The quality of financial reporting is essential in the charity sector, where the support of both funders and donors is dependent on the clear communication of impact. In this context, impact is defined as the longer-term, more sustainable differences that charitable activities have on the people and causes they are designed to help.
Historically, charities preparing financial statements have adhered not only to regulations, but also to the trustees’ annual report (TAR) requirements set out in the Charities Statement of Recommended Practice (SORP). Studies have however shown that many charities struggle with the measurement and reporting of impact, with scope for the SORP to enhance its requirements to help charities convey their impact more effectively.
As part of our role to serve the public interest, we commissioned a two-phase research project into charity impact reporting to provide evidence and recommendations to the SORP committee. This report presents the results of phase one of the project.
To drive forward the charity impact reporting agenda, phase one of this research project sought to gain an in-depth understanding of the current impact measurement and reporting practices used in the UK charity sector.
The study by Alpa Dhanani, Evangelia Varoutsa and Penny Chaidali (Cardiff University), and Carolyn Cordery (Victoria University of Wellington), used an online survey and interviews to:
- Examine how charities develop/use impact measurement and reporting.
- Determine the motives, processes, barriers, and benefits to charities’ of developing impact reporting.
- Assess whether impact reporting communicates charities’ achievements appropriately.
Phase two, to follow later this year, will seek to improve understanding of the current social impact disclosures within charities’ annual reports, and consider how funders and donors use these reports to satisfy their accountability requirements and make future funding decisions.
Some of the key findings from this phase of the project were:
- Charities have different ideas about what impact is.
Some charities are able to measure impact based on outcomes, while others may recognise impact on the basis of relieving immediate needs only. Those engaged in impact practice describe it as a journey – developing their practices over time.
- Motivations to report impact.
While charities are motivated to engage in impact practice to appease funders and to guide internal practice, the actual benefits of impact practice are oriented more towards the latter.
- A mix of impact measures.
Charities engaged in impact practice use a ‘pot pourri’ of frameworks to measure impact, including the highly publicised Theory of Change and logframes. Further, organisations rely on both quantitative and qualitative data to showcase their impact. Despite this engagement, charities note that capturing suitable impact data remains a key challenge.
- Main obstacle to reporting is resources.
Primary constraints for charities not engaged in impact practice appear to be resource-driven – time and associated costs of impact practice, rather than a belief that it is inappropriate to do so.
- Guidance preferred over rules.
A significant proportion of charities welcome sector-wide guidance on impact practice. Such guidance may include greater awareness of existing resources as well as the development of new resources. However, charities are less keen on formalised practices such as the development of a reporting standard or a kite-mark type certification system that recognises individual organisations’ impact journeys. Charities not engaged in impact practice are less supportive across all such interventions.
- Recommendations at four levels to progress the impact agenda in the sector: charity level, sector level, funder level and for sector supporters.
Charities, for example, need to see beyond the hurdles of impact practice, as engagement in this process can enhance and inform internal practices as well as attract external credibility. Similarly, at a sub-sector level, collaborations between charities working in similar areas may foster impact practice, for example by co-creating suitable metrics. Funders and charities should also work together to ensure metrics demanded and delivered work to the mutual advantage of the two parties. Finally, there is scope to encourage impact specialists to engage with charities, especially through pro-bono programmes.