BDO: Charities in Scotland under increasing pressure

Scotland's charities are coming under increasing financial pressure, concludes a new research from BDO. According to the accounting and consulting firm, the turnover across all Scottish charities rose by just 0.8% last year, while inflation was 2.6%, resulting in a drop in their real spending power.

The Scottish charity sector is worth £4.9 billion and employs nearly 140,000 people, making it a major driver of the economy in Scotland. Yet over the past years, charities, like all parts of the economy, have been badly affected by the recession. The market experienced a fall in income from donations, bequests, and from contracts with sponsoring organisations.

The latest survey from advisory firm BDO reveals that the ailing market situation has in 2013 had an impact on revenues and reserves. Overall the turnover of Scottish charities rose by just 0.8%, nearly 2% lower than the level of inflation. Medium to large-sized charities (those with a turnover of £1 million plus) – which employ 73% of the sector's workforce in Scotland – struggled the most, reporting only 0.5% growth. According to Martin Gill, partner and Head of Charities at BDO in Scotland, the weak growth may start having an impact of the service quality of charities. “Any fall in income will impact upon the levels of service they provide - often in key areas such as health, social care and housing - and financial stability is essential for charities involved in such crucial work.”

Reserves

BDO in addition signals that charities over the past year have further depleted their reserves. The 488 charities with income between £1 - £5 million have just 4.5 months of reserves; 111 with income between £5 million - £10 million have 5.3 months of reserves; and the 100 charities with income in excess of £10 million have just 5.1 months of reserves. “Some may soon experience financial difficulty if revenues reduce further,” says Gill. Yet he adds there it is in some cases important to look beyond the numbers: “Deficits appear to have worsened in the last year which can be a sign that a charity is struggling financially but that isn't always the case. Some charities may be using cash reserves accumulated in previous years to fund large scale projects.”

Lastly, Gill points out that new pension regulation to be implemented at the end of 2015 is expected to have a further impact on financial performance. “Deficit recovery plans on multi employer defined pension schemes will be coming on to the balance sheet from the end of 2015, which means many larger charities will face large holes in their accounts as they try to balance historic pension deficits into their current finances.”