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A statement of the results of an inquiry into Viva Palestina (1129092)
Viva Palestina (‘the charity’) was registered on 08 April 2009. It was governed by a constitution dated 19 January 2009.
The charity’s objects were ‘for the alleviation of the suffering and to help the people of Gaza re-build their land’ which further specified the following:
- “Provision from the UK of food, medicine and essential goods and services by the civilian population; and
- Highlight the causes and results of wars with a view (to) achieving peace.”
Its activities as set out in its January 2009 constitution were:
a) “Purchase and procure for distribution within Gaza of medicines and medical supplies and equipment
b) Taking all steps to increase awareness of the plight in Gaza; and
c) Raising funds for achieving the above objectives.”
Although the charity has been removed from the register of charities (“the register”), key details can still be viewed on the Commission’s website.
Background and source of concerns
Viva Palestina was established in early 2009 and launched a large-scale media fundraising campaign to finance aid convoys to Gaza. It did not apply to register as a charity; however, based on the media fundraising campaign the Commission formed the view that it was a charity and should be registered.
The Commission opened a regulatory case which was escalated to a statutory inquiry on 23 March 2009 after the Commission exhausted all reasonable methods of dialogue with the charity, the trustees’ continued failure to register it and as its funds were at risk.
The inquiry concluded on 4 March 2010 with the publication of a Statement of Results of Inquiry
Following the conclusion of the Commission’s inquiry, a number of actions were required of the trustees, set out in an action plan. The matter was referred to the Commission’s Monitoring and Enforcement Team to monitor the charity’s progress and provide regulatory advice and guidance towards meeting all of the requirements in the action plan.
The trustees failed to comply with the action plan and failed in their statutory duty to submit annual returns and accounts for the financial years ending 31 July 2010 and 2011, despite the Commission having raised this issue with the trustees on a number of occasions.
During its engagement with the trustees, the Commission was unable to obtain all of the relevant information from them and it appeared that they failed to act on the regulatory advice they were given. As a consequence, the Commission opened a second statutory inquiry (‘the inquiry’) on 6 June 2013 to address the Commission’s regulatory concerns.
At the outset, this inquiry found that persons listed as trustees by the charity on the charities register had either resigned without being replaced, or could not be traced. The inquiry subsequently established that only one trustee (trustee A), appointed 25 November 2010 remained.
Issues under Investigation
As a result of the trustees’ failure to provide relevant information requested by the Commission, a number of regulatory issues were identified:
- the trustees had not submitted any financial information to the Commission since the charity was registered – annual returns and/or accounts were overdue in respect of the financial years ending 31 July 2010, 2011 and 2012 (at the relevant time, 764, 398 and 33 days overdue respectively) and consequently the trustees had:
- failed to account for how charitable funds had been used since the registration of the charity
- failed to evidence to the Commission that they had addressed actions regarding the charity’s financial probity raised in the action plan issued in 2011
- not complied with their legal duties and responsibilities under the Act to submit the required accounting documentation
- the trustees did not appear to have taken any action to remedy regulatory issues, including those contained in the follow up action plan
- information available to the Commission indicated that the trustees were not in control of the charity’s funds and/or assets, so that it was unclear who was responsible for the day-to-day management of the charity
- it was unclear what activity had been undertaken in furtherance of the charity’s objects since registration, and how the trustees had ensured that funds had been correctly applied in pursuance of those objects, or what activity the charity was undertaking
Consequently, the inquiry into the charity was opened to examine the following:
- the administration and governance of the charity by the trustees, including who was responsible for the day-to-day management of the charity
- the financial management of the charity, including the expenditure undertaken by the charity since registration, with specific regard to international payments and what financial controls were in place
- whether or not the trustees had complied with and fulfilled their duties and responsibilities as trustees under charity law, and
- to what extent the activities undertaken by the charity were in furtherance of its charitable objects
On 15 September 2014 the inquiry appointed an Interim Manager (‘Interim Manager’) to the charity under section 76(3)(g) of the Charities Act 2011 (‘the Act’). The Interim Manager was appointed to take over the management and administration of the charity to the exclusion of the trustees, in order to:
- compile and submit accounts, annual reports and/or returns, ensuring compliance with the Act for the financial years ending 31 July 2010, 2011, 2012 and 2013
- review and finalise the draft accounts prepared for the financial year ending 2010
- report any additional issues, including any evidence that charitable funds had been applied outside of the charity’s objects or for a non-charitable purpose (including for a political or criminal purpose)
- if any act by a current or former trustee had placed charitable assets at risk that would have constituted mismanagement and/or misconduct in the administration of the charity
The Order was amended on 9 January 2015 to enable the Interim Manager to take control of the charity’s bank account and apply any residual funds. The bank account balance as of 31 July 2015 stood at £5,121.00 with no other assets having been located. The Interim Manager’s appointment was discharged in January 2016.
