RS8 - Transparency and Accountability: Annex A, B, C & D

(Version June 2004)

Contents

• Annex A - Research Techniques and Survey findings
• Annex B - Glossary of terms
• Annex C - Requirements for preparing and filing Annual Reports and Accounts
• Annex D – Bibliography
• Acknowledgements
• Back to main report

Annex A - Research Techniques and Survey findings

The data used in this report was derived from a review of 200 annual reports, financial statements and the annual reviews of larger charities with a 31 March 2003 year-end.

In addition an independent research company interviewed 1000 members of the public to canvass their views on the level and type of information that charities make available to their stakeholders.

Profile of charities in the survey

Table 1: By type of charity

Type of charity	Governing instrument	Number	%
Limited company	Memorandum and Articles of Association	147	74
Incorporated under Royal Charter	Royal Charter	18	9
Trust	Trust Deed	23	11
Trust	Set up by Charity Commission Scheme	8	4
Trust	Established by Act of Parliament	3	2
Trust	Established by Deed Poll	1	-
Base 200

Table 2: By type of guidance complied with

Guidance complied with	Number	%
Charity SORP only	170	85
NHS guidance and Charity SORP	6	3
Registered Social Landlord SORP	23	12
Higher & Further Education SORP	1	-
Base 200

Table 3: By activity

Activity	Number	%
Business & professional	0	-
Civil rights, citizenship and law and order	6	3
Conservation and protection	9	5
Culture, Sport & recreation	20	10
Education, training and scientific research	24	12
Health & medical	41	20
Housing and Community Affairs	28	14
International activities	12	6
Philanthropic intermediation eg. grant making	4	2
Religion	12	6
Social services and relief	44	22
Base 200

Table 4: By main source of income

Main income source	Number	%
Donations, legacies and similar income	39	20
Membership income	2	1
Grants / fees from central or local government	73	37
Trading income	76	38
Investment income, including bank interest	5	2
Other	5	2
Base 200

Table 5: By main type of charitable expenditure

Main type of expenditure	Number	%
Providing financial assistance (e.g. grant awarding to individuals and/ or organisations)	40	20
Providing buildings/ facilities/ open space	39	20
Providing services (e.g. care/ counselling)	93	47
Providing advocacy/ advice/ information/ education	14	7
Acting as an umbrella/ resource body	1	-
Sponsoring or undertaking research	13	6
Base 200

Table 6: By production of an Annual Review

	Number	%
Annual Reviews available for this study	83	42
Base 200

Filing the Report and Accounts

Table 7: When did the charities file their Reports and Accounts?

	Received by Charity Commission		Approved and signed by Trustees
	Number	%	Number	%
May 2003	-	-	1	-
June 2003	-	-	16	8
July 2003	6	3	73	37
August 2003	8	4	19	9
September 2003	21	10	37	19
October 2003	17	9	18	9
November 2003	18	9	16	8
December 2003	26	13	9	5
January 2004	91	45	9	5
February and March 2004	13	7	1	-
Trustees’ signatures not dated	-	-	1	-
Base 200

Table 8: The stages leading up to the filing of Reports and Accounts

Period from:	Average days	Longest period	Shortest period
	Days	Days	Days
Financial year-end to approval of financial statements by trustees	154	308	52
Approval by trustees to date on which auditors signed their report	5	91	0
Auditors signing their report to filing of report and accounts with the Commission	93	234	3
Total days (legal maximum 306)	253

* Charities who did not submit signed accounts have been excluded.

