6th April 2022Not for Profit sector: A month in review

Carol Rudge, Partner & Head of Not for Profit (NFP) at HW Fisher provides an update on some of the top reports, news, and events for NFP organisations.

This month has been particularly exciting for our team, as we have confirmed our attendance at two in person events – we can’t wait to attend and meet people face to face again! In this digest we cover the National Audit Office’s (NAO) report on regulating the financial sustainability of higher education providers, which may have been overlooked by many due to the focus on the Augar report. Following this, we examine the long-awaited Charities Bill, which is now official law and known as the Charities Act 2022. We also take a deeper dive into the FRC Audit Committee Chairs research which is relevant to those in Audit Committees of Universities, Charities and Trade Unions. Read more to discover our full month in review.

• The NAO’s report on Regulating the financial sustainability of higher education providers in England
• Importance of Chief ESG Officers
• CFG conference sponsorship
• Charities Bill update
• Unions 21 conference sponsorship
• FRC Audit Committee Chairs research

Don’t miss it: The Charity Finance Group Annual Conference – in person events are back!

We are excited to share that HW Fisher are the Lead Sponsor for the CFG: Charity Finance Group Annual Conference this year.

The theme is Purposeful and Empowering which is very appropriate for the current times.  There’s no doubt that civil society is needed now more than ever. We all have a purpose to empower our communities and maximise our impact. The CFG conference asks us to think about how we can ensure we’re connecting with our purpose and the role we can play in empowering our communities.

For more information and to sign up, please visit CFG’s webpage. Hopefully we will see you there!

Unions 21 Conference – tackling the data challenge

We are looking forward to supporting the Unions 21 Conference on 27^th April, where a new report looking at the ‘data challenge’ will be launched. The report will explore how unions can use data to win better deals and build strong, successful operations, as well as how to make best use of existing data and what structures will need to be put in place to do this. To register for the conference, click here. We look forward to seeing you there!

National Audit Office: (NAO) regulating the financial sustainability of higher education providers

There has been such a flurry of commentary on Augar over the last month that the report from the NAO on regulating the financial sustainability of higher education providers may not have been spotted by all.
It is the NAO’s first report on the Office for Students (OfS)and focuses on their responsibilities to protect student interests from the consequences of financial risk in HE providers.
There are some interesting and potentially worrying key facts:

• Thirty-two percent of providers had an in-year deficit for 2019/20 which is an increase from 5% in 2015/16; this is after adjusting for pensions.
• Fifty-four percent of students said their course was not good value for money. Value for money is not defined on the basis that it means different things to different people and may change over time. Should or can a measure be developed?
• Sixty-four (26%) providers forecast that at the end of 2020/21, their cash balance would fall below 30 days net liquidity at some point in the next two years. This is the level at which OfS will engage with providers and is clearly a very substantial proportion of the sector.
• Ten providers were subject to enhanced monitoring at 31/12/2021 due to heightened risk to their financial sustainability and OfS was engaging with 13 more to understand their risk level.
• Short term financial risks are dominated by Covid, but medium and long terms risks are systemic such as pensions, teaching and research making a loss and needing to be funded (cross subsidised) by international students.
• Many providers’ medium and long terms forecasts rely on continued growth in overseas as well as domestic students. Even with the demographics changing, can all providers grow at the same time?

Charities Act 2022

There has been so much written about the Charities Bill as it wound its way slowly to become the Charities Act 2022. It is hard to believe that it is now law given its origins go back a decade. The aim is to make matters easier for charities through:

• Making it more straightforward for charities to change their governing documents
• Granting more flexibility in using ‘permanent endowment funds’
• Allowing greater flexibility around the advice needed when selling land
• Allowing trustees to be paid for goods provided to a charity in certain circumstances

The measures will be introduced on a staggered basis over the next 12 to 18 months so charities are “not overburdened by several changes at once”.

Despite the changes not all being introduced immediately, charities should consider the list now so that any benefits are understood and can be factored into future plans.

Dedicated ESG Officers

ESG is an increasingly important topic – organisations are standing up and starting to address this as part of their strategic priorities. One area we haven’t heard much noise about is organisations creating a Chief ESG Officer position. It is clearly a role which will become increasingly common to ensure that ESG is prioritised and embedded within organisations. Watch this space.

FRC Audit Committee Chairs Research 2022

The FRC have published some independent research on audit quality looking at Audit Committee Chairs’ views and approach. This was based on interviews with Audit Committee Chairs discussing how they carry out their role. While the survey was predominantly of listed companies, the findings are equally relevant to the NFP world and thus are worth consideration by, for example, the Audit Committees of Universities, Charities and Trade Unions.

The key findings are:

• It was not always clear that the Chairs distinguish between a good quality of audit and a good quality of service from the auditor
• Chairs tend to assess quality before, during, and after the audit. This assessment is made up of both formal and informal interactions alongside documentation and reporting
• There were relatively few indications of regular challenge by the Chairs of the companies’ senior management
• Key factors when selecting an auditor included the expertise, consistency, and professionalism of the audit team. Alongside these factors, the Chairs commented that auditors should also have a broad understanding of the business, along with good chemistry and communication across their team
• Surveys of the firm’s senior leadership, Audit Committee, and the accounts function are occasionally used to gauge audit quality, but they were often felt to be too long and acted as more of a ‘tick box’ exercise rather than an activity of any added value
• The Chairs commented on the importance of an auditor’s ability to build a rapport as well as being able to offer challenge and show a healthy level of scepticism without being confrontational
• Most were pleased by the response to the pandemic from auditors. Working from home has brought forward technological advancements although respondents missed informal interactions as they often allow for a more transparent and proactive communication style

We hope you found this summary useful. Follow Carol Rudge on Twitter and LinkedIn for more regular live updates or contact Louise Hughes to sign up for our mailing list