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Risk management in the charitable sector

Zurich Insurance has teamed up with Charity Times to produce a snapshot of how charities view risk in their businesses. Between December 2014 and February 2015, 142 senior charity decision-makers completed an online survey. Full details of the survey’s results can be found by clicking here but in brief:

Fraud

Charities were confident in their ability to deal with fraud risk with 72% ranking their ability as a six or higher out of eight. This was in line with risk management capabilities stated elsewhere in the survey.

Cyber fraud was the most worrying to respondents, with over a quarter rating it as highly or very highly significant. Fraud perpetrated by staff or volunteers and third parties was generally considered a medium or low risk. Responses on the potential impact of falling victim to fraud suggest many charities consider such threats as low-probability, high-impact events.

Reputational risk associated with fraud (or alleged fraud) against a charity hitting the headlines was considered significant by 40% of respondents.

Finance – income a key concern

Given the difficult funding environment at present, it came as little surprise that financial risks were an area of focus for those running charities.

There was a relatively high degree of confidence in dealing with financial risks. No respondents ranked their ability to deal with financial risks as very poor, and on a scale of one to eight more than 80% of charities felt they could deal with these issues well or very well.

However, income generation remains a concern for the majority of charities. Indeed, it was the most concerning element of running their organisation for most respondents. Asked to label how significant a risk income generation was to their charity, 58% ranked it as high to very high.

Technology – social media, reputation in focus

Charities similarly had a fairly high degree of confidence in their ability to deal with technological risks. Although there was a greater spread of views on how well organisations could deal with technological risks, confidence still tended towards the high side. However, very few respondents reported their organisations were ‘very well’ equipped to deal with technological risks.

Drilling down, technological issues are perceived as a threat. Potential reputational damage associated with technology such as social media was ranked as a significant risk by 45% of respondents. Clearly as charities increasingly turn to social media to take advantage of its power as a virtually free communication tool, valuable in terms of stakeholder engagement and income generation, they are aware of the potential pitfalls.

Data protection

Many charities hold a large amount of data, from information on donors to beneficiaries and stakeholders. This can in some cases be very sensitive personal information, for example in health charities, which were strongly represented in the survey. The risk of failing to adequately protect this data is widely recognised.

Both data protection and keeping IT systems secure from malicious threats were recognised by respondents, with around three quarters ranking these risks as of medium to high significance.

It is clear that charities are approaching technology seriously. Data protection, together with keeping IT systems safe is important. Social media needs good management and organisations need to be prepared to manage both positive and negative engagements and conversations. This is vital for charities who want to unlock the potential of social media, such as using it as a fundraising tool.

Regulation

Given that the country was at a pinch point of the electoral cycle at the time of the survey, and the sustained protests around the Lobbying Act, it was perhaps a surprise to see regulatory issues did not emerge as a more acute concern.

Two thirds of respondents felt their charities were well equipped to deal with risk factors associated with regulatory compliance, and just 4% ranked their ability to deal with regulatory risk as a four out of eight or less.

Complying with fundraising regulations was the most concerning factor for charities surveyed, as 23% ranked this as a significant or very significant risk. On the other hand, just 8% of respondents said the same about the Lobbying Act.

The significance of new accounting standards for charities was ranked as a three out of five or less by 84% of respondents. This would be an interesting view to revisit in the second half of the year when most charities affected by the rules are or have been required to comply in practice.

People & Governance

The survey revealed a healthy relationship between charity executives and their boards with 63% of respondents highly confident with their organisation’s ability to deal with governance risks.

The level of concern over various risks associated with governance showed a fairly even spread, although attracting capable trustees was identified as a high or very high concern by over a third of respondents. The relationship and communication between the board and management team was considered a low or very low risk by 55% of respondents.

Most charities were confident in their ability to deal with issues around staff, including volunteers and skill development.

The area that caused the most sleepless nights was around key person risk, considered to be a significant or very significant factory by 43% of respondents.

Recruitment was less of a concern, but still noteworthy, with 32% highlighting it as a significant or very significant issue.

Assets

The ability to deal with risks to physical assets such as property or vehicle fleets was ranked as high by 48% of respondents.

The risk posed by extreme events was ranked as significant by 29% of respondents, but just 6% ranked the risk as very significant. Asset replacement and the impact on business continuity was the second highest concern of the categories put forward, with 25% citing the risk as significant.

Supply chains and partners

As charities have engaged in more contracting activity for public services, and increasingly work alongside private sector partners, they have become exposed to a wider range of risks. While most organisations in the survey displayed confidence in their ability to manage these risks, there was a degree of uncertainty.

Concerns around the reliability and availability of supply chain partners, and reputational impact of associates, were fairly consistent with over half of respondents ranking these aspects at low significance. Charities therefore appear quite confident in their supply chain partners.