A Review of Charitable Spending By UK Charities

Transcription

1 A Review of Charitable Spending By UK Charities December 2015

2 Contents Executive Summary 1 Introduction 3 The Research 3 The Findings 4 To be or not to be a charity, that is the question - Case Studies 7 Lloyd s Register Foundation 7 Sheffield City Trust 8 Royal National Lifeboat Institution 9 Marie Curie 10 Cancer Research UK 11 Age UK 13 Sue Ryder 14 British Heart Foundation 15 The Charity Commission Websites 15 Conclusions 16

3 EXECUTIVE SUMMARY The True and Fair Foundation, founded by the philanthropist and transparency campaigner, Gina Miller, is a strong advocate of accountability, transparency and smarter giving. The aim of this research project was to establish how easy or difficult it is for donors to assess the percentage of a charity s income that is spent on their end charitable activities. The research analysed 5,543 charities with over 0.5m in their latest reported accounts, and a total combined income of 40.7bn, and calculated their latest reported spending on charitable activities (according to the Charity Commission s own websites) as a percentage of their income. During the research the team discovered numerous instances where data on the Charity Commission s websites were either not up to date or incorrectly listed, or both. The True and Fair Foundation therefore also used data from the charity s own Report and Accounts filed at Companies House. Findings A staggering 292 charities, with a combined income of 2.4bn in their latest reported accounts on the Charity Commission s website, spent 10% or less on their charitable activities 1,020 charities, with a combined income of 6bn in their latest reported accounts on the Charity Commission s website, spent 50% or less on their charitable activities. We also conducted specific research into charities with 50m+ of income in their latest reported accounts. This analysis found 17 charities with a combined income of 3.5bn, who spent 65% or less on their charitable activities over the last three financial years: Charity Name Lloyd s Register Foundation The Racing Foundation The Motability Tenth Anniversary Trust Consumers Association Sheffield City Trust The Grace Trust British Heart Foundation Sue Ryder Age UK Oasis Charitable Trust The Royal Horticultural Society Dogs Trust Cancer Research UK The Guide Dogs For The Blind Association Shelter, National Campaign For Homeless People Limited The Royal National Lifeboat Institution Marie Curie Average Spending on Charitable Activities As % Income Over Last Three Financial Years 1% 3% 8% 24% 25% 33% 46% 46% 48% 57% 60% 63% 64% 64% 64% 64% 65% Source: True and Fair Foundation based on data from the Charity Commission and Companies House, as at On average, amongst these 17 charities, there was a startlingly low 43% of each 1 spent on charitable activities over the last three financial years.

4 Other findings include: A notable number of data errors on both the Charity Commission s websites when compared to the charities own Report and Accounts No evidence of economies of scale leading to any efficiencies that benefited the donors of larger charities The format of many of the charities Report and Accounts were found to be extremely difficult to understand, even by the research team who possess accounting and investment research and analysis expertise. The True and Fair Foundation findings pose serious questions for the charity sector: 1. Should there be an urgent review of the rules that allow organisations to be granted charitable status? Especially as this status means charities often pay less tax into the public purse, benefit from tax reliefs such as rent and rates, and often receive gift aid, which is essentially the public s money. 2. Is it now time for a voluntary or mandatory minimum annual dispersal rate set for charities? It is the view of the True and Fair Foundation that a minimum annual dispersal rate of 65% should be debated. 3. Is there a need for a simpler accounting methodology to enable greater understanding by donors about charities finances? 4. Does the sector require more financial oversight and accountability? 5. Why are donors - private, corporate and government - not asking more questions about the charitable work being delivered by charities? 6. Is it time to impose a Give & Good label across the charity sector which would clearly allow donors to see how much of annual income is being spent on the end charitable activities? 7. Should there be a periodic three year review of organisations charitable status? 8. Should there be limits on senior executive remuneration, including pension provision? It is the view of the True and Fair Foundation that as the State continues to shrink, the charity sector will become even more important to society. But this does not excuse many of the excesses and inefficiencies that appear prevalent within this sector. Some commentators express concern that the charity sector faces being over-regulated and becoming another arm of the state. The True and Fair Foundation totally disagrees with this view, as the charity sector, with an estimated income 64bn (in England and Wales), 13bn of which comes from government and is public money, should be open to scrutiny and accountability. 2

