The Coalition gives birth to the Open Public Services White Paper

After a long and difficult gestation, at last the Open Public Services White Paper arrived today.

Its timing could not have been less auspicious. The gaze of the media was upon the House of Commons where the Secretary of State for Culture was being flayed by the leader of the Opposition who wanted to know why the Prime Minister was not there to answer questions on Hackgate – rather than at Canary Wharf launching the plan for Open Public Services to a friendlier audience assembled by the centre-right Reform think tank.

The coincidence of the Open Public Services White Paper with the news of the break-up of the Southern Cross care home chain was unfortunate.

The White Paper set out five principles of Open Public Serices:

Choice – Wherever possible we will increase choice.

Decentralisation – Power should be decentralised to the lowest appropriate level.

Diversity – Public services should be open to a range of providers.

Fairness – We will ensure fair access to public services.

Accountability – Public services should be accountable to users and taxpayers.

It is worth considering the parentage of the new White Paper on Open Public Service. In Public Services published by the Prime Minister’s Strategy Unit, the language was of:

- With horizontal pressure from competition and contestability

- And bottom up incentives of choice and voice

- Supported by improvements in capability and capacity

…to create a “Self improving System”

That was in January 2007 in the last months of Tony Blair’s government.

In some quarters today was seen as a (another) re-launch of the Big Society. The White Paper certainly. Interestingly the only use of the term was in relation to the Big Society Bank. While the White Paper place emphasis on the role of new entrants as providers – including charities and mutuals – the New Philosophy Capital think tank was blogging quite sceptically this afternoon. The chill wings of austerity are blowing through the third sector.

How significant is the White Paper? Time will tell. The Coalition is promising more meat on the bones in coming months.

The Big Society, charities and reserves: money too tight to mention?

Today’s Financial Times quotes research from the National Council for Voluntary Organisations which found that 36% of charities are operating hand-to-mouth without any cash reserves.

The FT suggests that this raises “profound doubts about whether [these charities] can survive the imminent cull of Whitehall budgets and help deliver David Cameron’s “big society”.

The article notes the current squeeze on contracts and grants. It also observes that some funders are wary of supporting charities with significant reserves and that funding sometimes only covers costs. Of course, some trustees may also bear some responsibility for failing to address the issue of reserves and setting a reserves policy for maintaining financial viability.

The Big Tax rise for the Big Society

I try not to spout off on this blog. But I am concerned about the impact of the VAT rise on charities. (Colleges too will be hit.) The Charity Tax Group estimates the impact to be £143m.

As well as a campaign by the third sector to protect charities, there is an online petition in support of a proposed amendment to the Finance Bill. I urge you to sign it.

Revised Charity Commission guidance on finance, risk and black swans

Last week the Charity Commission published four updated sets of financial guidance for charities. The documents cover risk management; financial difficulties and insolvency; reserves and internal financial controls.

The Commission says that the guidance has been revised to reflect new developments and the challenging economic climate that charities now face.

The updates include guidance on controls over internet banking and safeguards against fraud and financial crime (Internal Financial Controls) and a checklist of key questions for trustees to establish their charity’s financial position (Financial Difficulties and Insolvency).

Interestingly the Commission is warning charities to beware black swans – i.e. the high-impact, hard-to-predict and rare events spotted in Nassim Nicholas Taleb’s book.

The Commission notes (Charities and Risk Management):

If an organisation is vulnerable to a risk that potentially might have an extremely high impact on its operations, it should be considered and evaluated regardless of how remote the likelihood of its happening appears to be. Charities need to find a balance and they will need to weigh the nature of the risk and its impact alongside its likelihood of occurrence. With limited resources, the risks and the benefits or rewards from the activity concerned will need to be considered. It is important to bear in mind that on rare occasions improbable events do occur with devastating effect, at other times probable events do not happen.

Of course, the trickiest aspect of black swans is knowing what they are. High-impact and low-probability risks are often off the radar. Nevertheless rigorous risk management helps: the organisation with contingency plans for staff absence arising from pandemic flu will be more resilient when coping with absences due to volcanic ash grounding Europe.

