With the publication of the Charity Sector Risk Assessment 2025 in late September, the Charity Commission outlined the ten most significant risks currently facing the charity sector. The Commission cited financial resilience and public benefit as the principal risks, while also drawing attention to challenges relating to governance, safeguarding, fraud, cybersecurity, social tensions, and three additional risks linked to international aid. However, these risks should not be seen as independent and are all closely connected. A failure in one area, for example in governance or cybersecurity, can heighten vulnerabilities in others, such as by increasing exposure to fraud or weakening a charity’s financial resilience. Indeed, when finances become severely strained or when working capital is improperly managed, the charity’s ability to respond to any of the other risks identified in the Commission’s assessment is significantly diminished. In this light, effective treasury management should not be viewed merely as a technical exercise in optimising cash, borrowing, and investments. It is also central to maintaining a sustainable financial ecosystem in which risk can be anticipated and addressed meaningfully. Addressing some of these challenges requires improving treasury management practices and embedding the treasury function within the broader governance and risk management framework.
Regarding the sector’s financial resilience, the Commission’s findings align with previous commentary by Arlingclose and others in a continuation of recent trends, which identified the combined pressures of rising employee costs, increased demand for services, and an adverse trend in public funding as key headwinds. While charitable giving rose to £15.4 billion in 2024 from £13.9 bn in 2023, workforce costs have increased by 23% since 2019, and the proportion of the public receiving support from charities has tripled to 9% over the past five years. The effects of these pressures are evident in the growing share of charities reporting budget deficits, which rose from 38.3% in 2022 to 42.6% in the 2023 annual returns. Meanwhile, the sector’s aggregate surplus declined sharply from £3bn in the previous year to £0.7bn in the latest report. At the same time, while total donations were higher, fewer people than ever are donating to charity, suggesting that giving is becoming increasingly concentrated. This trend risks placing greater financial strain on smaller, local charities that rely on a broader donor base and receive fewer large-scale contributions. This trend may partly account for the sustained decline in the share of total sector income held by small and medium-sized charities over the past decade.
Following this assessment, the Commission outlined several actions that charities can take to support financial resilience. These include undertaking extensive financial forecasting and planning with regular reviews, ensuring that financial reporting remains fit for purpose, and exploring cost-saving or efficiency measures such as joint ventures, mergers, and other collaborative arrangements. By developing a comprehensive financial plan that clearly maps the timing of income and expenditure, charities can not only gain greater oversight of emerging risks and deeper insight into how their resources can be deployed but also position themselves to engage more effectively with banks and other financial institutions. This level of financial visibility is crucial for accessing working capital financing, such as receivables-based lending, and for exploring a broader range of banking and cash management solutions. In turn, it enables charities to enhance liquidity, improve efficiency, and strengthen their capacity to deliver and expand services.
Regarding governance risks, the Commission identified weaknesses in this area as one of the sector’s key challenges. The report highlights persistent issues in trustee recruitment, oversight of federated charities, and the management of community assets by local authorities. More generally, governance risk is arguably the most comprehensive of all, as weaknesses in this area can lead to financial mismanagement, fraud, or poor strategic planning, particularly where boards lack the capacity or expertise to scrutinise financial performance effectively. A well-defined and embedded Treasury Management Strategy can help address these vulnerabilities by setting clear parameters for borrowing, investment, and cash management, and by clarifying roles and responsibilities within the governance framework.
Taken together, the Commission’s assessment highlights the need for an integrated approach to risk management and one that recognises the centrality and links between financial resilience and all other risks. In this context, strong treasury management is not only essential for safeguarding liquidity and stability but also for strengthening governance and ensuring long-term resilience. Arlingclose supports charities in meeting these objectives by developing and stress-testing financial forecasts, reviewing investment portfolios, borrowing arrangements, cash management practices, and advising on the effective use of banking products and services. We can also assist charities in drafting and reviewing their Treasury Management Strategy, ensuring treasury activity is embedded within a coherent governance and risk framework that promotes transparency, accountability, and resilience.
In an increasingly complex and challenging financial landscape, effective treasury management offers charities the stability and foresight needed to sustain their mission.
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