Managing Risk for Charities: The Basics

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Charities are extremely sensitive to risk, which is why it is encouraged that they implement a strategy to protect themselves from potential threats.

What Risks Do Charities Commonly Face?
There are several threats that are fairly common in the charity sector. Typically, the risk that charities are subject to depends on the size of the charity, its core values and the type of external funding they receive. However, risk may also be caused by external factors too, such as the current economic climate, changes in legislation or technology and the nature of the environment.
The most common types of risk for charities include:

  • Reputable Damage
  • Inappropriate Investments
  • Lack of Funding
  • Lack of Donations from the public
  • Change in Government policy

Risk Management Legislation Requirements
Under the Charities (Accounts and Reports) regulation 2008, all charities that are over the audit exemption threshold must have their accounts audited. To find out if your charity exceeds the exemption limit, click here.
All audited accounts by law, must include a threat management statement. The risk management statement must include:

  • The trustees responsibility
  • Any new threats identified
  • A risk identification process
  • Proof of how risk is being managed
  • Note of all risk that has been overcome

Although not by law, in the case that a charity is exempt from audit, it is still heavily advised by the Charity Commission to produce a risk management statement as a means of best practise. In the case where the charity is incorporated, a business review with principal risk and uncertainties must be made in the Director’s report.

How to Manage Risk
Ideally, charities should have a risk management process in place, as requested by the commission, to help reduce, identify and manage risk. Generally, the larger or more complex the charity activity, the more difficult it is to find and rectify any risks. As a result, every charity requires a different risk management process. A risk management system should therefore include:

  • The reasons and processes for having a risk management system
  • Trustees Legal requirement
  • A model to of the type of risk management to aid the charity to carry out the work process.

However, in the case of charities, it is important to further your risk management processes, You can do this by:

  • Understanding the Risks: You want to ensure that you are aware of the risks that your charity may be exposed to. As trustees, it is important to understand all the levels of risk that your charity may be exposed to and the risks that it is able to tolerate. This will help to create an effective charity risk management policy. Charities must be aware of a range of risks including government, operational, financial, external and regulatory compliance.
  • Risk Mapping: A risk map is a visual representation of the risks which a charity may be effected by, ranked by the level of impact and the probability of it taking place. By risk mapping, charities can analyse which risk they are most affected by, helping create a system which is most effective.
  • Continuously reviewing the Risk Management Process: In order to stay proactive with risk management, it is important for trustees to continuously review their current risk management policy and processes. This will help for any potential risks to be spotted well in advance, making it easier to respond before the risk has developed.

Managing the risks that your charity is exposed to is one of the most effective and efficient ways to ensure that your charity aims are achieved and funds are protected. It is important that your charity is aware of risks pertaining to your charity and have processes in place to minimise any threats. If you require risk management planning for your charity or would like further information, please contact Suda Ratnam at Suda.Ratnam@raffingers-stuart.co.uk.