The Charity Commission has published its first-ever Charity Sector Risk Assessment. Designed to provide an overview of potential risks to the sector, the survey is based on information drawn from accounts and annual returns, compliance concern investigations, serious incident reports and related casework. The survey found two key risks to the sector: financial resilience and risks to public benefit.
The survey noted over 42% of charities reporting expenditure exceeding income, with challenges around securing sustainable public funding, increased employment costs, an increased tax burden (particularly the recent changes in employers’ national insurance) and increased demand for charity services. It is important that Trustees understand and provide effective financial stewardship and look to plan and act on any ‘early warning indicators.’ Key actions highlighted by the report to help Trustees mitigate risk include:
• Taking time to plan ahead to ensure income forecasts align with operating costs
• Ensuring financial reporting is fit for purpose, regular and sufficiently detailed to inform trustee decision making
• Regularly review financial forecasting to allow for early intervention in cost or revenue variations
• Consider opportunities to deliver your charitable purpose more efficiently – e.g. collaborative bids, combining back office functions with other charities
Charities must act for the public benefit. The survey noted that compliance cases opened by the Commission based on alleged abuse of charities for private benefit had risen 23% over the last financial year, though they still represent a very small percentage of charities. The Commission’s work noted three broad areas in which concerns about private benefit can arise:
• Deliberate abuse of charitable status, such as by criminal enterprises, to diversify and legitimise other activities
• A dominant individual in a charity can affect proper oversight or challenge from the trustee board and leave the charity vulnerable to the dominant individual seeking to derive some personal benefit
• A lack of knowledge or understanding of the rules by charity personnel can leave them open to abuse, particularly for those operating in a complex regulatory framework
Key actions trustees can take to mitigate the risk include:
• Certify financial controls are fit for purpose, and no single individual can access charity funds or assets without appropriate checks and oversight
• Regular review of financial and asset transactions and remain vigilant to protect and safeguard your charity’s assets
• Confirm any payments to trustees are lawful and that any decision has been made following Commission guidance on conflicts of interest
• Make sure you are aware of your key duties and responsibilities as a trustee and follow the Commission’s guidance on good practice
• Ensure you know your charity’s purposes and understand how each purpose is for the public benefit
• Report issues or concerns to the Commission using their serious incident reporting and whistleblowing systems
The report also examines further risks associated with poor governance, safeguarding, fraud, social tensions, emerging technologies and overseas
influences.
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