The True and Fair Foundation on charity shops

The WI charity shop

File 04-03-2016, 21 37 04I took the picture below earlier this evening. It’s the Women’s Institute charity shop on my high street, where I’ve bought any number of things, though as yet not jam. More of this in a moment.

Lifting the Lid

Earlier today NCVO was asked to comment on a new report from the True and Fair Foundation, ‘Lifting the Lid’, published on the Civil Society website. It’s also reported on the Daily Telegraph website.

The last report, A Hornet’s Nest, was the worst piece of analysis that I’ve read in 20 years of researching and writing about charities. I wrote about it here. This report comes a close second. It’s that bad.

The True and Fair Foundation’s last report was comprehensively pulled apart by leading charity accountant Pesh Framjee in a detailed critique (PDF). It’s a lengthy read, so to summarise, as he puts it in his introduction:

The report fails to understand how charities report financial information and tries to make superficial analysis appear to be well considered. Unfortunately, this ‘work’ has been given an aura of credibility by a number of UK newspapers. The somewhat worrying aspect is that so much of what I read, written by various commentators, so-called researchers and in some newspapers about charities – an area I know a fair amount about – is so wrong that it worries me that what I read in the areas I know little or nothing about may also be so wrong.

Telling the lie

Lifting the Lid gets full marks for continuity. This is another embarrassingly poor report. It is fundamentally flawed in terms of its method and analysis, the use of inappropriate comparisons and, an old favourite here, the use of incorrect statistics and facts. A better name might be Telling the Lie. I could write a long blog post pointing out all of the factual errors. Kirsty Weakley at Civil Society news has written a good summary of some of the key problems. A more over-arching point seems more important: for authors that can’t even add up, or get basic facts right, their conclusions should not be taken seriously.

As it happens, their conclusions are a nonsense: my favourite is the accusation that some charities are spending too much on governance. The authors would also appear to have little or no understanding as to how Gift Aid works. No credible policy-maker could possibly take this report or its recommendations seriously. Implementing its proposals would lead to the closure of thousands of the small charities the Foundation claims to care about.

What can we do?

Last time, we tried talking (PDF) to the True and Fair Foundation about the problems with their report. They didn’t want to listen and I’m not inclined to spend my time going through this with them again. We also tried explaining to journalists that it was completely misleading. We’re glad that the Telegraph, albeit belatedly, recognised the errors in the report, and following a discussion mediated by Ipso, made significant changes to their article and published a correction

When faced by this sort of nonsense all the time – what’s the best way of dealing with it? A good start would be to add your own comments below the article on the Daily Telegraph website. For those who use Twitter, I’m @karlwilding, and more than happy to share your examples of the difference that charities make.

If you’re like me, friends and relatives might read this article and ask you questions (nice people read newspapers other than The Guardian). I’d suggest that there are two conversation starters: the first is that charities exist to benefit the public, not to make a profit. It’s why charity shops don’t make much bigger profit margins than high street chains, a complaint in the current report. And secondly, charities make a real difference to this country. Every day. From cradle to grave. We would be worse off without them.

And for the avoidance of doubt: all sensible charities welcome rational scrutiny of what they do and how they do it. We should all welcome the challenge of answering why and how we make a difference. The tragedy of another socially useless report from the True and Fair Foundation is that biased, erroneous ‘scrutiny’ just makes it harder to promote the goals of transparency and the ability of organisations to fail forward.

Coda: my local charity shop

The Women’s Institute charity shop is an important part of my local landscape and one of the things that made me think this place has got that magical ingredient, community. I don’t know how much profit it makes, but I do know that profit will be spent on benefiting the public, not on personal gain. According to the True and Fair Foundation, shops such as this are a problem: they’re inefficient, because they don’t make as much profit as Next. But then I wouldn’t have got a homemade kitchen apron from a high street retailer for the price I paid. Or the fantastic welcome to the village when I moved here.

They’re also a problem because they’re apparently costing the taxpayer money by swallowing up tax reliefs. Under the True and Fair Foundation’s vision, the Women’s Institute charity shop is a bad thing, just as the WI coffee shop in my local hospital was apparently inferior to the high street coffee chain that was brought in to replace it. And under the proposals in this report, the WI shop would have its business rate relief reduced, and therefore its tax bill increased, which I’m guessing may make the viability of the shop questionable.

So here’s my question for the True and Fair Foundation: why will closing this shop make my community a better place?

This entry was posted in Policy and tagged , , . Bookmark the permalink.

Like this? Read more

Karl Wilding Karl Wilding, Director of Public Policy and Volunteering, leads NCVO's volunteering, policy, research and campaigning work in the UK and internationally. With lead responsibility for shaping the external environment for the voluntary sector, he blogs about the big issues facing voluntary organisations.

9 Responses to The True and Fair Foundation on charity shops

  1. Mark Freeman says:

    High five. And if the WI shop do home made marmalade please get a jar and I will pick up from NCVO sometime.

  2. Susan Glen says:

    Charity shops provide a social service beyond the money they make. My sister in law has severe mental health problems and could not hold down a job but is able to work a day a week in a charity shop where she is encouraged and offered friendship. This makes a difference to her self esteem. She has worked in two different shops and found both a positive experience. Working with volunteers makes charity shops a different category to other high street shops.

