Charity Commission Warns on Key Risks for Charities

What should trustees be aware of?

A “Charity Sector Risk Assessment” recently published by the Charity Commission identifies some of the serious risks charities in England and Wales are facing.

The report draws on data from annual returns, serious incident reports and casework. It notes several pressures that are making it harder for many charities.

What the risk assessment found

Some of the headline issues include:

• Rising operating deficits: In the 2023 Annual Return, 22.5% of charities reported a deficit (i.e. spending more than they bring in), up from 20% in 2022.
• Increasing demands vs costs: Many charities are seeing more demand for their services, while costs are rising and inflation is eating away at the value of their funding.
• Use of reserves: Having a deficit doesn’t mean a charity is insolvent. However, many charities are relying on their reserves to cover the gap between income and expenditure. Overuse of reserves can quickly leave little safety net.
• Risks to public trust: Though relatively rare, misuse of charity property, unauthorised payments, false claims for Gift Aid, or setting up charities for private benefit were flagged as significant because of the damaging effect even isolated incidents can have on public trust.
• Other concerns: Governance, safeguarding, fraud, cyber threats, and external pressures such as geopolitical instability are also in the mix.

What should trustees do?

The Charity Commission have included some guidance for trustees in the report. The importance of careful forecasting and planning, and being able to respond quickly to any early warning signs, is emphasised.

The Charity Commission has a range of guidance to help trustees fulfil their responsibilities around financial stewardship, and it is planned to promote these further in a new awareness campaign this autumn.

To review the report in full, see here. If you would like personalised assistance with your charity, please get in touch. We would be happy to help you!