The Inquiry closed with the publication of this report.
Failure to comply with legal duties and responsibilities to submit financial accounts
Trustees must comply with statutory accounting and reporting requirements. Trustees of charities with an income of £25,000 or over are under a legal duty to submit annual documents to the Commission as the regulator of charities within ten months of the end of their financial year.
Failure to adhere to these obligations is mismanagement and/or misconduct in the administration of a charity. Trustees are also accountable for their charity’s resources, should be able to demonstrate that their charity is complying with the law, is well run and effective, and ensure accountability within the charity, particularly where responsibility is delegated for particular tasks or decisions to staff or volunteers.
The inquiry found that the trustees’ failure to submit the charity’s accounting information since the registration of the charity, in respect of the financial years ending 31 July 2010, 2011 and 2012 was a clear breach of their legal duties.
Due to the charity’s repeated failure to file its accounting information, the inquiry wrote to all of the former and current trustees requesting a meeting and submission of the overdue accounts; however, the trustees failed to respond. After a further request was made, only trustee A responded, explaining that he did not have and had never had possession of a set of accounts.
In response the Commission exercised its legal powers to direct compliance. In response to the Order made under powers in section 84 of the Act on 2 September 2013, the inquiry received draft accounts for the period 8 April 2009 to 31 July 2010. The final accounts for this period remained outstanding, as did the accounts for financial years ending 2011 and 2012.
The inquiry found that trustee A had failed to comply with its Order, which was mismanagement and/or misconduct in the administration of the charity. In mitigation, Trustee A cited a lack of co-operation from former trustees and their lack of financial control of the charity as a reason for the failure to submit any accounts, or to properly account for the charity’s income and expenditure.
The Commission has accepted that Trustee A’s ability to comply with the Order would have been dependant to a certain extent on the co-operation of the former trustees but it also notes that Trustee A was appointed on 25 November 2010 and was therefore in post during the financial years ending 31 July 2011 and 2012.
The Interim Manager ascertained that the trustees had engaged accountants. The Interim Manager was unable to obtain all the information required from the accountants and consequently the audited report for 2010 was a qualified report.
From the limited information submitted by the accountants and obtained by the inquiry, the Interim Manager was subsequently able to provide the inquiry with an independent examination of the charity’s accounts for the years ending 2011 and 2012, accounts for 2013 (that did not require independent examination) and an annual return for 2014.
Failure to address financial management issues
Trustees must act responsibly, reasonably and honestly. This is sometimes called the duty of prudence. Trustees must ensure the charity’s assets are only used to support or carry out its purposes and avoid exposing the charity’s assets, beneficiaries or reputation to undue risk.
Trustees should put appropriate procedures and safeguards in place and take reasonable steps to ensure that these are followed. Otherwise they risk making the charity vulnerable to fraud or theft, or other kinds of abuse, and being in breach of their duty.
Charity Commission guidance and good practice recommends that the operation of bank accounts should require a minimum of two signatories to authorise cheques. See the Commission’s guidance on Internal Financial Controls for Charities (CC8).
The charity’s bank mandate stated that only one of the signatories was required to sign for transactions. Having more than one signatory to authorise transactions in a bank account protects a charity from the actions of a trustee acting alone.
It ensures that trustees have consulted with one another about expenditure and gives assurance that the charity’s assets are only used to support or carry out its purposes and avoids the exposure of charitable funds to undue risk.
During the course of its investigation, the inquiry saw no evidence of any consideration by the trustees, or implementation, of any form of internal financial controls, policies or guidance.
