News in focus: The search for the missing millions

Indira Das-Gupta

Inactive charities and dormant accounts can be a vital source of charitable treasure.

When the Jemima Khan Afghan Refugee Appeal was forced to formally wind up after being 'named and shamed' for failing to file its annual accounts (Third Sector, 9 February), it represented just the tip of the iceberg. The Charity Commission's dedicated Inactive Charities Unit has its hands full with an estimated 7,000 inactive charities, yet little is known about what exactly it does and how extensive its powers are.

"The term inactive is misleading, as it actually refers to charities we have lost touch with," says Paul Fredericks, head of compliance and enforcement for the Charity Commission. "Bigger charities - those with an income in excess of £10,000 - are legally obliged to file a report of their accounts. If they don't, the commission pursues them straight away. Those with an income of less than £10,000 don't have to file a report, but are meant to update their details if necessary. If the commission doesn't hear from a charity for three years, they investigate whether or not it's still active."

Making contact

There are a number of ways in which the unit might try to contact a charity it suspects has become inactive, such as working with umbrella organisations and grant bodies to try to locate trustees. If all else fails, the unit can invoke Section 9 of the Charities Act 1993. Fredericks explains: "We work with the British Bankers' Association to encourage individual banks to assist us. This might involve supplying an address to which they send correspondence. Sometimes this might be the private home of someone who is no longer a trustee of the charity."

Last week also saw the commission criticise the Tim Henman Charitable Foundation for poor accountability. Andrew Brown of the Association of Charities believes that the commission's extensive powers are necessary to maintain public faith in charities. He said: "It's important that people can trust in charities and know that when they donate money, it will go to the beneficiaries and not just sit in a bank account. The commission needs these powers to stop those charities that drift into incompetence." Jean Dollimore, a partner in the charities team at Hempsons law firm, agrees.

She says: "If the trustees were doing what they should be doing, then these situations would not arise. In some charities there is no proper governance structure - sometimes new trustees barely know the objectives of the charity because they don't receive a proper induction. It is not enough to just have good intentions. People should be aware that setting up a charity, and then keeping it running, entails a certain amount of responsibility."

In the past two years the commission has removed 411 charities from the register because it has found them to be inactive. In cases such as this, the unit works with the trustees to decide how to distribute any remaining assets. In doing so, it has brought £19m back into account, together with a further £13m worth of assets such as land and property. The unit has successfully re-established some form of contact with 595 charities.

The Dormant Account Project works separately from the Inactive Charities Unit. Known for taking a more proactive approach, it has been dubbed 'the treasure hunt'. Essentially, it tries to identify assets that could be reallocated to other charitable causes - these assets could be in the form of forgotten land or buildings, or charity accounts that have been lying dormant for five years or more. Details of these accounts are published on the commission's website for three months; if nobody claims the assets, they are reallocated to similar causes.

How the redistribution takes place depends on the amount at stake. For example, with the co-operation of Lloyds TSB, the commission identified £500 that had been lying in dormant accounts which was then donated to the NSPCC, the bank's charity of the year. In the case of a much larger sum of £25,000, Jon Thorne, the commission's official custodian for charities, appeared on BBC Radio Bristol's Morning West programme to invite grant applications - 12 recipients eventually received £2,000 each, while a disabled child received the remaining £1,128 to purchase a computer to help with his studies. When deciding how to reallocate the funds from a dormant account, the commission tries to find a similar cause.

In the case mentioned above, the original charity worked with blind and partially sighted people in Bristol. The money was mostly redistributed to charities dealing with the same issues.

While some might raise their eyebrows at the commission reallocating charitable funds in this way, it is worth considering the alternative.

As Jean Dollimore says: "The public would throw its hands up in horror if money collected for charitable purposes was just sitting around and not being used. This has to be the lesser of two evils."

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