Charities often assume that any danger of getting involved with terrorism would involve finance. A recent case reminds trustees that the risk is wider than that. The Charity Commission has criticised a charity for providing an open-ended letter of credential to a person travelling with a Syrian aid convoy. The letter requested any governments/officials to allow Syed Hoque, who has now been convicted of offences under the Terrorism Act 2000, to travel freely in order to access the Syrian people. The trustees were criticised for their lack of due diligence, which amounted to misconduct. It is an important reminder that individuals might seek to exploit charities without necessarily accessing the charity’s funds.
The new "corporate criminal offence", introduced by the Criminal Finances Act 2017, requires organisations to take steps to ensure that they have reasonable procedures in place to prevent the facilitation of tax evasion by associated parties. Based on the Bribery Act 2010, the new legislation took effect from 30 September 2017, but many charities seem to assume that its title implies it does not affect charities. This is untrue. The legislation is widely drawn and can apply to the evasion of any tax, including indirect taxes, not just in the UK but anywhere in the world.
With no de minimis and a possible risk of unlimited fines and criminal prosecution, charities need to consider their risk of exposure and establish reasonable prevention procedures, not just in relation to donors, but also in areas such as employment, the use of contractors and their supply chains.
Charities should report "serious incidents" to the Charity Commission as they arise, rather than just at the year-end as part of the annual return process. The commission has recently revised its guidance, so trustees should update themselves on matters that the regulator expects them to report, many of which are finance-related.
The main categories of reportable incidents are: financial crimes, such as fraud, theft and money laundering; large donations from unknown or unverifiable sources, or suspicious financial activity using the charity’s funds; other significant financial loss; links to terrorism or extremism, including proscribed organisations, individuals subject to an asset freeze or kidnapping of staff; suspicions, allegations or incidents of abuse involving beneficiaries; and other significant incidents, such as insolvency, forced withdrawal of banking services, or actual/suspected criminal activity.
Points to note from the revised guidance include: that financial losses should be reported if sufficiently significant, or effectively if they could be "life-threatening"; that charities should continue to report to Action Fraud and/or the police; a table of examples is provided to encourage more reporting and make decision-making easier for trustees; and there is a helpful checklist if issues to consider when reporting fraud or theft.
The long-running saga of how charities’ trading subsidiaries deal with their profits in the year-end accounts is nearing a conclusion. The Financial Reporting Council has issued an exposure draft proposing new rules that would simplify the accounting. In practice, different charities and different accountants have had various approaches to this issue. Some have been brutally technical; others have been somewhat more relaxed. The proposed solution tries to square the circle by suggesting that because the Gift Aid payment from a subsidiary is like a dividend, it must be shown after the profit line. However, if the Gift Aid payment is likely to be made, then there is no need to disclose any tax payable.
There needs to be some justification for showing the payment as a cost before it is paid – sadly, under the current proposals, this means reintroducing deeds of covenant. Assuming nothing changes, charities need to get these in place before their year-ends.