Charities Back on Track: governance lessons learnt from
Charity Commission investigations
Dave Walker
Investigations & Enforcement Team
The Headlines
• The overwhelming majority of charities are well governed & well managed
• We assessed & dealt with 1,413 serious concerns, of which 28 were escalated to investigation
• We completed 85 investigations (of these, 9 were statutory inquiries)
• We completed 215 Monitoring cases• But, many charity trustees are
– still making too many basic mistakes in managing their charities, which leads to serious problems
– failing to report serious incidents to us
Key Themes
• Poor Governance (serious failings in trustee duties and responsibilities)
• Inadequate financial controls• Safeguarding vulnerable beneficiaries• Dealing with allegations of links to terrorism• Failures in fundraising• Political activity and campaigning• The damage of disputes• Problems with stakeholder consultations
Common Issues - what are we seeing?
• Pre investigation assessment cases: – Breach of Governing Documents – 591– Reports of Serious Incidents – 393 – Fraud & Theft – 113 – Management & Maladministration – 65– Alleged Serious Criminal Activity – 54– Beneficiaries at Risk – 53
• Monitoring cases:– 66% related to poor governance
• Investigations:– Trusteeship issues – 56– Accounting issues - 25
Reporting Serious Incidents
2011-12 2010-11 2009-10
Reports of Serious Incidents 1,027 849 451
Whistleblowing reports 120 35 53
Our impact
• Protected £3.9m charity assets at risk
• Monitored over £254m of the charity sector’s income
• Published 55 investigations reports
• Used our regulatory powers on 188 occasions
Key regulatory risk areas
• Our Risk Framework Application Guidance identified 3 regulatory risk areas where we should have a public strategic response:
– Strategy for dealing with Safeguarding Children & Vulnerable Adults Issues in Charities
– Strategy for dealing with Fraud, Financial Crime & Financial Abuse of the Charity Sector
– Counter-terrorism strategy
Case study 1
Safeguarding vulnerable beneficiaries
Beneficiaries at risk
• ‘A charity which supports disabled people’
• Anonymised case study of an inquiry
• Objects – to enable disabled people to be fully included in all aspects of society
• Allegations from two Councils that the trustees had knowingly employed as CEO a convicted sex offender (‘A’) & refused to carry out CRB checks
• Also alleged that ‘A’ was awaiting trial for a similar past offence. ‘A’ was subsequently acquitted of this charge
Issues examined by the inquiry
• The inquiry examined:
– The suitability of ‘A’ to be an employee of the charity
– The circumstances of the recruitment & employment of ‘A’
– The charity’s safeguarding policies and procedures– The trustees' management of risk to the charity’s
reputation & assets caused by the involvement of ‘A
Our findings
• ‘A’ was unsuitable to hold the position of CEO
• Mismanagement in the administration of the charity in relation to the employment of ‘A’
• A serious lack of effective governance of the charity
• The trustees had failed to discharge in full their duties & responsibilities to the charity & its beneficiaries given their failure to have effective safeguarding policies and procedures
Regulatory action and outcome
• We suspended ‘A’ from the charity
• ‘A’ has now resigned his post as CEO
• We provided extensive regulatory advice & guidance to the trustees
• We required the trustees to implement a number of actions relating to the charity’s governance & the development of safeguarding policies and procedures
Wider issues
• Trustees have primary responsibility for safeguarding in their charity
• They must always act in their beneficaries’ best interests & take all reasonable steps to prevent any harm to them
• Trustees also have duties to manage risk & to protect the reputation & assets of the charity
• They must develop & put in place appropriate safeguarding policies & procedures & undertake on-going monitoring
Case study 2
Poor governance in charities
Poor governance in charities
• Anonymised case study of an inquiry
• The charity runs a day care & respite centre for severely disabled adults
• The Commission was anonymously informed that the Chair was being investigated by the police for alleged fraud against a public body
• The Chair was also the paid CEO
Issues examined by the Commission
• The inquiry examined:
– Misuse of charity resources
– Unauthorised trustee benefits, relating to the way the charity employed & paid its CEO
– Governance of the charity
– Non-co-operation with the Commission
Our findings
• The Chair had misused the charity's invoices resulting in two police cautions for fraud
• The Chair had received unauthorised trustee payments as the CEO of the charity
• The trustees had not followed our regulatory advice on how to manage the unauthorised trustee payments & the suitability of the Chair
• The trustees had exerted insufficient management control over the charity
• The charity was inquorate
Regulatory action and outcome
• We appointed 7 additional trustees• We provided the existing & newly appointed