The Annual Report

Table 9: Presentation of Annual Reports

	Yes		No
	Number	%	Number	%
Is the Annual Report easy to read and navigate?	191	96	9	5
Does the Annual Report contain the following:
Self-explanatory graphs?	17	9	183	92
Self-explanatory tables?	34	17	166	83
Photographs?	20	10	180	90
Base 200

Table 10: Disclosure of charity details

Did the Annual Report disclose the following:	Yes		No
	Number	%	Number	%
Charity name	199	100	1	1
Charity number	190	95	10	5
Type of governing document	171	86	29	15
Financial year end	196	98	4	2
Base 200

Table 11: Required and best practice disclosures

How good was the information provided in the Annual Report on the following:	Good detail, easy to find	Some information	A few details	No details	Not applicable
	Number	Number	Number	Number	Number
a) Aims and objects (required disclosures)
Statement of statutory objects of the charity	161 (81%)	19 (10%)	8 (4%)	12 (6%)	-
Explanation of aims and mission of the charity	152 (76%)	28 (14%)	15 (8%)	5 (3%)	-
b) Organisation (required disclosures)
List of trustees at year end and who served during the year	188 (94%)	9 (5%)	0	3 (2%)	-
Details of how trustees are appointed	78 (39%)	43 (22%)	35 (18%)	44 (22%)	-
Details of any body or person who can appoint the trustees	63 (32%)	44 (22%)	30 (15%)	63 (32%)	-
Description of organisational structure	74 (37%)	64 (32%)	47 (24%)	15 (8%)	-
c) Organisation (best practice disclosures)
Details of committees, their composition and their areas of activity?	56 (28%)	51 (26%)	38 (19%)	53 (27%)	2 (1%)
d) Relationships (required disclosures)
Statement of relationship with related parties	58 (29%)	38 (19%)	30 (15%)	35 (18%)	39 (20%)
Details of relationships with other charities and bodies	49 (25%)	37 (19%)	45 (23%)	62 (31%)	7(4%)
e) Review of charity’s and subsidiaries’ activities (required disclosures)
Achievements for the year	126 (63%)	46 (23%)	15 (8%)	13 (7%)	-
Plans for the future	66 (33%)	47 (24%)	58 (29%)	29 (15%)	-
Narrative about the effectiveness of fundraising	61 (31%)	33 (17%)	42 (21%)	43 (22%)	21 (11%)
Narrative relating to the contribution of volunteers	31 (16%)	34 (17%)	33 (17%)	82 (41%)	20 (10%)
Information provided about subsidiary companies	40 (20%)	22 (11%)	23 (12%)	55 (28%)	60 (30%)
f) Finance (best practice disclosures)
Comment on major sources of income and expenditure	71 (36%)	69 (35%)	35 (18%)	25 (13%)	-
Comment on financial health	61 (31%)	63 (32%)	54 (27%)	22 (11%)	-
Comment on unusual items (e.g. large deficit on defined benefit pension scheme.)	46 (23%)	17 (9%)	15 (8%)	70 (35%)	52 (26%)
Comment on accounting policies and any changes to them	27 (14%)	26 (13%)	26 (13%)	121(61%)	-
g) Performance (best practice disclosures)
a) Does the Annual Report contain useful ratios?	72 (36%)	58 (29%)	44 (22%)	26 (13%)	-
Is there an explanation of performance of key ratios?	62 (31%)	58 (29%)	44 (22%)	36 (18%)	-
h) Reserves (required disclosures)
Explanation of the charity’s policy on reserves	131 (66%)	33 (17%)	17 (9%)	19 (10%)	-
Comment on achievement of policy and action to be taken	77 (39%)	49 (25%)	33 (17%)	41 (21%)	-
Explanation of funds in deficit	17 (9%)	8 (4%)	8 (4%)	60 (30%)	107 (54%)
i) Investments (required disclosures)
Summary of specific investment powers	41 (21%)	19 (10%)	34 (17%)	106 (53%)	-
Explanation of the charity’s investment policy	70 (35%)	28 (14%)	25 (13%)	61 (31%)	16 (8%)
Comment on performance of investments	37 (19%)	24 (12%)	22 (11%)	95 (48%)	22 (11%)
j) Grants (required disclosures)
Explanation of grant making policies	33 (17%)	8 (4%)	10 (5%)	97 (49%)	52 (26%)
k) Risk management (required disclosures)
Statement concerning reviewing risks	147 (74%)	24 (12%)	22 (11%)	7 (4%)	-
l) Risk management (best practice disclosures)
Explanation of major risks	15 (8%)	12 (6%)	28 (14%)	145 (73%)	-
Explanation of how major risks monitored / controlled	95 (48%)	42 (21%)	42 (21%)	21 (11%)	-
m) Internal processes (best practice disclosures)
Comment on staff and staffing levels?	60 (30%)	44 (22%)	44 (22%)	49 (25%)	3 (2%)
Comment on its property assets?	33 (17%)	25 (13%)	41 (21%)	96 (48%)	5 (3%)
Comments concerning the charity’s IT and systems?	10 (5%)	20 (10%)	18 (9%)	152 (76%)	-
Base 200

