When the Charity Commission (‘the Commission’) announces the opening of a statutory inquiry into a charity, it normally reports on the outcome of the investigation. The Inquiry Reports are available on their website and are useful sources of information on what can go wrong in a charity’s governance and areas that trustees should look out for and focus on improving if needed.

Four Inquiry Reports were released in July and August 2024.

We summarise below the main matters that were examined by the Charity Commission and broader issues that are highlighted because of their wider applicability and interest to the charity sector.

Case 1

This inquiry investigated and concluded that there was serious misconduct and/or mismanagement by former trustees in the charity’s administration and management, in respect of their conduct in connection with loans made to a property developer.

The former trustees, had not complied with or fulfilled their duties as trustees and demonstrated a failure to:

  • act in the charity’s best interests
  • manage the charity’s resources responsibly and avoid exposing the charity’s assets to undue risk
  • take advice and be sufficiently informed
  • act with reasonable care and skill

Issues for the wider charity sector

When considering high risk decisions particularly those involving significant sums of money, trustees should discharge their legal duties by taking and properly considering independent professional advice as they would be exposing the charity and its property to significant risk by failing to do so. Donors and beneficiaries have a right to expect trustees to take appropriate steps to protect property of the charity.

Trustees are jointly and equally responsible for the management of their charity. They must ensure that their charity has adequate financial and administrative controls in place, and that the funds of their charity are applied for the benefit of the public for which it has been set up.

Case 2

This case examined several areas including:

  • the administration, governance and management of the charity by the trustees and whether the trustees have complied with and fulfilled their duties and responsibilities as trustees under charity law and whether there had been misconduct or mismanagement by the trustees
  • the charities’ handling of safeguarding matters, including the creation, development, substance and implementation of its safeguarding policy and review procedures

Issues for the wider charity sector

Safeguarding - Protecting people and safeguarding responsibilities should be a governance priority for all charities. As part of fulfilling their trustee duties, trustees must take reasonable steps to protect people, who come into contact with their charity, from harm.

Effective trustee boards lead by example, setting and owning the charity’s values, setting the standard and modelling behaviours that reflect those values, and requiring anyone representing the charity to reflect its values positively. Failures to protect people from harm should be identified and lessons learned and there should be full and frank disclosure, including to regulators. There should be clear consequences for anyone whose conduct falls short of what is required regardless of how senior they are.

The Commission expects trustees to act responsibly in responding to allegations of abuse. This includes the need to report serious incidents to the Commission where appropriate. Reporting serious incidents demonstrates that a risk to the charity has been identified and appropriate action is being taken. The Commission provides guidance to help trustees determine which incidents are serious and when and what they need to report.

Case 3

The inquiry examined and concluded that there was misconduct and/or mismanagement in the administration of the charity in respect of the filing of accounting information, the paying of unauthorised trustee remuneration, and a failure to manage conflicts of interest by the previous trustees.

Issues for the wider charity sector

Trustees are representatives of the charity they govern or the charitable funds they are responsible for. Trustees must be aware of and act in accordance with their legal duties. When the conduct of trustees falls below the standards expected there can be damage to the reputation of individual trustees, the charity and possibly the wider charity sector.

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
  • 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. Further guidance and advice on trustee duties can be found on GOV.UK.

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. 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 on GOV.UK.

Case 4

The Commission investigated and concluded that there had been serious misconduct and/or mismanagement in the administration of the charity which was sustained over a substantial period. The trustees failed to act with reasonable care and skill, in particular in relation to its operating in cash.

The charity’s safeguarding practices were inadequate – for example there was a lack of trustee oversight and reporting – which placed the charity’s beneficiaries at risk.

Issues for the wider charity sector

It is a fundamental duty of charity trustees to protect the property of their charity and manage its resources responsibly and reasonably. This means not exposing their charity’s assets, beneficiaries or reputation to undue risk.

Every trustee should have clear oversight of how safeguarding and protecting people from harm are managed within their charity. This means trustees need to monitor their performance in this area, not just using statistics, but with supporting information, such as qualitative reports.

Trustees must ensure that their charity has adequate financial controls and policies in place. Proper financial controls play an essential part in helping to show potential donors and beneficiaries that a charity’s property is safeguarded, and that its management is efficient.

Payments in cash should be kept to an absolute minimum due to the greater risk that handling cash presents and difficulties that can arise in establishing correctness and control over significant cash transactions.

These inquiry reports show that charities can be complex organisations with several risks and areas that need to be carefully controlled and managed. Strong controls and procedures need to be put in place to mitigate risks. Al trustees are equally responsible for the governance of their charity. All the inquiry reports that have been made public can be viewed here.

The next step

If you would like to discuss your charity’s controls and governance with one of our experts, please contact your usual UHY adviser or get in touch with Colin Wright on c.wright@uhy-uk.com or one of our charity sector experts.

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