Charities rightly come under significant scrutiny, and the Charity Commission regularly carry out investigations into charities, often after a whistleblower has tipped them off over a potential issue.
The Commission publishes the details of these investigations and here we briefly summarise some of the recent cases to serve as a reminder of what can go wrong in the charity sector:
Sanctioned trustee removed and charity closed down following investigation
A trustee was sanctioned by the UK government under its Russia Sanctions regime. In the Commission’s view it is not possible for a designated person to act as a trustee.
The trustee’s failure to resign led to the Commission opening the inquiry and suspending the individual as a trustee.
Charity failed to submit accounts and annual reports
In this case the charity concerned had not submitted accounts or an annual return for three years and, consequently, the Commission placed the charity into a double defaulter class inquiry, used for those charities that are in default of their legal duty to file annual reports, accounts and returns for two or more years in the last five years.
After bringing the outstanding information up to date, the charity then continued to fail to submit its accounting information on time.
When the Commission subsequently received the annual return and accounts and Trustee Annual Report (TAR),180 days late, the TAR was incomplete and did not appropriately summarise the main activities of the charity or the main achievements during the relevant year.
After further failure to submit accounts on time, the Commission opened a second statutory inquiry which found that the trustees at the time were responsible for misconduct and/or mismanagement in the administration of the charity.
This case highlights the broader issues that sometimes arise with charities filing the necessary information and the way the Commission take action to ensure trustees are fulfilling their statutory responsibilities.
Irregularities in the charity’s accounts
An inquiry was opened after inconsistencies were identified in the accounts.
The accounts were initially filed late but then, upon submission of the overdue accounts, the Commission identified a number of related party transactions and potential irregularities in the charity’s accounts when compared to information drawn from the charity’s bank statements, leading to a concern about conflicts of interest and whether the charity is operating in line with its objects.
This case is currently ongoing, with the Commission examining to determine whether there has been any financial mismanagement or personal benefit by the trustees, and whether the trustees have identified and managed conflicts of interest in line with their legal duties.
The next step
The purpose of this blog is to highlight some of the recent issues in the sector and to show how the regulator responds to and handles these situations.
Four of our UHY partners are appointed to the approved panel of Interim Managers for the Charity Commission, and are approved to take interim manager appointments for charities identified by the Commission as either being the subject of an inquiry, or where misconduct or mismanagement has occurred. As such, we understand the potential pitfalls for charities and can provide advice to Boards, where required.
For more information, please contact Allan Hickie on a.hickie@uhy-uk.com, or your usual UHY adviser.