Table 12: Outcomes and Impact described in the Annual Report

To what extent does the Annual Report describe the following:	Explained in detail		Limited information		No detail
	Number	%	Number	%	Number	%
What charity has done to achieve its objects?	130	65	55	28	15	8
Details of how its achievements compare to its plans?	30	15	88	44	82	41
Explanation of the benefit of this year’s activities to users?	73	37	71	36	56	28
Explanation of the benefit of this year’s activities on wider society?	31	16	67	34	102	51

Table 13: Linkage between the Annual Report and other communication media

	Charities producing these extra statements / having a website	Annual Reports cross referring to the other statements / website
	Number (base)	Number - Yes	%	Number - No	%
If the Annual Report and Accounts booklet contains other statements (for example, a Chairman’s statement) does the Annual Report refer to them?	49	24	49	25	51
If the charity produces an Annual Review, does the Annual Report cross-refer to it?	83	20	24	63	76
If the charity has a web site, does the Annual Report refer to it?	188	39	21	149	79

Table 14: Other comments on the Annual Reports

	Number of charities
Annual Report and Accounts booklet contains much detail, but in reports other than Annual Report	9
Report clearly laid out, concise and helpful	15
Report very brief and uninformative	15
Report contains excellent detail on aims, plans, policies and strategy	8
Report very strong on impact and achievements	15
Report strong on financial matters	12
Report weak on financial matters	7
Report weak on impact of charitable activity	6
Some honest details about problems	9
Particularly good detail on charity structure and organisation	14
Poor detail on charity structure and organisation	9

The Financial Statements

Table 15: Key information in the financial statements

Key Transparency and Accountability information	Yes	No	Not applicable
	Number	Number	Number
Is there an accounting policy for each major source of (consolidated) income, expenditure and balance sheet item?	143 (72%)	57 (29%)	-
Is there a note explaining the composition of each major figure in the (consolidated) SoFA and balance sheet?	125 (63%)	75 (38%)	-
Is there a note covering the amount of any remuneration to trustees, and the nature and amount of expenses reimbursed to them during the year?	187 (94%)	13 (7%)	-
Is there adequate disclosure of related parties, and transactions and balances with them, particularly expenses that would normally have to be borne by an organisation but which are not included in the SoFA)?	130 (65%)	17 (9%)	53 (27%)
Base 200

Table 16: Most frequent missing or inadequate accounting policies

	Number of charities
Incoming resources
Income from charitable activities	10
Donations and sale of donated goods	5
Legacies	3
Fees / grants receivable	10
Shop income and trading income	3
Outgoing resources
Charitable expenditure	27
Grants payable	3
Operating costs / trading expenditure	10
Allocating costs to SoFA categories	69
Policy for allocating costs to SoFA categories inadequate	5