trustees with regulatory advice on their legal duties & responsibilities
• The Commission's involvement ensured that the Chair resigned from the board of trustees & from the position of CEO
• The charity elected new trustees & a new Chair of the board
Wider issues
• Trustees have equal responsibility & so must act jointly
• Trustees must act solely in the charity's interests & not for personal advantage
• Trustees' personal interests must not conflict with their duty to act solely in the charity's best interests & they must be able to demonstrate this
Wider issues
• Trustees must manage their charity according to the provisions of its governing document
• Generally, a trustee cannot become an employee of their charity, nor can an employee become a trustee
• Trustees have a duty to ensure their charity's reputation is not brought into disrepute because it fails to manage risks or complaints properly
Case study 3
Delivery of aid overseas
Delivery of aid overseas
• Criminal investigation in UK underway, raising concerns about a trustee
• Commission’s role concerned with trustees & any indication of misconduct or mismanagement
• The Inquiry examined: – whether funds of the charity, or funds raised on its behalf,
had been used unlawfully – financial management of the charity & the supervision of
overseas activities – governance of the charity
Delivery of aid overseas
• Charity using local partners to deliver aid, seemingly unchecked
• The Inquiry took into account in its investigation – the charity's particular size & income level – that the charity often needed to act quickly to
respond to a disaster situation– the practical challenges the charity faced as a
result of working internationally, & in particularly remote & volatile regions
Outcome:
• No evidence to indicate that the trustees diverted charitable funds for unlawful or non-charitable purposes
• But, the trustees were unable to satisfactorily verify the end use of funds overseas
• Insufficient measures to control, monitor & document the use of charitable funds (in this case by third parties overseas)
Outcome:
• Unable to account for funds & did not follow processes & checks when spending money
• This placed the assets of the Charity at risk & was mismanagement by the trustees in the administration of the charity
• Issues arose from operation of overseas bank account
• The trustees fell short of duties
• But they were committed to future good governance
Wider issues
• Due diligence and monitoring is part of trustees’ duties to protect assets & their duty of care
• Financial transparency is crucial to help maintain the confidence of the public who give money to charity
• It may be more challenging for charities working in challenging areas overseas to maintain the same standards of transparency & accountability as would apply in the UK, but they must strive to do this
Case study 4
Charitable appeals: trustees’ duties
Charitable appeals: trustees'’ duties
• Anonymised case study of a Regulatory Compliance Case
• On-air appeals made by radio stations after the 2004 Indian Ocean tsunami & 2005 Pakistan earthquake
• The radio stations are not charities, but because the appeals were made for charitable purposes, the funds held fell within the Commission’s jurisdiction
• The signatories to the bank accounts were therefore trustees of the funds
• Complaints that the funds had not been applied for the charitable purposes for which they were raised
Issues examined by the Commission
• The investigation had two aims:
– To examine whether those responsible for organising the appeals acted appropriately in respect of their retention of the funds raised
– To ensure the proper application of the funds
Our findings
• The trustees had not considered at the time of the appeals how the funds were to be used & whether this was clear to donors
• The trustees were under a duty to apply the funds within a reasonable period given the urgency of the crises
• They had not acted appropriately in their delay to apply the funds
• Donors would have expected funds to have been applied quickly, not 5-6 years after the disasters
Regulatory action and outcome
• We used our regulatory powers to obtain banking information about the appeals’ account
• We provided regulatory advice & guidance about charitable appeals & the legal duties and responsibilities of trustees
• The funds (in excess of £180,000) have been awarded to two charities working in the areas affected by the tsunami & earthquake
Wider issues
• Funds raised for charitable purposes fall within the Commission’s jurisdiction
• Those who manage such appeals are trustees & have legal duties & responsibilities
• Public expectation that funds from disaster appeals will be quickly applied
• Need to consider whether they have the capacity to deliver/ better to raise funds for another better placed organisation
• Donors must be able to give confidently
Charities Back on Track: governance lessons learnt from
Charity Commission investigations
[email protected] Investigations & Enforcement