• 29 Oct 2024
• •
• 3 min read

Recent Charity Commission Inquiry: reminder of key trustee duties

Fundraising and administrative costs associated with a charity are a necessity for most charities, and it is widely accepted and expected that charities will incur a reasonable amount of such administrative costs, but when do these costs become too much?

As a result of the widespread media coverage, many will be aware of the recent Charity Commission’s inquiry into Fashion for Relief (“FfR”), of which well-known model and actress, Naomi Campbell, was a trustee.

FfR’s, whose objectives centred around the prevention of relief of poverty, sickness and distress and the advancement of health and education, was found to be poorly governed, with inadequate financial management and multiple instances of misconduct. Only 8.5% of the charity’s overall expenditure between April 2016 and July 2022 was used on charitable grants, with the Commission finding that some charitable funds were spent unreasonably; this included funds spent on the purchase of spa treatments, room service and cigarettes. Further to this, the inquiry found no evidence that decisions were made in the charity’s best interests and in line with the charity’s operating model.

Fortunately, in this case, £344,000 has been recovered and a further £98,000 of charitable funds has been protected, and these funds have been used to make donations to two other charities to settle FfR’s outstanding liabilities.

Unsurprisingly, these findings have led to the removal of FfR from the Register of Charities and its three trustees have been disqualified from trusteeship for between four and nine years.

What can trustees learn from this?

The facts in this case seem quite extreme, but as with all Charity Commission inquiries there are lessons that can be learnt for the wider sector. These include:

1. Financial Controls
The Commission reiterate how trustees must use their charity’s funds and assets in furtherance of the charity’s purposes; ensuring the funds are used in line with the terms of the governing document and meet any contractual obligations.

Trustees must also ensure that their charity has suitable financial and administrative controls in place, and that the charity funds are applied directly for the benefit of the public for which It has been set up.

It is also important that financial controls are implemented properly within the charity. These controls are incredibly useful in helping to show potential donors and beneficiaries that a charity’s property is safeguarded and has efficient management. It is also important not to lose sight of the fact that trustees collectively have the overall responsibility for the management and administration of the charity.

The Charity Commission guidance helpfully outlines the general principles that trustees should follow when managing the charity’s internal financial controls.

Further detail on these principles can be found in the Commission’s guidance here, and the Commission also have a useful checklist for trustees for reviewing your charity’s internal financial controls.

2. Conflicts

Trustees have a legal duty to act in their charity’s best interests when making decisions. A conflict of interest arises where there is a decision to be made and a trustee has a personal or other interest. If this occurs, a trustee will not be able to comply with their duties unless they follow certain steps to ensure that the conflict is appropriately managed.

Conflicts of interest are common within charities, and can sometimes be helpful, and as long as the trustees take appropriate measures to manage the conflicts of interest and act to prevent the conflict from interfering with the ability to make a decision in the best interest of the charity, generally these will not cause issues.

The law also states that trustees cannot receive any benefit, financial or otherwise, from their charity including in return for any service they provide to it, unless they have the legal authority to do so. Reasonable expenses are usually permitted, such as travel to meetings etc. but these would not extend to spa treatments. Suitable records should be maintained to evidence any expenses.

3. Accounts and Trustee Compliance

Trustees are legally obliged to submit certain key documents to the Charity Commission, as the regulator of charities. The specific requirements depend upon the charity’s annual income, but include updates, returns, annual reports and accounting documents. Failure to do so may be a criminal offence.

Trustees hold a large amount of responsibility – they are representatives of the charity they govern and its charitable funds. They must be aware of and act in accordance with their legal duties. For further guidance on trustee duties click here.

The conduct of trustees can have a huge impact on trust and confidence in the charity, and ultimately the wider sector. If trustees act outside their duties, especially in high profile charities and inquiries, this can have negative implications on public trust in respect of the charity sector as a whole.

If you would like to discuss your trustee duties or have any queries or would like to speak with a member of our charities team, please get in touch.