A former employee of the charity made reference to being instructed to undertake financial transactions, mainly by one of the founders of the charity who was no longer a trustee.
As the former employee appeared to be acting under the instruction of an unauthorised third party and not the trustees, this indicated that the trustees were not exercising sufficient control over the charity and its assets, which was mismanagement and/or misconduct in the administration of the charity.
In summary, the Interim Manager identified the following weaknesses in the financial management and control of the charity:
- the Interim Manager saw no evidence of consideration by the trustees or any other personnel of any budgets or financial planning
- bank accounts were operated by only one signatory
- the Interim Manager saw no evidence supporting expenditure for a significant number of payments
- round sum payments were made to employees and volunteers without adequate controls over evidencing expenditure or returning surplus funds, with consequences around Income Tax and National Insurance
- personnel and payroll records were inadequately maintained
- the Interim Manager saw no contracts of employment
- the Interim Manager saw no expenses policy in place and reimbursements were made to employees and volunteers without complete records of expenditure
- appropriate controls over the charity’s assets and inventory were not in place
- records of donations in kind were not maintained
In light of the Interim Manager’s findings, the inquiry concluded that the trustees could not show that they had met their legal responsibilities for ensuring that charitable funds were properly used, adequately protected, and not misused.
The inquiry found that the trustees had failed to be publicly accountable and failed in their legal duty to safeguard their charity, its funds, property and beneficiaries. This was mismanagement and/or misconduct in the administration of the charity.
Failure to take action to remedy regulatory issues
The Commission may give regulatory advice or guidance to trustees under section 15(2) of the Act. This can take a number of different forms, including an action plan for trustees to complete to ensure that they address regulatory concerns and comply with their legal duties.
Such an action plan was issued to and agreed by the trustees following the first inquiry’s findings and conclusions.
The action plan required the trustees to strengthen the charity’s agreements with overseas affiliates, review its internal policy documents, loan agreements and processes for reimbursing third parties, its engagement with individuals whilst operating overseas, due diligence and monitoring the end use of charitable funds, to address potential conflicts of interest, keep effective minutes especially around decision-making, and required them to submit the charity’s accounts.
At that time scheduled for the year ending 01 April 2010 but later submitted in draft form up to 31 July 2010. The inquiry saw no evidence that the trustees had addressed the points set out in the action plan. As a result, the regulatory issues remained outstanding and was continued mismanagement and/or misconduct in the administration of the charity.
Trustees did not control the charity’s funds and/or assets and day-to-day management of the charity
Trustees must manage their charity’s resources responsibly, reasonably and honestly. This is also referred to as the duty of prudence, which is about exercising sound judgement and trustees have a duty to exercise reasonable care and skill in the control of their charity’s funds and the charity’s day-to-day management.
What is reasonable will be dependent on specialist knowledge or experience that the trustees have or claim to have - it is expected that where trustees are not experts on a matter they need to address or are struggling they should take appropriate advice.
Further information on trustees responsibilities can be found in the Commission’s guidance The essential trustee: what you need to know, what you need to do (CC3)
Throughout the course of the inquiry it remained unclear who was or had been a trustee of the charity. The identities of trustees listed in the accounts for the year ending 31 July 2010 were found within information provided to the accountancy firm engaged by the charity during its audit process.
Some meeting minutes were located during the investigation but failed to provide a meaningful record of the charity’s decision making.
During its engagement with them, the inquiry found a lack of clarity and understanding amongst the former and existing trustees as to who was responsible for the day-to-day management of the charity.
Trustee A had failed to gain control of the charity’s funds and assets – the inquiry found that he was not a signatory to the charity’s bank account and that former trustees remained signatories and had made no effort to remove themselves.
This lack of clarity and risk to funds obliged the inquiry to take regulatory action in the form of safeguarding the charity’s remaining funds and appointing an Interim Manager to administer the charity to the exclusion of the trustees.
The inquiry established that the trustees had failed in their duty of prudence to take reasonable care and skill in the control of their charity’s funds and the charity’s day-to-day management, which was mismanagement and/or misconduct in the administration of the charity.
