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In the last two years there have been some high-profile failures in financial management and governance among charities. Such cases provide a dilemma for public bodies. On the one hand the third sector promises a route to supporting community groups, working in the public interest, or delivering services to the public whether it is through grant funding or contract arrangements. On the other hand public bodies have responsibilities for the stewardship of public funds and need confidence that funding will be used effectively.
The most significant governance and financial management failures are:
Getting the balance right is hard for public bodies. Too little due diligence or oversight could mean they are criticised if the third sector body fails. Too much and they are criticised for imposing bureaucracy on volunteers and diverting charitable funds onto paperwork. Avoiding smaller third bodies as ‘too risky’ could mean that valuable opportunities for innovation or local delivery are lost.
Some of the difficulties that public bodies face themselves, such as uncertainty about their own financial position, may just make the position even more challenging. For example, a public body may opt for short-term contracts because it is uncertain about financial sustainability but this may create difficulties for the third sector in planning its own resources. The results can be sub-optimal for both the public body and the third sector and ultimately the charity’s beneficiaries.
Cracking these issues is not simple but it is vital to meet the governance and financial responsibilities of both the public and third sectors. If not, the UK charity sector will continue to remain at risk, with incidences of failure becoming more common and catastrophic. It would also open up new opportunities.