Charity Commission review highlights top risks for charities

Financial resilience risks are the main challenges facing UK charities, according to a new report from the Charity Commission. 

The Charity Commission has published its first-ever risk report, entitled Charity Sector Risk Assessment 2025, analysing key systemic risks facing charities. 

The report is designed to help trustees and charity leaders understand the wider risk landscape in which they operate and to support decision making. It provides an overview of potential risks to the sector, drawing on information submitted in annual returns, Charity Commission incident investigations,  horizon scanning and insights from sector bodies and experts.

"Be clear-eyed" about challenges

The Commission notes that Charities have shown remarkable resilience in facing the challenges that have arisen in recent years, including the COVID-19 pandemic and the 2022-23 cost-of-living crisis. Many charities have reported financial pressures due to increased costs, growing demand and falling donations. 

The report says the sector responded impressively to continue delivering vital services to beneficiaries, including by adopting new ways of working, embracing new technology, and adopting innovative fundraising approaches. 

The Chair of the Charity Commission, Mark Simms OBE, says the charity sector has demonstrated incredible resilience, adapting over time to the most serious challenges and enormous social, political and economic change.  Simms added: "However, individual charities must be clear-eyed about the challenges they face, and take steps to mitigate these.

"In publishing this assessment and sharing more insights from our casework and intelligence, we hope to help trustees steward their charities through challenging times."

Financial resilience a "core risk"

The report identifies three areas of concern:

• Workforce costs: The report highlights concerns about how increasing employment costs and tax changes will impact charities.
• Challenges in securing sustainable public funding:  Government funding to the sector through contracts increased overall but the average value of contracts received per contracting charity remained broadly static despite rising inflation. The average value of contracts awarded to charities with a total income of under £25k dropped by more than 6%.. Sector representatives report that some charities are withdrawing from contracts which fail to cover their costs or are having to make up the shortfall themselves.
• Increasing demand for services: Demand for charity services, particularly those supporting the most vulnerable, continues to increase. 

The Commision report says 42.6% of charities reported expenditure exceeding their income in their 2023 annual return, up from 38.3% in 2022. Some 22.5% of charities reported an operating deficit in their 2023 annual return, up from 20% in 2022.

The Commission stresses the importance of trustees continuing to understand and comply with their duties to provide effective financial stewardship. It says one of the most important things they can do is plan and act on any ‘early warning indicators’ to help manage finances whilst they still have a range of options.

The report also highlights the risk of fraud. It notes that approximately half of fraud against charities comes from inside the organisation.

Poor governance contributes to other risks

The Commission says poor governance can contribute to many other risks facing charities. Some charities have reported difficulties in recruiting sufficient numbers of trustees to provide effective governance.

It says it has also observed issues related to federated charities, such as the potential for disputes within federations and challenges for ‘parent’ charities in overseeing the effective implementation of policies within their branches.

Digital technologies may increase safeguarding risks

The Commission has a specific role with regard to safeguarding, namely to ensure that trustees comply with their legal duties and responsibilities so that charities are a safe and trusted environment. Any failure by trustees to manage safeguarding risks adequately is a serious regulatory concern to the Commission.

The Commission says stakeholders have suggested an emerging risk of technology being used to perpetrate safeguarding harms, such as through the use of deepfake photos and videos. The Commission says it has seen limited examples to date, but notes the potential for charities to be affected, particularly within education settings.

Artificial Intelligence and cyber risks

The report also highlights emerging risks related to artificial intelligence and cyber technologies. It notes that many charities are engaging with generative artificial intelligence (AI) to speed up administrative and communications-based tasks. 

However, the Commission says using AI for decision-making presents legal and ethical risks, and trustees should explore both the possibilities and risks of new technologies. The Commission says it will engage with the sector to learn more about AI's potential and risks

The report also notes the risk of cybercrime affecting charities, and says that recent incidents affecting retailers' online services show the potential risks that could impact charities. 

Risks to public benefit

A charity must operate for the public benefit. Compliance cases opened by the Commission based on alleged abuse of charities for private benefit rose by 23% over the last financial year. The Commission says a small number of charities are deliberately targeted by, or even set up by (or attempted to be set up by), bad actors for private benefit,  which might include misuse of charity property, taking unauthorised payments, falsely claiming Gift Aid or other funding, and sophisticated methods of tax avoidance or evasion.

The Commission applies robust scrutiny and verification when assessing applications for charitable status, and only around half (53%) of the applications it receives are granted charitable status. In the last year, the Commission identified a significant number of sham applications in which an attempt was made to establish a charity under false pretences, although this remained a very small proportion of all applications received.

The data reveals an upward trend in the total number of cases related to concerns about charitable status being abused for private benefit, up from 390 cases in 2022-23 to 479 the following year. Complaints to the Commission about this issue from members of the public also nearly tripled, up from 23 referrals in 2022-23 to 67 in 2023-24.

The Charity Commission is the independent, non-ministerial government department that registers and regulates charities in England and Wales. The Charity Sector Risk Assessment report is the first report of its kind, highlighting the widening range of challenges facing the sector. Other topics covered include social tensions, geopolitical risks, hostile foreign states and operating overseas.

What should trustees do?

The Commission is encouraging charities to consider the issues identified in the report as they review their charities’  risks. 

The Commission also publishes guidance for trustees. Its publication, Managing charity finances, covers actions trustees can take to improve their charity’s finances and  minimise the chances of getting into difficulty, such as active monitoring and review of their charity’s financial position.