Remuneration and employer responsibilities
When employing paid staff trustees must ensure they comply with their charity’s governing document and the law, act with reasonable care and skill and in the charity’s best interests, reduce the risk of liability and ensure their charity is accountable.
The inquiry found that one of the former trustees had received payments from the charity between September 2011 and March 2012. The former trustee confirmed that she had previously been employed by a third party in a separate, unrelated capacity and that in September 2011 the third party had instructed her to resign as a trustee of the charity and assume duties as a paid employee of the charity.
The inquiry established that the third party was not a trustee of the charity at that point in time and did not have any legal authority to make such an appointment.
Furthermore, the inquiry saw no evidence that the trustees had considered or authorised this appointment. This failure to properly control the employment of the charity’s staff was mismanagement and/or misconduct in the administration of the charity.
The Interim Manager attempted unsuccessfully to obtain confirmation of employees’ details from the charity’s payroll bureau, although some incomplete records were provided for the period April to September 2011.
The Interim Manager established that the charity had registered with HMRC as an employer but neither the inquiry nor the Interim Manager were able to establish who had been employed by the charity and have seen no contracts of employment, or records of any discussion by the trustees to address the issue. With the exception of one individual, the inquiry has seen no record of who authorised the appointment of any of the charity’s employees.
The inquiry found that a former trustee of the charity had received a salary from the charity in the period April to September 2011 and that regular bank payments for the same amount continued until April 2012.
The charity’s governing document does not authorise the payment of remuneration to trustees and it was therefore unauthorised trustee remuneration. Together with the complete absence of records and proper decision-making by the charity, this was mismanagement and/or misconduct by the trustees in the administration of the charity.
Monitoring and end use of restricted funds
The inquiry found that the charity had received a number of donations through its online PayPal account for specific items, including a number of donations made through the PayPal account ‘cement@vivapalestina’.
The inquiry considered that these donations were specifically intended for the purchase of cement. A sum of £3,258.00 had accumulated by 31 July 2010 and the inquiry saw no evidence that these funds had been spent on cement.
Furthermore the inquiry found that a number of significant cash donations were received by the charity via direct bank transfer but again saw no records to verify the source of these donations and no evidence that the charity had attempted to identify the source.
The inquiry saw no evidence that these donated funds had been spent on their intended purpose and whether or not they were restricted funds remains unclear. The trustees’ failure to ensure that funds donated to the charity were expended appropriately and in their intended purpose, and furthermore their failure to keep a record of that expenditure was mismanagement and/or misconduct in the administration of the charity.
Charitable activity and the correct application of charitable funds in pursuance of the charity’s objects
Trustees are responsible for ensuring that their charity is carrying out the purposes for which it is set up, and no other purpose. Trustees should ensure and understand the charity’s purposes as set out in its governing document, plan what the charity will do and want to achieve and be able to explain how all of the charity’s activities are intended to further or support its purposes.
The, albeit limited, evidence seen by the inquiry indicated that some of the charity’s funds were applied in furtherance of its objects. However, much of the expenditure lacked supporting documentation or evidence to show that the funds raised and held for Viva Palestina were expended lawfully and properly for charitable purposes.
The failure of the trustees to demonstrate funds had been spent lawfully and properly in furtherance of objects was a breach of their duty to account for the charity’s funds and therefore mismanagement and/or misconduct in the administration of the charity.
Risk management and consideration of issues
Charity trustees should regularly review and assess the risks faced by their charity in all areas of its work and plan for the management of those risks.
At the height of its activities, Viva Palestina was operating abroad in a volatile security environment and it would be reasonable to expect the charity to regularly review and assess the risks it faced and to have planned for the management of those risks.
The inquiry found no evidence of any due diligence, monitoring or evaluation, assessment, planning for or management of risk in respect of any of its activities either in the UK or overseas.
Furthermore, from the very small number of trustee meeting minutes obtained, the inquiry saw no record that the trustees had considered potential risks to the safety and security of staff and volunteers participating in vehicle aid convoys or the risk of charitable funds expended abroad not being applied for charitable purposes.
