Improvements needed to governance in charities

The Charity Commission statutory inquiries frequently highlight poor governance as a key issue and the findings reported over the past six months again place trustees in the spotlight.  

Whilst the biggest headlines have related to The Captain Tom Foundation, Fashion for Relief and Mermaids, several smaller charities have also been reported on. The findings emphasise that trustees must comply with the legal duties and responsibilities of being a trustee and central to this is the requirement to make decisions that are in their charity’s best interests.   

The statutory inquiry into The Captain Tom Foundation is still ongoing, and a report will be published when it concludes, but the areas being examined raise relevant reminders including: 

• Private benefit to trustees – there must not be any unauthorised private benefit, whether from charity funds, facilities, assets or services.  

• Conflict of interest – this must be appropriately managed with conflicted trustees excluded from relevant decision making. 

• Compliance with duties and responsibilities under charity law – all trustees are responsible and cannot discharge their duties to other trustees or management. 

The findings of the Fashion for Relief inquiry again identified issues around personal benefit and conflict of interest. The key points from the findings were: 

• Payments to trustees for services – must be in the charity’s best interests and represent value for money. A charity must have Charity Commission approval for any remuneration to a trustee, whether in the form of salary or payment for consultancy services. 

• Fundraising – the methods used for raising funds must be in the charity’s best interests and fundraising costs must be reasonable relation to the income generated. 

• Bank accounts – these must be in the name of the charity, not individuals or a related company.  

The inquiry into Mermaids raised that a major factor contributing to its governance failings was that the charity had failed to ensure that its governance, culture and practices kept pace with its growing size, demand for services and public profile.  This highlights the importance of regularly reviewing all aspects of your governance framework which must include both financial and non-financial controls.  As the charity grows, develops and adapts, so too must the policies and controls to ensure they continue to be fit for purpose. 

Whilst conflict of interest and financial governance continued to be common themes in other inquiries, they also identified a number of concerns around the following important areas: 

• Failure to exercise sound decision making – Unsecured lending to a developer was not in the best interest of the charity. 

• Group structure – the use of and funding to subsidiaries, especially those based overseas, must be in the best interest of the charity.  

• Inadequate safeguarding practices – trustees are responsible for oversight of safeguarding and ensuring adequate policies and procedures are in place. 

Across all the reporting, the message from the Charity Commission is clear, whilst day-to-day responsibilities can be delegated to management, trustees must ensure there is a robust governance framework in place and those that don’t, may find themselves being disqualified from trusteeship.  

The Charity Commission has published a number of five minute guides for charity trustees and these are a great way to ensure you understand your role as trustee across key areas including Managing finances, Conflicts of interest and Safeguarding people. We would encourage you to review these and ensure your charity is addressing these points and your duty as trustees is being appropriately actioned. 

If you would like more information on how to ensure your charity is compliant, please click here to get in touch.