ICAEW publishes guidance to dispel myths about charity accounting

The ICAEW has published new guidance that aims to dispel common myths surrounding charities and their finances. The guidance, called ‘Dispelling common myths about charities’, covers how charities are run, carry out their work, are funded and staffed, and whether they are liable for tax or their vulnerability to fraud, among other issues. The institute said that by addressing these myths, it aims to offer practical recommendations to help dispel them “so public and donor confidence in the sector continues to build”. The guide also explains why it is important for a range of stakeholders, including donors, to “understand not only what charities do, but to shine a light on how they operate, the need for a professional approach, and the funding of core activities”. The guidance considers the following ten myths surrounding charities and their operations: Charities spend too much on fundraising. They should not make a surplus or build up cash reserves. Too much is spent on highly paid executives. They should not undertake commercial activities. Charities should be run and staffed [for free] by volunteers. Too much is spent on overheads. Charities don’t pay taxes, so need less money. Professional qualifications are needed to become a charity trustee. Charities are less vulnerable to fraud than other organisations. Charities should not engage in campaigning and political activity. The working group who coordinated the guide includes charity practitioners from BDO, Crowe and RSM. It was chaired by Pesh Framjee, who has led several not-for-profit teams within accountancy firms. Framjee said: “There are many negative misconceptions created by the myths that abound about charities. As someone that has worked with and for charities for over 35 years, I too often see the negative consequences that impact on charities. It is incumbent on all of us who recognise the important work that charities do to actively try and dispel these myths and ensure that the popular narrative focuses on the facts and reality.” Kristina Kopic, ICAEW head of Charity and Voluntary Sector, ICAEW added: “People’s goodwill and generosity remain the lifeblood of the sector, but this is at risk if the public misunderstand what charities do and how they operate. We hope that by tackling the 10 most common myths about how the voluntary sector operates, we will encourage charity trustees, staff, and advisers to be transparent, in areas where misconceptions are prevalent. “Charities are value-led organisations that care deeply about the causes they serve, but they must operate professionally, or they might not survive. Donors want to know that the charity they support financially is sustainable and accomplishing its mission. In helping to put these common myths to bed once and for all, charities gain more time to focus on delivering their important work and reaching their strategic aims.”