Charity sector risk assessment

The Charity Commission’s first ever Charity Sector Risk Assessment publications (https://www.gov.uk/government/publications/charity-sector-risk-assessment-2025) offers a timely view of the pressures facing the sector.

Financial resilience is not just the headline risk of the publication but is an ever-present challenge facing the sector on the back of increasing demands for assistance. The data provided supports this demand, as the proportion of people now receiving vital services, such as food, medical or financial support from charities has tripled in the past five years. This demand whilst growth in income is lower than the inflationary rise in costs and especially the increased cost of employing staff. Furthermore, the Commission states in 2023 22.5% of charities reported an operating deficit, which was up from 20% the previous year. This reflects a growing reliance on reserves to bridge the gap between income and expenditure, which is a short-term and one-off fix, as once used up this option will not be available again. If this trend is left unchecked, it could undermine the long-term sustainability of many charities as they struggle to met the increased demand on their resources.

Financial resilience is not just about the year-end financial statements. It’s about foresight, governance, and stewardship. The Commission’s publication rightly emphasises the importance of early warning systems, such as forecasting, scenario planning, and timely interventions. Trustees must be equipped to interpret financial signals and act decisively with the support of management and trusted advisors.

The report also highlights a concerning rise in attempts to misuse charitable status for private gain. These negative reports of charities range from false gift aid claims to unauthorised payments and complex tax evasion schemes. True, these cases are few, but their impact on public trust is disproportionate at a time where the charities need ongoing and improved financial support from the public. Charities operate in a trust based economy, and even isolated breaches can ripple across the sector. This reinforces the need for robust internal controls, clear accountability, and a culture of integrity.

Beyond finance, the Commission flags wider risks, such as safeguarding, cyber threats, governance failures, and the impact of geopolitical tensions on service delivery. These are not peripheral issues, they are interconnected and compound the challenge of resilience. Trustees must take a holistic view of risk, supported by clear guidance and sector intelligence to ensure their charity mitigates these risks.

Encouragingly, the Commission is launching a new awareness campaign this Autumn to promote its financial guidance for charities. This is a welcome move, but the onus remains on individual organisations to engage, reflect, and act. Resilience is not passive. It’s built through informed leadership, proactive risk management, and a commitment to continuous improvement.

The information contained herein is given by way of general guidance only, is correct and applicable only at the time of delivery and no action should be taken solely on the basis of the information contained herein. Ensors Accountants LLP will be pleased to provide further guidance on the issues, and how they might affect you. No liability is accepted by the firm for any actions taken without seeking appropriate professional advice.