Key Insights from the Charity Sector Risk Assessment 2025
Back in September, the Charity Commission published their Charity Sector Risk Assessment which provided a detailed overview of the current and emerging risks facing charities in England and Wales. Drawing on data from annual returns, serious incident reports, and regulatory casework, the report identifies key areas of concern that trustees, charity leaders, and legal advisors should be aware of. Understanding these risks is essential for maintaining public trust and ensuring that charities can continue to operate effectively and sustainably.
Financial Resilience
Financial resilience is highlighted as the most significant risk to the sector. The report reveals that the gap between income and expenditure across charities has narrowed dramatically, falling by 77% in the past year – from £3 billion to just £701 million. Larger charities are spending significantly more to deliver their charitable aims, with a 23% increase in expenditure compared to 2019. Alarmingly, over 42% of charities reported spending more than they earned in 2023, and the number of insolvency-related cases has nearly doubled year-on-year. Smaller charities are particularly vulnerable to financial distress.
To mitigate these risks, trustees are encouraged to align their income forecasts with operating costs, strengthen financial reporting and forecasting practices, and consider collaborative models such as mergers or shared services. The Commission offers guidance on financial management and charity mergers to support these efforts.
Risks to Public Benefit and Charitable Purpose
The report also warns of increasing attempts to misuse charitable status for private gain. This includes a rise in fraudulent applications for charitable status, situations where one trustee exerts disproportionate control over decision-making, and vulnerabilities caused by a lack of understanding of legal duties among trustees.
Charities can address these risks by implementing robust financial controls, ensuring that trustee boards are sufficiently staffed and independent, and following Commission guidance on conflicts of interest and trustee payments.
Governance Challenges
The Commission notes ongoing difficulties in recruiting trustees, disputes within federated charities, and cases where local authorities mismanage community assets due to a lack of awareness of their responsibilities.
To support good governance, the Commission recommends resources such as “The Essential Trustee” and offers advice on effective meetings and decision-making processes.
Safeguarding Risks
Safeguarding remains a critical area of concern. New threats are emerging, including online harassment of charity staff and the use of deepfake technology in safeguarding breaches. Trustees have a duty to ensure that safeguarding policies are in place and cover staff, volunteers, and beneficiaries. Serious incidents must be referred to the appropriate agencies and reported to the Commission.
Fraud and Financial Crime
The upcoming “failure to prevent fraud” offence, coming into force in September 2025, introduces new legal responsibilities for larger charities, heightening the importance of robust internal controls.
To help charities manage this risk, the Commission provides guidance on internal financial controls and protecting your charity from fraud.
Cyber and Technology Risks
As charities increasingly adopt digital tools and artificial intelligence, they must remain vigilant against cyber threats. Phishing and social engineering attacks are becoming more common, and there are growing ethical and legal concerns around automated decision-making.
Charities are advised to review their cybersecurity protocols and engage with Commission guidance on AI and digital transformation to ensure responsible use of technology.
Social Tensions and Public Engagement
Charities that engage in campaigning or public debate must navigate a polarised media landscape. Missteps in communication can damage a charity’s reputation and erode public trust. It is essential that messaging aligns with the charity’s purposes and complies with regulatory expectations.
The Commission provides guidance on political activity and social media use to help charities manage these risks effectively.
Conclusion
The Charity Sector Risk Assessment 2025 underscores the complexity and resilience of the sector. For trustees and legal advisors, proactive risk management and adherence to regulatory guidance are more important than ever. As the sector continues to evolve, staying informed and prepared will be key to maintaining public trust and delivering meaningful impact.
To read the full report, visit Charity Sector Risk Assessment 2025 – GOV.UK.
