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Byline: Scott Mcculloch

The charity sector in Scotland is facing an unprecedented funding battle at a time when their services are in greatest need. That was the rather depressing conclusion outlined in a recent 'state of the sector' survey published by the Scottish council for Voluntary Organisations (ScVO) in November 2012.

its survey of more than 400 charities operating in Scotland found funding remains the primary concern going forward while last year's predictions that services and headcount would be cut were proven to be accurate.

however, only 18 per cent of the charities surveyed had reduced in size in 2012, which was an improvement on 25 per cent having cut back in the previous year. The survey showed there was also a "significant" increase in collaboration with other organisations in an attempt to reduce costs.

The overwhelming concern for this year is how charities will manage to cope with a surge in demand for services when competition is growing for limited resources.

Falling income, which for many comes from the public purse, was mitigated to some degree through a reduction in staffnumbers, cutting staffhours and through mergers with other charities.

according to Gavin Mcewan, a partner at charity specialist law firm Turcan Connell, sharing resources will be a key feature going forward.

he says: "Sharing resources is usually focused on backroom functions such as it and human resources, but other charities are also beginning to look more fundamentally at how they deliver project work.

"For those projects seen as unsustainable for individual charities, a joint venture can be the preferred delivery method to maintain public benefit and achieve charitable aims in the face of reduced funding.

"Those charities whose project work is funded mainly or substantially by central or local government are the worst affected funding wise and moves towards the personalisation of care are having additional impacts on charities working, for example, with disabled people.

"The Scottish Law commission has picked up charities moving towards joint working arrangements and published a consultation paper recently considering new statutory means in delivering joint ventures.

he adds: "While this was well intended, many practitioners question the need for an act of Parliament to allow collaboration as most charities already have the ability to enter into contracts for joint working arrangements."

ScVO's rather depressing outlook for 2013 is largely summed up in its assessment that 80 per cent of government welfare reform cuts are still to come, and more than 60 per cent of charities said those cuts will directly affect their operations.

More worrying still, more than 80 per cent said the coming year will be financially worse than last year while demand for services is predicted to rise "significantly". Just one per cent

authorities and have gone down the commissioning or services route. That's okay when local authorities have a reasonable income, but when that income begins to get squeezed, so too does the charity's income.

"The other aspect is the EU directive in delivering best value means local authorities have to go out and tender, and you often find you have two or three charities competing with each other for the same contract. Of course the knock on from that is the charity money is being spent bidding for the contract through the procurement process.

"We are now seeing local authorities' budgets being squeezed and, in turn, service providers so you of the charities surveyed believe the financial situation will improve.

Gillian Donald, head of charities with accountancy firm Scott-Moncrieff, says in her own experience, the Scottish charities her firm works with have experienced funding drops averaging 10 per cent a year for the past two years. "The majority of charities provide services to the public sector. That shifthappened a number of years ago as the public sector shrank its service provision and moved that work over to the charity sector. So, for the most part, charities are relying on public funding and the public sector is really being squeezed now.

"Since 2010 we commonly saw cuts in funding of around 10 per cent on average and in many cases charities are now having to re-tender for services they already provide, which is generally pinned on price so charities are having to cut the level of service they provide to compete.

Etherington also alluded to s "And, of course, those cuts are also made internally, to a point where I believe the charity sector has become too short-termist and there is no money around for innovation and development."

Sir Stuart Etherington, chief executive of the National Council for Voluntary Organisations (NCVO), warned in a report published in March 2012 the government's spending cuts were "knocking out the voluntary sector capacity" needed to support the government's big society agenda.

The NCVO estimates the voluntary sector lost 70,000 paid staffin 2011 and has calculated the UK Government's spending review for 2011 to 2015 will lead to PS2.8bn in cuts to UK charities.

another huge problem for charities - the move away from publicly funded grants to deliver services in a contract model which charities have to tender for. He said: "Bigger and bigger contracts are leading to a situation where involvement in public service delivery may exclude all but the largest charities with the strongest balance sheets."

That's a view shared by David McArthur, chief executive of Edinburgh-based children and young people's charity Trefoil. "Many of the larger charities in the past few years have gotten into bed with local have a situation where putting fifty pence in the charity box is indirectly subsidising the local authority."

Alan Somerville, chief executive of Scottish Autism, says the ongoing squeeze on public spending has "greatly affected" many of its key customers as well as the charity itself.

Somerville's answer is to invest more time and resources to improve the charity's public procurement processes. He says: "Because we offer autism-specific services as opposed to more generic care, we have perhaps a greater challenge in this economic environment as we differentiate ourselves on quality rather than price.

"We have taken the decision to invest time and resources into the Public Service Improvement Framework (PSIF) to ensure we are continually evaluating and improving our services and operating at maximum efficiency levels. Like all service-providing charities, we operate in a competitive marketplace and have no absolute right to exist."

As Lindsay Scott, Age Scotland's communication and campaigns manager, points out reliance on public funding is now leading to cuts in service delivery. He says: "Almost two out of three charities have been forced to cut services, and one out of every ten is facing possible closure. Donations to charity have plummeted by 20 per cent in the last year and even GiftAid donations have dropped by thee per cent.