Table 17: Most frequent missing or inadequate notes to the financial statements

	Number of charities
Incoming resources
Income from charitable activities	17
Donations and legacies	16
Fees / grants receivable	28
Shop income and trading income	11
Outgoing resources
Charitable expenditure	14
Grants payable	4
Shop expenses / trading expenditure	8
Fundraising costs	3
No analysis by type of expense, or inadequate analysis	20
Nature or amount of trustees’ expenses not disclosed	4
Other
Inadequate explanation of purpose of funds	4

Table 18: Other comments on the Accounts

	Number of charities
Income not properly categorised in the SoFA	10
Expenditure not properly classified in SoFA	2
Mathematical errors in the accounts	3
Balance sheet and auditors’ report not signed	9

Annual Reviews

Table 19: How visually interesting are Annual Reviews?

	Yes	No
	Number	Number
Is the current Annual Review written in a more accessible style than the Annual Report?	69 (83%)	14 (17%)
Does the current Annual Report contain the following:
Self-explanatory graphs and tables?	65 (78%)	18 (22%)
Quotations from beneficiaries?	55 (66%)	28 (34%)
Photographs?	80 (96%)	3 (4%)
Base: 83

Table 20: Annual Review basics

	Yes	No
	Number	Number
Did the Annual Review disclose that it covered the same period as the Annual Report?	80 (96%)	3 (4%)
Did the Annual Report contain summarised financial data?	65 (78%)	18 (22%)
Base 83

Table 21: How informative was the Annual Review?

Does the Annual Review provide information on:	Information additional to Annual Report	Information duplicates Annual Report	No information
	Number	Number	Number
Financial ratios	29 (35%)	32 (39%)	22 (27%)
Headline figures	50 (60%)	26 (31%)	7 (8%)
Impact information	78 (94%)	4 (5%)	1(1%)
Outcome information	77 (93%)	5 (6%)	1 (1%)
Future plans	59 (71%)	9 (11%)	15 (18%)
Base 83

Table 22: What was the perceived purpose of the Annual Review?

(Note: Some reviews appeared to have more than one purpose)

Apparent purpose of Annual Review	Yes	No
	Number	Number
Fundraising	35	48
General publicity	64	19
Enhancement to the Annual Report	37	46
Base 83

Table 23: General perceptions and comments

	Number of charities
Annual Review much easier to read than the Annual Report	8
Annual Review more informative than the Annual Report	12
Annual Review fills in gaps in the Annual Report	15
Annual Review very long / heavy reading	4
Good use of individual cases to illustrate activities / outputs	7
Confusion caused because Annual Review entitled "Annual Report" even though a separate Trustees’ Annual Report existed	4
Annual Review very long and very heavy reading	4
Annual Review on website not for same year as Annual Report and Accounts	10

Other measures to enhance transparency and accountability

Table 24: Other measures in place to enhance transparency and accountability

Reference made by the charity in its Annual Report or Annual Review to the following:	Number of charities
Website	57 (29%)
Newsletter	23 (12%)
Helpline, customer service centre, mini-cam, e-mail, telephone service, text messaging	12 (6%)
Availability of publications, fact sheets, research papers	8 (4%)
Documents such as Corporate Plan, and Annual Review on CD, available on request	8 (4%)
Regular meetings with volunteers, advisory groups, tenants etc.	3 (2%)
Base 200

Results from a survey of the public.

Table 25: Respondents were asked how important they thought it was for charities to provide the following information. Respondents used a scale of 1 to 5 where 5 = very important, 1 = not at all important and 3 = neither important nor unimportant. The mean results from 1000 responses are shown below.

Mean score	Information
4.43	Which charitable activities the charity has spent its money on
4.41	What the charity has achieved (i.e. the impact on society of the work they have undertaken)
4.14	The amount of money the charity spends on raising money (including the cost of fundraising staff)
4.10	The cost of the charity’s administration (including staffing costs)
3.95	The charity’s financial policies (e.g. investment policies and reserves)
3.87	How decisions are made in the charity and who makes them
3.80	Where the charity gets its income from (e.g. from donors/ grants/ investments/ fees etc.)
3.40	The charity’s registration number

NOTE: In some instances percentages add up to more than 100% due to rounding up.

