The Charity Commission has published the findings of two reports on addressing financial difficulties within the charity sector as part of a push to encourage trustees and senior staff to tackle problems early, in the wake of the sudden closure of some high profile charities which experienced problems
The Commission says the reports form part of a proactive project exploring the financial resilience of the charitable sector and identifying wider lessons for charities who may be experiencing financial distress.
One report is an accounts analysis of 94 charities with incomes of over £1m that may be in financial difficulty, totalling over £462m, whose auditors highlighted that they may be in financial difficulty.
This found 75% (43 out of 57) 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 the Commission 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.
The Commission says the reports highlight a number of key themes and wider lessons for other charities. These include the need to take early steps to address financial difficulties and confront them pragmatically in order to minimise the risk to beneficiaries, and the advisability of exploring options such as mergers and collaborations to achieve positive outcomes despite financial difficulties.
However, the Commission warns that the future outlook for charities remains challenging and says trustees must stay alert to the risks of financial distress and manage them actively. It is about to launch a campaign to better equip trustees and senior staff with the tools and information they need to deal with the financial difficulties they may be facing.
Paula Sussex, chief executive of the Charity Commission, said: ‘The economic reality for charities across the UK is a challenging one. But 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.
‘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.’