5 INTRODUCTION Organisations within the charity sector have been increasingly the focus of public scrutiny. Scandals within high profile charitable institutions exploding across the media have resulted in public outrage and political knee jerk reactions to the apparent or implied misuse of public and private donor funds. The True and Fair Foundation believes that the bad apples within the charitable sector are often characterised by a lack of proper governance and ethical conduct, transparency and accountability as well as low conversion of income into charitable expenditure. Whilst many dynamic charities undertake invaluable work with the most disadvantaged in society, they need to be accountable to their donors and funders, as well as to those they serve. Recent well publicised examples have made it easy to criticise the sector, but there are serious questions that need to confronted and debated. The sector needs to embrace change and scrutiny to restore the public s waning trust. Corporate governance is critical and plays a pivitol role in financial investments and performance, but this also applies to the money the British public generously gives to charities they believe can fill the increasing social care and social justice gaps. Few people outside the charity sector understand how charities are structured. In addition, given the substantial amounts of public and government money handed over to organisations with charitable status, it is our view that high levels of transparency and accountability should be mandatory rather than optional. THE RESEARCH New research from the True and Fair Foundation analysed 5,543 charities with a total income of 40.7bn in their latest reported accounts with the simple aim of identifying the proportion of their income spent on their end charitable works. During the analysis, the team uncovered a number of disturbing issues, such as the reliability of data on the Charity Commission s websites, why certain organisations have charitable status, how low a proportion of income is spent on charitable activities and how so many charities Report and Accounts are incomprehensible, confusing and misleading for donors. All the data used in this report is publicly available either via the Charity Commission or Companies House. The key data points of income and charitable activities are the same data points used by the Charity Commission. To aid donors, the Charity Commission launched a new charity search tool on the 20th March 2015, which highlights the proportion of charities total incoming resource as recorded in their Statement of Financial Activities (SOFA) that was spent on charitable activities. 3

6 THE FINDINGS The research has found no evidence of economies of scale benefiting donors, in terms of larger charities using their potential greater efficiencies to pass on more to their end charitable works. In almost every other field, one would expect a larger organisation to have lower overheads than a smaller organisation and therefore be more productive or efficient. This is not the case in the charity sector. There is also the issue of averages, where outliers create a distorted picture. Whilst on average 78% of income was found to have been spent on charitable works within the sample, some charities have considerable reserves and, therefore, give out more than their income, whilst others seem to spend very little on charitable causes. For example, the Wellcome Trust in its last financial year spent over twice its income on charitable activities - spending 728m from an income of 338m. This is made possible as a result of them holding long term assets worth 19.9bn. Similarly the Church Commissioners was able to spend 216m on charitable activities compared to an income of 140m in its latest financial year, as it holds long term investments worth 6.3bn. Income 0.5m to 1m 1m to 5m 5m to 10m 10m to 25m 25m to 50m 50m to 100m > 100m Number of Charities Analysed 2,314 2, Spending On Charitable Activities As % Income Latest Financial Year 80% 76% 81% 76% 76% 81% 81% Source: True and Fair Foundation based on Charity Commission s data 4

7 Large Charities Spending Less Than 65% Of Income On Charitable Activities The first step of the research was to analyse charities with over 50m of annual income, which spent less than 70% on charitable activities, according to the Charity Commission s website. We then looked at the resulting sample s latest Companies House accounts, as during our research we discovered that in many cases the Charity Commission s data was over a year old or erroneously listed, or both. We then averaged the proportion of their overall income spent on charitable activities over their last three financial years in order to smooth out year to year fluctuations in income or charitable spending. The following 17 charities were all found to have spent an average of 65% or less of their overall income on charitable activities over their last three financial years. The total income of these 17 charities was 3.5bn in their last financial year. Charity Name Spending on Charitable Activities As % Income Last Three Financial Years Last Financial Year Income Last Financial Year Spending On Charitable Activities Lloyd s Register Foundation 1% 1,062,537,000 14,490,000 The Racing Foundation 3% 50,932,901 1,146,153 The Motability Tenth Anniversary Trust 8% 54,376,000 4,093,000 Consumers Association 24% 102,831,000 22,796,000 Sheffield City Trust 25% 48,186,000 17,021,000 The Grace Trust 33% 91,678,745 29,874,716 British Heart Foundation 46% 288,200, ,700,000 Sue Ryder 46% 95,431,000 42,585,000 Age UK 48% 174,575,000 83,956,000 Oasis Charitable Trust 57% 271,709, ,935,000 The Royal Horticultural Society 60% 73,157,000 47,641,000 Dogs Trust 63% 84,743,000 57,185,000 Cancer Research UK 64% 634,900, ,700,000 The Guide Dogs For The Blind Association 64% 101,100,000 56,400,000 Shelter, National Campaign For Homeless People Limited 64% 69,565,000 39,541,000 The Royal National Lifeboat Institution 64% 190,100, ,200,000 Marie Curie 65% 154,805, ,585,000 Average 43% 3,548,826,646 1,332,848,869 Source: True and Fair Foundation based on data from the Charity Commission and Companies House, as at Some data points have been changed to reflect the actual numbers revealed in Companies House filed accounts where these have differed from the Charity Commission s data or are more recent than the Charity Commission s data. On average a startlingly low 43% of each 1 of income was spent on charitable activity. 5

