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In its first ever annual Charity Sector Risk Assessment, the Charity Commission has identified systemic risks that may impact on charities' ability to deliver against their charitable aims or on public trust in the sector. The assessment identifies the following core risks:
Financial resilience:
Although the financial pressures following the Covid-19 pandemic and cost of living crisis have levelled to some degree, financial resilience remains a key risk to the sector. Workforce costs, challenges in securing sustainable public funding and an increased demand for charitable services continue to impose considerable operational pressure on charities.
46% of charities reported expenditure exceeding their income in their 2023 Annual Return, an increase from 38.3% in 2022. The 2023 data continues on a general trend of increasing deficits with many charities drawing from reserves.
Closures related to financial difficulties increased more than fourfold from 15 in 2022-2023 to 72 in 2023-2024. The Commission offers guidance on financial planning, reporting and forecasting.
Risks to public benefit:
Compliance cases opened by the Commission based on alleged abuse of charities for private benefit have risen by 23% over the last year. A small number of charities are set up by, or targeted by, bad actors looking to falsely claim Gift Aid, benefit from tax avoidance or evasion or accept unauthorised payments.
Concerns about charities operating for private benefit can arise, for example, where one individual dominates a charity, affecting the proper oversight from the trustee board.
The Commission recommends preventative measures to prevent risk to public benefit including ensuring financial controls are effective, with no one individual able to utilise charity funds without appropriate checks and balances. Regular reviews of key duties and responsibilities and of Commission guidance is recommended. The Commission offers further guidance on public benefit.
Safeguarding:
Trustees' failure to manage and report safeguarding risks to beneficiaries presents itself as a serious regulatory concern. Safeguarding risks, however, extend beyond the charity beneficiaries and to their employees and volunteers. The assessment details an increasing safeguarding risk fuelled by rising social tensions for those working for charities. The Commission offers guidance on safeguarding and protecting people for charities and trustees.
Social tensions:
The Commission reports that societal tensions are an increasing risk for charities, especially those which engage in public debate on issues related to their charitable objects. The proliferation of misinformation via social media can result in some charities becoming involved in inappropriate social media communications.
The Commission recommends that employees and trustees should ensure the information shared by a charity is correct, from a reliable source and, should refer to their guidance on social media and political activity.
Governance Risks:
The assessment reports issues related to the recruitment of a sufficient number of trustees to provide effective governance. The Commission also refers to issues related to federated charities, including risks for potential disputes where 'parent' charities oversee the effective implementation of policies within their branches.
Other key risks identified by the annual assessment include operating overseas, geopolitical turbulence, hostile foreign states, emerging technology and cyber risks and fraud and other financial risks.
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