Charity Commission Chief Cautions on Finance Problems

The chief executive of the Charity Commission has warned trustees against a “head in the sand” approach when confronted with financial difficulties. The comments by Paula Sussex were made alongside the launch of two commission reports examining a number of charities that faced such problems.

The commission said the reports marked the commencement of its campaign to relay lessons and information to charities to help them deal with financial difficulties. These would include working with sector agencies and experts to update guidance and improve accessibility.

The two reports comprise a group monitoring review of the accounts of 94 charities where auditors had highlighted concerns and a group case study of the commission’s work with 10 charities that had demonstrated signs of financial distress.

The analysis of 94 charities with incomes of over £1m, and whose auditors highlighted that they may be in financial difficulty, found 75% of those with more recently submitted accounts are either no longer a going concern or remain in financial difficulty a year later. A further nine of the original 94 charities are no longer operating.

The second report covered more detailed monitoring and compliance visits to a further 10 charities, selecting five of those from the list of 94 and a further five from reports suggesting that the charities were in financial distress.

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Early action minimises risk to beneficiaries

Both reports conclude that early steps to identify and deal with financial problems minimise the risk to beneficiaries. They also advise that organisations have a number of options to aid the achievement of aims despite such financial difficulty, including mergers and collaborative ventures.

The reports note that the outlook for charities remained a challenging one, and trustees should remain alert to the risks of financial distress and manage them in an active manner.

‘Consequences of doing nothing can be devastating’

Ms. Sussex said: “Trustees will better serve those they need to support by exploring mergers and collaborations, diversifying income streams or taking other steps to manage those difficulties at an early stage. A head in the sand approach raises concerns about the ability of trustees to run their charities effectively. Charities should not take unmanaged risks, but the risk of doing nothing is only too real and the consequences can be devastating, particularly where vulnerable beneficiaries are involved.”

She added: “The commission cannot save individual charities in financial distress, but we are alert to the risks facing charities in the current climate. We have a responsibility to ensure trustees have the right tools at their disposal to tackle these issues head on and will work with charities to improve our financial guidance and its accessibility to trustees in the coming months.”

Charity law experts

IBB Solicitors’ specialist Charities team has over 50 years’ combined experience in delivering practical commercial advice to charities and not for profit organisations and those who work with them. For advice please call us today on 01895 207862 or email charities@ibblaw.co.uk.