Change on the way: accounting in education, housing and charities

Today I am heading for London. I am on CIPFA’s FE/HE Panel. One of the items on the agenda is convergence towards International Financial Reporting Standards in the accounting for the education, housing and charities sectors (so-called UK “public benefit entities”).

The week before last I was at a consultation event for these “third sector” sectors following an Accounting Standards Board discussion paper. A key issue for debate is whether there is a need for further sector guidance, possibly filling a similar role to the SORP guidance for these sectors. I think this a recognised need within the three sectors as they have together and individually particular issues. I am confident that accounting regulators are listening.

Code unknown: the third sector code of governance

In a couple of weeks the consultation ends on the revised third sector code of governance. When it was launched in 2005 the original code, Good Governance: a Code for the Voluntary and Community Sector (pdf available), was a real step forward for the voluntary and charitable sector. As there was more talk and even action on the third sector running public services, it was vital that the sector raised its game.

It was disappointing to read on the Third Sector website that more than a quarter of the respondents to the code consultation had not heard of the original code. There is still some way to go…

Ethics – not expenses?

It now seems that the expenses furore has died down. Its effects will be legion. One effect will doubtless be in the audit plans that internal auditors propose and audit committees consider.

Thousands of internal audit days will be devoted to checking the processes for expenses as internal auditors and audit committees will have been unsettled by the Westminster expenses scandals. If anyone needed a reminder of the seriousness of reputational risks, they have had it. (It’s worth noting that the ripples of the expenses row have reached both the BBC and charities.)

Will those internal audit days be well-spent? Definitely, sometimes.

Where expenses policies are poorly worded, inadequately applied and widely disrespected, some lessons may be learned and culprits may be caught. However, I do wonder if elsewhere the internal audit resource might be better deployed looking more widely at the ethical environment of organisations.

How often do internal auditors look at:

1) How a culture of ethical responsibility is fostered across the organisation?

2) How well codes of ethics are agreed, communicated and bought-in to?

3) How responsibility for ethical matters, legal compliance and reputational risk is allocated?

4) How effectively are social, environmental and ethical risks integrated into risk management?

5) How does the board set itself ethical standards (along the lines of the IoD’s Standard for Directors)?

The answer is not very often and maybe not very well. There is a risk that these kind of reviews degenerate into empty tick-boxing.

I am aware that some housing associations have renamed their audit committees as audit and ethics committees. It will be interesting to see if that means more than a nod in the right direction.

Certainly audit committees do need to look at the wider ethical scene rather go searching for duck houses.

Charities harnessing the power of the internet?

The research consultancy nfpSynergy have issued the results of its Virtual Power survey on The power of the internet for charities. (The report can be downloaded if you register.) the report has some interesting figures although I hope some analysis is to follow as 345 pages is a lot to go through.

Some figures do stand out. It was perhaps surprising to read that 48% of charities are now using social networking sites. (I do wonder how many public sector organisations do likewise.) Less surprising is that only 28% bother to blog.

Strangely the latest survey shows fewer organisations look at the possibility of SMS and mobile telephony as a communication tool. Similarly fewer are using these tools. I do wonder if the mix of respondents may have changed in the recent surveys.

Only a quarter of respondents agree with the statement: “My charity is making the most of the internet".

Only 23% of charities agree with the statement: "Our trustees are involved with our internet strategy". (That may be due to a lack of such a strategy!) Meanwhile 32% of the respondents agree either strongly or slightly that "Our internet strategy is ratified and approved at Board level". That sounds like a rubber stamp being applied – uninvolved approval!

I’d recommend charities (and others) have a look at the survey. The questions – even more than the answers - should get you thinking.

Not-for-profits, strategy and finance: what they do teach you in Harvard Business Review

Almost anyone who has done a course related to business will have come across some fancy matrix for distinguishing different products in terms of market share, growth and/or profitability. Sadly many of those boxes don’t appear that helpful for the chief execs and boards of charities and others whose business is not-for-profit.

