Charity Risk Management

Appropriate and effective risk management is crucial for charity leaders and it is vital for regulatory compliance, financial stability, public confidence, and for safeguarding beneficiaries. LBMW’s charity lawyers provide leading advice to charitable organizations to develop and embed risk management strategies in their governance structures. We support charitable entities on the full spectrum of charity risk management, including:

• Drafting and reviewing charity risk management policies and procedures;
• Assessing and improving charity risk registers;
• Conducting a comprehensive governance review;
• Submitting Serious Incident Reports to the Regulator;

Providing trustee training on legal duties and risk management.Contact our charity risk management solicitors today

If you require any assistance or advice on charity risk management, contact our expert charity lawyers:

Phone no.: 0207 222 5381

Email: khalid.sofi@lbmw.com.

You can also make an enquiry by filling out the Enquiry Form on www.lbmw.com.

Lee Bolton Monier Williams – Legal Experts in Charity Risk Management

Charities face a wide range of risks that can impact their operations, and their ability to carry out their charitable objects. These risks may be grouped as:

• Governance risks;
• Operational risks;
• Financial risks;
• Reputational risks;
• Compliance risks;
• Safeguarding risks.

Our experienced charity lawyers can help charities to conduct a risk mapping exercise to identify both existing and emerging risks, and to rank risks by severity and likelihood. We can also assist with developing a comprehensive risk management policy and risk register, which can serve as useful tools in navigating risks and understanding the steps to be taken to manage them.

Governance, Compliance and Regulatory Obligations

Strong governance structures are essential for managing risks within a charity. They provide the framework through which organisations ensure accountability, integrity and alignment with their charitable objectives.

A well-functioning board is central to effective charity risk management, as it sets up strong internal controls, and provides oversight and regular review of the charity’s activities. It is also essential that trustees understand and comply with their trustee duties to properly identify, mitigate and manage risks.

Our charity lawyers can help charities implement robust risk management policies and compliance frameworks aligned with Charity Commission guidance as well as laws, regulations, and best practice.

Managing Financial and Operational Risks

Charities face a range of financial risks that threaten their ability to achieve their objectives and maintain public trust. Common financial risks include mismanagement, fraud and investment losses, each of which can have serious legal and reputational consequences. Effective financial governance based on strong financial controls, well-drafted reserves and finance policies, and clear financial reporting obligations are essential to mitigating risks.

Operational risks may also disrupt a charity’s ability to carry out its objectives, and can lead to the wasting of resources. Common sources of operational risk in charities include poor programme delivery, poorly managed partnerhsips, procurement issues or issues with complex international operations.

Our charity lawyers can assist with:

• Drafting strong policies to mitigate financial and operational risks;
• Advise on establishing clear controls for delegation and reporting;
• Restructuring charities or upgrading legal structures to avoid future risks.

Charity Commission Expectations and Serious Incident Reporting

The Charity Commission requires trustees to promptly report serious incidents that may harm the charity, its beneficiaries, the charity’s staff, assets or its reputation. This is a key part of responsible governance and charity risk management. A serious incident may mean a number of issues, ranging from safeguarindg concerns, fraud or loss of funds, governance failures, and even reputational damage.

The charity team at LBMW can assist with:

• Helping charities determine whether an incident is reportable as a serious incident;
• Drafting and submitting serious incident reports;
• Liaising with the Charity Commission in relation to such reports;
• Preparing charities for potential scrutiny by the Regulator.

Trustee Responsibilities for Risk Oversight

The Charity Commission places the ultimate responsibility for managing risks within a charity on the charity trustees. Trustees are expected to have appropriate systems and processes in place to monitor and mitigate risks, and they must:

• Understand and assess risks facing their charity;
• Ensure suitable systems are in place to manage those risks;
• Monitor and review risks regularly;
• Report material risk in annual reports.

Our charity lawyers offer reliable and comprehensive assistance with navigating these trustee responsibilities. 

Frequently Asked Questions About Charity Risk Management

What are the key types of risks UK charities face?

Charities operating in England and Wales face a wide range of risks that can affect their ability to meet objectives, comply with the law or regulation, and maintain public trust. These risks include governance, financial, operational, as well as legal and regulatory compliance and reputational risks.

The ultimate responsibility for managing risks lies with the board of trustees, therefore having a strong and skilled board is the first step to achieving compliance and mitigating risks.

How can small charities in the UK effectively implement risk management strategies with limited resources?

Small charities in England and Wales often operate with limited financial or human resources. This can make risk management feel challenging. However, effective risk management does not require a complex or costly system - with the right approach, small charities can develop proportionate, practical strategies that protect their work and ensure compliance. Our charity lawyers are well-equipped to develop proportionate policies for smaller charities and provide advice on prioritising key risks.

What is the role of the Charity Commission in overseeing and guiding risk management for UK charities?

The Charity Commission for England and Wales acts as the Regulator of the charity sector and plays a central role in overseeing and guiding risk management within the sector. Its primary focus is to ensure that charities are well-governed, accountable, and operating within the law, which includes managing risks effectively. While the Commission sets out the duties of trustees regarding risk management, particularly through key guidance, it also publishes resources and templates to support trustee boards.

The Commission acts not only as a regulator, but also as a partner in good governance, ensuring that charities are resilient, responsible and trusted.

What are common pitfalls or challenges that UK charities encounter in their risk management processes?

Charities face unique challenges in risk management due to their reliance on donations and volunteers. Poor documentation of financial processes or decision-making processes, failure to update risk registers, unclear trustee roles, over-reliance on one donor rather than a wider pool of donors, or insufficient training are all common pitfalls that charities may encounter. Implementing clear and comprehensive policies and procedures can be a first step to avoid these common pitfalls and they may serve as a framework to rely on and guide the charity.

How can a UK charity develop a comprehensive risk management policy and embed it within its organisational culture?

Developing a comprehensive risk management policy and embedding it into a charity’s organisational culture is essential for long-term sustainability, and public trust. This involves not only identifying and managing risks but also creating an environment where risk awareness becomes a part of everyday decision-making. To develop a comprehensive policy, it’s essential to identify the key risks and risk areas, such as finance or fraud, safeguarding, or legal and regulatory compliance. As a next step, the charity should outline a risk assessment process, set out roles and responsibilities, as well as reviewing deadlines and reporting lines.

A risk management policy is only effective if it’s understood, accepted, and applied across the organisation. Therefore, to ensure effective implementation and commitment from trustees, volunteers and staff, providing training on risk policies and procedures at all levels is essential to embed these policies in the charity’s culture.