Understanding risks in the UK charity sector

19 June 2024

The UK charity sector plays an essential role in our society, offering hope, driving social change and providing essential services to those in need. However, like a vessel navigating the vast seas, it faces its share of risks. Recognising and preparing for these challenges is crucial for organisations within this sector to ensure they continue to thrive and make a positive impact.

For charities, the reality is that the board of trustees, who are ultimately responsible for the strategic vision, direction and service delivery of the organisation, are often removed from the day-to-day management activities carried out by the executive team. Nevertheless, the trustee board holds ultimate responsibility for the governance of the charity, to safeguard its assets, and hence its general wellbeing.

What key areas should charity trustees consider to understand risks?

1. Financial vulnerability 

Charities often operate on tight budgets, with funding streams that can be as unpredictable as the British weather. Their reliance on donations, grants, and government support makes them susceptible to economic downturns and policy changes. The uncertainty of funding sources post-Brexit is a significant risk that requires robust financial planning and diversification of income streams. Charities need to have meaningful financial reporting in place and assurance that core financial controls are operating effectively. Financial modelling is a necessary tool for charities to ensure accurate financial decisions are made. 

2. Regulatory compliance 

The regulatory landscape for charities is ever evolving. The legacy of GDPR brought data protection into sharp focus, imposing stringent requirements on how charities collect, store, and use personal information. Non-compliance can lead to hefty fines and reputational damage, making it imperative for charities to stay abreast of legal changes and embed compliance into their operational ethos.

3. Cyber security threats 

In an age where data is king, cybersecurity breaches are a growing concern. Charities, with their repositories of information, are not immune to cyber-attacks, as recent incidents have shown. These incidents can erode public trust and lead to significant financial losses. Investing in robust IT infrastructure and staff training on data security best practices is no longer optional but a necessity.

4. Reputational risk 

The reputation of a charity is its most valuable asset. Any misstep, whether it’s a governance failure, a scandal involving staff, or ineffective use of funds, can lead to a loss of confidence from the public and donors alike. Charities must foster a culture of transparency and accountability, ensuring that they not only do good work but also communicate their successes and challenges effectively. Implementing effective whistleblowing and conflict of interests processes are key to managing reputational risk. 

5. Impact of social change 

The societal landscape is in constant flux, with new issues and needs emerging regularly. Charities must remain agile, adapting their services to meet these changing demands. Failure to do so can result in reduced relevance and support. Continuous engagement with stakeholders and beneficiaries is crucial to staying informed and responsive to societal trends. Increasingly, charities are needing to understand and evidence the impact of their services to attract donations, corporate partnerships and grants. 

6. Environmental considerations 

Environmental risks are no longer peripheral concerns. The increasing frequency of extreme weather events and the push towards sustainability mean that charities must consider their environmental impact. This includes everything from the carbon footprint of their operations to the sustainability of their fundraising events. Charities need to develop and embed their ESG approach to ensure they meet evolving requirements and remain attractive to donations and wider public support. 

In conclusion, the UK charity sector is not without its challenges. However, if charity trustees acknowledge these risks and proactively address them, charities can navigate through the storms and continue to be a force for good. It is the resilience and adaptability of the sector that will ensure its survival and prosperity in the years to come.

This article is part of RSM’s Charity trustee insights hub.  It has some great insight pieces for charity trustees to consider on key topics right across the charity sector, including governance, reserves, digital transformation and finance function, to name a few.

If you would like to discuss risks in the charity sector, please contact Becci Goodchild, Liz Wright or your usual RSM contact.

Avatar Gender neutral
Becci Goodchild
Assistant Manager, Forensic Investigations – Consulting
Avatar Gender neutral
Becci Goodchild
Assistant Manager, Forensic Investigations – Consulting

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