Annex B - Glossary of terms

Transparency and Accountability: For the purposes of this report we interpret transparency and accountability as providing relevant and reliable information to stakeholders in a timely manner that is free from bias, comparable, understandable and focused on stakeholders’ legitimate needs. This means that the information provided is capable of being understood by users with a reasonable knowledge of business, economic activities and accounting and a willingness to study the information with reasonable diligence.

Accounting policies: the principles, bases, conventions and rules by which transactions are recognised, measured and presented in the accounts.

Accounts: the statement of accounts produced annually by a charity in compliance with the Charities Act 1993 or the Companies Act 1985 and the Charities SORP. Usually they comprise a Statement of Financial Activities, a Balance Sheet, a Cash Flow statement (where required), a statement of accounting policies and other notes. When audited, they have attached to them an auditors’ report.

Achievements: something accomplished by the charity.

Activities: anything done using resources belonging to the charity or under its control, and including all its work and services.

Aims: describe the changes the charity plans to achieve, or the differences it wants to make.

Annual Report: A report produced annually by the trustees of a charity, in compliance with legal requirements and the requirements of the Charities SORP, to provide legal and administrative details relating to the charity and to describe what it is trying to do and how it is going about it.

Annual Review: A review of a year’s activities produced by a charity in addition to its Annual Report. They are frequently more promotional in nature and may be more descriptive and less focused on performance reporting and linking to financial information. Others may provide detailed performance information relating to particular services and may include financial summaries.

For the purposes of this project an ‘Annual Review’ is any document that is:

• designed to give an overview of the charity's activities, usually a summary of financial information, achievements and changes etc. (ie. it does not just report on one area exclusively, such as research or fundraising effectiveness);
• published in addition to documents produced to fulfil the charity's statutory obligations (although the review may contain extracts from that information); and
• made widely available.

Beneficiaries: persons, people or bodies who may benefit under charitable trusts.

Impact: the broad, longer-term effects of the charity's work.

Indicators: well-defined, easily measurable information, which shows how well the charity is performing.

Inputs: the resources and activities that are used in the charity to create the services offered, for example, staff and volunteers' time, use of equipment etc.

Mission statement: a short statement of the purpose of the charity, sometimes called an overall aim.

Objectives: the practical steps the charity will take to accomplish its aims.

Outcomes: the changes, benefits, learning or other effects that happen as a result of the charity's services or activities.

Outputs: the activities, services and products provided to users. They show the volume of work undertaken, representing the direct products of the charity arising from its activities.

Performance management: the use of performance measurement information to help set and report on performance goals.

Plan: a written description of the steps the charity will take to achieve certain things.

Services: the goods, information and activities the charity provides for its users.

Stakeholder: any person, group, or organisation that has an interest in, or expectation of the charity.

Strategic plan: covers the vision for the future of the charity and outlines the steps necessary to achieve this over a period of time, often three to five years.

Strategy: a planned way of achieving long-term aims.

Trends: show changes over time; can be used to plan future services.

Users: anyone who uses or benefits from a charity's services or facilities, whether provided on a voluntary basis or as a contractual service.

Annex C - Requirements for preparing and filing Annual Reports and Accounts

Preparation

All registered charities in England and Wales are required to produce annual financial statements and an Annual Report and file them with the Charity Commission, unless the charity falls below the minimum size criteria set out in the Charities Act 1993 – having gross income and total expenditure of £10,000 or less. In addition, any charity that is a limited company must also prepare and file a directors’ report and annual financial statements at Companies House. A charity that also falls within the scope of another regulator (for example, a Registered Social Landlord, which is regulated by the Housing Corporation) is usually required by that regulator to prepare and file an annual report and accounts. So whichever category a charity falls into, unless it is very small, preparing and filing an annual trustees’/directors’ report and financial statements is a universal requirement.

