Wednesday, 21 September 2016

Take early steps to manage financial difficulties, Commission reports show

The Charity Commission (‘the Commission’) today published 2 reports which show that trustees who take early, pragmatic steps to actively identify and manage their financial difficulties will secure better outcomes for their charities and their beneficiaries. The reports have been published as 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.
Following the closure of a number of charities in recent months, some of which have been high profile, the Commission undertook a programme of work to test the resilience of the charity sector. The Commission identified a total of 94 charities with incomes of over £1 million, totalling over £462 million, whose auditors highlighted that they may be in financial difficulty. The regulator 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. The regulator also undertook moredetailed monitoring and compliance visits to a further 10 charities, selecting 5 of those from the list of 94 and a further 5 from reports suggesting that the charities were in financial distress.
The reports highlight a number of key themes and wider lessons for other charities. These include that:
  • the case studies demonstrate that 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 (see endnote 1); trustees must stay alert to the risks of financial distress and manage them actively
The launch of the reports today form the start of a Commission campaign to communicate the wider lessons for charities. The aim will be to better equip trustees and senior staff with the tools and information they need to deal with the financial difficulties they may be facing. The Commission will be working with sector bodies and other technical experts to update its guidance for charities and explore new ways to improve its accessibility and reach.
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.
Our guidance Managing a charity’s finances: planning, managing difficulties and insolvency (CC12) provides advice for charities that are facing financial difficulties and how they can reduce the risk of insolvency. Charities should also consider our guidance on Collaborative working and mergers: an introduction (CC34).
The full Accounts monitoring report and Group case report are available on GOV.UK.
(Source: Charity Commission)

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