The biggest myths around the charity sector

Myths around the charity sector are sadly commonplace among the public, especially around how charities spend their money, the risks they face, and the advantages they can receive.

 

For example, many people believe charities do not pay any taxes at all, while others think charities are less of a target for fraudsters than other organisations.

 

Here we look at some of the biggest misconceptions about the sector and explore guidance from the Institute of Chartered Accountants in England and Wales (I.C.A.E.W.) on how charities can combat these myths. This aims to create an accurate picture of the sector and encourage more people to give and support good causes.

 

“In helping to put these common myths to bed once and for all, charities gain more time to focus on delivering their important work and reaching their strategic aims,” says I.C.A.E.W. Charity and Voluntary Sector Head Kristina Kopic.

 

 

Myth one: Charities spend too much on highly paid executives

 

Research published by consultancy nfpResearch found that half the public do not think charity chief executives should be paid at all. Many others think their pay should be limited as they work for a good cause.

 

I.C.A.E.W. calls on charities to challenge this “narrative that charity executives are overpaid and that this diverts funds from the causes charities set out to help”

 

I.C.A.E.W. points out that in reality most charity bosses’ salaries are “modest”.

 

According to charity leaders organisation A.C.E.V.O.’s Pay and Equalities Survey the median basic salary for charity C.E.O.’s in the U.K. was £56,000 in 2022, £4,000 down on figures for 2013, when the survey began.

 

Even when large salaries, of around £175,000 for major charities, are reported, more needs to be done to explain how these leaders often run complex operations with income levels of hundreds of millions of pounds.

 

“What is often overlooked when C.E.O. salaries come under scrutiny is how broad and demanding their roles can be. Some charities are as complex, if not more so, as corporate organisations,” states the I.C.A.E.W. guidance.

 

Thee I.C.A.E.W. adds that public confidence can be further improved by charities ensuring top level pay is proportionate, by benchmarking against roles in organisations of similar size, sector, and location.

 

 

Myth two: Too much is spent on overheads

 

Often the public believes charities are not spending enough on communities they are supporting and instead using money on overheads, including back-office functions.

 

In reality, most charities spend the bulk of their income on frontline support. In addition spend on back-office functions often saves money, such as through using customer relationship management (C.R.M.) technology to make fundraising more efficient.

 

Highlighting the savings and efficiencies that are being made by investing in such technology is vital to tackling this myth.

 

I.C.A.E.W. also recommends promoting figures from charity sector body N.C.V.O.’s 2022 UK Civil Society Almanac, which shows 86% of charity sector spending is on activities directly linked to a charity’s purpose, such as its frontlines services.

 

“Charities should be able to explain how administration and other related costs will increase efficiency and improve impact, transparency, governance, and leadership, to understand where savings or investment could be made”, says I.C.A.E.W.’s guidance.

 

 

Myth three: Charities don’t pay taxes, so need less money

 

Many people are confused about the tax relief charities can receive and wrongly believe they do not pay any taxes, so need less funding from the public.

 

They do qualify for some exemptions, such as not paying income or corporation tax on most types of income if it is used for charitable purposes. There is also tax relief, such as on legacy income. But charities do make tax contributions, for example through payroll taxes and business rates.

 

Clarity is important and charities “should explain their tax contributions and the relevant tax reliefs and exemptions they have been granted”, states I.C.A.E.W.’s guidance.

 

 

Myth four: Charities are less vulnerable to fraud

 

The I.C.A.E.W. guidance is concerned that too many people think cyber criminals and other fraudsters do not target charities.

 

However, the National Cyber Security Centre says the opposite is the case. Its January 2023 report found charities are particularly vulnerable to attack as they often lack resources to invest in cyber security and in house experts.

 

For example, charities are more likely to rely on staff using personal devices for work, which is more difficult to secure than centrally issued IT, warns I.C.A.E.W.

 

The U.K. government’s 2023 Cyber Security Breaches Survey found that around a quarter of charities experienced a cyber security breach.

 

Charities are urged to ensure they have property internal financial and data controls in place and regular training should be provided to both staff and volunteers.

 

“When charities experience a cyber-attack, the impact can be severe for cash-strapped charities because the lower the charity’s income, the less likely it is to be insured for cyber security,” adds I.C.A.E.W.