Last month’s Harvard Business Review had an article on Delivering on the Promise of Nonprofits by Jeffrey L Bradach, Thomas J Tierney and Nan Stone. It included the matrix above for developing financial and strategic clarity. It’s not rocket science but it does conceptualise the issues for organisations thinking about new developments as well as existing portfolios.

Football charity’s £440k own goal

This month the Charity Commission have published the results of their inquiry report into the Footballers’ Further Education and Vocational Training Society. An office manager at the training charity made unauthorised cash withdrawals of £444,400 over more than a decade.

The inquiry report should perhaps be required reading for all trustees (and certainly for audit committee members). It concluded:

It is important that trustees should work closely with their senior employees to ensure that their charities’ governance frameworks and internal control systems remain fit for purpose, especially during periods of rapid growth.

The report went on:

The Commission does not expect trustees personally to check every management decision taken, or every financial transaction, but trustees should ensure that there are procedures in place which allow them to monitor performance effectively and, especially, to identify discrepancies and system failures as soon as possible after they occur. It should not be assumed that every lapse will be spotted and put right by the annual audit.

Its worth noting that a civil action was brought by the charity against its external auditor although this was eventually settled out of court.

Tough times and the third sector

The impact of the current economic downturn on the third sector has been in the news. This week Oxfam announced plans for job loses and cost savings. While charities face falling income and rising costs – the people who need them most, need them even more. Earlier in the summer an NCVO study found that the third sector was expecting “tough times”.

The think tank nfpSynergy has published an interesting mini-report on what happens to charities in a recession. They believe that this is a 10-month delay between an economic downturn and its subsequent effect on charities income although the falling disposable income is almost immediate.

I think the nfpSynergy research is useful but we need to be wary. Looking at the last two and a half decades tells us only so much as we have not had a recession for over a decade – and we might still escape one now. The combination of inflationary pressures and credit crunch is both toxic and unusual.

nfpSynergy link the economic downturn to risk management. I wonder how many charities and other third sector organisations included an economic downtown in their risk reviews and prepared contingency plans?

Mission (statement) impossible?

When bored, one way of passing time can be to compare and contrast mission statements in social housing. Here are a random selection from some local housing associations:

1) Working with residents to excel at creating and sustaining communities where people want to live.

2) We will provide our future and present customers with well maintained and affordable homes, in safe and attractive neighbourhoods.

3) Our vision is to build successful communities. Our communities will be famous for good quality homes, excellent services and a cleaner, greener environment. People will feel safe and have pride in their homes and neighbourhoods.

Some adopt a slightly different tack:

We are a social business providing:
- Support and services to individuals and communities through good business practice;
- Quality accommodation in an economically viable manner.

It’s not easy to have a distinctive mission statement that works. Yet such statements do convey something of the organisation’s brand – its value and culture.

As an accountant by profession, I’m not going to give lessons on inspiring mission statements. However, I would recommend a perusal of the 2008 Getting Attention Nonprofit Tagline Awards. The blog might be from the other side of the Atlantic but it has some useful advice on effective taglines (specific, positive, brief, clear, accessible) that are relevant to mission statements too.

Hallmarks of success: charities in a more bracing financial climate

The Charity Commission has issued a revised version of their governance guidance, Hallmarks of an Effective Charity.

The new Hallmarks are not radically different. The Commission says that:

As well as updating the Introduction, the Hallmarks themselves have been redefined in order to clarify the overarching principles that an effective charity will want to adhere to. For example, we have drawn together good financial practice points to create a new Hallmark ‘Financially sound and prudent’.

There are some interesting changes to the financial elements to the Hallmarks including new references to monitoring cash flow, structuring in a tax efficient way and minimising the risks of trading activities. Its reasonable to suggest that these revisions reflect recognition of the challenges that charities (and other not-for-profits) face in a more bracing financial climate with the credit crunch and public finance squeeze.

Some thoughts on 200 blog entries: the FE sector, social housing and the third sector

As I’ve posted 200 entries on this blog, I thought it was time cast a look over my shoulder.

