Kenneth Dibble explains the Charity Commission's approach to dealing with mismanagement in charities.
First published by Solicitors Journal on 30 July 2013, and reproduced by kind permission
“Will you strike the charity off the register?” and “will the charity lose its charitable status?” are two of the most common questions asked of the Commission with respect to our investigations into charities. They are also the premise of many a newspaper article about our interventions in charities.
The answer, namely that we do not strike charities off the register by way of sanction or punishment, often meets with confusion. Surely, so the argument goes, if a charity is found to have been thoroughly mismanaged it should lose the privilege of charity status? Surely it’s the regulator’s role to strike ‘bad charities’ off the register or close them down?
On an instinctive level, that argument makes sense. After all, many other regulators operate what are essentially licensing systems. For example, you can only practise as a doctor if you are entered on the General Medical Council register. If you are found to have committed misconduct or to be incompetent, you can be struck off that register. You’ll then no longer be able to practise.
But this is not how charity law works. The Charity Commission does not license charities; we do not decide what is and is not a charity according to whether we like an organisation or think it is sufficiently worthy. A charity, in law, is an organisation with exclusively charitable purposes for the public benefit. Those with incomes of over £5,000 are required to be registered with us and to submit annual information. Charities below that threshold do not register, but this does not make them lesser charities (just smaller ones). Entry on our online register therefore is not what defines a charity’s status; the register is a tool that helps the public access information about charities.
Charitable purposes remain sacrosanct and represent what the charity is. When something goes wrong, it is not the legal structure that is at fault - the issue lies with the trustees, the people responsible for managing and protecting it. When we intervene in a charity that is being mismanaged or even abused by its trustee or others, our role as regulator is not to bring the charity to an end, but to resolve the issues of mismanagement. It follows that we can no more rule that mismanagement has rendered an organisation ‘uncharitable’, than trustees themselves can decide they no longer want their organisation to be a charity but want to run it instead as a private business.
So while our role is to regulate charities, in practice, in cases of misconduct and mismanagement we deal with the actions of trustees in managing their charities. Our aim is to prevent the charity being misused in contravention of charity law - to protect what is charitable from the uncharitable activities or intentions of trustees and to secure its assets for charitable purposes. Usually, we will work initially in co-operation with the trustees to resolve the problems - most cases of non-compliance follow from a lack of understanding or neglect, rather than deliberate abuse. In the most serious cases following an inquiry and where we think trustees are very badly at fault, we may seek to remove them. However, in these circumstances trustees often resign first. Alternatively, we can appoint an interim manager to run the charity for a period of time to the exclusion of the trustees. Our other sanctions and powers are also designed to help us protect the charity from mismanagement and secure its assets. They include powers to restrict charities’ bank accounts, to direct trustees or banks to release information and to direct trustees to take certain steps.
Ideally, our interventions allow a healthy, well managed charity to continue working for the benefit of its beneficiaries and the public - possibly under the management of new or additional trustees. But we cannot always ‘save’ charities as organisations; sometimes, charities wind up during or after our investigations when mismanagement has left them insolvent, or trustees are no longer willing or able to take responsibility and decide to call it a day.
In principle, however, it is our role to protect what is charitable - and an organisation that is charitable does not lose that legal status simply because its trustees have made mistakes.