8 Charities Spending Less Than 50% Of Income On Charitable Activities The research analysis found 1,020 charities, with a combined income of 6bn in their latest reported accounts, all of whom received an income of 0.5m or more, that spent 50% or less of their income on charitable activities. Charities Spending Less Than 10% Of Income On Charitable Activities The team were staggered to find 292 charities, with a combined income of 2.4bn in their latest reported accounts, that spent 10% or less on their charitable activities. The True and Fair Foundation suggests this situation has occurred as there are no legally binding rules on charities annual dispersal rates or overhead costs, Chief Executives salaries or bonuses. The research also found that the quality and transparency of reporting within charity report and accounts is poor. The resulting standard makes it almost impossible for any donor to work out how efficient a particular charity is, or easily gauge where their 1 is being spent. The fact that any charity is allowed to spend less than 50%, let alone less than 10%, on their charitable activities is a scandal. When you also consider that the public purse may receive less taxes from these organisations as a result of various charitable allowances, it is a travesty that they are not required to spend a significant percentage of their income on their charitable endeavours to keep these various tax advantages. 6

9 To be or not to be a charity, that is the question Lloyd s Register Foundation Another pressing issue for the charitable sector and the Commission is to review which organisations are allowed to hold charitable status. The trading company Lloyd s Register Group Limited is part of the registered charity, the Lloyd s Register Foundation. Lloyd s Register provides quality assurance and certification for ships, offshore structures and shore-based installations, such as power stations and railway infrastructure. Whilst the charity sets out to support the advancement of public education particularly focused on engineering and science, and which will fund research and development into issues which promotes safety of life at sea, on land and in the air from total incoming resources of 1,062.5 million, the amount spent on charitable activities was 14.5m, just 1.3% of this amount in its latest financial year. It could be said this analysis is unfair as most of the income relates to commercial trading activities but that is the point. Why should this organisation have charitable status and any taxable advantages pertaining from this status? Interestingly, even though the charity accounting standards (SORP) recommends salaries to be disclosed by charities, our research discovered that the Lloyd s Register escapes any pay transparency: Due to the high number of qualified and skilled staff the SORP s requirement to disclose the number of all Group employees who received emoluments over 60,000 is commercially sensitive to the operations of that Group and is not made here with the agreement of the Foundation s trustees. Their latest accounts, also shows that no UK corporation tax was paid as the foundation is a UK registered charity, and is exempt from Corporation Tax to the extent that surpluses are applied to its charitable purposes. 7

10 Sheffield City Trust Sheffield City Trust appears to be largely responsible for operating various leisure centres around Sheffield including the Motorpoint Arena (previously Sheffield Arena). Their charitable status begs the question, if they are being given local and central government money to provide services for the community, why do they appear to have spent as little as 25%, on average, on their charitable works over the last three years? 8

11 Royal National Lifeboat Institution (RNLI) The RNLI employs 1,170 on lifeboats, lifeguards and rescue but 503 in support and governance, fundraising, merchandising and other trading. Like many charities, its staff pension fund has a deficit which the charity is having to pay to reduce by 4m in 2014 and by 12.7m in

12 Marie Curie Marie Curie employs 3,164 in hospices and nursing, compared to 1,179 in fundraising, publicity, shops and support. The number in fundraising alone is

