launched an insightful report into the finance function within non-for-profit organisations. The report isn’t too long, and I’d encourage every finance professional in the sector to read it and share it with colleagues. Although many of the points made aren’t new, we need to keep repeating them at all levels if we are going to see change.

If it is important, invest in it

I don’t think that there is a CEO or trustee that I meet that doesn’t recognise the importance of good financial management. We all know, both finance professionals and non-finance professionals, that without strong financial skills charities cannot achieve their full potential. Pouring money into charities without robust financial management is like pouring water into a leaky bucket. Yet despite this recognition the resources are not being put into finance within charities. As this report says “the finance function is subject to underinvestment and is not prioritise…resources are directed towards short-term planning and objectives.”

Some of this is due to the funding that charities receive. As it is noted in this report, a common compliant from charities is that they are not able to practice full cost recovery. This leads to cut backs on finance, IT and other critical enablers. However, there is also a cultural barrier within the sector. When push comes to shove, far too often, charities choose to withhold investment into finance in order to put more resources into the frontline. While this may be understandable in the current climate, this restricts the ability of charities to adapt and serve the long-term interests of their beneficiaries.

Investing cannot just be a one-off event, it needs to be continuous as finance is constantly evolving to meet new challenges and new regulatory needs. Worryingly, 44% of respondents to the survey did not have a budget for their finance officers’ CPD. Amongst the small and young non-for-profits this grew to over 75%. This has got to change.  Particularly when you consider that organisations like CFG exist and offer huge variety of content in return for modest fees.

If we measured success in terms of rhetoric, the battle to put finance at the heart of charities would already be won. But while the investment decisions of charities continue to lag behind the words, we still have a long way to go.

Charities can’t do it all on their own

A powerful point made by the report is the need for charities to have access to a network of financial support. It would be incredibly inefficient for every charity to build up within its own organisation all the capacity that it needed to support financial decision making.

Yet despite this, we have seen important financial infrastructure reduced due to lack of funds. Community Accountants, on which many smaller charities depend for financial advice and expertise, have seen their grants cut or withdrawn completely. CFG has been working with community accountants to support the development of more effective networks, but without funding this will not be enough for many areas.

Funders say that they want charities to show value for money and be more efficient. Yet by cutting back on funding for infrastructure like Community Accountants they are forcing more organisations to spend more on getting financial advice and expertise then they would if there was effective infrastructure. Funders need to come together and ensure that these networks, on which so many of their grantees depend, do not wither in the midst of an inhospitable financial environment.

Related to this, the report showed a high number of small organisations that are prioritising business planning and raising external finance (although this may be because they were being surveyed by an organisation which helps charities to raise external finance). We welcome charities putting more effort into working out their business plans and thinking about how they can access the resources they need to achieve their objectives. But we have found that within many small charities there is a lack of skills to do this effectively. That is why, with the support of Esmée Fairbairn Foundation, we have launched a Small Charities Finance Programme pilot which will be running in 2016 and early 2017. You can found out more information here.

Just one more thing…

One thing I did take issue with was the decision in the report to not include end beneficiaries as stakeholders with a direct interest in finance. I think that this is systematic of a misunderstanding about what finance is within an organisation. Even if you take the limited role of function outlined in this report: reporting, planning, governance, culture – these are directly related to beneficiaries.

It is an obvious point, but without financial leadership, a charity is not going to achieve its objectives and this directly impacts on beneficiaries. We need to get away from considering finance as just something that we need to do in order to tick boxes for external funders and for regulators. It is at the heart of helping our beneficiaries. Until we move on from this approach, finance will always be subject to a lack of investment. We should consider investing in finance in the same way that we consider investing in any charitable project and it should be understood in the same terms.