For many charities, being able to help beneficiaries relies on factors that unwittingly open them up to increased risks to their viability: relying both on the time and skills of volunteers to deliver services and oversee governance, and depending on public and institutional trust for funding. Also, in common with commercial businesses, charities need to comply with potentially challenging governance demands while operating with tighter budgets.
But should things go wrong, neither their operational constraints nor charitable status tend to afford those running charities automatic defence or mitigation against criticism, adverse publicity and, importantly, organisational or even personal liability.
The charity sector is seeing funding streams hit, with research indicating charities' income could fall by £2.2bn by end of 2023/24. Meanwhile, some charities have been rocked by damaging failures that have impacted their ongoing ability to offer services to their beneficiaries.
In this insight, we examine the current major charity risk areas and offer guidance on navigating them to support the long-term viability and success of your charitable organisation.
01
Governance failures
A 2022 Charity Commission report on former charity Kids Company concluded it ran a “high-risk business model” with a heavy dependence on donations, a reliance on a key individual for fundraising, coupled with low reserves which ultimately led to the charity being closed down.
Kids Company faced a common challenge we see many charities encounter: trustees maintaining oversight of key risks with limited training and resources. This pattern can arise from fears that spending on trustee or executive training risks will curtail resources available to service users, or is driven by worries over how training spend might be perceived externally.
However, examples such as Kids Company serve to illustrate that without adequate oversight expertise, charities’ long-term sustainability may be at risk. Cost-cutting on trustee training can prove a false economy.
02
Financial mismanagement
This risk is another element of governance failure but is worth considering independently. ‘Financial mismanagement’ is also readily understood by the media, donors and volunteers and can all-too-easily cause lasting damage.
The example of Hope House, a small charitable school for children with special educational needs, reminds us of both the importance of proper financial management and the fact trustees are personally liable for both their own and their charity’s failings.
The Charity Commission’s report on the Hope House inquiry led to some school trustees being unable to act as charity trustees for at least eight years. The report found one trustee was able to take decisions in breach of the charity’s own financial control policy, while others failed to manage conflicts of interest by allowing one of them to sign cheques made out to their family members and to also take family on overseas trips.
Adhering to the Charity Governance Code will help prevent such scenarios at your charity. Designed as a practical tool to help charities and their trustees develop high standards of governance, the code recognises good governance is fundamental to a charity’s success and the ability to fulfil the charity’s vision over the long term.
03
Cybercrime and charities
Identify the vulnerabilities and bridge the gaps in your cybersecurity.
Charities are tackling many of the same financial and data-loss cyber risks as big corporates. In addition, and perhaps unlike corporates, the Charity Commission has previously reported how many charities are victims of cyberattacks without realising it, giving cybercriminals extra opportunity to cause harm.
Ensuring you have an up-to-date view of the most significant risks in your IT environment, and the effectiveness of your technical (such as website security) and non-technical (such as training programmes) responses is vital. Given a charity is four times more likely to discover cybercrime through internal IT controls or by staff raising concerns than all other external sources combined ensuring these are regularly reviewed is also an important mitigation.
