The requirement was new in 2021/22 and it seems that the approach across the sector varied but most trusts included very little in their accounts. The Direction references Charity Commission guidance, and we recommend that CFOs, Accounting Officers and trustees involved in writing the governance statement review this guidance. It explains how conflicts can lead to decisions that are not in the best interests of the charity, and which are invalid or open to challenge, and sets out the type of procedures charities would be expected to have in place to manage potential conflicts. The guidance also has a checklist to help charities address a conflict of interest.
We feel it is important that in this section trusts cover how:
- conflicts of interest are identified;
- the trust prevents a conflict of interest from affecting the decision; and
- conflicts of interest are recorded.
Identify – trustees have a personal legal responsibility to avoid conflicts and to act only in the best interests of the trust. In order to identify conflicts, trustees need to have an understanding of the rules, and where or how conflicts can arise. To help them with this, it is good practice to have a written conflicts of interest policy and register of interests as these can help individual trustees and the trustee body to identify conflicts of interest promptly. The Charity Commission guidance contains suggested content for inclusion in a conflicts of interest policy.
Prevent – how trustees prevent an identified conflict from affecting decision making will depend on the circumstances, although the most common approach is to ensure that affected trustees do not participate in any decisions where they stand to gain, whether directly, or indirectly. However, for serious conflicts of interest, it may be necessary to completely remove the conflict of interest if this is practically the only effective way of demonstrating trustees have acted in the best interests of the trust.
Record – in addition to maintaining a register of business interests, it is important that trusts formally record any conflicts of interest which arise, and how they were handled. A proper record should be maintained of all discussions and the decision, usually in the minutes of trustee meetings. Records should be suitably detailed so as to disclose: the nature of the conflict; which trustee was affected; whether any conflicts were declared in advance; an outline of the discussion; whether anyone withdrew from the discussion; and how the trustees took the final decision.
We have reviewed a sample of large MAT 2022 financial statements and have extracted the conflicts of interest disclosures to provide a flavour of how some trusts approached this last year. You’ll see that one trust included very extensive disclosures which ran to around a page but this was very much the exception. Whilst the other examples are not so lengthy, they each contain some good ideas and whilst it goes without saying that you need to make the disclosures as personal to your trust as you can, hopefully the examples will provide some inspiration over what to include in your trust’s governance statement to explain how conflicts of interest are managed.
The next step
If you have any further questions regarding this insight, please contact Allan Hickie, or your usual UHY adviser.