Stress testing your charity - risk management for trustees
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Presented on Monday 2 November at NCVO/BWB Trustee Conference 2015 Philip KirkPatrick – Bates Wells Braithwaite; Mark Taylor – Lucas Fettes and Kate Sayer, Sayer Vincent Stress testing your charity - risk management for trustees If you would like to find out more about our 2016 Trustee Conference email us at ncvoevents@ncvo.org.uk or call us on 020 750 3153.
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Stress testing your charity - risk management for trustees
- 1. Stress-testing your charity – risk management for trustees Philip Kirkpatrick – Bates Wells Braithwaite Mark Taylor – Lucas Fettes Kate Sayer – Sayer Vincent 2 November 2015
- 2. Nature of risk • Risk is inherent in activity • Risk is also inherent in inactivity • Your charity exists to achieve outcomes • Be risk aware, not risk averse • You are allowed to make mistakes
- 3. Making mistakes “No one who has never made a mistake has ever tried anything new” – Albert Einstein
- 4. Types of risk • Organisational risk • Personal, trustee risk • One becoming the other
- 5. Principal trustee duties • Exercise reasonable care, skill and diligence • Act in good faith in interests of charity • Not profit from trust unless authorised • Act within powers, for purposes
- 8. Courts’ approach? “The court should, in principle, be slow to find fault with charitable trustees who, while doing their best, made honest, even stupid mistakes” – Scargill & Cave –v- Charity Commission & AG 1998
- 9. 2 November 2015 Philip Kirkpatrick Partner Bates Wells & Braithwaite London LLP Tel: 020 7551 7796 p.kirkpatrick@bwbllp.com
- 10. “We’re insured, so we’re OK … aren’t we?”
- 11. Good management = good risk management Identify and assess risks Identify and assess risks Risk measurement Risk measurement Link to business strategy Link to business strategy Risk appetite Risk appetite Stress and scenario testing Stress and scenario testing Monitoring and reporting Monitoring and reporting Risk culture
- 12. Risk strategy: informed decision making
- 13. Governance risks • Beneficiaries withdraw or reduce funding • Loss of reputation • Financial management difficulties • Resentment or apathy amongst staff • Poor investment returns • Conflicts of interest • Regulatory action • Private benefit • Excessive bureaucracy affects achievement • Liabilities incurred to repay funders • Legislative action
- 14. Operational risks • Contract risk, including liabilities for non-performance • Service provision and customer satisfaction • Project or service development – viability and skills • Competition from similar organisations • Suppliers, dependency and bargaining powers • Capacity and use of resources including tangible fixed assets • Security of assets • Fundraising – returns, skills, methods and actions of agents and commercial fundraisers • Employment issues – training, disputes, injury claims, health and safety, care of children and vulnerable beneficiaries • High staff turnover • Volunteers • Disaster recovery planning including Information Technology
- 15. Finance risks • Budgetary control and financial reporting • Reserving policies • Cash flow sensitivities • Dependency on income sources • Pricing policies • Borrowing and currency fluctuations • Guarantees to third parties • Pension commitments • Inappropriate, loss making or non charitable trading activities • Investment strategy and policies • Protection of permanent endowments • Compliance with donor restrictions • Fraud or error
- 16. Environmental risks • Public perception and adverse publicity • Relationship with funders • Demographic considerations • Availability of contract and grant funding • Impact of change in tax regimes • Impact of general legislation on constitution or fundraising
- 17. Legal and regulatory compliance risks • Fines, penalties or censure from regulators • Employer or consumer action for negligence • Understanding financial reporting and regulatory requirements for each charity • Loss of income due to failure to understand tax exemptions and relief • Health and safety • Compliance with legislation appropriate to the activities, size and structure of the charity
- 18. We’re not all Kids Company • Passion isn’t enough – a clearly defined strategy is essential • Trustees must act as “critical friends” • Objectivity and challenge is required – both internal and external • Skills sets should be aligned to objectives • Recruitment, training and retention is vital • Continual review and understanding of risks inherent within the organisation
- 19. Mark Taylor Director, Lucas Fettes & Partners lucasfettes.co.uk/charitiesandnfp T: 0330 660 0148 E: charitiesandnfp@lucasfettes.co.uk @LucasFettes
- 20. Kate Sayer 2 November 2015 Stress-testing your charity – risk management for trustees
- 21. Understand your business model Adjust spend to fit income Use reserves Regularly monitor income Danger zone High committed costs Predictable Flexible cost base Unreliable
- 22. • Reliance on one or few funders • Number of funding streams ending at same time • Irregular or non-existent management accounts • Over-trading • Loss leaders • Big new contracts Beware
- 23. Break point
- 24. • Scan horizon and adapt • Focus on profit (or contribution) rather than income • Prepare what-if scenarios • Stick to what they know best • Don’t get distracted by surveys and polls Successful charities
- 25. Beyond Reserves Published 2012 Made simple guides Free to download from www.sayervincent.co.uk Kate.sayer@sayervincent.co.uk @KateSayer1 Further information