Consulting » THE FINANCIAL DIRECTOR INTERVIEW – Saving more than just costs: FD of Save the Children

Being the FD of a charity is child’s play, right? Tax-free, no shareholders
to worry about, most of the staff don’t even show up on the payroll, no
commercial pressures and the customers never complain. You might almost call it
the amateur end of the finance world.

You might, but you would be wrong if you did. “We have an annual income of
between £70m and £80m, and that’s not chickenfeed,” says Alexis Chapman, FD at
the Save the Children Fund. “It’s a medium-sized business and many of the issues
we face are very similar (to other medium-sized businesses).”

Save the Children is the 25th largest charity in the UK by income and is one
of the largest 248 charities (there are 187,000 charities in the UK), which
collectively account for 40% of donated monies every year. Save the Children
operates in more than 60 countries around the world, and this sets it apart from
more modest local voluntary efforts. It also means that Chapman has almost
identical problems to her colleagues in the commercial sector – plus some they
don’t face.

“Sometimes, people can view the voluntary sector as a cushy option, but it’s
far from that,” she says. “The issues are all there, the pressures are all
there, and sometimes the resources are slightly thinner on the ground.”

VAT’ll be the day
Save the Children’s 154 charity shops have special VAT status since they are, in
effect, converting donations into cash by selling second-hand goods. And since
its trading subsidiary covenants all its profits directly to Save the Children,
there is no corporate tax. But sales of new products do incur VAT, and Save the
Children also spends £70m a year. “We’re not charging anyone VAT,” Chapman
explains. “So we pay tax on goods and services we buy, but we have nothing to
net it against.”

Fortunately for Chapman, Save the Children’s size means it can employ
specialists to try and control its tax burden. “I have a particularly good
expert on the team – he is deputy chair of the Charity Tax Reform Group,” she

Chapman herself sits on the ASB committee that deals with accounting for
non-profit organisations, but she is finding the government’s attitude to the
sector puzzling. Although there is supposed to be a charity tax review under
way, progress has been slow. “The government doesn’t look like it’s going to
address the VAT problem,” she comments. Nor has it offered a solution for
charities in the wake of the abolition of ACT – which has hit the sector to the
tune of £400m. But despite this level of expertise, the finance function at Save
the Children is not huge by business standards.

“I joined as financial accountant at a time when there were very few
qualified accountants in the Fund,” Chapman recalls. “There was a newly created
audit function with a couple of accountants in it; the FD was an accountant;
there was a chief accountant – and me.” She joined after a five-year stint at
KPMG, during which she exercised her wanderlust (she went to school in France
for a time and studied Russian at university) by working with clients such as
the International Committee of the Red Cross. “I got to visit some of their
overseas fieldwork while we were conducting audits, and I did some special work
for them when the Romanian crisis blew up,” Chapman remembers. “It didn’t take
long for it to dawn on me that this was the part of my job I enjoyed the most.”

Her lead partner at KPMG was not the slightest bit surprised when she decided
to take up the job at Save the Children. “I was very motivated by what the Red
Cross did, and I was also very impressed that even as an auditor, I was able to
set out quite clearly what the Red Cross remit was,” she says.

The same sense of bringing financial discipline to what is, at its heart, a
matter of compassion, is now true of her role at Save the Children. “I’m a firm
believer in numbers being a reflection of operational reality,” she explains. ”
If you’re going to get your financial planning right, it’s because you
understand the business. That’s as true for manufacturing biscuits as it is of
development work.”

Income for Save the Children comes from the shops, plus campaigns, direct
mail appeals, legacies from supporters, straight donations and grants (which
come from any number of sources, although the UK government and the European
Union are the most significant).

