This is a sponsored feature supplied by Markel
The responsibility of managing and controlling a charity means a trustee's involvement in the risk-management process is essential, writes Mike Richardson, claims manager at Markel
Poor risk management reflects badly on both trustees and their charity and leaves them in a position of vulnerability (and potentially facing allegations of negligence) when something inevitably goes wrong.
By following these three steps, trustees can create a simple but effective risk-management strategy that will minimise the chances of something going wrong during their tenure.
Step 1: allocate responsibilities to individuals
Different charities face different risks depending on their finances and the complexity, size and nature of the activities undertaken. This means trustees need to recognise that the risk-management process should be tailored to fit the circumstances of their own specific charity. However, it’s impossible for a trustee to appreciate the intricate risks facing an IT system, for example. By allocating risk-management responsibilities to an individual in each department, the charity can benefit from their specialist knowledge of systems and processes, and of their weaknesses, to identify the risks facing them.
Step 2: identify the risks
It is often a matter of common sense – for example, maintaining a safe environment for visitors and staff to work in – but a trustee should consider what needs to be done if a serious event does take place. This could be anything from a major computer malfunction that breaches confidential service-user data, to a physical disaster such as a flood or fire. The diagram below details some of the risks and the knock-on effects they can have on a charity’s operations.
Once risks are identified, they should be assessed for their likelihood and impact (this should be a collaborative process between the risk manager and trustee) and a decision taken on the processes to control and document them; a simple example is an accident book to record injuries suffered by volunteers and service users.
Step 3: insuring against the unforeseen
Insurance plays a big part when evaluating risk assessment; some risks are insurable but others are not. For example, insurance is available for injury claims at public events, but not for 'trade risks' such as lack of ticket sales due to inadequate promotion. Generally speaking, however, the majority of ‘obvious’ risks can be insured against:
- Professional indemnity insurance can protect against allegations of negligent advice.
- Trustee liability insurance can protect against allegations of wrongdoing by trustees.
- Public liability insurance can cover against injuries and illness suffered by members of the public.
- Employers’ liability insurance can protect against injuries and illness suffered by employees (and usually volunteers).
- Fidelity cover can protect against loss of money or goods arising from fraudulent acts by employees.
The Charity Commission and risk management
The Charity Commission offers excellent guidance on the basic strategies and principles that can be applied to help trustees manage their risks. It should help trustees set a risk framework that allows them to identify the major risks that apply, make decisions about how to respond to risks they face and make an appropriate statement regarding risk management in their annual report.
The Charity Commission has used the findings of a report produced in partnership with the ICAEW to outline how it can improve charities' access to support that can help manage financial risk, including fraud.
The commission said that, amongst other actions, it intended to:
- Develop a trustee guide to using the Sorp (Statement of Recommended Practice) and reporting.
- Explore the feasibility of developing advice and guidance on topics tailored to specific sub-sectors involving risk management.
- Update its Big Board Talk, which provides a practical checklist of the 15 questions trustees need to ask when facing uncertain times.
Sam Younger, chief executive of the Charity Commission, says: "One of our priorities has to be to raise trustees' awareness of the financial risks charities face and signpost them to resources that can help them, particularly to avoid fraud."