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A risky business: What risks do small and large charities face?

01 Nov 2016 In-depth

Charity Finance recently convened a panel to discuss some of the more topical risk facing small and large charities. Ian Allsop reports on their experiences.

Charities face a wide range of risks and are never short of things to put on their risk registers. Yet just having a risk register does not in itself remove risk. What is it measuring? Is it updated? Are the situations described reflective of real life?

The processes and protections charities have in place to tackle risk can never be perfect. What charities can do is mitigate, live with or transfer risk. So how do they do this? A starting point is to be clear about what you consider your major areas of risk to be.

Generation games

Unsurprisingly, income generation is high on the list of concerns for charities. While this has always been a worry, Sense’s group director of finance and resources Kris Murali points out that there is currently pressure on all sides. “Our local government funding and fundraising is under intense scrutiny. We face increasing competition from the private sector. The campaigning of charities can be seen as a nuisance so it can be easier and cheaper for local authorities (LAs) to deal with the private sector.”

This then has an impact on beneficiaries. Murali cites the example of some of his charity’s deafblind users having to undergo reassessment. “Why? LAs have challenges with high staff turnover and less continuity, therefore develop gaps in understanding. They are strapped for cash, so are willing to take chances and cut corners.”

Wendy Cotton, social welfare technical line manager at Markel UK, agrees that being up against commercial providers can be a challenge for charities. “Demonstrating the tangible benefits of preventative services is hard, and while large charities can bring in governance principles and risk flavours, the intensive nature of care delivery mean safeguarding issues increase the risks. It is a tough area for charities but understanding the strategic commissioning of LAs and engaging and highlighting their strengths is important.”

Wayne Casey, head of risk at NSPCC, says that while income is a key strategic risk, his charity is less dependent on LA funding. “However,” he adds, “a substantial part of our income comes from the generosity of our supporters. Over time there is a level of attrition. We need to maintain levels of income in an increasingly expensive and competitive market.”

He says NSPCC is committed to fundraising well within the regulations in a manner acceptable to the public. The sometimes complex regulations, however, make this a challenge. “We have to ensure our fundraising activities are consistent with the law. The regulations are not always black and white but we put a lot of effort into ensuring compliance and avoiding the elephant traps. Managing the risk to our income does not override our commitment to compliance with the law.”

Conversely, for Tor Docherty, chief executive of New Family Social – a charity promoting the care and upbringing of children by LGBT adopters and foster carers – generating income is less of a worry. “Our biggest concern is that as a small organisation with income of around £150,000, we don’t have teams to put processes in place. I understand perfectly why small charities are held to the same level of accountability as large ones, but there simply isn’t the resource.”

Plugging income leaks

If income is understandably a major headache, how can charities mitigate against it drying up? Casey says that NSPCC has 15 organisation-wide strategic risks which are reported to the audit/risk committee. “Then we have risks at both directorate and project level. Income is a strategic risk. Underneath that we set out other fundraising risks in the fundraising risk register.

“We operate in a fundraising market which we cannot change, but the review of fundraising risks helps us to monitor our own performance. There is a large element of innovation in fundraising and the risk register helps us to ensure that we have the right systems in place to manage it.”

Murali cites the example of Sense’s community centre in Birmingham as an innovative means of adapting the funding environment. “We will provide a flexible offer to the LA. People are moving from residential to community-based services – we partner with related organisations and offer a suite of services that remains within the limits of our funding and helps the LA to manage resources in a collaborative way.”

He adds: “The private sector is still providing the existing solution at a lower price by scaling up, but we offer a blend of services, not just institutional care. We believe it will both help individuals and our funding restraints as it reduces the cost of oneto- one care.”

Docherty argues that it can sometimes be hard to make the financial case for the value of your work. “Cost-benefit analysis can be tricky to do, as it can be difficult to prove the cost to society that would exist without an intervention. We focus on the unique strengths of LGBT carers – more likely to take sibling groups or older children – to encourage LAs to use them. But we are fortunate because there is a clear financial cost in care and adoption. It would be much harder to make the case in, for example, mental health care where quantifying happiness is trickier.”

Reputations on the line

One thing that has not helped the income situation is recent negative publicity around fundraising. The panel was therefore asked: has this led to any shift in approach? Is it fair to expect trustees to know what is happening, for example, at external fundraising agencies, even if it ultimately affects the public view of their own organisation?

Murali senses there is more awareness now of this at board level. “Trustees are asking more questions.” Docherty adds, however, that it can be difficult for trustees to understand risk in areas in which they have little or no expertise. “They need a steer on the ethics of fundraising policy.”

