September/October magazine opinion piece

Steven P

Below is a piece that has appeared in the latest edition of Accounting Technician magazine. In it Stuart Etherington, chief executive of the National Council for Voluntary Organisations (NCVO), reflects on these challenging times.

What do you think on his comments? Do you agree? Reply to this thread and have your say.

If the headlines are to be believed, the credit crunch could mean the downfall of many UK charities. According to a survey by the Charity Commission earlier this year, more than half have been hit by recession, while nearly two-thirds of those with an income of more than £1m said they were concerned that the economic climate would have an impact on their work.

So how is the recession really affecting the charity sector? The first thing to note is that it’s not realistic to talk about the sector as a single entity. Size, the area they work in and geography will all play a part in how they fare. Some may emerge stronger, some may face increased demands and some will fail. So while it’s not all doom and gloom, we shouldn’t assume that there are unlimited opportunities.

A look at the NCVO’s latest Charity Forecast survey shows how mixed the picture is. It found that a growing number of charity leaders believe economic conditions in the UK will improve over the next 12 months. However, over one-third of respondents (37%), still fear that conditions are set to worsen for their own organisation in that time.

The effects on funding
Clearly, Government funding and donations is crucial to the sector’s ability to emerge from any downturn. The evidence suggests that philanthropy is relatively resilient, but charitable giving is heavily dependent upon a core of 2.1 million donors. On a positive note, there is historical evidence from both the UK and the US which shows that recessions simply slow the rate of increase in charitable giving rather than halt it. And unpublished research by NCVO and the Charities Aid Foundation suggests that, in the last year, charitable giving levels have shown a small increase. But donors’ habits may change. Anecdotal evidence suggests that they will focus on causes they already support and change their giving method so more money reaches these causes

Volunteering is also just as important. In this current climate, many charities will be looking for help as the demand for their services increases. Accountants, in particular, are sought after as volunteers.

The next steps
Charities should consider a wide range of measures to secure their long-term future. They may have to act quickly and decisively, so good systems for receiving information about financial performance will make all the difference. Diversifying income streams and working in collaboration or merging may have to be considered to ensure survival. The Charity Forecast survey revealed that 68% of charity leaders expected more collaboration over the coming year.

Recently, the NCVO launched ‘Support in Uncertain Times’; which sets out options charities could consider during this difficult period. It is my belief that effective accounting will play a key part in an organisation’s survival, as will scenario planning for a range of incomes and having robust financial systems in place. Such measures will enable quick action in the event of a sudden drop in income.

It is too early to tell exactly what will happen in this downturn. We don’t know how long it will last, but it is likely that there will be less public money available for charities. Civil society may need to be more active in providing alternative solutions to this current situation. This is the time when we all need to pull together to make sure that local communities emerge from the recession stronger. This interdependence is crucial to building a new vision for social and economic stability.

You can also view this piece in the Accounting Technician section of the AAT's website.