  3. Mr Accountant says:

    I am an accountant and I have posted various comments under the Telegraph article proving that the many of the industry attacks, which seem to emanate from people like yourself appear to be pure nonsense.

    For example, Mr Ainsworth of Civil Society has highlighted his own charity shop survey which I have proven is littered with inaccuracies.

    For example, the Telegraph says Scope’s charity shops make a 5% margin but Civil Society say 13% margin (being £3m profit on £22.5m sales). This is because the Civil Society survey has not allowed for the central costs for running a chain of shops. It’s pretty clear in the Scope accounts that there is £1.8m of support costs attached directly to the same shops i.e. they really make £1.2m not £3m claimed in this so called authoritative review of charity shops.

    Similarly, the Sue Ryder shops actually make £7.3m profit after central costs not £13.4m stated in the same charity shop survey.

    Why does this matter? Because in all my years as an accountant I have never seen such a blatant attempt to artificially inflate profits. You can hardly criticize Ms. Miller for getting the facts wrong when a) you personally do not say what facts are actually wrong.

    All of us in the charity sector should seek to improve practices but your refusal to accept any suggested criticism actually makes things worse for the rest of us that would like charities to gain trust and respect and explain our finances clearly.

    • Karl Wilding Karl Wilding says:

      Hello Mr Accountant
      I’m not an accountant, but I know a very good one by the name of Pesh Framjee who has forgotten more than I will ever know about charity accounts. Let me know if you think his bona fides are questionable: https://www.croweclarkwhitehill.co.uk/staff/pesh-framjee/

      On that basis, would you care to critique his analysis of the True and Fair Foundation’s first report, here: https://www.croweclarkwhitehill.co.uk/wp-content/uploads/sites/2/2015/12/neither-true-nor-fair.pdf

      I could point to similar analysis from the academic staff at the Centre for Charity Effectiveness at Cass Business School. They also think the True and Fair Foundation analysis is hopelessly wrong.

      David Ainsworth and Civil Society can answer for themselves. My team has pointed out numerous errors in the latest report, which cannot even get basic facts like the existence of a different charity regulator in Scotland or Northern Ireland. It is embarrassingly poor.

      Finally, I note from behind your cloak of anonymity that you have implemented that well known tactic of citing me for something that I did not say. Read the blog post: I have argued that charities have got things wrong, such as governance and fundraising. NCVO has spent huge amounts of time and money coming up with solutions to address the problems we are well aware of.

      You accuse us of making things worse for those that want to improve transparency in the sector. Might I suggest that readers look at my previous posts on the NCVO blog on transparency and make their own minds up: http://blogs.ncvo.org.uk/?s=transparency&x=0&y=0

      • Mr Accountant says:

        Maybe this oracle Mr Pech, could see which profits figure is right for these charity shops, the ones cited in the Telegraph or the ones in an industry publication.

        Of course, given that his accountancy firm receives substantial fees from charities, I not sure he really is the most independent accountant in the world!

        • Karl Wilding Karl Wilding says:

          It’s Mr Framjee actually. And his first name is Pesh, not Pech. (Sorry, but I’m a bit of a nerd about accuracy.)

          I’ve no idea how much his accountancy firm receives from charities, but I am aware that he is a highly respected figure who gives his time to various bodies. I note, from his biog, that: “Pesh is a member of the Charity Commission SORP Committee. He is also a member the Institute of Chartered Accountants Charity Committee and was for five years a member of the Accounting Standards Board’s Committee for Accounting for Public Benefit Entities.”

          In the meantime, the ‘findings’ in the latest T&F report have been critiqued by a *former* finance director of Oxfam. He reckons “The comparison between net bottom line revenue with Next plc’s operating margin is completely spurious. If we look at the bottom line return to beneficiaries/ shareholders, then Next’s figure shrinks to only 10.3% as per its last half year results (July 2015). If you add back the relatively small tax charge (as charities are not generally subject to corporation tax), the net margin is still below the average charity margin.” See http://www.civilsociety.co.uk/finance/blogs/content/21424/critique_of_the_true_and_fair_foundation_report_on_uk_charity_retail_operations

          The Head of Policy at the Charity Finance Group – the umbrella body for finance professionals – also thinks that the latest T&F is misinformed: http://blog.cfg.org.uk/index.php/charities-need-to-stand-up-for-gift-aid-or-risk-losing-it/

          The point is that named, serious professionals are prepared to say in public that this is shoddy research.

        • Mr Accountant, you are very rude, but you raise a valid point about the validity of our figures, which are different from those quoted in the True and Fair Report.

          I have done some research to check that what I said before was true, and it is. I’m now in a position to address in detail the issues you raise.

          Essentially the problem you highlight is that our survey tracks shops income and shops expenditure.

          Annual accounts often include or exclude certain profit and expenditure lines. They may, for example, refer to all retail income, which can include other trading subsidiaries, not just shops. Conversely, they could track only income from donated goods sold in shops, and exclude cash donations, goods sold online, and income from recycled clothing, which is often collected by shops but sold elsewhere.

