This article was first published in the November/December 2012 UK edition of Accounting and Business magazine.
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Hundreds of thousands of individuals from across the UK support charities as trustees. In its publication, CC3 – The Essential Trustee: What You Need to Know, the Charity Commission puts the total number of trustees in England and Wales at 900,000. There are probably a further 90,000 in Scotland and in Northern Ireland. In addition, there are trustees in England and Wales of charities that have income under £5,000 and which therefore are not registered.
Sam Younger, CEO of the Charity Commission, said in last month’s Accounting and Business that ‘the talents of professionally trained trustees, and accountants in particular, have become even more valuable to charities over the past four years’. It is clear that in the UK we have committed trustees but we need more. We also need to make sure that they know what is expected from them and that they are given support and education to help in their role.
One of the areas commentators suggest is neglected is the induction and support offered to new trustees. Whether you are a new trustee, an existing trustee recapping on areas that might need brushing up, or thinking about trusteeship, we would like to explore the duties of trustees and some of the risk areas that trustees should consider. Examples will be given that refer to acts of parliament in England and Wales, Northern Ireland and Scotland. While the list might appear daunting, there are many sources of free advice and support as well as many sector umbrella bodies able and willing to assist, though some may require you to join as a member to access their services. While not covering all the duties and obligations of trustees, this article highlights the key ones.
No one trustee will have all these skills, let alone the time and energy, to cover all the aspects of running a charity. It is important that duties are shared and the trustee body has the range of skills needed. While sharing a passion for the cause is key, your life experience, employment or background could bring essential management, finance, administrative and other skills that will greatly benefit the charity.
Duties of trustees
The primary responsibilities of trustees are to:
- Act in the interests of the charity.
- Operate in a manner consistent with the charity’s purpose.
- Act with due care and diligence.
- Ensure that the charity complies with relevant legislation.
While approaching the duties and responsibilities requires a common sense approach, trustees do need to consider the statutory responsibilities that come with the role.
Trustee duties are set out in more detail in the Charities Act 2011 and Charity Trustee Act 1993, and Charities and Trustee Investment Act 2005 (Scotland) and Charities Act 2008 (Northern Ireland). The principles are similar in that they impose a duty on the trustee to direct the affairs of the charity, ensure that it is solvent, adheres to the charity law, and acts within the aims and objectives set out within its governing document. At all times, the trustees must make sure that they are running the charity for the public benefit.
Trustees also need to look beyond legal requirements and sanctions: they need to consider best practice together with moral and ethical responsibilities. This is where wider governance obligations play a significant role.
To help trustees fulfil their roles, both the Charity Commission and Office of the Scottish Charity Regulator (OSCR) produce helpful guidance and their websites should be referred to. This guidance covers the general duties of trustees and specific activities or areas of risk. The National Council for Voluntary Organisations’ Good Governance Code is also a valuable resource for trustee boards.
CC3 – The Essential Trustee sets out duties and responsibilities under the headings of compliance, responsibilities, prudence, duty of care and ‘if things go wrong’.
Risks to be considered
Going concern: given the squeeze on funding, charities need to ensure that they have sufficient funds to meet continuing obligations and complete the projects or work that they have undertaken. As with any entity, the continued ability to pay its debts as and when they fall due is a main concern. Solvency is an area where both the Charity Commission and OSCR have issued detailed guidance. In the case of a charitable company, the legal obligation arises from the Insolvency Act 1986 and can impose a personal liability where wrongful trading or fraudulent trading has occurred. Wrongful trading, in section 214 of the act, is where a trustee can be personally liable where they knew, or ought to have known, that there was no reasonable prospect of avoiding insolvent liquidation; and they did not take steps with a view to minimising the potential loss to creditors.
Fundraising: the recent and continued debate concerning charitable fundraising activities, especially the use of professional fundraisers, has resulted in charities looking carefully at their legal and ethical position. Legally in England and Wales trustees need to consider the relationship between their charity and fundraisers with regard to home and street collections, as set out in the Charities Act and local authority rules.
The promotion of a charity, fundraising and making sure interested parties know about the activities of the charity is an important part of the work trustees undertake.
Reputation: is an asset of the charity and like all resources of the charity should not be wantonly devalued. It’s important that trustees have regard to this and the impact on reputation when they consider the financial position of the charity, its commitments and from who it accepts or raises funds.