As a result, the trustees failed in their duty of prudence to take reasonable care and skill in the control and safeguard of their charity’s funds, to ensure that funds were spent exclusively for charitable purposes and in accordance with the charity’s objects and to ensure the safety and security of staff and volunteers participating in the charity’s activities abroad, which was mismanagement and/or misconduct in the administration of the charity.
Contracts and online accounts
From analysis of the charity’s bank account, the Interim Manager found that there were significant costs incurred by the charity on mobile phone contracts during 2010, 2011 and 2012 (£8,536, £17,796 and £6,942 respectively).
The inquiry saw no evidence of any mobile phone contracts or any record of the trustees’ decision to enter into those contracts and it remains unclear who entered into these contracts in the charity’s name and/or committing its funds and whether they had the authority to do so.
The inquiry was unable to locate the phones (which would have been the charity’s property), or establish whether the number of phones and their usage was in furtherance of the charity’s purposes and reasonable and who had possession of them.
The inquiry found that the charity had a PayPal account operated by a person who was not a trustee of the charity. This account appears to have received income from both donations and sales.
Trustees can delegate matters to other individuals but should ensure some form of written agreement or contract clarifying respective responsibilities and the boundaries regarding the operation of the account.
The inquiry did not see any documents and it remains unclear who authorised the delegation of this responsibility or the decision-making process that led to it. Attempts to engage meaningfully with the person operating the PayPal account were unsuccessful.
PayPal lies beyond the Commission’s jurisdiction in Luxembourg. Attempts by the inquiry to obtain records of transactions through the account were unsuccessful.
The Interim Manager found that in FYE 31 July 2010 and FYE 31 July 2011 significant sums of money were transferred from the PayPal account into the charity’s bank account but the inquiry was not able to establish whether outside of those dates more funds had been received into the PayPal account or whether additional transfers had been made to bank accounts other than those of the charity.
In addition, the Interim Manager found that the charity also had an online donations page during the same period. However, the inquiry was not able to establish how much charitable funds were raised through the webpage, or who had created or managed the account.
The trustees’ failure to ensure written agreements and/or contracts with external providers and persons delegated to manage funds on behalf of the charity, as well as the failure to produce records of the decision-making behind them and to maintain proper records of their online accounts, was mismanagement and/or misconduct in the administration of the charity.
Protection of assets
The charity’s draft financial statements for FYE 31 July 2010 showed fixed assets amounting to £10,146.00. These included a range of IT equipment such as laptops, printer, a satellite phone and a desk.
The Interim Manager also found evidence for the purchase of Citizens Band radios and mobile phones at a significant level of expenditure. The inquiry has seen no records to indicate who held these assets nor any evidence of an inventory and/or fixed asset register being held.
As the charity did not have an operational address the whereabouts of these fixed assets remains unknown.
Media reports of the charity’s activities stated that humanitarian aid and vehicles were donated to beneficiaries. The Interim Manager found incomplete records of ferry crossing bookings and vehicles donated. The Interim Manager also found a number of large payments to a pharmaceutical company that the former employee confirmed had been for the purchase of medical supplies.
The inquiry established that the charity had failed to maintain records of the donated assets so that their value could be recognised for accounting purposes as gifts in kind. Furthermore, the inquiry has seen no records or inventory for the medical equipment that would have allowed the purchase and delivery to be verified and confirmed.
The trustees’ failure to make and maintain proper records meant that they had failed in their duty to protect the charity’s property/assets and were unable to demonstrate that all of the charity’s funds had been spent in furtherance of its purposes, which was mismanagement and/or misconduct in the administration of the charity.
Other regulatory concerns
During the course of the inquiry, the scope of the investigation was widened to examine media reports that a former volunteer of the charity was a member of the Islamic State in the Levant (ISIL).
Trustee A was not a trustee at the time the convoys took place and not in a position to clarify the media reports. The inquiry and Interim Manager found no volunteer records that would allow the facts to be established. Consequently there is insufficient information for the inquiry to draw a conclusion one way or another about whether the person concerned did volunteer for the charity.
