Improved charity finance management can lead to better impact reporting, a more sustainable financial future and increased accountability to funders and stakeholders
This is article is sponsored by Sage Intacct - the nonprofit financial management platform that lets you pursue your mission more efficiently with sophisticated multidimensional database that lets you aggregate transactions and activities across your nonprofit organisation.
COVID-19 has drastically altered the charity funding landscape. Amidst worrying projections over the immediate and long-term financial health of the sector, many charities are having to make difficult decisions in order to be able to continue to provide the best possible services to their beneficiaries.
The UK has actually seen a huge increase in public trust in charities during the pandemic. But with demands on both public and private funds higher than ever, this trust must be earned. Charities will be under increased scrutiny, with those that can provide clear and accurate impact reporting in the best position to secure funding.
This pressure is nothing new. Over the last few years, expectations from both the public and from government put non-profit organisation operations under a spotlight. A number of factors contribute towards this - the rise of performance metrics and marketisation that have spilt over from the private sector, frequent shortages of financial and physical resources, and the increased visibility provided by social media. All of these pressures have been exacerbated by COVID-19.
This creates a need for accountability (the giving and demanding of reasons for conduct). The weight of this is perhaps most keenly felt by charity financial professionals. These workers must be accountable to stakeholders (whether trustees, governmental funding bodies or private donors) to justify where and how money is being spent.
In the non-profit sector, impact is usually measured by engagement with service users and by meeting targets set by trustees. These non-profit organisation stakeholders require information to measure whether operations are succeeding or not. Because they are often not involved in the day-to-day running of the organisation, this information is typically provided by staff in finance roles within organisations. The information is vital for governance, and often directly impacts a charity’s chances of securing further funding. In the wake of COVID-19, this is more true than ever.
Yet many non-profit finance professionals are currently doing the bare minimum when it comes to finance reporting, resulting in infrequent and insufficient records. There is a huge reliance on the exclusive use of Excel or paper-based accounting methods, as well as a large number of charity finance workers only producing monthly reports.
This creates an accountability gap, with charities that cannot provide detailed, accurate and timely financial reports at a clear disadvantage when it comes to applying for much-needed funding.
There are a number of obstacles facing charities as they seek to improve their financial reporting and management.
The first of these is capacity. Many charities (particularly smaller organisations) struggle to dedicate the requisite bandwidth to financial affairs.
There are a number of reasons for this. In smaller organisations, the finance function is often filled by a non-finance professional. They may be splitting accounting and impact reporting duties with other responsibilities. This is more likely to result in financial processes being limited to simple bookkeeping.
In medium-sized organisations, when operating different legal entities with different currencies and different tax jurisdictions, the pressure on the finance function becomes even harder. Achieving efficiency and clarify becomes even more complex with manual processes and lack of automation.
Even if this worker is able to dedicate a substantial amount of time to the finance function, non-finance professionals will be faced with a substantial knowledge gap. This can have knock-on effects that create further obstacles.
Many non-profit organisations are either unaware of the tools available or cannot access these tools for other reasons (i.e. capacity issues, cost, resources), and even amongst those who have access to them, many find accountancy software too technically daunting and not user-friendly.
Sage have identified four avenues which, when taken together, provide a framework for overcoming or mitigating these obstacles.
They are as follows:
Dedicated accountancy software can help to overcome capacity issues, by automating time-consuming processes. It also provides a level of detail that is necessary for an organisation to report accurately and be accountable to stakeholders. Charities value access to low cost or free software and would like this to be more customised toward their needs.
Luckily, there are digital solutions to make things easier, including a number of products out there, including some available at discounted charity rates.
Sage Intacct is a cloud-based financial management system designed for small to medium-sized organisations. It allows you to easily consolidate information across multiple business units and conduct real-time financial analysis.
Sage Intacct has a number of tools to make financial reporting simpler, including a built-in role-based dashboard that instantly captures financial and operational information from across your organisation.
Any response along the lines of software and processes also highlights the need for education and training. Many charity finance workers find accountancy software technically daunting. This perceived level of difficulty can dissuade organisations from utilising finance and accountancy software.
Essentially, a trade-off is being made - these organisations are saving themselves time and effort in the short term because they don’t have to get to grips with these processes. But those organisations will expend far more time and effort in the long term by relying on outmoded practices. This, in turn, will further exacerbate capacity issues and lead to a greater accountability gap.
This knowledge gap doesn’t just apply to those who aren’t using finance management software. In many cases, even competent accountancy software users are often not using the full range of their products’ functionality. As long as this is the case, these charities are paying for services they are not using - which further contributes to the cost issues highlighted earlier.
This is why a programme of education and training must be developed. Charity finance workers need proper guidance on using these systems and unlocking their full potential.
Many charity employees and volunteers encounter problems when searching for the right help with their finance systems. This problem is exacerbated when time and capacity are already at a premium.
Which is why this programme of education and training should be supplemented by a dynamic support system. This could take a number of forms, such as a dedicated point of contact who can quickly advise on an issue, or a programme of online guides and best practices. Hands-on support with software setup or other tasks and one-to-one coaching for ongoing needs would also be valuable.
Charity finance workers want quick and easy access to knowledgeable peers to share best practices with, as well as to learn from, teach and build confidence alongside. They would also like to see an approved list of people and partners that they could consult or collaborate with. Skills-based volunteering offers a potential solution for both support and networking-based interventions.
Skills-based volunteering allows qualified professionals to work for charities on a pro bono basis. Trained financial professionals (both within and without the charity sector) could offer their expertise to help train and support non-finance professional charity workers fulfilling that function within their organisation.
This is not an issue that will be resolved overnight. Not will any single programme or initiative bring about change on a scale big enough to correct the curse of finance management in the UK charity sector. A co-ordinated response along these four avenues will provide a strong foundation for an integrated programme of learning and support.