Charities and Post-Pandemic Strategy
The COVID-19 pandemic and consequent restrictions continue to resonate to varying degrees amongst the sector and our not-for-profit clients. Be it a struggle to attract the same level of footfall, a slower than expected return to fundraising activities or the inability to operate at the same capacity – every organisation has felt its sting.
The UK’s response to COVID-19 will no doubt split opinions for years to come. It is undeniable that support (from both public and private funds) was made available to employers, their employees, charitable organisations and those in need.
To mitigate the impact of COVID-19, the UK government launched the furlough scheme in March 2020, and although there were several versions of it until it ended in October 2021, it helped support many organisations that otherwise may have failed. Many funders agreed to extend, adapt or loosen the restriction of their grant awards, enabling charities to continue working during this uncertain time. Charities that operate in essential and life-critical services such as medicine, supported living and sexual & domestic abuse saw Local Authorities ready to redirect funding to them.
This additional funding helped support many of our charity clients while other sources dried out.
Yet despite expecting the worst, many charities at their 2020-21 financial year ends saw a better than expected result. Even some of those classed as ‘non-essential’ charities unexpectedly reported positive results. Anecdotally, implementing a ‘survival’ strategy during the peak of the pandemic forced charities to rethink priorities, strip back activities and mothball while only the essential of costs were being met.
The issue, as highlighted to our charity clients, was regarding the period following the ‘COVID income bubble’. Equally unknown and difficult to predict was what the post-pandemic landscape was going to look like for both donors and beneficiaries?
Now that mask-wearing and working from home are on the decline, we are seeing many of our clients getting back to pre-pandemic normality. Despite the eagerness from charities and their trustees, donors have sometimes been slow to match the enthusiasm. The change in attitudes and requirements of donors and beneficiaries has left many charities conducting charitable activities in an inefficient manner.
What is now becoming commonplace is a situation where extra COVID-19 funds have been depleted, income from other sources is struggling to get back to pre-pandemic levels and costs continue to put pressure on existing funds.
For some charities it is ‘business as usual’ but the income just isn’t coming in.
Conducting charitable activities efficiently is therefore difficult in the current climate. Operationally it is difficult to deal with and from a governance point of view, it raises the going concern risk of the charity.
If a charity cannot demonstrate its ability to apply the going concern principle in a post pandemic world it causes problems. At best, it will lead to a qualification of the audit report and at worst, the charity has no other option but to wind up.
So, what can trustees do now to address this very real and current issue?
Pause, step back and draw breath.
We bring together some matters that trustees and senior management should consider as they return to normal following the pandemic:
- Comprehensive and up to date budget/cash flow projection for next year and beyond.
- Have these been stress-tested? What is the best, likely and worst-case scenario?
- Does it help identify cash flow ‘pinch points’ during the year?
- What actions can be taken to reduce pinch points?
- Are all costs essential or are some only “desired”?
- How does the budget outcome compare to reserves held freely now – What does this highlight?
- Has the cost of living increase been factored in?
- Consider the charity’s asset and fund balances.
- What is tied up in current assets and how easily convertible is it to cash?
- If the charity has property, is sale and leaseback an option? Can part of the space be rented out / serve another function?
- Is the reserves policy up to date? What are reserves held for and can they be released?
- Have all unspent restricted fund balances been considered for alternative use (with funder consent where applicable)?
- If the charity has permanent endowments – what is the possibility and practicality of going back to the funder to seek re-classification to expendable?
- Consider your charitable objectives and the best way to meet them
- Does pre-pandemic operational strategy still apply in a post-pandemic world? (The trustees are collectively responsible for the safeguarding of charity assets to ensure charity objectives are being met now and in the future.)
- What are some other / inventive ways of conducting the same charitable activity and does it continue to meet the charitable objectives?
- Have all existing charitable activities been sufficiently questioned to determine their impact? Could resources be redirected in a more efficient way?
- Maximise the use of the statutory accounts and trustees report to tell your story
- A well-written trustees’ report that demonstrates the charity’s thought-out plans strengthens confidence in the decision-making process of potential funders and users of accounts.
We are seeing more and more of our clients seek to challenge existing strategy and implement change to safeguard the future of their charitable organisations. As you consider the environment after COVID-19, AAB is here to assist.
If you would like further information about the safeguarding of charitable organisations or similar issues, don’t hesitate to contact Jakub Rolinski or any member of our Public Sector & Not for Profit team.