Risky Business
In its first Assessment of risks faced in the charity sector, the Charity Commission has used its privileged position, having access to a broad sweep of relevant data, to identify the principal risks so charities can be more prepared to meet these challenges.
Risks are an inherent part of operating a charity, so the better aware trustees and senior teams are the more able they will be to avoid or manage them.
The Commission summarises there are two main areas of risk, with several other troubles also present. The two main areas are:
a) Financial resilience
Expenditure exceeds income in many charities, leading to a cut in services or using reserves, which is short term. Tax changes, workforce cost and price rises, scarcer public funds and rising demand for services have all contributed to this environment. The Commission suggests various responses; financial monitoring and planning are central to the governance of all these.
b) Public benefit
Accidental or deliberate private benefit, where individuals rather than the general public derive the main benefit from a charity, are on the rise. Whilst still low in sector percentage terms, the impact on public trust in charities is very damaging. Deliberate abuse, dominant individuals and ignorance all play their part. Responses suggested include sound financial controls and decision making.
The other areas of trouble highlighted by the Commission are:
c) Governance: this is really associated with all risk areas, since governance concerns the appropriate overseeing and control of all essential elements of a charity’s operations.
d) Safeguarding: an essential concern for all charities, this is sadly also an area of increasing focus for perpetrators and technology is a growing cause for concern.
e) Fraud and financial matters: around half of frauds are from internal sources, and the use of technology should be sharply noted.
f) Technology and cyber: the ubiquity of technology means every area of every charity is vulnerable to harm by this means; trustees must take great care to arm their charity accordingly.
g) Social tensions: particularly in the field of social media.
h) Operating overseas: this brings particular risks, which the Commission has long recognised and for which it has issued specific guidance; the Commission also notes geopolitical turbulence from wars, unrest and hostile states (which may use charities to gain influence).
So, what do we make of all this? Be aware; be prepared. We can say, in a single word but I hope without being glib, that trustees and senior teams must engage. Engage with the ways in which their charity operates, its environment, its challenges. Engaging with risks means having a system.
A risk management system is a legal requirement for larger charities but for all charities it is a healthy feature. You should try to identify what may go wrong so you can then either avoid or respond to it. To read more on this, please have a look at my Risk Management guidance and if there’s any aspect you’d value discussing please contact me.
