What are the Key Issues for Charity Trustees?

Daniel is a Director at PwC and a member of its Charities Management Board, the national leadership team for the firm’s work with charities. He leads on charity audits nationally and acts as Senior Statutory Auditor for and on behalf of PwC, including for some of the largest charities in the UK. He also leads PwC’s thought leadership for the charity sector, including the Charities Award, as part of the PwC Building Public Trust Awards.

Daniel is a member of the Charities SORP Committee, which oversees the financial accounting and reporting rules for charities across the UK and Ireland. He is also Chair of the Institute of Chartered Accountants
in England and Wales (ICAEW) Charity Committee and a member of the Chartered Institute of Public Finance and Accountancy (CIPFA) Charities and Public Benefit Entities Forum.

Daniel volunteers as a Trustee and the Honorary Treasurer of UK Youth, a national youth charity. He also leads PwC’s Charity Trustee Network, an internal community to support people at the firm who hold charity trustee roles or are interested in becoming charity trustees. He is particularly keen to encourage more young people and people from a diverse range of backgrounds to become charity trustees.

What are your views on the current state of the charity sector?

Charities come in all shapes and sizes and work across different parts of our society. While the charity sector is not homogeneous, and each charity has its own context and circumstances, they exist first and foremost for the public benefit.

With an ever-increasing need for charities and no signs of there being any less demand going forward, it is important to recognise the vital role that they play in society. The inspiring work of charities has become more visible and it is important that this continues to be clearly communicated with their stakeholders.

With a challenging funding environment, a higher degree of regulatory oversight and greater scrutiny by the media, there is increased debate about their role, how they are regulated, the services they provide and the trust placed in them. It is critical for charities to be purpose-led, resilient and innovative.

What have charities learned throughout the pandemic?

The pandemic has been challenging for many charities, with some very difficult decisions that have needed to be taken, particularly when faced with higher levels of demand but lower levels of resources.

Charities have shown their agility and ability to adapt which has given greater confidence within charities themselves to successfully deliver change. Many charities are continuing to look at how they can drive greater innovation, internally within the organisation as well as in collaboration and partnership with others. A culture of continuous improvement is healthy for organisations to stay resilient.

Charities – and, in particular, the people involved – have demonstrated immense resilience and resolve to get through the situation together. But, it is recognised that always being in crisis mode is not sustainable and cannot go on indefinitely. There has been an increased focus on looking after their people.

The way in which charities have responded to the pandemic can also be characterised as a period of accelerated change, not least in terms of working practices and the use of technology. Charities have needed to examine their business model to ensure that it is focused on delivering their charitable purpose and fit for the longer term. Some charities have taken this step which has led to strategic organisational change in order for them to focus on and prioritise where they can make the biggest difference, reallocate resources where needed and be innovative in what they do. Connected to this is the importance of clearly defining, measuring and reporting of the impact.

All of this plays to the importance of continuing to do the right thing and reinforcing trust through having a positive impact on beneficiaries and demonstrating this to their stakeholders. Charities should continue to do what they do best: place their charitable purpose at the heart of everything they do, adapt and respond to challenges as they arise, maintain financial resilience, disrupt and innovate, collaborate and partner, challenge and be vocal about their cause.

What are some key issues for charity trustees and leaders?

Charitable purpose, reputation and public trust remains a key area of focus. This is at the heart of what charities do and this needs to remain at the forefront of their minds. A number of charities have refreshed their strategy, and it’s helpful for us to really understand how they plan to deliver for those they exist to serve over the short, medium and longer-term. And the reputation of charities, overall, has seen a bounce during the pandemic through the impact they have had.

Charities have faced different situations with regards to their financial sustainability – some have found it difficult to generate income with rising demand while others have conversely seen incomes hold steady but an inability to spend on their charitable activities due to the impact of the pandemic, and everything in between. And, looking forward, there will continue to be uncertainties in this area – not least pressures from inflation. For many, there is a squeeze on income while costs are expected to increase. More and more charities are specifically reflecting on their liquidity and reserves policies, and what this should look like for them going forward.

People and culture have increasingly been on the radar for charities. The turnover of people in charities is, like for those beyond the charity sector, high – including those who are leaving the labour market altogether – and this results in significant competition for talent. How it feels like to work at a charity is therefore an important element. Key is also the management of volunteers, for which there has been significant interest over the course of the pandemic. Linked to this are discussions around ways of working and use of office space. Some charities fully left their properties during the pandemic and others sub-letting the space they have. There’s a greater focus on how space can be used more effectively, and charities are adopting hybrid working in different ways. There are live discussions over the balance of how often people should come into the office, and this may differ from charity to charity.