Back in late 2006 when I was setting up I thought that a blog might be interesting as an opportunity to share ideas and information as well as occasionally pontificate. Everyone seemed to have a blog. Many blogs were interesting – either informative or a little weird such as the President of the Islamic Republic of Iran. Perhaps not everyone had a blog – there seemed to be a lack of blogs on housing and further education – two sectors where I have done a far bit of work over the years.

Since 2006 we’ve acquired a new prime minister – and a fair few commentators speculate that we may have another one before long whether before or after the next general election. Public sector reform is still on the agenda. The language has shifted a bit – away from competition and choice towards contestability and personalisation. Some of the agenda has been adopted by the Conservatives - and taken further as in the case of Michael Gove’s proposals on schools choice. Even the Liberal Democrats are advocating empowering the user of public services. One major change that we have seen in the policy environment is a significant tightening of public finances although the implications of the Comprehensive Spending Review were well-heralded and analysed by the experts at the Institute for Fiscal Studies.

In social housing we’ve seen a review or two leading to end of the Housing Corporation as we know it – with a de-merger seeing English Partnerships absorbing investment (aka funding of new affordable housing) and a Tenant Services Authority (briefly known as Oftenant) taking over regulation. The TSA might even have a sector-wide remit including all social housing if the government listens. The nature of regulation is a bit of an unknown. Housing inspection will live on at the Audit Commission for the moment anyway – with new short, sharp, shock notice inspections coming in after some years of talk. We’ll probably see some new council houses at long last – although not many. Indeed there is a bit of uncertainty over all house-building after the credit crunch – who worried about sub-prime in 2006? (Arguably not enough people.)

In further education we’ve seen the announcement of the death of the Learning and Skills Council. Its role will be parcelled out – perhaps neatly, perhaps not - among a Young People Learning Agency, Skills Funding Agency, a National Apprenticeships Agency and dozens of local authorities and “sub-regional clusters”. We’ll see how joined-up that is. As a result of the changes we’ll probably see LSC staffers finding new homes – hopefully not too many will compete against me as freelance consultants. Another key development will be sixth form colleges “rejoining the local government family” – a good or bad thing depending where you are. (I won't quote Tolstoy or Larkin.)

Of course, the third sector – particularly social enterprises – are even sexier now than 20 months ago. Politicians are falling over themselves to woo charities and other third sector organisations. The other week it was the Conservatives offering the sector treats including the Office for the Third Sector which NCVO welcomed. Yesterday it was the government promising the third sector a role in service delivery. As always, reality may be less rosy – as seen in the disappointment when the Department for Work and Pensions gave the lions share to the private sector in a major commissioning exercise. Still we have seen actions as well as words – funds for third sector organisations, ambassadors for social enterprise, training for commissioners, new and flexible forms of legal entity for social enterprises.

I am sure that I have missed a few developments. Its seems a lot has been happening even if much of it is skated over in the mainstream media.

I wonder what I’ll be writing about after another 200 blog entries.

One Plus governance issues equals organisational failure

The Office of the Scottish Charity Regulator (pronounced Oscar for those of us south of the border) has issued a report into the collapse of the Scottish charity One Plus: One Parent Familes (no relation of One Parent Families/Gingerbread or its sister charity One Parent Families Scotland). One Plus went down with an overdraft of £2m plus – as well as other debts. OCSR’s case study report found “important lessons”.

The section on governance issues reads like a visit to a chamber of horrors. This is even sadder as the board were interested and enthusiastic.

1) “The Board did not appear to contain adequate skills and independence of thinking to reflect the needs of a multi-million-pound business” - including poor arrangements for recruitment and development, a finance committee that had difficulty meeting, the Board did "not seem capable and willing to hold the previous Chief Executive and Senior Management Team (SMT) to account".

2) “The lack of timely or full financial information being presented to the Board” - including tabled papers, out-of-date and insufficient information.

3) “The scale, skills and leadership of the finance department seems not to have been adequate for the size of charity”.

4) “The apparent lack of independent third party advice sought by the Board” - "The charity and the directors tended not to seek advice nor engage with the external auditors between audits", no internal auditors and no audit committee.

