Major UK NGO faces 'uncertainty' over future after FCDO cuts

British NGO CARE International UK, which filed its accounts more than 400 days late this week, admitted there is "material uncertainty" over the organization's future after it saw a big drop in funding from its main backer, the Foreign, Commonwealth & Development Office. The charity warned in its accounts for the fiscal year to June 2021, published this week on the U.K. Charity Commission website, that there is uncertainty over whether it remains a “going concern,” and is therefore financially stable enough to guarantee its future operation. The accounts show that the charity, which fights poverty and social injustice globally, had revenue of £62.7 million, down 15% on the previous year — a drop CARE blamed on U.K. government aid cuts. “The economic impact of the Covid-19 pandemic led the UK government to reduce official development assistance, which had a significant impact on the income of CARE International UK in the financial year ending 2021 and going forward,” the charity said in the accounts. “This reduction in income presented a challenging financial environment for the Charity, and we amended our strategy and operations, resulting in a corporate restructure.” In both F.Y. 2020 and 2021 CARE received a little over 71% of its income from FCDO, making it unusually dependent on FCDO for income, compared to other U.K. charities, and therefore particularly vulnerable to changes in U.K. government policy. The charity has £2.8 million of unrestricted reserves — funds to deal with unexpected surprises, which are not earmarked for a particular project. These sit at a low level compared to other, comparably sized U.K. NGOs, several of which hold reserves of well over £10 million, giving CARE limited ability to weather a financial storm. But the charity highlighted that it had increased its unrestricted reserves from £1.4 million in the previous year, and says it expects this level to rise again to £3.4 million in its 2022 accounts. CARE’s comparatively low levels of reserves are also driven by the charity’s dependence on FCDO spending. Since FCDO spending is typically earmarked for a particular project, the charity has relatively little income that can be channeled into free reserves. CARE also acknowledged that it had placed itself at greater risk by filing accounts so late — typically seen as a red flag by funders, who use accounts as a means to assess the reliability of potential grantees. The accounts said charity leaders had modeled the organization’s ability to keep working in different scenarios. Leaders were confident it could continue to operate if it suffered a drop of as much as 20% in income from its main sources, but not if income from those sources dropped by twice as much. “While mitigations could be put in place, for example a reduction in staff and non-staff costs, the challenges in doing so within a reasonable timeframe and the resultant knock on impact on programme delivery and fundraising are uncertain. For this reason, the Trustees have concluded that there is material uncertainty relating to going concern. Trustees remain committed to taking all available actions required in terms of cash management and control of expenditure to ensure a worst-case scenario is avoided.” The charity’s auditors also drew attention to the trustees’ warning over whether the organization remained a going concern. This is the second year in a row that the charity’s accounts have contained these “material uncertainty” warnings, with the previous year’s accounts highlighting uncertainty in accessing sufficient working capital. Accounts for the year to June 2022 are now due and were already 66 days late at the point of publication. A CARE International UK spokesperson said: “These statements have had no bearing on CARE International UK’s ability to carry out its work. In both years, the Audit Opinion was unqualified and not modified in respect of going concern. “The late filing of our FY21 and FY22 accounts was caused by the cumulative impact of the Covid-19 pandemic and the sudden budget reduction of our main donor, the FCDO, followed by a series of staff changes and restructures. These factors delayed the submission of our FY20 accounts, which has had a regrettable knock-on effect on the timely submission of our FY21 and FY22 accounts. With FY21 accounts now published, we are focused on progressing our FY22 accounts. This audit will start in late July and will be completed later this year.”