The Charity Commission has reminded charities with net current liabilities that they should explain how they are addressing the issue in their Trustees’ Annual Reports (TAR).
In a report published on 6 August, it revealed the results of a review of charities whose accounts recorded net current liabilities, where funds are not enough to cover current debts.
It found that of the 98 accounts reviewed, nearly half the charities (42) failed to highlight the issue in TARs, missing the opportunity to explain to stakeholders how they were managing the risk.
A total of 56 charities were either funding liabilities through payments received ahead of a service being provided or using bank loans and overdrafts. Many charities had found a sustainable way to continue with net current liabilities but five were in liquidation or no longer operating.
Nick Allaway, the commission’s head of business services, said: “A net current liability doesn’t necessarily mean that a charity is facing financial difficulties, but if this situation continues for a sustained period then the charity’s long-term survival must be questionable.
“Trustees should use their Trustees’ Annual Report and accounts as an opportunity to reassure their funders, supporters and beneficiaries that they are actively managing the situation.”
Seeking professional advice and expertise can be a sensible step for charities in dealing with net liabilities and managing associated risks, as well as enhancing broader financial efficiency. For more information on how Nicklin’s charity specialists can help, please contact us.