Scottish charities need to mitigate future financial risks warns RSM

With transparency hitting the headlines, audit, tax and consulting firm RSM is advising Scottish charities to review all operations on a regular basis to mitigate financial and reputational risk.

Leading charities from Aberdeen, Edinburgh and Glasgow discussed a range of governance issues at a recent RSM event and the majority (63 per cent) believe there is a significant risk of large financial failures in the future. The impact of FRS 102, pension deficits, pressures on local authority budgets and any further changes to funding from the new Scottish Government were all cited as pressure points. 

In addition, 80 per cent of charities confirmed the market was tough and operating in a recessionary environment remains difficult resulting in many diversifying and restructuring services to reduce risk. 

Janet Hamblin, audit partner at RSM, said:

‘In an ever-changing political landscape, it was surprising to see that only 18 per cent of charities have taken account of the Scotland Act 2016  and increased devolutions of taxes as part of their risk planning. With devolution of certain welfare benefits and employment support; and the introduction of fiscal responsibility for the Scottish Rate of Income Tax, share of VAT revenue and other devolved taxes, the impact on operations and potentially on gift aid and VAT reliefs could be significant for Scottish charities and businesses in the mid to long term both in terms of increased risks and managing opportunities.

‘As pressure for greater transparency around public sector finances continues to build momentum and the sector deals with the knock on impact of the high-profile collapse of Kids Company with the UK Government already consulting on further controls over government grants to Charities, there is a growing need for charities to take action and review their operations to ensure they identify and manage strategic risk effectively.’