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The Charity Commission has issued new guidance for trustees on reporting serious incidents, which includes their legal obligations, duties and responsibilities

This article was first published in the October UK edition of Accounting and Business magazine.

Trustees have an obligation to report serious incidents or other matters relating to their charity. This should be done when the incident occurs but can also be brought to the Charity Commission’s attention when submitting the annual report. Commission guidance also reminds charities above the statutory audit threshold that they must report on their risk management arrangements in their annual report.

For a charity with income over £25,000, the trustees must sign a declaration as part of the annual return. This states that there are no serious incidents or other matters relating to the charity over the previous financial year that should have been brought to the attention of the commission but have not.

The commission’s guidance for trustees on reporting serious incidents  states: ‘If an incident has taken place but you have not reported this to us, you should do so when you submit the annual return.’ It goes on to state: ‘If you are unable to make this declaration then the annual return will not be complete and you will have defaulted on your statutory requirement under section 169 of the Charities Act 2011.’

The guidance goes on to provide information about the approach taken by the commission when dealing with individual charities. It also highlights the following issues as being higher risk. These are:

  • Significant financial loss to a charity.
  • Serious harm to beneficiaries and, in particular, vulnerable beneficiaries.
  • Misuse of a charity for terrorist purposes.
  • Serious criminality and/or illegal activity within or involving a charity (including fraud and money laundering).
  • Charities set up for an illegal or improper purpose.
  • Charities deliberately being used for significant private advantage.
  • Where a charity’s independence is seriously called into question.
  • Other significant non-compliance, breaches of trust or abuse that otherwise impact significantly on public trust and confidence in the charity and charities generally.

These are generally the type of high-level risks that trustees would expect to review. However, trustees need also to look at the type of incident and how it should be reported. The guidance states that ‘arising out of these higher risk issues, we have identified areas where the matter in question causes such serious concern that we will always give it our immediate attention because of the impact on the charity if true, and on the reputation of the charity, even if not true. Where such high risk issues arise in charities, we would always regard them as serious incidents that you should report to us.’ The areas are:

  1. Fraud and theft.
  2. Other significant loss.
  3. Significant sums of money or other property donated to the charity from an unknown or unverified source.
  4. The charity (including any individual staff, trustees or volunteers) has any known or alleged link to a proscribed (banned) organisation or to terrorist or other unlawful activity.
  5. A person disqualified from acting as a trustee has been or is currently acting as a trustee of the charity.
  6. The charity has no vetting procedure to ensure that a trustee or member of staff is eligible to act in the position he or she is being appointed to.
  7. The charity does not have a policy for safeguarding vulnerable beneficiaries.
  8. Suspicions, allegations and incidents of abuse or mistreatment of vulnerable beneficiaries.
  9. The charity has been subject to a criminal investigation, or an investigation by another regulator or agency; or sanctions have been imposed or concerns raised by another regulator or agency such as the Health and Safety Executive, the Care Quality Commission or Ofsted.

The guidance also states that the commission expects trustees to report an incident if:

  • The incident is also reported to the police or other statutory agencies.
  • The charity, or individuals associated with the charity and in connection with their role within it, are the subject of a police or other statutory agency investigation.
  • You decide that the incident presents a serious or significant risk to the charity, its beneficiaries, reputation or assets.
  • The internal risk assessment of the incident concludes that the charity should act to avoid a serious or significant risk to the charity, its beneficiaries, reputation, services or assets.
  • Your professional advisers have advised you to notify the commission of the incident.

There is also the catch-all ‘report it to us anyway’ statement. The general conclusion is that if in doubt send in a report. However, there is a balance to be struck between immediate reporting and investigation, and the guidance recognises that trustees may need time to gather information to establish the facts following an allegation or incident before reporting to the commission. However, it concludes by reaffirming that where an incident is serious, the report should be immediate.

When updating the risk policies and reporting for charities, the guidance provides useful references within its explanation of higher-risk issues. For example, for other significant loss the guidance helpfully states that ‘for this type of incident, we would expect you to report any loss of funds or other property with a value of 20% or more of the charity’s income, or £25,000, whichever is the smaller amount’. It also makes it clear that this type of reporting would ‘not include a decrease in the value of investment funds occurring in the ordinary course of investment business or losses such as impairments, asset write downs, pension deficits and bad debts’.

The guidance should be read by trustees and professional advisers. It should also be considered alongside CC8 internal financial controls.
Nigel Davies from the Charity Commission’s accountancy policy team, suggests now might be a good time to review your charity or charity client’s financial controls

At least annually the trustees should ensure that a review is conducted of the effectiveness of their charity’s internal financial controls. The publication of the updated CC8 guidance and checklist on internal financial controls might be a timely reminder to carry out that review (see links).

Davies says: ‘During our inquiry work, we still encounter situations of the uncontrolled use of cash, the signing of blank cheques and trustee remuneration (for their trustee role or their employment) not being correctly managed or on occasion not being properly authorised. The ‘tone at the top’ is important to effective controls. To be effective, the controls in place must be adhered to by trustees, staff and volunteers.

‘Just because last year there was no problem does not mean a loss cannot happen. For example, an arts festival charity lost £25,000 because the treasurer stole money after falling into personal financial difficulty. In the preceding 13 years he had served the charity without blemish.

‘Even if a problem has not occurred yet, poor controls create the opportunity for a loss. A newly employed finance manager of a disability services charity stole £150,000 when he took advantage of, to quote the trial judge, “somewhat inadequate” procedures.’

The Scottish situation

Charity law in Scotland imposes four general duties on charity trustees. They must:

  • Act in the interests of the charity.
  • Seek, in good faith, to ensure that the charity operates in a manner that is consistent with its objects or purposes.
  • Act with the care and diligence that it is reasonable to expect of a person who is managing the affairs of another person.
  • Ensure that the charity complies with the provisions of the 2005 Act, and other relevant legislation.

Trustees need to consider their obligations. A few months ago the Office of the Scottish Charity Regulator (OSCR) prepared a good governance checklist, which can be accessed using the link.

Last updated: 13 Jan 2015