Filing time limits

The time limits for filing the annual report and accounts are also very similar between regulators. Registered charities must file their annual report and financial statements with the Charity Commission within ten months of the end of the financial year. A similar timescale exists for charities that are companies for filing these documents at Companies House. So for the 200 charities surveyed as part of this project, each of which had a 31 March 2003 financial year-end, the last filing date was 31 January 2004.

Form and Content

The minimum content of Trustees Annual Reports for charities in England and Wales is determined by Regulations issued under the Charities Act 1993. The Charities SORP (‘Statement of Recommended Practice: Accounting and Reporting by Charities’) provides some additional recommendations. Charitable Companies must also produce a directors’ report though this may be combined with the Trustees Annual Report to reduce duplication of information.

The format and content of charity financial statements is determined by the legislation under which the charity is constituted. Charities that are companies must comply with the accounting requirements of Companies Act 1985, and non-company charities must largely comply with requirements of the Charities Act 1993 and associated Reports and Accounts Regulations.

Both company and non-company charities preparing accruals accounts must prepare accounts that give a true and fair view. In order to do this the accounts must follow relevant accounting standards and any statement of recommended practice (SORP) that relates to the charity. A SORP is a document that provides the appropriate interpretation of accounting standards for the type of organisation concerned. Most charities are subject to the Charities SORP, though there are also SORPs for Registered Social Landlords, Authorised Funds (unit trusts) and Further and Higher Educational Institutions.

Accordingly the Charity Commission expects that charities will adhere to the SORP relevant to their circumstances.

Scope

The above requirements apply to charities’ annual reports and financial statements, effectively providing a minimum standard. But there are virtually no requirements applying to any additional material issued by a charity to report on its performance, such as a "glossy" annual review or material available on a website, unless they contain summarised financial statements. Where they do so, the SORP provides guidance on the form and content of the summarised financial statements and the Auditing Practices Board has issued Bulletins entitled "The auditors’ statement on the summary financial statements" (Bulletin 1999/6) and "The electronic publication of auditors’ reports" (Bulletin 2001/1).

Annex D – Bibliography

CaritasData, The Top 3000 Charities 2003.

Charity Commission, Accounting and Reporting by Charities, Statement of Recommended Practice. HMSO 2000.

Charity Commission, Accounting and Reporting by Charities, Statement of Recommended Practice Update Bulletin 1. HMSO 2003.

Charity Commission, Accounts aren't optional, Charity Commission News, issue 19, Autumn, 2003.

Charity Commission, Charity Reserves (RS3), 2003.

Charity Commission, Tell it like it is, Charity Commission News, issue 18, Summer, 2003.

Charity Commission, Charities and Risk Management, 2003.

Charity Finance Directors Group, Inputs Matter – Improving the quality of reporting in the charity sector, 2003.

Home Office, The Charities (Accounts and Reports) Core Guide, HMSO, 2000.

Home Office, The Charities (Accounts and Reports) Regulations 1995, HMSO, 1995.

Home Office, Charities Act 1993 c. -10. HMSO, 1993.

Home Office, Charities and Not-for Profits, a modern legal framework. The Government’s response to "Private Action, Public benefit", HMSO 2003.

PricewaterhouseCoopers, Value Reporting review 2003 – Transparency in corporate reporting, 2003.

Scott, N. Valuing Volunteers – the hidden asset, CIPA Spectrum, issue 4, March, 2004.

Strategy Unit, Private Action, Public Benefit – a review of Charities and the wider not-for profit sector, Cabinet Office, 2002.

Acknowledgements

We would like to thank everyone who has co-operated in the production of this report.

Special thanks in particular to members of the Charity Group of Pricewaterhouse Coopers LLP for their assistance and to Paul Bussy (FCA) for his help and valuable insights in both framing the study and analysis of the results.