Today’s Daily Telegraph features a story on a ‘report’ from an outfit called the True and Fair Foundation, which is run by someone called Gina Miller, who describes herself as a philanthropist and transparency campaigner. The report is described by the Charity Commission as ‘flawed’, by Sue Ryder as ‘misleading’, and by Which? as ‘very misleading’.
The headline is ‘1,000 charities ‘spent less than half’ of funds on good works’.
Ms Miller says she thinks this is ‘an utter disgrace’ and ‘it is time a light was shone on the sector so people can see just how their hard-earned money is really being spent by charities’. She says charities should be required to spend at least 65% of their income on charitable expenditure.
The idea is to make you believe that when you give £10 to charity, only £4, or whatever, goes to the charity’s ends. The other £6 goes on jacuzzis, caviar, that sort of thing.
Of course, this isn’t what’s actually going on.
Where your money really goes
The reality is that the £10 you donate is part of a total £20 the charity has at its disposal to spend. There’s your £10, and there’s also the £10 margin that it made on trading. In order to get this other tenner from trading, it had to spend £30. It got back £40, £30 of which covered its outlay on the trading, and £10 of which was the profit that went to the end cause, along with your £10. In doing all this, its total income was £50 – your £10, plus the £40 from trading. The £20 it has to spend on its cause is 40% of this £50.
Do you think only 40% of your donation has gone to the cause? In fact, the charity has added to your donation with its trading.
The charity could perhaps stop generating income like this, and rely solely on your £10. But then it would have less money to spend on its cause. Most large charities have a mix of different income sources like this. It’s part of what makes them sustainable and able to do so much.
A bad idea
So, to meet Ms Miller’s arbitrary ‘65%’ demands, Sue Ryder could shut down its charity shops. It would be spending less on trading, so its ratio would look ‘better’ in her eyes. But it would have millions of pounds less to spend on the people it helps.
It’s complicated, but not that complicated
There are some charities cited in the report that don’t neatly fit this explanation, but this is at the essence of what is going on in most cases. In some cases, the charity’s entire income comes from trading, like Which? or the Lloyd’s Register Foundation. Others have slightly different explanations. The Racing Foundation, which Ms Miller bemoans for its 8% ratio of charitable expenditure to income, received a one-off £50m endowment in that year which understandably dwarfed its normal outgoings. It’s a perfectly reasonable explanation for the ratio being what it is.
It also highlights that charity accounts (which record total incoming resources, such as grants to spent over numerous years) are not the same as company accounts. We explained this in detail to Ms Miller when we saw her report before it was published, and signposted independent academic charity accounting specialists she can refer to, but it appears our advice has been ignored.
(The True and Fair Foundation don’t mention in their report that their own 2013 ratio of charitable expenditure to total income was 47%. Though at least they managed to submit their accounts on time that year, unlike previously.)
We tried to explain it to the True and Fair Foundation
We spent a long time, as did several of the charities mentioned in the report, and other experts, trying to explain all this to Ms Miller and to the Telegraph. I’ve offered to meet and help Ms Miller if they do in fact wish to develop an analytical framework. They didn’t want to listen. Ms Miller, who runs a network of investment websites, seems to have been more interested in self-publicity than in accurate or constructive research.
(This is all, for reference, nothing to do with campaigning or with staff costs – those issues are a red herring here.)
We’re all for transparency at NCVO. We do a lot to make charity finances accessible, through our UK Civil Society Almanac programme, for example, and have consistently campaigned for greater transparency in various areas. But this ‘report’ is a prime example of an adage I have long held dear: just because you have put your ramblings in PDF format, it doesn’t make them more valid. There are interesting debates to be had about the detail of charity reporting requirements and how they can help readers to understand how charities work.
This ‘report’ contributes nothing to those debates.
In fact, it is so misleading in its analysis – and I can only conclude deliberately so – that the only reasons I can think of for publication are ones of self-interest, self promotion or outright ideological attack on charities. I suspect the analysis is so bad however that the only body whose reputation will suffer is the True and Fair Foundation and all those associated with it, including Ms Miller.
UPDATE, February 2016
Following a complaint to The Telegraph by NCVO, and mediation by IPSO, The Telegraph has made substantial amendments to its online article, and published a correction in print. We are grateful for their constructive engagement in this process.
The Telegraph publishes a correction over the True and Fair Foundation story pic.twitter.com/M8T9U6DK4z
— Aidan Warner (@ncvoaidan) February 11, 2016
The True and Fair Foundations website quotes kind of give you an idea of what their priorities are pic.twitter.com/lnkU5Nq96c
— Simon Scriver CFRE (@ToastFundraiser) December 12, 2015
Would be nice to have a weekend without flawed analysis & coverage of charity issues. Journos need finance training https://t.co/IHRGnCHI8O
— Tania Cohen (@TaniaNC) December 12, 2015
I don't think I've ever read so many statements in an article pointing out that the analysis is utterly incorrect https://t.co/C9pTR4K2kA
— Nick Davies (@NJ_Davies) December 12, 2015
— David LockeACNC (@DavidLockeACNC) December 12, 2015
— Tom McKenzie (@TomMcKCharity) December 12, 2015
Today's @Telegraph piece on charities is based on wilful misunderstanding of charity accounts – as many statements in the piece make clear
— CharlotteRavenscroft (@CharRavenscroft) December 12, 2015
Good news! Based on @TrueAndFair2014 methodology Kids Company was an excellent charity – in 2013 it spent over 90% income on charity work!
— David Pearce (@medavep) December 12, 2015
Just astonishing that the Telegraph would publish a front page on charities that is basically saying “shut all charity shops”
— Antonia Bance (@antoniabance) December 12, 2015
— NCVO (@NCVO) December 13, 2015
How much are charities spending on good works? https://t.co/CZ5WXJygRe
— Full Fact (@FullFact) December 15, 2015