North East charities and the trustees that help them do their invaluable work should be demanding greater access to financial information to help prevent any unwanted surprises occurring which might threaten their organisations’ future.
That’s the view of Andrew Haslam, North East chair of insolvency and restructuring trade body R3, who was speaking in the wake of a number of cases where actions of individuals, either fraudulent or inadvertent, within both regional and national charities had a significant impact on their current and future prospects.
According to Charity Commission figures, there are more than 185,000 registered charities in England and Wales, including over 5,300 in North East England, and the number is estimated to be rising by around 5,000 a year, a situation which is potentially increasing the scope for financial wrongdoing in the third sector.
Andrew Haslam, who is also head of specialist business advisory firm FRP Advisory LLP’s Newcastle office and who works with a number of regional charities, says: “Volunteers are crucial to the well-being and indeed very viability of a range of organisations like charities, schools and religious bodies.
“The vast majority of charities do not have any paid staff at all, and rely on volunteers to carry out the admin needed to run any organisation.
“While they are usually highly qualified in their own specialist fields, volunteers can often be no more than enthusiastic amateurs when it comes to detailed financial matters.
“Many charities are started by individuals who hold a specific cause close to their hearts, but as their organisations grow, they don’t necessarily have access to the sort of expertise that might be able to spot when something out of the ordinary is happening, and that can create conditions where unscrupulous individuals can take advantage.
“There have been a number of cases this year both within and outside the North East where this sort of situation has left charities with an unexpected hole in their finances and reputational damage that can threaten their very existence.”
R3 has developed a seven point checklist to help charities prepare for, manage and overcome any loss of funding that they experience for whatever reason.
Andrew Haslam continues: “Charity directors or trustees can be held personally liable if they allow their organisations to continue operating when insolvent or when insolvency is inevitable, even if they are not fully aware of the problems that have brought them to that position.
“They have a duty to ensure, if only for their own peace of mind, that the monitoring systems put in place within their organisation are robust enough to manage its finances and provide data which would clearly highlight when things are going wrong.
“If trustees are unsure whether their organisation is insolvent, perhaps because it has complex income streams or is already facing debt problems, or if you want expert help to reduce costs and turn around the finances, we would strongly recommend taking early advice from a professional insolvency practitioner.”
R3’s advice for charities to manage their finances effectively:
- Review the situation – ensure you have access to robust management information including both financial and non-financial indicators, and prepare realistic forecasts.
- Decide what services you need to provide – which are critical to your mission and which are optional? Are there any unnecessary projects or sacred cows?
- Consider the most efficient way to provide these services – that might be using the current delivery channels but making cost savings, or through collaborative working or even a merger with another charity and sharing a back office function.
- Monitor the finances closely – remember cash is king, so keep a tight control on cashflow.
- Sweat your assets – ensure they are working hard for you and sell off any that are surplus to requirements.
- If it is apparent that the organisation is no longer viable in its current form, try to provide a continuation of service through another provider.
- Get professional advice if necessary and at an early stage – don’t let problems escalate. Insolvency practitioners can often prevent a financial meltdown, but the sooner they are called in the more scope they have to secure a successful outcome.