          In the case of Scope, the problem comes down to retail expenditure, versus shops expenditure.

          Scope had this to say:

          “The figure used in Civil Society’s annual charity shops survey (which shows that Scope’s profit was 13% in 2014/15, with an operating surplus of £3.04 million) was calculated by looking at shop-generated profit, and then subtracting retail central management and support costs.

          The figure used in the True and Fair Foundation’s report (which shows that Scope’s profit was 5% in 2014/15) was calculated by, in addition to the above costs, also taking off the costs of Mac Keith Press (a Scope publishing subsidiary) and the allocation of corporate overheads that is required by the Charities Statement of Recommended Practice.”

          In short, both the figure in the annual accounts and in our survey are correct, but ours more accurately reflects the position in shops. I hope you would agree that the Mac Keith Press is not a charity shop.

          In the case of Sue Ryder, you don’t even need my help. The accounts show perfectly clearly that the income they record refers only to goods sold, not to all shops income. It excludes all the categories mentioned above – recycled clothing, cash donations and online sales. These amounted to £3.7m. We also use a slightly different mechanism for calculated when gift aid should be recognised, which amounts for the remainder of the difference. So once again the figures reconcile.

          The charities statement of recommended practice, which you have no doubt read, makes it perfectly clear that charities have some latitude as to exactly which lines they include and exclude. As a result our system was designed by a panel of senior charity finance experts to maximise comparability.

          If by some mischance you have waded into charity accounting matters without having read the standards, you should feel free to purchase a very good guide here:

          http://www.civilsociety.co.uk/shop/product/190/sorp_compliance_checklist_2015?=mraccountant

    • David Ainsworth says:

      Mr Accountant, I’ve responded to your comments on the Telegraph and I’ll do it again here. We produce the Charity Shops Survey, which analyses shops in a lot of detail.

      As you say, our figures for some shop chains differ from annual accounts. Our figures are supplied direct by the charities, as are the figures in the accounts, so they don’t have much motivation to give us false data. I can assure you we have no motivation to inflate anything.

      You will have to ask the charities why the figures in their accounts are different to those they supplied to us, but my guess is that it’s because we ask all charities to submit their data in the same format, for benchmarking purposes, while they all use slightly different treatments in their accounts. They may exclude some things from their accounting treatment such as cash donations in shops, or the profit from the sale of recycled clothing. I have already explained this once on the Telegraph website.

      In any case none of this impacts on the long and detailed list of mistakes we have identified in the True and Fair Foundation’s – including, but certainly not limited to, misidentifying the number of charities in England and Wales.

      I think our survey shows very clearly that shops chains are doing a booming trade. It shows double digit profit growth over the worst recession years, for example, a huge rise in volunteer numbers, and considerable innovation – nothing to support the conclusions apparently picked from a hat by True and Fair.

      By all means get in contact if you have further queries.

  4. Mr Accountant, you are very rude, but you raise a valid point about the validity of our figures, which are different from those quoted in the True and Fair Report.

    I have done some research to check that what I said before was true, and it is. I’m now in a position to address in detail the issues you raise.

    Essentially the problem you highlight is that our survey tracks shops income and shops expenditure.

    Annual accounts often include or exclude certain profit and expenditure lines. They may, for example, refer to all retail income, which can include other trading subsidiaries, not just shops. Conversely, they could track only income from donated goods sold in shops, and exclude cash donations, goods sold online, and income from recycled clothing, which is often collected by shops but sold elsewhere.

    In the case of Scope, the problem comes down to retail expenditure, versus shops expenditure.

    Scope had this to say:

    “The figure used in Civil Society’s annual charity shops survey (which shows that Scope’s profit was 13% in 2014/15, with an operating surplus of £3.04 million) was calculated by looking at shop-generated profit, and then subtracting retail central management and support costs.

    The figure used in the True and Fair Foundation’s report (which shows that Scope’s profit was 5% in 2014/15) was calculated by, in addition to the above costs, also taking off the costs of Mac Keith Press (a Scope publishing subsidiary) and the allocation of corporate overheads that is required by the Charities Statement of Recommended Practice.”

    In short, both the figure in the annual accounts and in our survey are correct, but ours more accurately reflects the position in shops. I hope you would agree that the Mac Keith Press is not a charity shop.

    In the case of Sue Ryder, you don’t even need my help. The accounts show perfectly clearly that the income they record refers only to goods sold, not to all shops income. It excludes all the categories mentioned above – recycled clothing, cash donations and online sales. These amounted to £3.7m. We also use a slightly different mechanism for calculated when gift aid should be recognised, which amounts for the remainder of the difference. So once again the figures reconcile.

    The charities statement of recommended practice, which you have no doubt read, makes it perfectly clear that charities have some latitude as to exactly which lines they include and exclude. As a result our system was designed by a panel of senior charity finance experts to maximise comparability.

    If by some mischance you have waded into charity accounting matters without having read the standards, you should feel free to purchase a very good guide here:

    http://www.civilsociety.co.uk/shop/product/190/sorp_compliance_checklist_2015?=mraccountant