Trustees and auditors are both subject to a duty to report. Trustees are under a duty to report serious incidents and auditors are required to report matters of significance.

The Charity Commission is working with the accountancy profession to address under-reporting by auditors in the hope that it will ensure auditors comply with their duty. This is likely to lead to an increase in reporting and raises the question as to what implication this will have on trustees who have failed to make a report.

What are auditors' duties when it comes to reporting?

Auditors must immediately report in writing to the Charity Commission when the auditor becomes aware of matters which relate to the activities or affairs of the charity which the auditor believes are likely to be of material significance to the Commission in determining whether it needs to intervene. 

Nine matters of material significance have been identified by the Commission including dishonesty and fraud, money laundering and criminal activity, risk to charity's beneficiaries, breach of the law or the charity's trusts and conflicts of interest.

A trustee's duty to report

Trustees have a duty to identify serious incidents and report them. An incident is serious if it results in (or poses a risk of) significant loss of the charity's money or assets, damage to the charity's property or harm to the charity's work, beneficiaries or reputation.

When submitting an annual return, trustees are required to sign a declaration confirming that there were no serious incidents or other matters relating to the charity over the previous financial year that should have been reported. If a trustee fails to make a report they will be in breach of their duty not to provide false or misleading information to the Commission.

Although there is no legal duty on charity trustees to declare serious incidents outside of the annual return, failure to report serious incidents promptly may be viewed as mismanagement by the Commission. The Commission has made it clear in its guidance that "charity trustees should report serious incidents (or suspected serious incidents) to the Commission as soon as they are aware of them."

An increase in reporting by auditors is likely to highlight to the Commission any failures by trustees to report serious incidents. To avoid any investigations of mismanagement (which may result in regulatory action being taken by the Commission), trustees should be proactive and report serious incidents as soon as they become aware of the incident itself or the risk of the incident arising.