MANAGING THE IMPACT OF COVID-19
The charity and not-for-profit sector play 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.
Research suggests that the resilience of the charity sector has come at the cost of workforce and volunteer wellbeing. Three-in-four charity leaders working in organisations with staff are worried about burnout within their team, and almost half are concerned about their volunteers.¹
The Charity Commission also presented a worrying picture in their own research²: Nearly all charities (91%) in England and Wales have experienced some negative impact from Covid-19. The consequences have been wide-ranging and often severe, spanning service delivery, financial and staffing issues, as well as frustration and uncertainty. 72% of charites said their finances had been impacted, with lost fundraising, trading and a drop in volunteers. Many charities have had to adapt their services: 40% had dipped into reserves, and 32% had paused operations temporarily. In the medium term over half (62%) anticipate a threat to their charity’s financial viability in the next 12 months, although many expect to be in the same or better position overall.
In addition, charity retail has been suffering. The 2021 Charity Shops Survey, carried out for Charity Finance magazine showed that the biggest chains closed nearly 90 stores between them last year. The average charity shop in the survey was open for just 22 weeks last year, due to a series of national and regional lockdowns, with some chains opening stores for just 15 weeks. The average in 2019 was 48 weeks.³
In response to these challenges, the government launched several cross-sectoral economic support measures and specific targeted fund during the pandemic. Although many of these programmes are now closed, charities can still benefit from various other grant and relief schemes available to specific businesses and regions.
Although there was a significant amount of research done in the early days of the pandemic, it is less easy to see the longer term impact of the pandemic. In the summer of 2021 the Charity Commission commented on the following themes they encountered in certain service delivery charities:
- anticipated challenges with long-term funding
- how hard it has been to plan long term, due to uncertainty over restrictions
- difficulties with recruitment
- the time it will take to be able to return to ways of operating from before the pandemic
- challenges in returning to pre-pandemic levels of engagement when working with vulnerable people⁴
Separate research from CAF also suggested that a long term shift to more remote working would alienate the older demographic who provide a rich source of volunteering, support and of course, legacies.
All of this means that the financial pressures on charities will continue, as reserves have been used but future income may not rebuild them without a reduction in cost or activity. Few charities had cash reserves to cover more than 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, and just because we may be over the worst does not mean this ceases to be true. For instance the Charity Commission of Northern Ireland has issued a checklist covering COVID-19 disclosures. A key message in the Trustees Annual Report will be the impact of the coronavirus on the charity and how the charity will need to adopt and change its plans going forward.
To assist with this, we have taken the FRC’s Financial Reporting Lab 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.
As the risk of Covid appears to recede, other items are back on the agenda. We will cover these in our webinar programme and regular updates – topics like climate change reporting, impact measurement and diversity are all important and the matters for which charities are increasingly accountable. However, these pages continue to focus on Covid related matters.
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:
1. Source: Online survey carried out by YouGov Plc on behalf of the Law Family Commission on Civil Society, 18-24 October 2021
2. Research and analysis COVID-19 Survey 2021 Published 28 October 2021
4. Listening to charities’ experiences of the coronavirus pandemic :Helen Stephenson, Posted on:23 August 2021