What lessons can faith organisations learn from recent Charity Commission inquiries?

Many reports emphasise that charity trustees are jointly and equally responsible for the management of their charity. They should always bear in mind their over-riding duty to take decisions that are in the best interests of the charity. This means making sure the charity is managed in accordance with its governing document and general law and best practice.

A running theme in many of the recent inquiry reports has been around financial controls. It’s really important that financial activities are properly recorded and that a charity’s financial governance is transparent. Every charity’s accounting records must be sufficient to show and explain its transactions and disclose with reasonable accuracy its financial position. This is because charities need to be accountable to their donors, beneficiaries and the wider public. Donors need to be confident that the money they give will go to the legitimate causes of the charity otherwise they will simply look elsewhere to donate their money and there is a reputational risk to the charity.

Trustees must comply with statutory accounting and reporting requirements to ensure accountability and that the charity is complying with the law. Internal financial controls are essential to help trustees meet their legal duties to safeguard the charity’s assets and to administer the charity’s finances and assets in a way that identifies and manages risk. The Commission’s guidance ‘Charity Finances: trustee essentials (CC25)’ is a useful guidance note covering managing your charity’s assets and resources, from cash and investments to staff and volunteers.

If, due to the nature of the charity, its work, location and /or set up the trustees delegate supervision of financial arrangements to one or a small number of trustees or employees, they need to ensure that there are arrangements in place for proper reporting back to the whole trustee body. In this way, system failures or issues can be identified at an early stage.

Charities are expected to have internal policies which address the specific risks associated with the types of activities that are undertaken by the charity. These policies need to be effectively implemented and reviewed at regular intervals. These should appear on the trustees’ cycle of meetings annually or as otherwise appropriate. Where an incident occurs which requires following a policy or procedure put in place by the charity, it is sensible to review how effective the policy was once the incident is dealt with and update or improve it as necessary. The Commission warns in one report that ‘a failure to implement internal policy documents could be evidence of mismanagement in the administration of the charity and can put assets, beneficiaries and the charity’s reputation at risk.‘

Trustees cannot by law 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, from the Commission or the Courts. Further guidance can be found in the Commission’s publication ‘Trustee expenses and payments (CC11)’.

There is an increased chance of a conflict of interest when there are only 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. Putting in place a conflicts of interest policy and procedures to identify and manage such conflicts is the first step to ensuring conflicts are appropriately managed. It is vital that trustees avoid becoming involved in situations in which their personal interest may conflict or may be seen to conflict with their duties as trustees. The Commission has published guidance for trustees about the legal and regulatory requirements relating to conflicts of interest and how trustees can identify and manage them called ‘Conflicts of interest: a guide for charity trustees (CC29)’.

Charity trustees have a general duty to manage their resources responsibly, reasonably and honestly. This means not exposing their charity’s assets, beneficiaries or reputation to undue risk. It is about exercising sound judgment and then taking reasonable steps to ensure that these are followed. Where charities own land or buildings, trustees need to know on a continuing basis what condition it is in, that it is being properly used and that it has adequate insurance in place. Further guidance is available from the Commission ‘Charity land and property’