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Charities and Iceland: it’s worse than you think

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Adam Rothwell - Monday, October 13, 2008

A piggy bank Over at SocietyGuardian, Patrick Butler puts his finger on precisely what’s wrong with charities’ reaction to the Icelandic banking collapse. Of course, he says, it’s terrible news that charities look set to lose out from the tiny country’s fracturing economy. But what’s really disappointing is how slow they’ve been to realize the scale of the problem.

Charities have reacted to this crisis in a disappointingly typical way. They’ve kept quiet, run for cover, and sent out bigwigs from umbrella groups to speak on their behalf. They’ve been unwilling to own up to the scale of individual organizations’ losses. And they’ve firmly rejected the idea of telling their supporters how much of a mess they’re really in.

This sort of behaviour beggars belief – but it doesn’t come as a surprise. Charities have a straightforward duty to explain their finances to their supporters. That’s why they have to publish accounts. But they also owe us an explanation when things go catastrophically wrong – which is what might have happened at any number of charities with Icelandic bank accounts. Yet no such explanation has been forthcoming.

Contemplate – as Butler does – what would be the reaction if a government department, or private-sector government contractor, had behaved in the same way as the charity sector has. Such secrecy, he argues, would be met with howls of protest.

And rightly so. If a contractor lost millions of pounds of taxpayers’ cash, it would have to account for it properly. Likewise a local council. So why not charities? After all, many receive large government grants, and all charities get hefty tax-breaks. And – more importantly in my view – they also take money on trust from donors, with the promise that they’ll spend it well. When the cash goes missing, we should get an explanation.

So why have charities kept so quiet? Most likely, it’s because they’re scared of what would happen if they spoke up. And I find that attitude disappointing in the extreme. Donors deserve better.
 

 


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This presupposes they know where their funds are
Submitted by rspcacambridge on Tue, 14/10/2008 - 10:12am.

I was pretty startled to see a piece by the CEO of Speaking Up in today's Third Sector

"I started last week with a vague unease about where our reserves were kept. I had a hazy recollection of an account set up by my former finance director, which placed our reserves in foreign accounts.

By Wednesday, news had broken about Iceland's banks I started to quietly panic. I phoned my new FD and asked her to check out exactly where our money was that day. She found out, and thankfully it is spread among 35 national banks all rated "A-Pure" by some ratings agency. Just one going down would see us lose 1/35th of half a million quid."

 

Now, I wouldn't be that bothered that the CEO might delegate investment to an expert, but I do feel a Finance Director shouldn't need to be asked to "find out" where the investments were. 

It doesn't actually sound as if their setup was unreasonable for normal times - but I do wonder whether the investment spreading was in fact being controlled by a computer program and no human being was overseeing it.

 


Good investment
Submitted by Martin Davies (not verified) on Mon, 13/10/2008 - 12:19pm.

It would be pretty easy to explain to their supporters about what has gone wrong, possible losses (still might get something at this stage) and steps to avoid it in the future.

Icelandic banks offered good returns, had a good deposit security rating and would have met requirements of many risk assessments.
If charities keep the money in a current account, we'd have a go at them for wasting investment.
So they invested.

Easy to explain.

Likewise, how much money could be lost. Again, easy to explain. The treasurer will know to the penny what is in each account by now for these accounts.

Do we know how secure our current banking arrangements are? Could the likes of Lloyds TSB, HBOS, Barclays or whoever also have problems they aren't telling us?
Hmmm....might set up a new business offering empty mattresses.
'Stuff your own mattress'. Offer it to charities as well as individuals.


Icelandic Opportunity
Submitted by aardvark (not verified) on Mon, 13/10/2008 - 12:10pm.

What a shame about impact anonymity (though I think I'll keep my identity under wraps) but what a missed opportunity! Unlike bankers and Council CFO's I don't think charity CEO's and CFO's will receive the same bad press for their investment decisions not panning out - after all, they're all volunteers in the pblic mind, aren't they.

And so the missed opportunities in secrecy will a) be that their wealthier cause peers won't offer to help to bail them out or keep their projects alive, and b) a further merger incentive may be lost.


More Iceland
Submitted by Adam Rothwell on Mon, 13/10/2008 - 10:24am.

Oh, the joy: Third Sector mag reports that charity umbrella groups are going to run an anonymous survey of their members to see which ones will lose out from the banking crisis. Was it too much to ask for leadership from the umbrella groups? Apparently it was.

Adam, Intelligent Giving


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