Trustees who act promptly to actively manage their financial difficulties, such as by exploring mergers, collaborations, and new income streams, will secure better outcomes for their charities and beneficiaries, according to new Charity Commission research.
The Charity Commission has published two reports, Accounts monitoring: Charities with audit reports identifying that they may be in financial difficulty, and Charities at risk of financial distress: Group case report as part of a project undertaken to explore the financial resilience of the charitable sector and to identify wider lessons for charities experiencing financial distress.
It identified a total of 94 charities with incomes of over £1million, totalling over £462 million, highlighted by auditors as potentially being in financial difficulty. The Commission reviewed the accounts of these charities to assess the reasons why the charities were in financial difficulty and the actions that the trustees were taking in response. It also undertook more detailed monitoring and compliance visits to 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 reports highlight a number of key themes and wider lessons for other charities, including:
- Early steps to address financial difficulties and confront them pragmatically minimised the risk to beneficiaries
- Charities have a number of different options to explore including the possibilities of mergers and collaborations to achieve positive outcomes despite their financial difficulties
- The future outlook for charities remains challenging and trustees must stay alert to the risks of financial distress and manage them actively.
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.”