Unpredictable income
Income streams vary wildly, and this presents Chapman with a tricky problem: if
the organisation loses its way in the budgets, what gets cut? Reducing outgoings
at Save the Children might mean having to cut back on a vital development
project in an area of need. “A particular piece of work may be quite short in
duration, but you don’t stop after that and get out,” she says. “You analyse,
learn, move it onto the next stage with more projects. We’re trying to fund
things that are long-term with income streams that are short-term and

To cope with this problem, Chapman looks at Save the Children’s revenue in
tranches, which then have a risk value ascribed to them. So legacy income – you
can’t predict when wealthy supporters will die – has a different level of
certainty to shop earnings, which move in more predictable cycles.

Chapman is hoping that the Save Children from Violence campaign, which begins
in April and will last for three years, will generate a long-term stream of
income for a high-profile problem – the 300,000 child soldiers in the world.

Chapman struggled with the revenue problem in a much less controlled way when
she became FD in 1995. Save the Children had gone through a period of massive
growth, raising its revenues from £10m in 1980 to a peak of £110m in the early
1990s. “That’s fairly rapid growth – and all organic!” Chapman jokes. But such
accelerated growth also lead to problems, and when the funds from a series of
one-off campaigns in the early 1990s – from the Somalian, Rwandan and Kurdistan
crises and the charity’s 75th anniversary campaign – had dried up, Save the
Children had to rethink.

“There was a lot of debate about how much of it was the lottery and how much
of it was the recession,” Chapman recalls. It’s worth noting that recessions hit
Save the Children in a rather odd way: during the downturn itself, people
actually spend more money in charity shops as an economy measure, but in the
subsequent upswing they have fewer decent clothes to pass on and focus more on
new items to buy – so Chapman felt the recession in the mid-1990s.

“But the long and the short of it was that we had to revise our forecasts. So
we went into tight management mode to take us through that situation.” That is
not to say there wasn’t a degree of pain to be endured. “We’ve taken out quite a
lot of cost and we had to make cuts to our programme of work, which is always
very difficult to do.”

Support costs
Cost cutting is different for a charity FD. There are no perks to cut, wages are
already somewhat below even the public sector and, in any case, too many cuts
would actually destroy fundraising power. “You have to look at the support
costs, and that’s a tough debate because it’s an area where you’re probably
operating at quite a tight level in the first place,” Chapman explains. “If we
stopped opening donations in the finance department, it wouldn’t be great!
Taking a blank sheet of paper and rethinking how you do things is a possibility,
but re-engineering your process is difficult within the time constraints.”

So other areas had to be restructured – and that meant the programmes. “You
look at the bits you can do differently. In a number of cases you can move from
model A, at a certain level of investment, to model B, which has a lower level,
” she says. It is important to have a continuous presence in development areas.
Just like commerce, the wheels of charity work are oiled by strong, sustained
relationships with contacts on the ground. “You have to ask what kind of
certainty you can give to a programme director in Mozambique who’s building
relationships over the long term,” Chapman points out. “We’re going to be there
for a long time, the government is going to be there for a long time, and the
children we’re working with are from all ages. The programme director needs to
be able to put together his operational plans and say, ‘here’s the commitment
that Save the Children is making in terms of funding.'”

It’s not just knowing that you can provide an ongoing commitment to children
that drives these local relationships. In many of the countries where Save the
Children operates, bribery is a fact of life. Like any charity, it does not want
to spend money on backhanders, and Chapman stresses the importance of making an
ethical stand. ” It’s by being clear that we give people a indication as to what
we expect, and clarity about how we will deal with situations that depart from
that,” she says.

Having strong local ties and a positive reputation helps. “It’s extraordinary
how Save the Children can be regarded quite differently – it’s visible how
people relate to us.” But that does not automatically isolate the organisation
from the darker side of business. “I’m quite up front about fraud: we have
fraud,” admits Chapman candidly. “Any finance director of an organisation like
this who said they didn’t have any fraud would be kidding themselves.”

Handling mostly cash and spreading itself so widely over the world makes
fraud very possible. But Chapman is heartened by the fact that the controls at
Save the Children work effectively.”We have an internal audit function that’s
able to either investigate directly, or advise when it’s difficult for them to
pile onto a plane,” she says. These controls are highlighted in the charity’s
annual report. “We’ve gone further than we need to in terms of our statements on
corporate governance,” says Chapman.

