Charity Commission Flexes Its Regulatory Muscle: an Official Warning and a Trustee Removal

First official warning issued by Charity Commission

The Charity Commission has published details of an official warning it has issued under new powers which came into effect in 2016. This is the first occasion on which the Commission has reported on its use of this new power, and in this instance, the warning was issued in April 2017.

The National Hereditary Breast Cancer Helpline, which manages an around-the-clock helpline offering advice for people with hereditary breast cancer and those who are concerned that they may be at risk of the condition, received the warning after getting into financial difficulties and not complying with the Commission’s action plan. The regulator had selected the charity for scrutiny from among the 94 charities that had identified it as showing signs of being at risk of financial distress, including potential insolvency. It was found that the “charity and its assets had been exposed to undue risk through a lack of appropriate financial controls and its financial model was unsustainable.” Many of the charity’s shops were running at a loss, it relied on loans, and unauthorised payments had been made to the chair – who was the sole signatory on the charity’s bank accounts and therefore “authorising payments to themselves.”

The Commission said of the charity’s failure to adopt measures to improve financial controls: “Given the nature and seriousness of the issues, the trustees were given a chance to resolve them but failed to fully comply with the action plan to do so, [and] the Commission concluded it was appropriate and proportionate to issue the charity with an official warning to promote compliance.” The official warning details what must be undertaken “to prevent further breaches.” The Commission says that trustees have already taken some action in the light of the official warning and that it will continue to monitor the charity.

The regulator’s power to issue official warnings was introduced by the Charities (Protection and Social Investment) Act 2016 and came into effect on 1 November 2016.

Commission ban a person from trusteeship

Meanwhile, the Charity Commission has banned an individual from being a charity trustee after the charity incurred unexplained spending of £60,000.

A Commission investigation launched in 2014 found that the Hampshire-based Catalyst Trust, which has since been removed from the register of charities, had income of about £71,000 between 2009 and 2013 but less than £200 was found to have been spent on charitable activity.

The inquiry followed a complaint from a member of the public in 2013 over rental payments of a property the charity owned, as well as the £60,000 of unexplained transactions discovered in February 2014 during the Commission’s inspection. This prompted concerns about the accuracy of the accounts because the charity had not declared an income of more than £25,000 in its annual return, the commission said.

The regulator’s report stated: “The charity’s income, which included loans from individuals and companies connected to the principal trustee, was predominantly applied in furtherance of a non-charitable software project which involved a number of different companies which were also connected to the principal trustee.”

The Commission concluded that there had been “misconduct and mismanagement in the administration of the charity as there was evidence of both poor governance and poor financial management.” It said that the inquiry found that the charity was “not being operated in furtherance of its charitable objectives, the trustees had failed to manage conflicts of interest and had failed to comply with their legal duty as trustees.”

Harvey Grenville, head of investigations and enforcement at the Charity Commission, said: “This inquiry was hindered by the failure of the ‘dominant trustee’ to fully cooperate with the Commission. Despite this attempt to frustrate our investigation we have been able to take strong action and remove this individual to protect charities from abuse.”

“Trustees must act collectively together and avoid one individual taking sole, or inappropriate control of a charity. In this case the trustees did not manage or identify conflicts of interests and allowed improper loans and investments to be made by one individual,” he added.

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IBB Solicitors’ specialist Charities team has over 50 years’ combined experience in delivering practical commercial advice to charities and not for profit organisations and those who work with them. For advice, contact a member of the team, call us on 03456 381381 or email enquiries@ibblaw.co.uk