Joe Saxton explains why he thinks charities need an Ofsted-style organisation to monitor their performance.

In the recent blueprint I wrote for restoring the sector’s reputation, from my ten suggestions, it was the one for an ‘Ofsted for charities’ that appeared to jar with most with people. So I thought it would be worth setting out in more detail why I think it’s needed and how it would work.

The problem for charities and their donors

At the heart of the problem that my ‘Ofsted for charities’ is trying to address is whether a charity is doing a good job or not. Charities, like schools, are not-for-profit organisations, so measuring their performance is not easy. Charities are probably even harder to assess than schools since they don’t have the universal metric of exam results. Over the last 10 to 15 years there have been a range of metric-based tools to try and assess charity performance. They often fall down (in my view) because the effectiveness of almost all charities is very hard to assess based on numbers alone.

Deciding whether a charity does a good job is both a qualitative and quantitative exercise. It needs people with expertise and insight, talking to staff, volunteers, beneficiaries and trustees. On a more practical point, it’s hard for the sector to rant and rave about the idiocy of measuring admin or fundraising expenditure as shorthand for charity performance, unless we provide an alternative.

Isn’t poor performance the role of the Charity Commission?

One of the big myths that we have seen revealed in the last year is that poor performance is the role of the Charity Commission. Only in extremis, can the Commission take over a charity, and install its own managers or trustees: the charity version of bankruptcy.  So I would see three main groups which would benefit from a new style of performance review:

• For charities which appear to be struggling, are badly run, or which statutory agencies or auditors have concerns about. Effectively these bodies would be nominated for a review by third parties, mainly the Charity Commission
• For funders who want to get a health check on a charity to which they are about to grant a large chunk of money. It would be an enhanced form of due diligence.
• For charities who would self-select for a review because they wanted to be able to tell their stakeholders how they are doing, or because trustees had concerns about their performance.

How Ofsted works

Ofsted inspectors go into a school and assess the performance of that school over a two or three day period. They talk to teachers and governors, they observe lessons, and ask parents for their views. They have five main criteria they look for (effectiveness, leadership and management, quality of teaching, behaviour of pupils and outcome for pupils). The inspectors have numerous sub-criteria and give their assessment by ‘outstanding, good, room for improvement and inadequate’, and set out a performance improvement plan.

What might a charity management (Charman) review cover:

• Governance – are trustees doing their job, and setting direction and monitoring delivery
• Financial management – is financial management keeping control of expenditure, income and cash flow
• Income generation – does the charity know how it will raise its income and the costs of doing so, and the reputation risks
• Communications and reputation – is there a clear internal and external comms plan, and a well communicated set of values and a coherent brand
• Digital – how is digital technology used to reduce costs, raise income and reach audiences
• Senior management and leadership – is the senior leadership team coherent and have a shared sense of direction
• Strategy and planning – does the charity have a clear strategy and a written set of priorities and business plans
• Impact on beneficiaries – is the charity measuring its impact on beneficiaries and effective in delivering its mission, and have a plan to develop and improve this

Of course these criteria would need to be discussed and reviewed, and would evolve over time. It would probably take a year or two (or three) to pilot and evolve them. I have no doubt that PQASSO would provide much inspiration for the criteria for any review.

The key difference is that a Charman review would be done by external consultants, and not self-evaluated. PQASSO is a process, while Charman is a snapshot. It could also be applied to those organisations who needed it, not just self-selecting, and ultimately the number of Charman reviews would need to be much higher than is currently the case for PQASSO.

What a charity Ofsted is, and is not

It’s worth making clear that I don’t see a charity Ofsted as being a statutory body. It is probably closest to the new Fundraising Regulator or the old FRSB. It would have the three main sources of business outlined above. The Charity Commission and other bodies could refer charities that they were concerned about to it for a management review. A review of the kind where a charity self-selected would be like a form of management consultancy, and give any charity reviewed a clear set of improvement ideas and a performance plan. So charities who want to understand how they are doing could ask, and pay for, a review.

Funding, scale and compulsion

Given that Ofsted has 1,500 staff and 1,500 (many freelance) inspectors it is clearly a huge task to do systematic performance audits. It’s easy to imagine that charities would be a much bigger task than schools, but not necessarily. There are around 25,000 schools of all kinds in the UK, and Ofsted is responsible for most of those.

While the headline is the 165,000 registered charities, if you take those with an income of more than £500,000, the numbers are down to 10,000. If you look at the scale of task another way, and imagine that 1,000 reviews would take place each year, then it would probably need 80-100 full-time equivalent inspectors. However if those were trained independent consultants, then costs would be contained and flexibility maintained. I imagine that funding might come from sources such as the Big Lottery, other grant-makers, and from fees from those who self-select for a review.

But, but, but…

One of the sector’s weaknesses is that its desire for perfection is often the enemy of action. A charity Ofsted is bound to have many things that need clarifying. I have no doubt people can see many holes: in whether ‘education Ofsted’ is a good idea in itself, or whether a single performance review can cover all charities, or many other concerns.

The issue for me is that so many other non-profit bodies in public life such as schools, universities, prisons, hospitals, care homes, and more, have rigorous reviews which allow their stakeholders to know about their performance. Are we really happy that we have nothing which allows staff, donors, funders, beneficiaries to have the same for charities?

Joe Saxton is driver of ideas at nfpSynergy