There may be trouble ahead…
Cautionary tales from governanceland
Over the past few months, the Charity Commission has, customarily, undertaken a number of formal statutory inquiries and other interventions into the conduct of charities by trustees. The Commission’s published reports reveal a number of trends in failure, none of which are new but all of which provide lessons and reminders for trustees in governing their own charities: learning from others’ mistakes.
Meanwhile, in a recent edition of the Commission’s Charity Connection, one of its regular news updates and alerts, financial governance has a prominent focus. Amongst other things, this update reminds trustees of the 5-minute guide Managing charity finances, and highlights four key pieces of guidance on finances, covering internal controls, reserves, investment, and managing difficulties. The Commission has also just created a Trustee Finance Toolkit. For all the Commission’s guidance on finances and otherwise, have a look here.
Back to those lessons from failure: defaults are either deliberate or accidental. Those who deliberately set out to defraud the public, mismanage a charity, or profit personally from a charitable arrangement are difficult to re-educate. The regulators hopefully keep such activity to a minimum. However, those who accidentally fail to fulfil their role as a trustee include those who are either muddled or unaware of their responsibilities. As suggested, the same faults tend to recur time and time again, so if we were to conduct this review in a couple of years’ time, the results would be strikingly similar – just make sure you’re not in the list! Happily, we can all learn from cautionary tales, so here are some lessons to beware:
Breach of trust: any situation involving a trustee not complying with their duties and responsibilities can be a breach of trust, but this tends to include a breach of rules set out in the governing document, mismanaged conflicts of interest, or default as regards a clear legal duty or requirement – such as with a property transaction, financial or fundraising matter, or safeguarding issue.
Poor record keeping: admin should not be considered dull: it can form a fundamental information record for compliance, transparency, and governance purposes. This includes minutes and other notes of decisions, professional advice obtained, registers for conflicts of interest and other matters, safeguarding incidents, serious incidents of other kinds, and maintaining and filing accounts.
Conflicts of interest: this involves an arrangement under consideration by the charity which also has the potential for a financial or other benefit for a trustee personally or a person or organisation closely associated with a trustee. Conflicts are an inevitable and acceptable part of life but they must be identified and properly dealt with.
Financial mismanagement: this features so often in the Commission’s regulatory work and includes for example placing the charity’s assets at unnecessary risk and misapplying funds raised for particular purposes. It is very often connected with a conflict of interest. The Commission treats such behaviour extremely seriously: for example it recently investigated financial mismanagement in a charity and then removed the trustees, recovered a six-figure sum from them and ordered the winding up of the charity (read about the case here).
Failure to comply with the governing document or the law: this includes a departure from the charity’s objects, a breach of powers set out in the governing document, or a failure in connection with the appointment or role of trustees or members. It also covers a failure to comply with the law on any area of a charity’s operations, so the scope is as broad as the work of any charity.
This last category leads me to point out the obvious … if you preface any of the duties of trusteeship with ‘failure to …’ this provides a corresponding list of the defaults found in the Commission’s work! So, engage with your duties and responsibilities and thus minimise the chance of failure of these.
For more guidance on trustees’ duties and some of the specific issues raised above (such as the need to engage with responsibilities and manage conflicts of interest), see the free resources on my website: Knight Charity Governance Resources
