On 19 November 2018, the charity – The Retreat Animal Rescue -was placed into the Double Defaulter Class Inquiry (‘the class inquiry’) which investigates charities which have defaulted on their statutory filing obligations with the Commission on two or more occasions in the last 5 years.
The charity failed to submit its annual accounts and returns (‘the financial information’) for the years ended 26 August 2016 and 26 August 2017 to the Commission. The financial information was subsequently submitted, but the charity again failed to file the financial information for the year ended 26 August 2018 on time.
The Charity Commission concluded that the former trustee board were responsible for misconduct and/or mismanagement in the administration of the charity and in breach of their trustee duties which are outlined in the Commission’s guidance CC3 – the essential trustee.
As part of the publication outcome of the inquiry the charity commission uses this as an opportunity to highlight the broader issues arising from the Commission’s assessment of the issues raised publicly that may have relevance for other charities.
The charity commission remind us that the law states that trustees cannot receive any benefit from their charity in return for any service they provide to it or enter into any self-dealing transactions unless they have the legal authority to do so. This may come from the charity’s governing document or, if there is no such provision in the governing document, the Commission or the Courts. The Commission’s guidance on Trustee expenses and payments (CC11) can be found here.
They also remind us that trustees of charities with an income of over £25,000 are under a legal duty as charity trustees to submit annual returns, annual reports and accounting documents to the Commission as the regulator of charities. Even if the charity’s annual income is not greater than £25,000 trustees are under a legal duty to prepare annual accounts and reports and should be able to provide these on request. The Commission has produced guidance to assist trustees in implementing robust internal financial controls that are appropriate to their charity. The Commission’s guidance on Internal Financial Controls for Charities (CC8) can be found here.
Finally the commission prompts us about how conflicts of interest are more likely when there are only a small number of trustees on the board, when trustees are closely related, or when the charity has dealings with organisations in which the trustees have interests. It is vital that trustees avoid becoming involved in situations in which their personal interests may be seen to conflict with their duties as trustees. The trustees should put in place policies and procedures to identify and manage such conflict. Further guidance and advice on conflicts of interest can be found in the charity commission guidance CC29 found here.
Further details on this charity inquiry can be found here.
Charity Inquiry: The Alternative Animal Sanctuary – wider learning for the sector
In February 2016, the Commission received a report from the charity’s former auditors in relation to the audit of the charity’s 2015 accounts. This report identified various concerns and deficiencies in the charity’s internal financial controls and a lack of effective governance by the trustees. These concerns included no evidence of trustee meetings, incomplete and missing financial records and a lack of segregation between personal and charitable funds.
Following receipt of this report, and a period of information gathering in respect of the charity’s finances, the Commission identified that the charity was party to a direct mailing agreement (‘the Agreement’) with a specialist direct mailing agency (‘the Agency’) . The charity commission identified concerns as to whether legal requirements were being met, specifically under section 60(1) of the Charities Act 1992, regarding the transparency of this Agreement and its associated fundraising material. The inquiry closed with the publication of this report.
The wider learning for the sector is to remind the charity sector that trustees are jointly and equally responsible for the management of their charity.
To be effective and to meet their statutory duties as charity trustees they must contribute to the management of the charity and ensure that it is managed in accordance with its governing document and general law. They should be able to devote sufficient time to enable them to play a full role. A charity is entitled to the independent and objective judgment of each of its trustees, acting in the best interests of the charity.
Making decisions is one of the most important parts of the trustees’ role. Trustees must follow the 7 principles that the courts have developed for reviewing decisions made by trustees. Trustees must:
- Act within their powers
- Act in good faith and only in the interests of the charity
- Make sure they are sufficiently informed
- Take account of all relevant factors
- Ignore any irrelevant factors
- Manage conflicts of interest
- Make decisions that are within the range of decisions that a reasonable trustee body could make
It is important that charity trustees apply these 7 principles when making significant or strategic decisions, such as those affecting the charity’s beneficiaries, assets or future direction.
Conflicts of interest are more likely when there are only a small number of trustees on the board, when trustees are closely related, or when the charity has dealings with organisations in which the trustees have interests. It is vital that trustees avoid becoming involved in situations in which their personal interests may be seen to conflict with their duties as trustees. The trustees should put in place policies and procedures to identify and manage such conflict.
Further guidance and advice on conflicts of interest can be found here.
Further details of the Charity Inquiry and wider learning for the sector can be found here.