In some cases, charities have accepted that criticism of their fundraising activities has been justified. However, media coverage more broadly has not always been fair, demonstrating the capacity for newspapers to produce damaging news stories regardless of whether there is any truth in them.

As a consequence of this hostile media environment, Cotton is seeing a lot of claims arising from misunderstandings or spurious facts. “The media are quicker at pointing the finger, whether or not it is in the right direction.”

Murali, meanwhile, mentions a public perception that charity staff shouldn’t be paid, but Casey cautions about this. “The majority of the public have a more mature view than they are given credit for. We do, however, have to be transparent and ensure that we keep their trust.”

So can processes be put in place to limit reputation risks, especially when today's short news cycle makes it harder for communications teams to respond quickly while observing robust procedures?

New Family Social has one parttime comms officer, but Docherty is concerned that some media play a “we’re running this in 50 minutes” game. “Sometimes if you don’t respond then there isn’t a story, as balanced media outlets need two competing statements in order to go ahead. We often get journalists trying to provoke a screaming match with right-wing Christian organisations, but by refusing to comment we retain an element of control.”

She thinks that smaller organisations can have an advantage in this area. “We don’t have layers of contact. I know everything that happens in the charity. Even those staff on leave are usually available to respond if necessary. And we have standard responses as well, for example if someone is running a “gay people shouldn’t parent” story, we routinely talk about the need for a wide pool of potential parents for different children.”

Sense has a senior team which conducts a weekly review of reputational issues. Murali says: “We engage with the press and provide facts. But it can hit you from any side. There is no pattern. It may be a disgruntled employee, or a member of the public tripping over in one of our shops. ‘No win no fee’ means everyone is trying it on as they think charities will quietly pay up due to reputational concerns.”

NSPCC has specific social media protocols rather than rules, so incidents can be managed within a shorter time frame by staff without having to escalate to higher levels of management. “But you can get dragged into arguments, so we have a protocol on ending a conversation online,” says Casey.

Cotton advises that when it comes to media communications generally, you have to stay calm. “It’s not usually as bad as you think, so slow it down and take a step back. Do you really need to say anything? Ignore it or you could make it worse.”

Insurers offer cover for reputational damage, and the majority offer PR crisis management to assist and advise on what to say and what not. “The majority of stories don’t make the press,” she says, “but it is about preparing for the worst.”

Staying up-to-date

Once the major risks have been identified, how do charities make sure that everything is ticked off, and that new regulations are factored in?

In areas like health and safety, it is easy for the likes of NSPCC to stay on top of requirements as it has a dedicated staff member, but for smaller ones it can be more difficult. Docherty says: “It isn’t possible to risk-assess all of the venues we use for events, but generally the law is concerned about having taken reasonable steps. As long as you can show you have a culture of taking risk seriously and adapting, you should be fine.

“However, there is always a concern that if a soft play centre has not been risk-assessed in advance, it would be held against us if someone did have an accident.”

She says you have to be resourceful about where help comes from. “We use the Voluntary Sector Legal Handbook. We regularly skills-assess our trustees on their understanding of various things on a range of ‘none to expert’ to identify gaps.”

Murali states that even if you have a health and safety person, they can’t be everywhere. “You need to embed a culture where everyone takes some responsibility for their own health and safety.”

Meanwhile, Docherty thinks it would be helpful if insurers laid out minimum standards of what they expect a charity to have in place in areas such as health and safety. Cotton agrees that the relationship between insurers and policyholders is important. “The insurer should be able to help you and some may well provide risk management advice. We look at whether a charity is well managed, and give feedback. But some insurers don’t dig down as deep into risk management.”

Embracing risk

While you can have a comprehensive and fluid risk register, it is not an exact science. Murali argues that you have to acknowledge that there will always be risks. “It can be hard to convince trustees that a 'red light' on the register is OK sometimes. If you are not careful you become too risk-averse, which restricts what you can do.

“We have an initiative where volunteers take beneficiaries on holiday. This is fraught with potential risk and danger, but not doing it denies the beneficiaries. So you do it and have processes.”

Cotton says that risk management can be presented as over-complex, and people can lose a sense of proportionality as a result. “It is important that our industry understands this and that risk is appreciated in different ways across the sector as appropriate.”

Casey concludes that risk appetite is a big challenge. “You will always carry some risk. But you should embrace it, not reluctantly accept it. We work with challenging children. There is always a risk. If we don’t take risk then we are not doing enough for them.”

Ian Allsop is a freelance editor and journalist, and regular contributor to Charity Finance 


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