This is a sponsored feature supplied by Markel
The diverse nature of charities' activities means that they are exposed to numerous risks on a daily basis. While the risks faced by individual charities often depend on services offered, activities undertaken and funding earned, many smaller charities overlook risk management as a resource-drain in the effective running of the organisation. However, there are several big risks that small charities should be aware of.
Damage to reputation
A PR crisis within a charity can seriously tarnish a reputation. Some risks can have obvious repercussions, such as accusations of foul play by a charity's boss. Others can be less so - for example, the Charity Commission taking a very dim view on payments made to trustees from charities. While trustees are entitled to have their expenses paid, unlawful payments can result in personal liability for the trustee in question, as well as a breakdown in public confidence in the charity. It's vital that accounts are kept up to date, submitted to the commission on time and records of trustees’ expenses are transparent.
A decline in funding and donations
According to the Charity Commission, 16 per cent of charities state that fundraising is their most important source of income, which means that a downturn in the economy can pose a real risk to charities. With 15 per cent of charities in the lowest income band receiving public sector funding, a reduction in either fundraising or funding can pose a massive risk to such organisations. It is wise for charities not to put all their eggs in one basket, and diversify their income streams through, for example, contracts to deliver a service or goods.
Inadequate insurance cover
Accidents can happen, and charitable status isn't enough to stop someone from making a claim against your charity. An accident involving a member of the public at a fundraising event, or an employee injuring themselves at your premises, could result in legal action taken against your organisation. Ensuring your charity has public liability insurance and employer's liability insurance can protect against such risks. If your charity has equipment, or owns a building, buildings and contents insurance is a necessity, protecting against fires, floods and other risks. Inadequate insurance cover in any of these areas could spell financial ruin for your charity if something unexpected were to happen, not to mention possible action against trustees for failing to ensure the charity is fully protected.
Loss of data
Data security is a real risk for charities of all sizes. Whilst larger charities hold greater volumes of sensitive information, they are likely to have more sophisticated controls. Human error can be the greatest danger in respect of data loss; a lost memory stick or laptop could put significant amounts of confidential information at risk. Those responsible for IT at small charities should consider what the potential cost or damage would be if data was lost, and ensure they know exactly what type of data the charity holds, who has access to it and how it is stored. Encryption, keeping back-ups and installing remote wiping software on charity-owned devices can help manage these risks.
Fraud is a huge risk to small charities and can come in various forms, both internally and externally, as they are often seen as an easy target due to the high levels of cash handled and the potential lack of scrutiny within their financial department. Examples of internal fraud include misuse of charity money and false invoicing, while external fraud can range from unauthorised fundraising to credit card and email scams. The repercussions of fraud can result in not only financial loss but also damage to reputation and a lack of public confidence.
Wendy Cotton is a social welfare underwriter at Markel
Read our post on 6 warning signs of fraud within your charity for advice on how to spot fraudulent activity at your organisation