Also: The commission reviews charity accounts; and a new insider fraud alert
Charity accounts may now include some sort of diversity statement within their annual report section, as suggested by the charity governance code. Specifically, the code for larger charities requires that: the board publishes an annual description of what it has done to address the diversity of the board and the charity’s leadership; and its performance against its diversity objectives, with an explanation where they have not been met.
In the world of corporate reporting, the Financial Reporting Council has reported on research showing that, although most of the UK’s largest companies have adopted policies on boardroom diversity, their reporting to stakeholders should improve.
In summary, 98 per cent of FTSE 100 and 88 per cent of FTSE 250 companies have policies on board diversity, but only 15 per cent of FTSE 100 companies report against all four measures required under the UK Corporate Governance Code. Some companies are embracing the spirit of diversity in their narrative reporting, but many need to develop clearer strategies to drive greater diversity at senior management level.
The FRC shows that the approaches of FTSE 350 companies to diversity are themselves diverse and that most seem to treat reporting purely as a compliance exercise. The revised UK Corporate Governance Code, which takes effect from 1 January 2019, requires improved reporting on diversity, including a description of how the company has applied the company’s diversity policy and how this links to progress on achieving company objectives.
Charities that are still working on applying the charity code might wish to draw lessons from these quoted companies, which are also very much in the public eye.
The Charity Commission has issued an alert about insider fraud – that is, fraud committed by someone involved within the charity, whether a trustee, an employee or volunteer. A related warning from the National Fraud Intelligence Bureau identified that more than half of organisations had suffered insider attacks in the previous year and 90 per cent of businesses felt vulnerable to cyber attacks from within their own organisations. Charities are as vulnerable to insider threats as organisations in the private or public sectors, and incidents sometimes go undetected because they lack proper auditing or data control measures. Charity Commission advice includes the use of proper security measures, clear policies and bearing down on even minor misdemeanours to avoid escalation.
The Charity Commission has also reported back on a survey addressed to charities that work internationally. The purpose of the survey was to assess the usefulness of the existing commission guidance and the results seem to confirm that it is indeed fairly useful, and that it is oriented towards the most common compliance and operational risks for these charities, listed as: reputational damage; corruption in foreign countries; conflict and political instability; terrorism; difficulty in communication or miscommunication with partners on the ground; poor behaviour/management of partner organisations working remotely; and safeguarding.
It also notes that most respondents were operating through partner organisations rather than directly.
The commission has recently issued an updated accounts monitoring review. It says that 74 per cent of the accounts reviewed were of "acceptable quality". This is very much in line with previous years’ findings and still seems to represent a deplorable chasm in the quality of reporting. There were many reasons charities fell short. Very common was that one of the required documents was missing, which was cited by 5 per cent of charities. Another was that the annual report was inadequate, mainly because it provided little or no information on the charitable activities carried out, which was the case in 11 per cent of charities.
In another 5 per cent of charities the independent scrutiny report was inadequate, mainly because the wording of the report demonstrated that the person carrying out the scrutiny was not familiar with the independent examination requirements. In another 5 per cent of charities, the accounts were inadequate mainly because they were incomplete or did not balance.
Perhaps in mitigation, the commission notes that, in some instances, the inadequacies might have been the result of an incomplete submission, for example where there was a contents page that listed documents or pages that were not present.
This article was first published on 2 October 2018 in Third Sector.