Staying on the right side of the Charity Commission

Third Sector Promotion Markel

In this guide for trustees, Wendy Cotton, social welfare underwriter at Markel, looks at how they should comply with the regulator's guidance.

This is a sponsored feature supplied by Markel

Over the past year, the Charity Commission has been accused of not doing enough to tackle mismanagement and abuse in charities. A prime example is the Cup Trust scandal, where the charity spent only £55,000 of its £176.5m in private donations on good causes. The commission carried out a non-statutory inquiry into the trust between March 2010 and March 2012, but concluded that it could not take legal action because it was unable to demonstrate that its trustees had breached their legal duties.

To become a more effective regulator, the commission has in recent months released numerous pieces of guidance for trustees. Last month, a series of podcasts were released on the commission’s website to help trustees understand their duties under charity law and prevent problems from arising in the first place.

Launching the podcast series, the commission’s chief executive, Sam Younger, said: "The commission as regulator is getting tougher on mismanagement and abuse in charities." The tougher regulations being put in place apply to charities of all sizes. Trustees are now being scrutinised further by the commission, because they are ultimately responsible for the general control and management of the administration of a charity.

Recent guidance issued by the commission that emphasised how trustees must act within charity law included the following:

Filing accounts on time

The commission is thinking about cracking down on charities that file their accounts late by introducing fines and penalties, such as the withdrawal of Gift Aid. Charities registered with the commission are required to file annual reports declaring details of financial operations and providing information on accounts and returns. Failure to do this suggests a lack of control over finances and can prompt investigation by the commission. Earlier this year, an inquiry was launched into 12 ‘double default’ charities that had failed to submit their accounts for at least two of the past five years.

Consider responsibilities when making a decision

Guidance issued by the commission in July outlined the key aspects of legal and justified decision-making by trustees. In brief, this identified that when making decisions, a trustee must:

- Use their powers only for purposes for which they were intended.

- Make decisions only on matters that they believe will genuinely benefit their charity and are in keeping with honest intentions.

- Ensure that decisions have been made collectively, with participation from all trustees.

- Make informed decisions – for example, considering the risks and benefits, and alternatives to the decisions made.

- Put the time and consideration into making decisions to ensure they can provide justification.

- Seek professional advice and guidance on any matters about which they are unsure.

- Record all decisions properly – ideally as minutes of meetings – and include justification in these records.

- Abide by the decision once it has been made.

Maintain awareness of fraud and money laundering

A trustee could be held responsible for theft of money or goods committed by staff, or other incidents of fraud. Measures can be taken to keep systems protected, such as locking down finance areas to staff working in that department and getting advice from an accountant or auditor. If staff such as carers have access to client funds, it should be ensured that there is proper documentation of client visits. Audits on a regular but random basis can also prevent misdemeanours from occurring.

Ensure grants and charity funds are used appropriately

Grants and charitable funds must be used reasonably and only to further a charity’s objectives. Trustees must ensure that their charity operates in accordance with its governing document and that it remains true to the charitable purpose and objects set out therein. Any appeal a charity makes must describe fully what donations will be used for, and it is important that contracts are drawn up for professional fundraisers acting as agents. If investing charity funds or borrowing funds, measures must be taken to ensure the proper processes and documentation are in place.

Wendy Cotton is a social welfare underwriter at Markel

For advice on handling a worst case scenario – when an investigation is opened against a charity trustee – read our article on minimising the effects of a regulator investigation

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