The Commission concludes that there was mismanagement and/or misconduct in the management and administration of the charity, in particular as follows:
- failed in their statutory duty to provide any financial accounts, in breach of the charity’s own governing document and charity law
- failed to address the outstanding regulatory concerns by completing the steps required in the action plan made under section 15(2) of the Act
- failed to co-operate with the Commission during the course of its investigation including failing to provide information
- failed in their duty to provide and maintain proper financial controls and to properly manage and administer their charity
- failed to discharge their duties to safeguard the charity’s money and assets and to act prudently, which included avoiding activities that may have placed their funds, assets or reputation at undue risk, namely:
- they failed in the basic requirement to keep receipts and records of income and expenditure and so be able to properly account for charitable funds raised and spent – these basic requirements are all the more important when charitable funds are raised from members of the public and used for humanitarian needs, in conflict zones
- there were no basic financial controls or policies in place to account for and safeguard funds coming into the charity and being spent
In terms of activities, it was difficult for the inquiry to establish with any certainty whether any charitable activity had taken place, as it found little if any evidence that humanitarian aid was distributed to those in need in accordance with the charity’s objects.
In summary, the charity was not properly governed, managed or administered by its trustees - as a result of those failings its reputation, that of the wider charitable sector and charitable funds donated by the public to the charity were put at risk.
Regulatory action taken
On 2 September 2013 the inquiry exercised legal powers and directed the trustees under section 84 of the Act to prepare and complete the charity’s overdue annual accounts and provide copies of independently examined or audited accounts to the Commission.
On 18 November 2013 the inquiry exercised powers under section 47 of the Act to direct the charity’s accountants to provide documents and records in relation to correspondence between the charity and the accountants, and any financial records held for the charity.
On 04 April 2014 the inquiry exercised powers under section 47 of the Act to direct the charity’s trustees/employees to provide explanations relating to the charity’s expenditure, financial management, management of employees/volunteers, their roles and involvement within the charity.
On 23 January 2014 the inquiry used its information gathering powers under section 52 of the Act to obtain the charity’s bank account records for the period 19 April 2013 to 23 January 2014.
On 24 June 2014 under 76(3)(d) of the Act, the inquiry ordered the charity’s bank not to part with any funds held in the charity’s bank account without the Commission’s consent.
On 15 September 2014 the inquiry further exercised powers under section 76(3)(g), appointing an Interim Manager to address its regulatory concerns and produce the charity’s overdue accounts.
The appointment was later amended under section 337(g) of the Act to allow the Interim Manager to exercise control of the charity’s bank accounts and apply any residual funds in accordance with the charity’s governing document.
The full costs of remuneration and disbursements for the Interim Manager’s appointment came to £5,096.50 (including VAT).
The Commission carefully considered using its disqualification powers against the trustees and former trustees of the charity. Disqualification is not dependent upon a charity being in existence and regulatory action cannot be avoided by winding up a charity.
However, as the charity had ceased to exist for a significant period of time, the absence of any meaningful records and the lack of clarity over who had control of the charity and its administration and who was a trustee, has led the Commission in this instance to decide not to exercise its new powers under section 181 of the Act to disqualify persons from acting as trustees.
The names of persons who failed to co-operate with the inquiry or to clarify their role in its governance and administration have been noted on the Commission’s records, in the event that they should seek to become trustees of charity in future.
The inquiry established that one of the trustees listed on the charities register had resigned four years before the opening of this inquiry.
The Commission’s policy approach to restitution is set out in its published policy on restitution and recovery of charitable funds.
This policy explains in summary that where trustees are unable or unwilling and the amounts involved significant and the breach of trust sufficiently serious, the Commission can use powers of intervention under s114 of the Act to bring proceedings in the public interest, providing the Attorney General consents, to secure the recovery of lost funds.
The policy makes clear in considering whether to take action in the public interest, relevant factors including the strength of the legal claim and likelihood of repayment. That policy was applied in this case. In view of the lack of information regarding the level of the charity’s income, expenditure and fixed assets, the Commission decided it was not proportionate to pursue restitution at this time.
Had the charity continued to operate, the Commission would have gone on to consider exercising the power to issue an Official Warning against it.
Issues for the wider sector
Trustees must accept ultimate responsibility for directing the affairs of a charity, and ensuring that it is solvent, well-run, and delivering the charitable outcomes for which it has been set up, acting with reasonable care and skill and manage the charity’s resources responsibly.
