Best practice for impact reporting by charities
ICAS has funded and published research into charity impact reporting to inform the Charities Statement of Recommended Practice (SORP).
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 long-term difference that charitable activities have on the people and causes they seek 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, known as the ‘SORP’. Studies have however shown that many charities struggle with the measurement and reporting of impact, leading to calls for SORP enhancements 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. The project aimed to provide evidence and recommendations to the SORP committee, as well as support to the charity sector and its stakeholders. It was carried out by Alpa Dhanani, Evangelia Varoutsa, Julian Woodward, and Penny Chaidali (Cardiff University), and Carolyn Cordery (Victoria University of Wellington).
Phase two
The second phase report, published today, considers the importance of charity impact information to funders, donors and supporters. It aims to improve understanding of the current charity impact disclosure practices, and consider how funders and donors use these reports to satisfy their accountability requirements and make future funding decisions.
The main findings from this phase of the project have been outlined in a key takeaways document.
To provide tangible assistance to the charity sector, we have also compiled examples of best impact reporting practice amongst the charities examined as part of this project.
Phase one
The first phase of this project analysed how UK charities develop and use impact reporting. The objective of the report was to understand the motives, processes, barriers and benefits of developing impact reporting, and ultimately assess whether it communicates charities’ achievements appropriately.
The main findings from this phase of the project are set out in the below drop-down.
Key takeaways
- 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.