Many charities looked much more closely at how they use digital and technology during the pandemic, and there are more charities which are actively considering how investments in this area might help their overall charitable aims. There are also more finance teams seeking to understand how systems can enable greater efficiency.

What about Environmental, Social and Governance (ESG) matters? 

ESG is high up on the agenda. This is about how charities do what they do responsibly, with a holistic lens. There is a role for everyone involved with charities to approach this with an open mind, around whether how we do things is the most responsible way that is true to the charitable purpose.

The ‘S’ in ESG is what charities inherently do. It’s about their impact and charities can be clearer about this – in their strategy, action and communications. This is an area where organisations outside of the sector could learn from charities. It is also about the way in which the charity interacts with its employees, volunteers, beneficiaries, suppliers, and the communities which they are in and support. It includes areas such as its organisational culture, diversity and inclusion and modern slavery. It is often taken for granted that a charity, by virtue of its charitable status, will operate responsibly but it is important that this is at the forefront of how charities operate.

The environmental factors will be core to those charities with this at the heart of their charitable purpose. However, it is not just those charities with charitable objects relating to environmental matters which should take this seriously, particularly with the spotlight on this given by the 2021 United Nations Climate Change Conference (COP26). All charities should be clear on how they have considered environmental factors within their strategy and decision-making. Charities should take time to consider what their impact will be on the environment and how to make positive changes to this. These considerations should also be taken into account when considering their investments, and there are now greater, and often more explicit, emphasis on ESG factors.

It has never been more important for charities to be clear about what they do, why they do it and what difference their work makes.

It is also important for charities to ensure that their governance remains fit for purpose, underpinning its values and enabling decisions to be made effectively in considering these matters. This includes the Charity Governance Code, which was updated in December 2020 with an enhanced focus on the principles of ‘Integrity’ and ‘Equality, Diversity and Inclusion’.

ESG is shifting the landscape for all organisations, bringing with it a complex set of risks, challenges and opportunities.

What should be the key considerations for charities’ financial reporting this year?

At PwC, each year, we review the trustees’ annual reports of charities in the Charity Finance ‘Charity 100 Index’ for our Reporting in Charities Award, as part of the annual PwC Building Public Trust Awards to celebrate those that tell their story in an engaging and effective way.

We saw that charities took the opportunity of using their reporting to be honest with their stakeholders about the year that they have had and the challenges they have faced. There was a clear differentiation between those charities that embraced openness in conveying the important work of the charity and their direction of travel going forward. They saw their reporting as being genuinely valuable, beyond being a mere ‘finance’ or ‘compliance’ document, as opposed to charities which had cut back on their reporting during this difficult time. There has been continued improvement in the reporting by many charities over recent years, with greater focus being placed on the impact a charity can make, as well as showcasing how good governance and strong financial management can support this purpose.

It has never been more important for charities to be clear about what they do, why they do it and what difference their work makes. It is often hard to compare given the breadth and diversity of the charity sector, particularly among the largest charities, therefore it is vital that charities invest in how they communicate their strategy and impact and demonstrate their value to stakeholders.

Reporting by charities is a key part of a suite of communications – intertwined with and underpinned by, a charity’s accounts for the financial year – to demonstrate their charitable purpose, achievements and future plans, as well as provide greater insights into their financial resilience. However, reporting is not necessarily about saying more – often, less is more – but it is about continuous improvement. If readers can’t see the wood for the trees, that is also a barrier to high-quality reporting.

Reporting that is open, balanced and authentic, and clearly communicates their purpose, strategic priorities and values in the context of the sphere in which they operate, can help to bring what the charity does to life. Charities staying true to their purpose is at the heart of building public trust, and it remains critical for charities to communicate and engage effectively with their key stakeholders in ‘walking the talk’, ‘living their values’ and demonstrating their contribution and impact to their beneficiaries and wider society.

Any final thoughts for charity trustees?

It is an exciting, albeit uncertain, time to be involved in the charity sector. I would encourage all trustees (and those who are interested in becoming trustees) to actively engage with a wide range of areas. In many respects, the issues facing charities are often similar to those in the corporate world, albeit with a different lens. While charities can learn from organisations beyond the sector, charities should also not shy away from being an example to companies in their areas of strength.

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