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‘Charity Commission issues first yellow card’
On 1st November 2016, the Charity Commission was given the power to issue official warnings to charities where there has been a breach of trust or duty, or other misconduct or mismanagement. We covered the key points of this new power in our blog “You have been warned!”. Fast-forward a few months later and we are now able to report that the first warning has been issued.
The National Hereditary Breast Cancer Helpline became the first recipient of an official warning following various reported failings of the trustees which left them in breach of duty. Further details can be found in the Commission’s case report: https://www.gov.uk/government/publications/national-hereditary-breast-cancer-helpline-case-report
The charity was randomly selected for scrutiny by the Commission from a pool of 94 charities whose accounts signalled they may be in financial difficulty. A combination of site visits and record/account reviews highlighted failings in four key areas:
- Unsustainable finances including heavy reliance on loans.
- Unauthorised payments to the chair (who was also the sole signatory of the charity’s bank account).
- Trustees’ failure to meet regularly and make collective decisions.
- Failure to keep adequate records.
Despite the charity having been issued with an action plan and “given the chance to resolve” the issues, a follow-up visit highlighted that the trustees had failed to fully comply with the terms of the action plan. For example, the chair had stepped down from her role, however she continued to make key decisions for the charity and also continued to receive payments. The few changes implemented were insufficient in protecting the charity from undue risk and so the Commission felt that a warning was proportionate.
The Commission did not however see merit in pursuing repayment of the amounts paid to the chair and stated that the purpose of the warning was to “prompt compliance” by the trustees.
One criticism is that the regime, applied in this manner, could be seen as a light touch. The warning system is a reminder that charities cannot ignore compliance and that this very public method of warning is likely to act as an effective deterrent given the reputational impact on the charity.
Whilst it is not clear from the report as to how much ‘implementation time’ the charity had between the action plan and compliance visits to make necessary changes, the good news is that charities will get an opportunity to make things right should things go wrong. But once the Commission decide to issue an official warning, the charity will only have 28 days to respond before the Commission goes public.
We advise all charity trustees to keep an eye on the warnings issued, so that they can look to avoid similar issues happening at their organisation. An easy way doing this is to set up a google email alert using the term “official warning charity commission” which will alert you when new content on the subject appears online.