Expenses can be a controversial subject. In the public sector, the word ‘expenses’ often appears in news headlines, particularly concerning civil servants at the top. Though the spending of public funds is meant to be a transparent process, it doesn’t stop some government ministers claiming for things they shouldn’t and squandering our taxes.
To be seen ‘fiddling’ expenses in a charity is no less shocking; it’s perhaps even worse, morally speaking. Because charities are largely funded by the general public’s generosity, it’s a real no-no for staff to take advantage of any perks or loopholes that benefit them as an individual.
There was a furore around Captain Tom Moore and his daughter’s management of money raised in his name. The regulators conducted a probe into the charity Hannah Ingram-Moore created after her father’s lockdown challenge, as more than £50,000 was paid to two companies owned by Mrs Ingram-Moore and her husband, which caused some people to be suspicious about the transparency and legalities of such a move. Both Mrs and Mr Ingram-Moore were trustees of the new charity, along with another individual.
Mrs Ingram-Moore insists there was no wrong-doing. She said that her PR company had loaned the new foundation money to get it started, and that the subsequent payments were simply reimbursements of this cash boost. She reminded everyone that the accounts for the new charity and her companies were available for public scrutiny. She did admit to being ‘naïve’, when it came to the running of the charitable organisation, and how it differed from the running of a private company.
Recently, the charity regulator criticised a religious charity for its spending on luxury hotels, foreign trips and raising directors’ salaries, following the sale of their church building. It appears that having so much money on the books proved too much of a temptation. What they claimed for wasn’t as much of an issue as the amount spent on each.
No one will dispute that you must speculate to accumulate, in any sector. A charity will only get so far on goodwill. After a certain point, the founder and/or volunteers should be employed by the organisation and compensated for their time and expertise, if the organisation is to grow. And to attract talented team members, decent wages must be paid to compete with the salaries of similar roles in the public and private sectors. It’s a fine balance for charities, between achieving value for money and paying the going rate.
Because accounts have to be published in the public domain, you’d think this would deter people from defrauding charities; however, it doesn’t fully eradicate such behaviour, as this article suggests.
If you’re a new charity, you may be concerned about the things you spend money on, and whether they’d be considered ‘necessary expenses’ by the regulator. Here are a few examples of what is deemed acceptable spending:
Staff members who are on the charity’s payroll would be expected to pay for any costs to commute out of their wage, like any other employee. The guidance from the sector’s regulator focuses on trustees’ expenses, probably because trustees don’t receive a wage for the time they give to an organisation. The Charity Commission states that, in lieu of a wage, it’s not fair for any trustee to be out of pocket as a result of the work they do, i.e. though they may donate their time it shouldn’t cost them money to help govern the charity. Therefore, any travel expenses they incur as they go to and from trustee meetings, any food or drink they’ve bought whilst carrying out their trustee duties, or any technology they’ve had to purchase to connect with other trustees on official business, can be reimbursed. This may mean a microphone/headset or adjustments for a disability, for example—what it doesn’t mean is that the charity pays for a brand-new laptop or top-of-the-range mobile phone for a trustee—these would be classed as unreasonable expenses. Most people already have IT equipment and a smartphone and they would be expected to utilise these for remote meetings and staying connected, etc.
Charities of a certain size must have their annual accounts professionally audited; good causes small enough to not be scrutinised as thoroughly would still be expected to engage the services of an accountant. The cost of professional services like these would not be seen as dubious or unnecessary; in fact, the Commission would actively encourage charities to engage the expertise of an impartial professional when it comes to the finances of the organisation, for obvious reasons.
The size of your charity will likely influence the marketing budget you could utilise from your charity’s turnover. The regulator will recognise your need to speculate to accumulate, i.e. that to reach new donors and beneficiaries, you may need to have leaflets designed and printed and/or a website designed and made live, for example.
However, questions may be asked if you commission a £50,000 website with bells and whistles for a charity whose annual turnover doesn’t exceed £20k. Marketing budget/spend should be proportionate to the organisation’s income. I looked for some guidance on what the ratio of spend to income should be and could only find a report from the U.S.—this suggested the marketing budget for good causes should be approximately 2% – 3% of its income, which would seem low within the private and public sectors. This means a charity with a decent annual income of, say, £100k would spend around £2,000-£3,000 on their marketing per annum. I don’t think this is unreasonable—unless they needed a new website, for example, which may see their budget shoot up. However, this extra spend could still be justified, as it would be a one-off charge and an investment in the growth of the organisation; it wouldn’t be a recurring annual cost like the rest of the charity’s marketing spend.
Rent, utilities and staff wages are all typical costs for a charity. Though a lot of third sector teams have continued to work remotely after the pandemic, some rent/venue hire costs may still be required for the delivery of the charity’s projects. Not every service a charity offers can be delivered in the beneficiary’s own home and, therefore, a venue or private meeting room is needed. These outgoings are what’s classed as core costs, i.e. the costs a charity incurs to operate and deliver its support.
If you’re unsure whether a specific cost would be seen as unnecessary or even lavish by the Commission, get in touch with me at email@example.com or call 0114 350 3354.