MANAGING THE IMPACT OF COVID-19
The charity and not-for-profit sector plays a significant part of our society, providing support to the most vulnerable across all aspects of life; health, sports, social, education, the arts. According to the latest NCVO Almanac data, the sector employs over 900,000 people and has a combined income of more than £53bn.
In the summer, Pro Bono Economics estimated the sector was facing a £10.1bn funding gap. A more recent survey reveals a gap between increasing demand and declining income. Seventy-five per cent of charities expect higher demand in 2021, while 83% forecast income decline. This suggests increasing pressure, and competition, in some charities, as need rises and income falls.
Since the summer, almost half (47%) of the UK’s charities have revised down their financial forecasts in anticipation of the tough winter we are now experiencing*. At the same time, as the health and wellbeing of people is of utmost priority, charities are facing huge increases in demand for their services. Combine this with the closure of over 9,000 charity shops for prolonged periods and the cancellation of many key fundraising events, the resulting impact is financial uncertainty.
In addition to the cross-sectoral economic support measures and the £750m targeted funding package announced in April to support the sector, the Secretary of State announced on 20 May that a further £150 million was to be unlocked from dormant banks and building society accounts to help charities, social enterprises and vulnerable individuals. Further, on 5 July, the Government announced a £1.57 billion support package for Britain’s art, cultural and heritage organisations. Charities can also benefit from the various grant and relief schemes available to specific businesses and regions.
This latest package includes:
It was also welcome news when the terms of the Coronavirus Business Interruption Loan Scheme were amended earlier in the year, so that charities are eligible without having to evidence that half their income comes from trading.
However, there is still a gap. Few charities have cash reserves available to get through a likely three to six month (or more) downturn in donations and funding, so understandably financial viability and sustainability remains a key focus for trustees, management and beneficiaries.Our own research based on the largest charities also suggests that many charities are over reporting their reserve levels and may be less resilient than the accounts suggest.
The resulting impact on financial reporting will be significant. To help you navigate and manage the impact on your charity’s reporting, we summarise some key areas for Trustees and Management to consider.
Charities are encouraged to disclose the implication of COVID-19 in their annual reports. To assist with this, we have taken the Financial Reporting Lab of the FRC’s helpful guide for companies - which suggested that company reports should address the five key concerns investors may have – and adapted it for larger charities preparing annual reports under the SORP. We also include guidance on some of the accounting issues which may arise.
Many charities will include in their risk report the implications of a no-deal Brexit and of future waves of COVID-19. Our own research suggests that businesses consider a second-wave of COVID-19 as a bigger threat to their existence than a no-deal Brexit, although clearly the advent of a vaccine rollout may affect that view. However, with this no-deal outcome on the horizon, charities should not neglect to prepare for Brexit, to ensure operational networks and supplier agreements remain resilient post-1 January.
As with all things COVID-19 related, things are fast moving. We will update our guidance periodically as relevant announcements, guidance, experience and best practice emerges.
Given the diversity of the sector, organisations will be affected to differing degrees. We have, therefore, only noted the Government or sector initiatives of more general application, so it’s always worth taking professional advice relevant to your own specific circumstances.
We hope you find this guidance helpful and please do get in touch with any questions you may have.
*Covid Charity Tracker published by Pro Bono Economics, in partnership with the Institute of Fundraising and the Charity Finance Group.
Our most recent articles include: