Increased rigour from the Charity Commission

Menzies icon of a scaleThe last few months have seen an increased number of instances of Charity Commission interventions and reports highlighting major deficiencies within charitable organisations. According to the Commission, the regulator has opened more than 2,000 cases in the year to March 2018, up from 1,664 the previous year.

Recent high profile cases such as the Oxfam scandal has in part led to this increased oversight as well as the number of serious incidents reported to the regulator by third parties. Safeguarding issues continue to feature highly in the Commission’s compliance case work. The regulator opened 552 new safeguarding cases in the year ended March 2018, compared to 302 in 2016/17 and 163 in the preceding year.

It is also worth noting that the Charity Commission has used new legal powers on over 130 occasions since they were introduced in the Charities Act 2016. The 2016 Act provided a range of new enforcement powers to the regulator, including the power to disqualify individuals from charity trusteeship, and to issue Official Warnings to a charity or an individual trustee.

A report published last month shows that, in total, the Commission has used new powers on 137 occasions; this has included disqualifying 21 and suspending 7 individuals from trusteeship, and removing 12 individuals as a trustee during an inquiry.

Latest published reports

The Cup Trust

The Cup Trust highlighting “clear mismanagement and misconduct” with regards to tax avoidance schemes and a failure of the corporate trustee to fulfil its legal duties as trustee. It is worth noting that during the investigation the Commission used these new powers to disqualify both the corporate trustee and three individuals who serves as directors of the corporate trustee from charity trusteeship.

J.E.L.A Foundation

J.E.L.A Foundation is a London-based charity that was set up to help people in Haiti and those of Haitian descent living in the UK. The Commission identified discrepancies of over £200,000 between what was declared in the charity’s annual returns for the last five years, and the bank transactions carried out during the same period. It also identified repeat payments from the charity to one of its trustees expressing concern around misapplication of funds and highlighting to us the importance of transparency when it comes to conflicts of interests.

Muslim Aid

The Commission opened a statutory inquiry into what was then Muslim Aid in November 2013 over concerns of significant financial loss to the charity, serious governance failures, poor financial controls and loss or misuse of charitable funds for improper purpose, all prompted by a serious incident report. The investigation recognised that although the charity did carry out vital relief work around the world, the trustees could not demonstrate to the inquiry that they had ensured the charity had adequate due diligence and monitoring arrangements in place which evidenced that all of its funds had been properly applied. As such the Charity Commission concluded serious mismanagement and highlighted the importance of due diligence within grant making organisations. The charity has now been relaunched with a fresh board of trustees. This was a substantial charity with income of over £30m so the Charity Commission are not restricting their attention to smaller more informal organisations and are not afraid to completely replace trustee boards.

The Alternative Animal Sanctuary

Finally, last month the Commission appointed interim managers to The Alternative Animal Sanctuary due to continued concerns around governance and management.

Menzies microscope iconIt is clear to see that the Charity Commission expects trustees to take their responsibilities seriously, continue to issue relevant guidance and have the power to intercede when serious incidents are found or reported. When the Commission looks into cases of potential breach of trust or duty it may take account of evidence the trustees have exposed the charity, its assets or its beneficiaries to harm or undue risk by not following good practice. Trustee boards are ultimately responsible for everything the charity does. The essential trustee: what you need to know, what you need to do (CC3) explains the key duties of all trustees of charities in England Wales and what trustees need to do to carry out these duties competently.

In addition to CC3, the Charity Governance Code was updated in July 2017 and is supported by the Charity Commission. This guidance forms the basis of many trustee training sessions performed by Menzies’ Charity and Not for Profit team and we would recommend our current and future trustees (re)familiarise themselves with the main principles of the Code and CC3.

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