Authored article

Cracking down on 'double defaulting' charities

Kenneth Dibble on why trustees in default of their reporting requirements can get themselves and their charity into serious legal trouble.

First published by Solicitors Journal in October 2013, and reproduced by kind permission

At the Charity Commission’s annual public meeting in September, we announced the opening of a class inquiry into ‘double defaulting’ charities. These are charities that have failed to submit required annual reports and accounts to the Commission for more than once in the past five years and default is still outstanding.

This follows a year-long campaign during which we have repeatedly reminded trustees about the importance of meeting their statutory duty to submit an annual report and accounts to the Commission and warned those with overdue accounts to get their house in order. We have also advised donors and grant makers not to give to charities who cannot meet their legal obligations in this way. This latest step sends an unequivocal message that we will not tolerate charities that demonstrate contempt for their donors, beneficiaries and the wider public to whom they are accountable, by failing to meet reporting requirements.

Why does the Commission think this is so important? Surprisingly, some trustees think that the rule on filing financial documents represents a pedantic, bureaucratic irrelevance. They do not. Aside from the fact that it is a legal requirement for trustees to submit annual information to the Commission our experience also tells us that reporting failures may be linked to wider problems within the charity as well as poor governance. The majority of well run charities are eager for any opportunity to explain how they have spent their money and what impact they have had. Full financial accountability both to the Commission as regulator and to the wider public is a key element in the regulatory framework governing charities. By being more robust in enforcing these requirements, we are both enhancing the accountability of charities to the general public as well facilitating monitoring of problematic charities.

Failing to meet legal duties can have very serious consequences for trustees and their charity. Indeed, it is a criminal offence for trustees to default on report and accounts submission unless it can be shown that all reasonable steps to secure submission had been taken.

Our first step as part of the inquiry has been to issue a formal legal direction to trustees, ordering them to meet their reporting requirements within a set period of time. We have put the trustees on notice that, should they fail to comply, we will make a referral to the police unless they can put forward a justifiable excuse. In the event of continued non compliance, we can also take steps ourselves to secure submission through further use of regulatory powers where it is proportionate and appropriate to do so or to initiate action in the High Court against the trustees to secure compliance. We hope it doesn’t come to that. Our hope is that charities subject to the inquiry will wake up to their responsibilities and submit all the required documents promptly and fully.

But the Commission is resolved to take firm action against trustees who let the sector down by failing to meet public expectations of accountability, transparency and probity. It is important to remember that all charities, not just those who receive grants and contracts from government, are reliant on public generosity through the fiscal privileges they enjoy.

The Commission has a duty to maintain public trust and confidence in charities - and to ensure the public continues to give to and support charity with confidence - by setting and enforcing high standards of governance.