Regulatory pressure and Brexit major risks for charity sector

International UK charities are facing economic and political uncertainty, with government policy, Brexit and future funding all areas for concern, while increased public scrutiny is putting the sector under pressure to improve its accountability

One in five charities said government policy and the political climate were the main risks, up from 9% in 2018, according to the latest Haysmacintyre research, which analysed the publicly available annual reports and accounts of 180 international UK charities with a total income of £6.2bn.

Key risks ranged from the attitude of government donors towards international aid to abiding with local laws and regulations, while the role of trustees and their accountability was becoming an increasingly serious concern.

Brexit was less of a concern to global charities who worked on a cross-border basis, with a 5% increase in risk cited by 15% of charities, up from 11% last year. Although the likely impact of Brexit was unknown, charities said it had made a significant contribution to the political uncertainty.

The most commonly reported risk related to future funding and fundraising. However, this has fallen from 60% of charities in 2018 to 58% in 2019, which is surprising given the level of uncertainty in the global economy. Brexit also poses a financial threat to those who receive EU funding.

More global UK charities also reported risks associated with safeguarding and politics. This followed a wave of high-profile, negative media attention putting some of the biggest names in the sector under the spotlight.

More than one in four (28%) charities reported safeguarding as one of their principal risks, compared to only 8% last year. This dramatic increase is most likely due to media attention surrounding high-profile cases and increased awareness in the sector.

When the unacceptable behaviour by some Oxfam staff in Haiti in 2011 was made public in 2018, it was revealed that the charity encouraged a culture of secrecy and staff were instructed not to talk about safeguarding issues.  The research suggested charities are becoming more open.

Steve Harper, charities director at haysmacintyre, said: ‘International UK charities are operating in a challenging and difficult environment, and trustees have a significant number of risks to prioritise and manage.

‘The current challenging media environment has led to increased scrutiny of organisations and charities are learning from the experience of others.  There is an increased willingness to acknowledge that safeguarding is a risk area and to talk about it publicly. Organisations are also being more open about the risks they face due to the politics of the local areas they operate in.’

Reflecting on the recent media story about RNLI spending less than 2% of its total annual expenditure on international drowning prevention activity, Harper added: ‘It is important that charities are on the front foot when communicating the range of their activities. One of the challenges they face is the difference in perception between what some charities do and what they actually do, even when there is transparency in the annual report about the full range of activities.

‘The annual report is a key tool for showing what activities have taken place and how these relate to achieving their objectives. It is also an opportunity to articulate the organisation’s vision for the future. Charities must ensure they have a clear story to tell about their finances and their approach to risk management.’

Trustees have legal responsibility for the running of charities and the time that they give, often voluntarily, forms the backbone of the charity sector. However, there is a risk they do not always have the right mix of professional expertise required to oversee a large global organisation.

Haysmacintyre International Charity Financial Benchmarking Report 2019

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