The Charity Commission recently published its second Charity Sector Risk Assessment based on the annual accounts, compliance concerns, serious incident reports, and investigations by other government departments related to charities across England and Wales. Risks and concerns have been reported across a range of topics from social tensions to rising cybercrime and geopolitical instability, but one common theme is that many of these pressures can translate into financial challenges for charities of any size without proper monitoring, management and policy.
While some of the risks and concerns identified can lead to treasury issues indirectly, the direct concern identified by the Commission is that the financial resilience of charities has been under increasing pressure, an issue seen with clients first-hand. While, for the financial year ending 2024, income in the sector increased by more than expenditure (5.6% for income compared to 5.4% for expenditure), there was an increase in reported financial difficulties of nearly 28% between October 2024 and September 2025 as well as a 36% increase in the number of voluntary removals from the charity register.
An expansion in government contract awards and grant giving to charitable organisations has helped to somewhat offset a fall in the level of individual donations. There has been a 13% increase in the number of charities that received government contracts over the last three years as well as a small increase in the level of grants awarded. Although this has helped ease some of the financial pressures on charities, the effect is not uniform across the sector, with most contracts being awarded to larger charities. Smaller charities continue to report the narrowest margins. For some organisations that have been the beneficiaries of government contracts, there are also some hidden risks that need to be managed alongside the obvious benefits. Winning additional contracts can increase short-term treasury pressures in the form of higher mobilisation costs, more frequent payments and committed expenditure creating working capital pressures, and critical funding concentration risks. This last point about concentration is a key issue – we’ve had to assist clients to take necessary painful steps to consolidate treasury positions following a reduction in funding from key partners.
The Commissioner’s report highlighted that internal charity disputes increased by 57% during 2024-25, with difficult decisions due to growing financial pressures noted as one of the drivers. The need for robust internal policies is highlighted in times of financial pressure, as challenging decisions need to be made quickly. This does not mean that decisions should be made without following established policies or that weakening oversight is acceptable in volatile periods, but instead demonstrates the need to ensure sufficient numbers of trustees are recruited, that they are aware of their roles in the organisation, and that there is clear policy in place to guide decision-making.
The need for clear policy extends through areas beyond governance alone. Investment policies should be updated so counterparty limits and restrictions are known to relevant finance staff, and reserves or liquidity policies should highlight how much cash is earmarked for reserves, how much is able to be deployed and for how long. A robust policy will outline risks, responsibilities, and any escalation processes or oversight to ensure that management can respond effectively in line with the framework agreed by trustees. One of our key roles as an advisor is being able to look objectively at the situation and advise appropriate action, perhaps the tough love that more closely engaged officers and Board members may be more reluctant to consider.
Strong governance and financial resilience are increasingly important as charities face a more complex operating environment where geopolitical developments, changing funding conditions and developing cyber risks create new challenges. These wider factors can quickly impact cash flows, investment performance and creditworthiness, which means that clear treasury policy, appropriate delegated authorities and regular stress testing are key in ensuring charities remain well prepared to respond to these risks when they arise. Treasury staff also need to have wider knowledge of products, options and processes, to understand whether existing, but perhaps under pressure, ways of working are still appropriate in changing conditions.
Arlingclose supports charities in these aspects of treasury management through trusted cash and liquidity management, strategy development, ongoing creditworthiness assessments of both relevant counterparties and the charity itself, and training and Board engagement. For more information, please contact jscottsoane@arlingclose.com.
