Relevant questions about a charity’s financial health and performance include:
- Does the charity have a diverse range of income sources? A charity that is highly dependent on one source is vulnerable and would need large reserves to cover that risk
- Does the charity hold large reserves? Charities receive funds in order to spend them on the purpose for which they were established. The policy should set out why the charity holds reserves and should set out how it plans to use amounts held in excess of that
- Does the charity explain its fundraising performance? The best indicator is the return on investment on a particular project or activity. This may be over a number of years rather than the annual performance in a set of accounts
- Does the charity explain its impact? Most charities can explain their outputs even if only by describing the activities they spend their funds on. Some reports will go further and give details of the number of people helped with each service or other measures of reach. Impact is not simply about numbers however, and you need to know whether the intervention achieved the objective and was effective. Some charities publish separate impact reports and commission independent evaluations of their work
