The pressure faced by the charity sector from all quarters continues to mount up. As media interest continues, politicians and in particular the Public Administration and Constitutional Affairs Committee have sought to call the Charity Commission and the wider charity sector to account. In response, the Commission is demonstrating the effectiveness of its regulatory role by continuing to emphasise trustees’ responsibilities and by exercising its statutory powers in issuing further guidance.
We mentioned in our article ‘a new focus on charity governance’ in October 2015 that the Commission had reissued its guidance, ‘The Essential Trustee’ (CC3). In that publication, the Commission emphasised that it no longer expects trustees just to comply with their legal duties, but also to follow best practice within the sector.
The revised CC3 also set out the trustee’s six main duties as far as the Commission is concerned. These are:-
- ensuring your charity is carrying out its purposes for the public benefit;
- complying with the charity’s governing document and the law;
- acting in your charity’s best interests;
- managing your charity’s resources responsibly;
- acting with reasonable care and skill; and
- ensuring your charity is accountable.
These duties broadly reflect the underlying fiduciary duties imposed on trustees under charity law and, for charities that are also companies, under the Companies Act. However, given the Commission’s expectation that trustees must also follow best practice, it is important to consider some of the other issues that are creating pressure on charities and their trustees.
Assertions in national newspapers claiming charities had ‘hounded to death’ 92 year old Olive Cooke focused attention on the sector’s more industrial fundraising practices. This story, and regrettably a number of others like it, led to Governmental demands for a new approach to fundraising. In practice it also demonstrated that numerous charities failed to comply with the Data Protection Act, and the Information Commissioner is now much more alert to the use of donor data in the charity sector.
A new fundraising regulator has been established in record time with interim staff, and it has opened a ‘conversation’ about the proposed ‘fundraising preference service’. Many charities are provoked by this on the basis that they will suffer if the public reset their preferences despite those charities not having been involved in the scrutinised fundraising practices. A number of significant charities have at this stage declined to fund the regulator on this basis.
In response to the media attention, the Commission reissued its guidance “Charities and Fundraising” (CC20) for consultation. The consultation closed on 12 February 2016, but the draft guidance states that ‘first and foremost, it is the trustees of charities who are legally responsible for their charity’s fundraising’.
Again in reaction to a media story, the Charity Commission has urged charities to review their commercial partnerships. Their focus, again, is to remind trustees of their legal duties and responsibilities, in particular to protect the charity’s name and reputation. The Commission’s statement reminds charity trustees that they should have effective oversight of any partnership or agreement with a commercial organisation and be able to demonstrate that their decisions are made in the best interest of the charity. The Commission’s concern is that such relationships may affect public trust and confidence, damaging a charity’s reputation.
Funding the regulator
The Commission has most recently soft-launched proposals to charge charities to bolster its own ever decreasing budget. We understand the proposals were not greeted with great enthusiasm!
Themes and trends
One thing the Charity Commission has generally done well is to identify certain themes affecting the sector, making charities aware of problems that are impacting other charities. In particular, the Commission has recently highlighted ‘mandate fraud’ as an increasing concern. This arises where fraudsters obtain access to online banking systems and change mandates so that payments are made to the fraudster’s bank accounts. Alternatively, they dupe charities into making some of their routine payments to the defrauder’s bank accounts. The responsibility for maintaining effective internal controls rests with charity trustees.
What this means for you
As the media storm continues to drive the Commission to emphasise trustees’ responsibilities and the role they play in charities, we are beginning to hear, from a number of sources, of an increasing anxiety from trustees and a reluctance for people to stand as trustees or to renew their terms of office. This would be disastrous for the sector and for the nation’s engagement with charities.
In the sector more widely, it is a common complaint that charities’ desire to ensure that as much as possible reaches the ‘front line’ means that organisations themselves are under-resourced and that as a result governance is sometimes not as strong as it could be. It is helpful that sector leaders like Mind’s Paul Farmer are raising the importance to the sector as a whole of investing in trustees.
In practice, the rules and responsibilities have not changed, but the increasing regulatory and media attention means that problems are more likely to be scrutinised. Whilst in earlier years where it had more resources, the Commission applied these in trying to help charities avoid problems, its focus with a decreased budget is on its core regulatory remit. The media and politicians, and to be fair a significant section of the public, have demanded action. The Commission’s response is unsurprising.
Our team run regular trustee induction courses, which help individuals gain confidence that trusteeship is a worthwhile and fulfilling experience and that, in reality, and with appropriate consideration, the risks of being a trustee are not as terrifying as some might believe. For more information on our induction courses, please contact Andrew or James.
Download Charity governance in a cold climate.