Safeguarding data: one of the difficult and problematic areas for a number of charities is data protection. Some not-for-profit organisations do not need to register, but the conditions are narrow, so the registration requirements need to be regularly reviewed and assessed. This area is one where trustees need to make sure that internal controls are in place, that the risk of non-compliance has been considered and that suitable procedures are in place. The Information Commisioner’s Office has useful guidance. It covers the general requirement for only collecting information that you need for a specific purpose. It specifies that the data needs to be relevant and up to date, that it is securely held, that it is only held for a purpose and that access is allowed on request. It has also produced a guidance note called Data Protection Good Practice Note: Charities and Marketing. This provides a useful overview of some of the dos and don’ts when marketing. It also highlights that both the Data Protection Act 1998 and the Privacy and Electronic Communications (EC Directive) Regulations 2003 apply to charities.
Safeguarding vulnerable beneficiaries: charities working with children or vulnerable adults will also need to carry out checks on trustees with the Criminal Records Bureau. The latest requirements are set out in the Protection of Freedoms Act 2012.
Investing charitable funds: care and duty of care is encompassed within the Trustee Act 2000. Here there is a duty of care and skill that is reasonable in all circumstances including investment, delegation to agents and others, and acquisition of land and property. The expectation in section 1 of the act is that the level of care and skill will be assessed having regard to:
- any special knowledge or expertise that the trustee has or holds him or herself out as having; and
- where the trustee acts in the course of a business or profession, any special knowledge or expertise that it is reasonable to expect of a person acting in the course of that kind of business or profession.
So, while trustees share decisions and responsibilities and generally, unless the constitution stipulates otherwise, take decisions by majority, this sharing doesn’t reduce the duty of care owed by each trustee to the charity. Ultimately, trustees may attract personal liability if they fail in their duties.
Delegation: while charity trustees are ultimately responsible for the charity, they are not expected to run the charity on a day-to-day basis and have the power to delegate. Having appropriate policies and ensuring that these are followed enables trustees to delegate the running of the charity. Most charities would have a set of key policies that would cover health and safety, children and vulnerable adults, internal financial procedures, fraud, data protection, fundraising, brand and reputational guidance, use of the charity’s assets (including email, computer and internet policies), complaints and whistleblowing for employees and volunteers, investment, grant-making, risk management, bribery and corruption, conflict of interest, volunteers, recruitment and HR, equal opportunities and the ability to enter into contract.
Risk management processes: it is here that charities need to ensure they have appropriate trustee training programmes in place to help the trustees ensure that the charity has appropriate policies, procedures and due regard to risk.
Managing conflicts of interest: trustees have certain restrictions placed on them, primarily to prevent any conflict of interest arising between their duties as a trustee and their personal interests. These are generally covered by the conditions that they can’t benefit personally from the charity, although out-of-pocket expenses can be reimbursed and they can’t be employed by the charity. The Charities Act 2006 introduced a power that allowed charities to pay trustees for providing services to a charity. The power doesn’t allow a trustee to be paid for their duties as a trustee but recognises there might be situations where their knowledge or expertise is required. However, the charity’s governing document would need to be reviewed as many, especially before the 2006 Act, include a prohibition on payments to trustees. Normal rules would also apply to avoid contractual difficulties, ie non-participation in the making of the contract.
Public benefit: under the Charities Act 2006, trustees are obliged to have regard to the charity’s public benefit requirement. Guidance can be found in the Charity Commission guidance on this area, which highlights two key principles: that there must be identifiable benefit or benefits and the benefit must be to the public or a section of the public.
Effective governance: the responsibility for the running of the charity rests with the trustees. The trustees must ensure that the charity’s resources are used to further the aims and objectives of the charity. All trustees should be instructed in the charity’s objects as set out in its governing document. This avoids any confusion and helps trustees ensure that, as far as they can reasonably believe, the charity’s resources have been, and will continue to be used to, further advance the objects.
Before you agree to be a trustee, do your own due diligence, read the annual report and any other information such as the governing document, find out what is being said about the charity, meet trustees and go along to an event the charity is running.
Finally, being a trustee can be rewarding and, while there is a lot involved, there is a wealth of free resources to draw on.
Glenn Collins is ACCA UK’s head of technical advisory