5) "Both the Board and the SMT appear not to have taken responsibility for making decisions to resolve difficulties when they were identified".

The other sections of the report, including those dealing with broader funding issues, are worth a read too.

Its worth noting that the same themes recur in so many organisational failures in the public and third sectors. The sooner those lessons are learnt, the better.

Codes of conduct and the bad behaviour of board members

The Charity Trustees Network is drafting a model Code of Conduct for charities. This recognises the difficulties that can arise from problem board members.

Its worth remembering that having a code is one thing; having the ability and willingness to apply it is another. I know of at least one college that had a code of conduct but did not know how it was going to use it when a governor was accused of breaching confidentiality.

The CTN would like to hear about:

1) the kinds of trustee behaviours that have caused concern and difficulties

2) experience of putting in place and using a code of conduct

The third sector and terrorism

The Institute of Chartered Accountants’ seminar on charities on Thursday included a thought-provoking session on charities, terrorism and fraud.

I must confess a degree of doubt over whether the WRVS would be targeted by Osama Bin Laden. Moreover, I think that the banks’ money-laundering regulations get in the way of civil society much more than criminals and terrorists who would merrily steal identities to circumvent the bureaucracy. Nevertheless, terrorism should be borne in mind when addressing fraud and other criminal threats as good risk management.

The Charity Commission’s operational guidance on Charities and Terrorism is useful and relevant in the public and third sectors beyond charities.

Surveying UK civil society

As a corporate affiliate of the National Council for Voluntary Organisations, today I received my copy of the new UK Civil Society Almanac 2008 (pdf of the executive summary available). It is a pretty comprehensive review of where the third sector is at. Significantly it takes over from the previous NCVO almanacs of the voluntary sector with their narrower coverage.

The Almanac's executive summary notes that civil society organisations account for £109 billion of income in 2005/6. That’s a lot of activity. (I would query the inclusion of “independent schools” as part of civil society but the omission of Further Education Colleges which give so many young and not-so-young people a second chance as well as opportunities to develop skills for citizenship and employability.)

The Almanac addresses many important issues for the third sector which I will no doubt blog about as I read my way through the book.

Looking forward to a period of financial uncertainty the Almanac comments: “It remains to be seen how this will affect civil society, but the difficulties at Northern Rock plc highlight the dangers.”

Corporate fundraising: the cautionary tale of the Northern Rock Foundation

Northern Rock gives us a cautionary tale on corporate fundraising for charities. For a decade the Northern Rock Foundation has made an poured millions of pounds into voluntary and community organisations in the north east and Cumbria. But the future of the Foundation and for its beneficiaries is uncertain.

The Financial Times reports that the Foundation ploughed 5 per cent of the Northern Rock’s pre-tax profits each year into charitable works. In 2008, it looked set to receive in excess of £35m from the bank, its largest injection of funds ever.

Believing future funding was assured, the Foundation spent most of its money, rather than tying it up in endowments. Of the £190m it had received, it spent £171m to date. In response to the bank’s difficulties, 2007 foundation spending was trimmed to £23m and 2008’s cut to £7m. Future grants are expected to be much reduced especially for some sector such as culture and heritage.

Third sector salaries in 2007

The Workforce Hub has just published the main findings from the 19th Annual Voluntary Sector Salary Survey. Its makes interesting reading which will be of particular interest to those responsible for human resources and financial management (including business planning and financial forecasting).

The Salary Survey found that average salaries and earnings in the voluntary sector each increased by 3.7%, a higher rate than the Average Earnings Index of 3.0%, but below the Retail Price Index of 4.3%. The increases are slightly lower than twelve months ago when both increased by 4.9%.

The Salary Survey found that 62% of organisations had experienced problems with staff recruitment in 2007: an increase of almost 10 percentage points from last year. The main reasons behind these difficulties were a lack of suitably trained applicants and the salary levels available. Likewise problems with staff retention were more widely reported as was an increase in staff turnover.

2008 may be the year when the squeeze on public finances impacts more radically on salaries in the third sector as well as the public sector.