"In the last financial year we incurred a deficit of more than PS800,000 but it is one arising from the planned use of reserves deliberately built up over the last five years to enable us to adapt to the challenges the current climate presents."

More than 60 per cent of Scotland's

24,000 registered charities generate income of PS25,000 a year or less. In 2011 those charities overspent by PS18.4m, equating to around PS2,000 in overspend for each charity in the low income bracket, according to figures compiled by Third Sector magazine.

The picture wasn't much brighter for the mid-sized charities with annual incomes of between PS50,000 and PS100,000 - they too recorded an overspend averaging PS17,000 over 2011. And a third of larger charities, those with incomes of between PS500,000 and PS10m, also ran deficits over the same period.

SCVO has warned many charities will be unable to continue to subsidise their operations from dwindling reserves as demand for services continues to soar.

"St Columbus Hospital is one example. It provides an outstanding service to people who are in the final stages of their life, as well as to relatives, and some of its 30 beds are NHS contract beds. If the NHS gets squeezed and St Columbus don't deliver the percentage increase in that contract the following year, are we going to see St Columbus contribute its charity money to provide what is an NHS service?" s Trefoil's McArthur believes further budget cuts, particularly to the National Health Service, may force charities to provide statutory provision from their own funds. He says: "More and more we are seeing charities taking over core services, particularly cancer charities, and that is not what charities are supposed to do. There is a real danger charities will become core providers to deliver the extra level of service that makes the difference.

"Historically, the standard of care offered by cancer charities is superb, but that care should be provided by the health service which we all pay for. Why should those care services be an add on? Alan Eccles, head of the charities unit at law firm Maclay Murray & Spens, believes charities will have to diversify to generate the funds required to deliver services. He says: "While social enterprise and trading may sound like buzz words, it is something that charities can and should be thinking about.

"Social enterprise is not all about charity shops. Charities can be imaginative in their commercial ambitions, so long as proper consideration is given to a project even large-scale projects such as renewables could be within a charity's commercial portfolio.

"But any social enterprise or commercial arm set up must be in keeping with the charity's ethos and it must have effective control mechanisms in place to oversee its commercial activities."

Turcan Connell's McEwan says new policy which recently came into effect may provide charities with a valuable lifeline. He says: "Recent legal changes give charities the power to review restricted funds to possibly free up those funds to better charitable effect.

"Restricted funds usually come about through donations or legacies which are for a fixed purpose and a legally binding condition only to use the donation or legacy for the stated purpose. That presents real problems for charities and up until November 1, 2012, the only way to tackle this problem would have been to go through an expensive and timeconsuming court process.

"The new rules mean charities can now apply directly to the Office of the Scottish Charity Regulator (OSCR) to have restrictions amended, relaxed or even removed."

The UK Government has devised a novel 'buy now pay later' scheme to try to tackle funding shortfalls in the third sector through a new model being piloted called the Social Outcomes Fund. Ministers hope the PS20m fund - which was launched in November 2011 - will ultimately attract a further PS60m in private investment into 'preventative spend' projects highlighted in the 2011 Christie Report on the Future Delivery of Public Services.

That report suggests approximately 40 per cent of public sector spend goes on "failure spend", where the state has failed to intervene in a child's life before they become a burden on the state.

Cabinet Office minister Francis Maude said the aim of the Social Outcomes Fund was to spur growth in social impact bonds in order to move the cost of some public projects to investors who would reap a dividend if the project is successful. Details remain sketchy on how these investments are priced and how the government will measure their success in value terms.

Scott-Moncrieff's Donald says although bond funding won't fit every situation, it is "definitely an opportunity" some charities should be looking at. She explains: "The problem at the moment is there is no money around for preventative spend to tackle problems early through investment in the hope that spend brings a longer-term benefit to the public purse.

"The qualifying project would have to be costed on the basis of a return being made to investors, and that would require a financial intermediary to cost the project effectively, so the bond would work as a loan rather than a grant.

"However, if that project can be demonstrated to have worked in preventing future spend - such as tacking re-offending in prisoners - then a portion of the estimated cost saved is paid back by the public sector through the charity to repay the investors through a dividend.

"Of course those projects will have to be costed properly, as will returns on wider savings." n

authorities and have gone down [...]

24,000 registered charities generate income [...]

I believe the charity sector has become too short-termist and there is no money around for innovation and development Gillian Donald, Scott-Moncrieff(below)More and more we are seeing charities taking over core services, particularly cancer charities, and that is not what charities are supposed to do David McArthur, Trefoil (above)Like all service-providing charities, we operate in a competitive marketplace and have no absolute right to exist Alan Somerville, Scottish Autism (below)


Age Scotland's Creative Ageing Festival in Stranraer saw older people gather for a day of fun and creative activities, including curling
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Title Annotation:Business
Publication:Insider Monthly
Geographic Code:4EUUK
Date:Jan 4, 2013

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