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Are charities breaking the rules more?

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Are charities breaking the rules more?

Julian Lomas

At the end of January 2019 the Charity Commission published their latest report on lessons and warnings for charities and trustees from their casework in 2017-18. Alongside this they also published a press release highlighting the 137 occasions when the Commission used its new enforcement powers (Official Warnings, Trustee Disqualifications etc.)

Despite only a modest 2.4% increase in the number of registered charities (168,010 and rising) the number of new regulatory compliance cases opened by the Commission rose by a staggering 36.4% (although the much smaller number of monitoring cases and statutory inquiries both fell by 17.5% and 26.2% respectively). The number of reported serious incidents affecting charities was also up significantly (by 29.3%) of which 10.1% were reported by auditors (up from 2.5% the previous year) and there was a 14.7% increase in whistleblowing reports.

The accompanying narratives from the Commission on these statistics highlighted the following key concerns:

  • Insider fraud

  • Safeguarding

  • Reporting serious incidents

  • Counter-terrorism

  • Data Protection

  • Issues with military charities (particularly around fundraising, safeguarding and use of funds raised)

Does this mean the sector is breaking the rules more and that compliance standards are falling?

It’s hard to say; although there is more than a hint in the regular case reporting by the Commission that abuse of charitable status is rising (e.g. to evade tax, launder the proceeds of crime or fund terrorist or extremist activities).

My personal view is that while such extreme abuse of charitable status may be rising (or at least being discovered more often), accompanied by high profile reporting of serious failings by some large charities, the core of the sector (decent people putting something back not society) isn’t performing any better or worse than it has.

What is clear, however, is that the Commission is taking a tougher stance on failings when it finds them, including using the new sanctions available to it.

Therefore, the need to improve standards of governance across the sector, in charities of all sizes and types, is all the more evidence. At the heart of almost every Charity Commission compliance case report I have ever read, even those where the charity is largely exonerated, there are governance failings to report on. These usually fall into one or more fo the following categories:

  • Dominance of decision making by one or more trustees/senior managers (sometimes, but not always, a founder).

  • Failure to manage conflicts of interest properly.

  • Unauthorised personal benefit by trustees or others connected with the charity.

  • Use of charitable assets for non-charitable purposes (or for purposes that would be charitable but which fall outside the objects of the charity).

  • Insufficient oversight by, and accountability to, trustees, including lack of appropriate challenge (or not acting soon enough) when things don’t seem right.

Of course, each case is different and some cases are complex or extreme in nature but there is certainly a trend towards higher rates of reporting and investigation of compliance and regulatory concerns. It is increasingly important, therefore, that charities and their trustees regularly review the effectiveness of their governance and strive for continuous improvement in governance practice. This is all the more important when a charity is growing because more robust policy and practice is often required as risks increase in scale, likelihood and complexity.

To find out more about how to ensure continuous improvement in your charity’s governance, including the support and training we offer, please contact us at julian@almondtreeconsulting.co.uk to arrange free initial telephone discussion.