13 During our analysis of some of the UK s largest charities we were surprised by the numbers employed within fundraising, as well as some of the salary levels. For example: Cancer Research UK The number of employees during the year, whose gross pay and benefits (excluding employer pension contributions and awards to investors) fell within the following bands, was: Banding 60,001-70,000 70,001-80,000 80,001-90,000 90, , , , , , , , , , , , , , , , , , , , , , , , , ,000 Group 2015 No Group 2014 No We also found that within Cancer Research UK they have more than 2,000 employees directly employed in fundraising. The average headcount of employees, analysed by function, was: Charitable activities Fundraising Support services Group 2015 No. 1,411 2, ,964 Group 2014 No. 1,391 1, ,798 11

14 The table below is taken from the Cancer Research UK accounts: This might suggest to a reader that last year 80% of its 621m income was spent on charitable activities. But it transpires they have excluded trading income and expenditure associated with events, registration fees and the products donated and sold in our shops. According to its Consolidated Statement of Financial Activities the amount spent on charitable activities was 422.7m rather than the 464m in the table above; and the total incoming resources was 634.9m, rather than the 621m in the table above. Of course, it is explained by Cancer Research UK how the numbers in the table were calculated. It is surprising such a difference appears between our own analysis and that of Cancer Research UK; especially as the Charity Commission appear to have used the same methodology as ourselves. It is also notable that The Charity Commission appears to have used the wrong years income - as their calculations show a 57% charitable spend. This error raises questions as to the reliability of data on the Charity Commission s website, even in terms of very basic reporting. 12

15 Age UK Age UK has an unusual accounting format which makes it hard to easily identify how much total income they received, as they have not added up all the income gross, in one number. To work out the total income Age UK received prior to any costs, one has to add up the following: 55,444k + 110,119k + 7,777k + 1,235k = 174,575k. 13

16 Sue Ryder Looking at the Sue Ryder accounts, it appears that the amount it cost to raise their funds was greater than the charitable activities they conducted: 14

17 British Heart Foundation There appears to be many examples where the cost of raising funds is greater than the amount spent on charitable activities. Another example is the British Heart Foundation, which, according to their last Report and Accounts, have a total cost of generating funds of 172.4m, compared to a total charitable expenditure of 113.7m. The Charity Commission s Websites Our research analysis and findings raises questions about the rigour of the data displayed on the Charity Commission s websites - both their main site and their newer Beta site. There were numerous occasions when the report and accounts data on the Commission s websites differed from the actual data in the annual report and accounts, or the report and accounts on the Charity Commission is not the most up to date set of accounts as filed at Companies House. 15

18 CONCLUSIONS The True and Fair Foundation findings pose serious questions for the charity sector: 1. Should there be an urgent review of the rules that allow organisations to be granted charitable status? Especially as this status means charities often pay less tax into the public purse, benefit from tax reliefs such as rent and rates, and often receive gift aid, which is essentially the public s money. 2. Is it now time for a voluntary or mandatory minimum annual dispersal rate set for charities? It is the view of the True and Fair Foundation that a minimum annual dispersal rate of 65% should be debated. 3. Is there a need for a simpler accounting methodology to enable greater understanding by donors about charities finances? 4. Does the sector require more financial oversight and accountability? 5. Why are donors - private, corporate and government - not asking more questions about the charitable work being delivered by charities? 6. Is it time to impose a Give & Good label across the charity sector which would clearly allow donors to see how much of annual income is being spent on the end charitable activities? 7. Should there be a periodic three year review of organisations charitable status? 8. Should there be limits on senior executive remuneration, including pension provision? It is the view of the True and Fair Foundation that as the State continues to shrink, the charity sector will become a pivotal part of society. However this does not excuse many of the excesses and inefficiencies that appear prevalent within this sector. Some commentators express concern that the charity sector faces being over-regulated and becoming another arm of the state. The True and Fair Foundation totally disagrees with this view, as the charity sector, with an estimated income of 64bn (in England and Wales), 13bn of which comes from government and is public money, should be open to scrutiny and accountability. Trust in the sector is being eroded as light is shone on negative practices, and as this necessary inquisition of the sector continues, charities have to embrace this new landscape and adapt, evolve and be transparent so donors can be confident that they have a right to be supported. 16

19 True and Fair Foundation 2 Eaton Gate, Westminster, London SW1W 9BJ