Charities must invest in infrastructure, say ICAEW auditors

Auditors are calling on charities to put greater investment in their own infrastructure, leadership and processes in order to maximise their impact on their beneficiaries

A report published by the ICAEW, Audit Insights: charities - positive impacts in challenging times, highlights that performance should not be based on cost reduction, but rather on a charity’s outcomes and impact.

Although the report stresses high profile cases of charity failures, such as that of Kids Aid, are unrepresentative of the sector as a whole, they are concerningly frequent and building resilience and financial stability is important. Charities also need to be transparent in order to retain the trust of the public and stakeholders.

Only in December 2016, the Charity Commission noted poor governance lay behind the majority of cases it identified for compliance and investigatory work in 2016 including high profile cases regarding fundraising and financial abuse. It added the role of the board of charity trustees is not an ‘optional extra’.

The Commission’s annual report for 2016 on its work tackling abuse and mismanagement said it used its powers on 1,248 occasions (2014-15: 1,200).

Pesh Framjee, chair of ICAEW’s audit insights charities working group, said charities should be ready to spend more on their infrastructure and support functions in order to improve their effectiveness.

He said: ‘Investments in governance and leadership, monitoring and evaluation, internal systems and income generation are important as they can enable charities to improve their performance. Underinvesting in these important areas can lead to a deterioration in what charities are trying to achieve and the loss of resilience needed to sustain effective delivery. In addition, charities should tell their story in a way that helps funders and the public to understand and also support this investment.

‘Charities that are succeeding are not the ones avoiding risk but those seeking new opportunities and taking appropriate risks through effective risk management. They are re-examining every aspect of their traditional delivery model to identify new ways of maximising impact and increasing cost effectiveness, which is not always the same as cost cutting.’

The ICAEW’s report Audit Insights: charities - positive impacts in challenging times is available here.

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