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December 21, 2021

Survival in the Third Sector – how to operate your charity in times of change.

Since March 2020, we’ve seen a tectonic societal shift in the way we all live, work, travel and connect. Whilst many sectors of business have been dramatically affected by the pandemic, charities have been particularly vulnerable; navigating pronounced funding losses and ongoing workforce restrictions, whilst attempting to maintain high levels of service and support. As the economy flounders and we continue to “pull in our belts”, charitable giving can be one of the first expenses we all give up in the short term.

As the pandemic rages on, we consider some aspects charities may wish to consider in order to survive and thrive in these turbulent times.

Liquidity

The pandemic has seen charity income levels threatened, both through a reduction in the funding available and a curtailment of the charity’s own activities due to current restrictions. The charity’s reserves policy must be reviewed to ensure it meets the operational needs of the charity – trustees and management must ensure they understand what level of reserves are required to enable the charity to continue to operate.

Up to date and regular management financial information will be required to enable management and trustees to fully understand the current position, and to act appropriately and timeously where a downward trend can be seen.

Planning new ways to fundraise

Lockdown restrictions have had a huge impact on traditional methods of fundraising such as people attended events and face to face collections. At the present time it is not known when these methods of fundraising will be able to fully recommence, and the most common way to fundraise at the present time is digitally (i.e., on line). Having a digital strategy in place is very important, and charity trustees will need to assess how best to diversify the charity’s current income streams and engage with the public.

Many charities will need to begin to “think outside the box”; Do you have spare office space that can be rented out? Do your staff have specialist skills that can be rolled out to offer training courses to other businesses?

Systematic weaknesses

Many charities are having to adapt the services offered to keep their staff and client base safe.

With many staff still working at home, the pandemic has shown for many charities that many of their current operations and systems are not working as previously intended, leaving the charity open to financial risk.

This is a good time for charity boards to consider whether any changes to current systems are now required, particularly around the review and authorisation of financial transactions.

Fraud

Charities must try to remain vigilant in the coming months, as with the current strains on the economy in general, and issues created by the pandemic, staff and volunteers are less likely to have received fraud training. This will include issues in relation to cyber risk. A new website preventcharityfraud.org.uk has been set up to provide charities with free tools and practical advice to help reduce the changes of charities falling victim to fraud.

Risk register

All charities should have a risk register, prepared by charity management and the Board. Following the pandemic, this should now be reviewed to ensure it is up to date, and in particular to ensure that charity governance and decision making processes are robust, given a lot more is being done online as opposed to holding face to face meetings.

Also worth considering is whether the restrictions over the last few months have demonstrated emerging risks that may need to be addressed.

Charitable objectives

Many charities have had to adapt their approach to ensure the work done still meets with the organisation’s charitable objectives. Also, as charities have adapted during the pandemic, trustees must periodically review the work being carried out, to ensure that is does still meet the entity’s charitable objectives, and the work done is not outside the scope of the charity’s own objectives, as reported within the charity’s constitution.

It may also be time to consider whether the current constitution and charitable objectives are appropriate, and if not, steps should be taken to update these.

Trading subsidiaries

Many charities have a separate non-charitable trading subsidiary to enable them to carry out trading activities without impacting the charitable status of the main entity. This can be a vital source of income for the charity. However, due to lockdowns for many charities the trading subsidiary will be seriously impacted by the pandemic.

Where the trading subsidiary is at risk of no longer being financially viable, charity trustees need to consider whether the charity can justify supporting the subsidiary to help it through the short term. Charity trustees must put the interests of their charity first and consider whether such financial support can be justified as an investment, and whether the subsidiary will ever be able to repay the funds advanced to it.

A timely reminder

Many charities will be due to submit their next set of annual accounts to OSCR within the next few weeks. Last year, charities were granted a 9-month extension to the filing deadline, but this year, no such extension is in place. Whilst OSCR does not charge penalties for late submission of a charity’s accounts, if accounts are filed late, they are recorded as such on OSCR’s website, and any potential funders reviewing the charity’s entry will see the submission was late. This can have a detrimental effect on the funder’s willingness to support the charity.

As the world continues to change around us, the third sector will continue to feel the effects. With challenges ahead, action is required to ensure a sustained future. For further advice on your organisation’s business planning or help to complete your charity’s accounts on time, please contact Sheena Gibson on sg@jameshair.co.uk or 01334 654 030