Most charities believe they are well prepared for the risks they face, according to a Third Sector survey on risk management. But, as Alex Blyth reports, one in ten was involved in litigation with staff last year.
Charities exist to take risks for public benefit, says Paul Gibson, senior manager at Mazars Charity Services Group. "They are more at risk than they have been in the past," he says. "That's due in part to rising public expectations of probity, transparency and accountability, as well as increasing regulation by the Charity Comm ssion."
They also have to worry about computer viruses, disputes with staff and damaging press stories. With the introduction of Sorp 2005, charities must now review and plan for risks, but there have been huge variations in how they've responded. Third Sector asked readers how the voluntary sector is managing risk. The results make alarming reading.
One in ten respondents had been involved in risk-related litigation in the past year, and in each instance the claim was made by a member of staff, either paid or voluntary
To date, the most tangible risks appear to involve litigation from members of staff. The charities involved are understandably unwilling to reveal details of recent or ongoing court cases, but the anonymous experience of one hospice based in the south west of England is typical of claims being made by staff against their charity employers.
The hospice's finance director describes the sequence of events: "Our shop receives many bags of donations, and staff would just throw them down some stairs into the storage area. We identified this as a hazard, particularly for the elderly volunteers, put up a 'staff only' sign and were in the process of developing a fuller solution. An elderly volunteer ignored the warning, threw a bag down the stairs, walked down after it and fell, injuring her ankle. She is suing us for the cost of her private treatment."
Malcolm Tarling of the Association of British Insurers, points out: "Anyone with employees must have employer's liability insurance, which will cover them for any court awards to employees. They should also get public liability insurance, which insures against claims by members of the public."
Damage to reputation concerns charities more than any other risk
Respondents were asked to say which of five risks most concerned them.
The results showed that reputational loss gained roughly 50 per cent more votes than severe damage to premises. Alan Horwell, chief executive of the Earl Mountbatten Hospice, was one of those to rate it in this order.
"We're based on the Isle of Wight," he says. "Few people on the island don't know someone we've cared for, and it is thanks to our extremely high standards of care that we are able to raise £1.5m a year, almost entirely from islanders. If our ward burned down, the islanders would rally behind us and we'd build a new one in 12 months. It would take much longer to rebuild our reputation if we damaged it."
The next greatest concern was the risk of the loss of a core source of funding, closely followed by the risk of a staff member or volunteer suffering an injury. This latter concern is pertinent, given the finding that 10 per cent of charities have been involved in risk-related litigation with staff or volunteers in the past year. The risk of a staff member or volunteer causing harm to a client ranked fourth for respondents, and the risk of severe damage to facilities caused the least concern, coming in fifth.
Almost 13 per cent of respondents said the loss of key personnel was also a major concern. Mary Hammond, a consultant to the sector, says: "At many of the charities I've worked for, the chief executive and finance director have brought and built networks of contacts and large donors.
All too often, however, they don't stay with the organisation very long, and this can mean losing all the donors. One charity I know has a great chief executive, but there's no succession plan in place."
Looking further ahead, experts point to governance and organisational structure as a significant emerging issue.
More than 90 per cent of respondents believe they are well prepared to deal with risks
Charities are confident they are well prepared to deal with risk: 91 per cent said they were well prepared to deal with the risk that most concerned them, and 96 per cent said they were well prepared to deal with any risk they encountered.
Rohan Hewavisenti, finance director at Breast Cancer Care, says: "For the past two years we have been integrating risk management into financial planning. This ensures that every member of staff is thinking about risks and how to mitigate them. We do scenario planning, thinking about where we will be in 10 years, and we conduct SWOT analyses (strengths, weaknesses, opportunities, threats). Not only have we identified our two main risks - change management and our reliance on two main sources of income - but we're taking steps to address them."
Most charities are not seeking external assistance on risk management, nor are they building the necessary skills internally
An entire industry has grown up around risk, and some argue that consultants can help. Brian Perowne, chief executive at the Home Farm Trust, which supports people with learning disabilities, says: "We've devised a dynamic risk register, which identifies those risks most likely to happen. This brought our pension scheme liabilities to our notice. I'd advise every charity to devise a risk register; they will probably need external assistance."
