Official Warnings by the Charity Commission

The Charity Commission can issue a warning to a charity or trustee of a charity when it considers there has been a breach of trust or duty or other misconduct or mismanagement. The Commission’s official warning power was introduced by the Charities (Protection and Social Investment) Act 2016 to supplement the Commission’s existing powers to deal with wrongdoing in charities and to tackle problems that do not justify the opening of a formal inquiry. An official warning is designed to ensure that charity trustees know that a breach, misconduct or mismanagement has taken place and that they are aware it is a serious matter, encouraging them to act where they may previously have been reluctant to.

The Commission has issued 6 warnings in total since the introduction of the power in November 2016. The most recent official warning was issued to the RSPCA in August this year for an alleged ‘breach of trust or duty or misconduct or mismanagement in the administration of the charity’. The Commission said that the Vice-Chairman, Treasurer and Deputy Treasurer did not ensure they were sufficiently informed in the decision-making process in relation to a substantial pay off to the former Acting Chief Executive, Mr Ward. Reports suggest that Mr Ward left the charity following a row over age discrimination and, although officially undisclosed, the sum is understood to be substantially more than his annual salary of £150,000. The Commission were critical of the decision-making processes and directed that the charity’s council adhere to the charity’s code of conduct and receive formal training to ensure they are fully aware of their responsibilities as charity trustees.

The warning is of particular interest as it is directed at specific individuals within the RSPCA and because it was issued notwithstanding the RSCPA having already achieved 90% of the recommendations raised in an independent governance report into the charity prepared in 2017. It also shows, in view of the high public profile of the RSPCA, that the Commission is attempting to communicate to a wider audience about the importance of sound governance. This could be an inevitable consequence of the Commission following their statutory objectives of promoting compliance by charity trustees and increasing trust and confidence in charities and the sector. As with recent controversies over fundraising practices and safeguarding, the Commission is concerned to see that charity trustees take responsibility for major operational matters and that they base their decisions on adequate information and advice.

Official Warnings have been issued in relation to a variety of other issues. The first official warning was issued to the National Hereditary Breast Cancer Helpline because the charity got into financial difficulties and failed to comply with the Commission’s action plan. A warning was issued to the Islamic Trust in Maidenhead because trustees had failed to keep records of their decision making, following a failure to file statutory returns. Another warning issued to the Gurdwara Guru Nanak Parkash (a Sikh temple in Coventry), warned the charity over exposing its members and beneficiaries to an undue risk of harm due to repeated disruption which resulted in police attending the temple on a regular basis.

Of course, charities will only be at risk of receiving an official warning where there has been a breach of duty, misconduct or mismanagement. Following that, to avoid receiving an official warning, charity trustees should ensure that they are familiar and understand their duties in accordance with charity law and the Commission’s guidance, and follow any action plans given by the Commission if advice is being provided on any issues affecting their charity.

The Commission has made it clear when commenting on the RSPCA warning that good governance is not an ‘optional extra’ but supports the delivery of the charity’s purposes to the high standards the public expect. Charities should therefore be mindful of their duties and ensure they are always striving towards accountable and transparent governance.

If issued with a warning, charities should consider the following:

• The Commission will give statutory notice of its intention to issue a warning directly to the charity, stating the action it is planning to take and what actions the trustees need to take to fix the misconduct, mismanagement or breach.
• The charity or trustee will have a period of usually 28 days to respond to the warning and make representations to the Commission, who will then consider whether to publish the warning, using these representations to decide on a case by case basis.
• Once the official warning has been issued, the charity should take all steps necessary and appropriate to rectify the breach, misconduct or mismanagement specified in the warning to avoid further regulatory action.
• The Commission can then consider, on a case by case basis, varying or withdrawing the warning though this will not be done automatically. The content of warnings will generally remain on the public record for no more than 12 months, but there will still be a record of a warning having been issued.
• The Commission can use further powers if charity trustees fail to remedy the breach, including suspending or removing trustees or appointing an interim manager for the charity.

If you would like any guidance on the issues raised in this article, such as the main legal responsibilities of charity trustees, please contact our charity law specialists on 03456 381381 or email charities@ibblaw.co.uk.