All registered charities must provide information annually to the Charity Commission in advance of specific deadlines. We’ve noticed an increase in investigations linked to the non-submission of annual returns, reports and accounts, particularly where there has been non-compliance over a sustained period of time.
Recently, the regulator of charities in England and Wales issued an official warning to an animal welfare charity. This comes as a consequence of its trustees not filing annual accounting information on time for five consecutive years, alongside failing to ensure that the charity had the required number of trustees.
Tracy Howarth, the Assistant Director of Casework at the Commission:
‘It is a basic trustee duty to file their charity’s annual accounting information. This ensures that charities can be transparent and accountable to the public, the information also provides important information to help the Commission regulate and support charities better.’
Whilst it might seem like larger charities are more likely to be in the Commission’s crosshairs, this recent official warning has shown that they will call out compliance failures in smaller charities as well.
So, what can you do to make sure your charitable organisation is not at risk of this?
What is an official warning?
The Charity Commission can issue an official warning when it believes there has been a breach of trust, duty, or other misconduct or mismanagement.
The intention is to notify trustees that these irregularities must be rectified and demonstrate what they can do to prevent this situation occurring again.
An official warning can be given when:
- the charity, its assets, reputation or beneficiaries are at risk of harm
- regulatory advice and guidance alone is insufficient
- other temporary or permanent protective powers (such as removing or disqualifying trustees), or requiring trustees to account for a loss or benefit are inappropriate
In some cases, the Commission may publicise official warnings to alert other charities, members of the public, or potential donors to their concerns. The purpose of this is to assist in promoting public trust, transparency and confidence in the sector.
Why might an official warning be issued?
Breaches of trust or duty can cause the Commission to issue an official warning; these include situations where the charity’s actions deviate from:
- the trustees’ legal duties
- the charity’s governing document
- specific statutory requirements for trustees (including the Charities Act 2011), for example, the duty to file annual returns, reports and accounts
- other legal duties that relate to the charity’s activities
Misconduct and mismanagement are two of the key phrases used by the Commission in their guidance. They define:
Misconduct as any act (or failure to act) that the person committing it knew (or ought to have known) was criminal, unlawful or improper.
Mismanagement as any act (or failure to act) that may cause charitable resources to be misused, or the people who benefit from the charity to be put at risk.
More specifically, these definitions include when a charity/person running the charity has:
- acted recklessly (without due care), resulting in a breach of trust, misconduct, or mismanagement
- failed to take appropriate steps to rectify a breach of trust, misconduct or mismanagement, despite contact with the Commission
- failed to discharge legal duties in the administration of the charity or a charity has failed to discharge its legal duties in connection with charity activities, or the charity has displayed a pattern of repeated misconduct or mismanagement
- committed deliberate (wilful) wrongdoing that leads to a certain breaches
It’s worth remembering that the Commission knows that most trustees are volunteers; their intention is not to punish honest mistakes. They’re unlikely to issue an official warning where:
- the breach, misconduct or mismanagement is minor or technical in nature
- it does not demonstrate a repeated course of conduct
- the trustees are taking appropriate steps to put matters right, acting honestly and reasonably
- the loss, or risk to the charity or to public trust is minimal
How can your charity avoid an official warning?
Hopefully, your charity will never come close to activating any of the triggers above, but if you’re concerned something is going wrong, remember to submit a serious incident report and pay close attention to the guidance the Commission gives on its website.
If you require any guidance with regard to your report, accounts, annual return or any of your statutory obligations, Burton Sweet offer practical solutions to help you not only meet your obligations but do so with excellence.
Keeping on top of preparing and filing your reports, accounts and returns may not feel like a priority in the midst of delivering on your charity’s purpose, but meeting these accountability requirements is critical in enabling your vital work to continue.