Others argue that the point of risk management is to get the organisation thinking about risk, not completing a consultant's questionnaire. Only 36 per cent employ a professional adviser such as a lawyer, with most charities turning to an umbrella body for help or coping in-house. Nevertheless, few charities are consciously building the necessary skills: of all the charities that replied, only the NSPCC has employed a professional risk manager. Most charities are too small to afford one, and some argue that risk should be an issue for every employee. Nonetheless, a staggering 48 per cent have no specific risk training in place.
This might seem a worrying statistic, but charities can take some small comfort from the fact that other sectors are equally blase. The 2005 Business Continuity Management Survey revealed that only 51 per cent of commercial organisations have a business continuity plan in place, and just over half provide risk management training for staff.
The Continuity Forum provides an information resource on business continuity.
Policy and development director John Sharp warns: "The evidence suggests a small but consistent growth in business continuity management - but having a plan is not enough. Major steps still need to be taken, because too many organisations are scraping by with inadequate and untested plans that expose them to unnecessary risk."
9% have been involved in risk-related litigation with staff in the past year
64% say that understanding risk and how to reduce it is the most challenging aspect of risk management
76% feel they have the insurance policies they need at a price they can afford
40% rely on umbrella bodies for help and advice on risk management issues
96% think their preparation for the risks they face is excellent or good
The 86 respondents to Third Sector's risk management survey were mostly small organisations, reflecting the make-up of the voluntary sector as a whole: - 75 per cent have a turnover below £5m, and 60 per cent employ fewer than 50 staff.
- Just over half the respondents were chief executives, with the remainder being trustees, executive directors, senior managers and managers. This reflects the location of responsibility for risk management within the organisation. The survey revealed that responsibility for the issue falls to the chief executive in 46 per cent of cases, with finance directors, committees, trustees and other members of the senior management team also being involved. The only respondent to employ a professional risk manager in-house was the NSPCC.
- Almost one in 10 of the organisations surveyed had faced litigation in the past year, and in each instance the claim was made by a member of staff, either paid or voluntary. However, potential loss of reputation concerned respondents more than anything else. Loss of staff and skills also emerged as a key concern for responding organisations.
The most challenging aspect of addressing risk management is understanding the risks and developing reasonable and affordable plans to reduce it, according to 64 per cent of respondents. The second biggest hurdle is getting key personnel to support and participate in risk management issues, selected by 20 per cent of respondents. Remarkably, this was even more of a problem than funding an adequate level of insurance cover: only 7 per cent of respondents cited this as a challenge and 76.2 per cent said they had the insurance policies they needed at a price they could afford.
- When it comes to external help, almost 40 per cent said they rely on umbrella groups for advice and assistance on risk management, more than 20 per cent would go to their insurance brokers, 17 per cent to their legal advisers and most of the remainder would rely on trustees or accountants.
There is a marked reluctance to build skills in this area, with a disturbing 48 per cent of respondents stating that they had no specific risk management training policy. Meanwhile, 73 per cent would be most likely to support training if it was either an external course or delivered on their premises, but only 14 per cent would be interested in online training.
Despite this ... the sector is upbeat about how it is addressing the issue: 96 per cent of respondents said their level of preparation for risks was either excellent or good.
WHAT THEY SAID
'Risk is central to operating in an increasingly litigious environment. It is the issue with most bearing on everything you do, not only from an operational point of view' - Steve Mahon, director of finance & resources, BGWS
'The whole issue of risk is over-egged. It is common sense and good management. The biggest problem is coping with the Sorp' - Richard Kelly, director, Herefordshire Lifestyles
'We would consider providing risk management training to our staff if it could be done at a low cost and with other local charities' - Sharon Alexander, chief officer, Tendring CVS
'My greatest concern is maintaining a full complement of essential staff, particularly on the medical side' - John Szostek, hospice director, St Rocco's Hospice
'It is becoming too much of an industry in itself! This reflects the increasingly litigious society in which we live. I would rather concentrate my energies on the core business of the charity. That said, it is important to understand potential risks and take sensible steps to mitigate them' - Marcus Fielding, executive director, WIZO.uk.