“The issues are as real for us as for any FTSE-100 company. You could say
that, bearing in mind the level of public scrutiny, that it is much more of an
issue. We are a large business doing a lot of different things, employing 3,500
people worldwide, and we need appropriate governance. I don’t think scrutiny is
a bad thing.”

A key part of internal financial control is risk management, and one of the
ways Save the Children ensures that it can plan long-term despite only having
short-term revenues is to hold a £30m-plus investment portfolio. “I’m the FD,
and I know enough about investments to take the right advice,” she explains.

Naturally, Save the Children’s approach is broadly risk-averse, and this is
reflected in a higher than average proportion of gilts and cash in the portfolio
– about 65% is equities. “Actually it has performed incredibly well,” says
Chapman. “Three or four years ago we decided we needed to be more risk-averse,
to take a shorter term view, partly because of the financial difficulties we
were in. But we do have an obligation to maximise the return on the fund, so
it’s about striking a balance.”

Exposure to risk
The one other major area of risk for Save the Children is foreign exchange
exposure. Doing business in so many places, and sourcing most of its income in
sterling, could be seen as a tricky proposition. But, Chapman says, the risks
are actually quite small. “A lot of the countries we deal with have currencies
somewhere between soft and squidgy, so planning and budgeting in sterling is, in
general, advantageous.” And the revenue can go very far. “£80m (revenues) is a
funny way to measure it. Because of the purchasing power that buys (in the
developing world) you don’t really get a sense of the scale of our activity.”
And while many companies look to the euro as either a systems headache or a boon
to their forex planning, Chapman looks at the wider perspective.

“In practical terms, we’ve been dealing with Ecus for a while – we take lots
of grants from the EU, so the change to euro has been no great shakes, ” she
says. But the real issue is how the new currency will affect children.

“In our West African operations we’re thinking about the effect the
introduction of the euro will have on all the countries dealing in CFA francs,
which were linked to the franc and are now linked to the euro.”

Save the Children might be akin to Coca-Cola in the sense that it must
develop and extend a global brand, operate efficiently with local affiliates,
and increase revenues. But, Chapman insists, “This isn’t just any FD’s role.
It’s a tremendous privilege, because of what the organisation does.”

Chapman loves to visit operations in the field and see how the finances are
helping children to have a childhood. “Fieldworkers are interested in Save the
Children as an organisation, how it’s financed,” she says.

“They are amazed when you talk about all the volunteers raising money for
them. The whole idea of a charity shop is something that doesn’t make a lot of
sense in the back of beyond in Rwanda.” So it’s not at all like Coca-Cola. “You
can take those parallels so far,” Chapman concludes. “But I guess it’s hard
sometimes to see how much people spend on Coke instead of on children. We need
every penny we can get, and we make it work hard. I’m not claiming we’re
perfect, but a lot of what we do is incredibly impressive.”

Name Alexis Chapman
Age 35
Career 1982-85 Mathematics and Russian, Durham University

1985-86 PGCE, Cambridge University
1986-91 Accountant, KPMG
1991-94 Save the Children Fund Financial accountant Marketing
1995 Acting director of finance
1995- Director of Finance and IT
On IT spending “There was a time when spending money on things
like IT would be met by, ‘We can do things with pen and ink and lots of
volunteers.’ For many organisations that’s less true now. In some senses the
requirement on us to manage resources is that much greater. We’re not solely
driven by adding value for the shareholder – we have a wider range of
On tax reform “The government did come along with, ‘Don’t worry
about ACT, the tax review will correct the impact of ACT.’ And they now seem to
be much more, ‘Well, the impact of ACT on the charity sector was a bit of an
accident, we didn’t really mean it.’ But, £400m later, that’s no great comfort.

On low pay “They are not paid what they would be in the
voluntary paid in the private sector, not even what sector: they’d be paid in
the public sector, but they are giving their time and expertise because they
choose to, and they work extremely hard for Save the Children because they
believe every child has the right to a childhood.”