They must only use charitable funds in furtherance of the charity’s best interests and objects without exposing the charity and its assets, including its reputation, to undue risk.
Charity trustees, employees, officers, agents or any other interested parties should co-operate with the Commission’s inquiry as requested. Obstruction of its investigation, for instance, by refusal or delay in providing information without good reason, or a lack of full and frank disclosure, may in itself be evidence of mismanagement and/or misconduct in the administration of a charity.
The courts have made clear that they expect charity trustees to co-operate with the Commission irrespective of whether it uses its legal powers and failure to do so can be taken as evidence of mismanagement and/or misconduct in the administration of a charity.
The fundamental responsibility for control of the charity’s activities and funds is that of the trustees. However, where the trustees delegate administrative duties to staff or agents, additional controls then become necessary in order to ensure an appropriate level of oversight by the trustees, and that the delegated duties are being properly discharged.
It is legitimate for trustees to delegate the day to day management of a charity to staff and others. However, charity trustees always retain ultimate responsibility for running the charity and should ensure that robust reporting procedures are in place to enable them to make reasonable decisions. Responsibility for ensuring they have sufficient information and are adequately informed in order to make decisions rests with the charity trustees.
Trustees should be familiar with their charity’s governing document and ensure that at all times the required number of trustees is in place. Trustees have a duty to maintain a quorum of their numbers as required by their governing document so that the charity operates lawfully. Any decision made when the charity is inquorate will not have been properly made and will be invalid.
In acting in their charity’s best interests, trustees should consider how they may be affected by adverse publicity, how this may impact on the charity, staff morale, beneficiary, donor and public confidence. Adverse publicity can also impact on the charity’s ability to fulfil its charitable purposes, diverting staff and trustees away from their normal duties, in order to deal with the adverse publicity.
Some charities will need to ensure a crisis management strategy is in place and applied to deal with reputational risks and adverse public and media interest.
Charity trustees should ensure that adequate records are kept of their decisions so that they can demonstrate that they have acted in accordance with their governing document and with best practice. From time to time, trustees may have to take decisions which may come under very close scrutiny.
In these circumstances, trustees should be able to demonstrate clearly that they had:
- acted honestly and reasonably in what they judged to be the best interests of the charity
- taken appropriate professional or expert advice where appropriate
- based their decisions on directly relevant considerations
Trustees are required to keep accounting records for their charity. Every charity’s accounting records must be sufficient to show and explain its transactions and disclose with reasonable accuracy its financial position.
Therefore, in order to show that they are complying with their legal duties trustees must keep records and an adequate audit trail to show that the charity’s money has been properly spent on furthering the charity’s purposes for the benefit of the public.
Trustees must also ensure that their charity has adequate financial and administrative controls in place, and that they comply with their statutory obligations to maintain the accounts and records of their charity to ensure that funds are applied in accordance with the terms upon which they are held.
There should be a clear audit trail of where bank accounts are held, what they are held for and who has access to them. Trustees should not only ensure that financial controls are put in place but also that sufficient information is reported back at trustee meetings to satisfy them that the controls are being properly observed.
The Commission has produced guidance to assist trustees in implementing robust internal financial controls that are appropriate to their charity. Internal Financial Controls for Charities (CC8) is available on the Commission’s website.
Controls also need to be in place for payments made by cheque.
Some governing documents require two signatories on cheques. Where practicable bank mandates should require two signatures, one of which being that of a trustee.
Some charities may allow for small-value cheques to be signed by only one individual. In larger charities signatories may be senior employees although in such cases clear authority limits should apply.
In all cases there are a number of basic controls that should be in place, including:
- ensuring cheque books are kept in a secure place
- regular review of bank mandates and authority limits
- prohibition on the signing of blank cheques
- prompt recording of payments in cash books including details of the cheque number, nature of the payment and the payee
- obtaining documentation to support the validity of the payment including relevant invoices and confirmation that the goods or services have been received
Charitable funds must only be used to further the charity’s purposes. If charitable funds have been misused then charity trustees are expected to take reasonable steps to identify what has happened to the funds and consider what course of action is reasonable, seeking professional advice as appropriate.