Charity trustees have always had a duty to identify, manage and mitigate the risks to their charities. One aspect of this duty is the Charity Commission's guidance for charity trustees on serious incident reporting, which explains the incidents it considers should be reported, what information to include in the report and the things the Commission will take into account when considering its response.
Before looking at the guidance in more detail, and also at some examples of serious incidents, it helps to understand the Commission's regulatory interest in this area.
The role of the Charity Commission
One of the statutory functions given to the Commission by the Charities Act 2006 is identifying apparent misconduct or mismanagement in the way in which charities are administered.
The Charity Commission believes that identifying serious incidents in relation to a charity is an important part of enabling it to identify and, if necessary investigate, what may be instances of misconduct or mismanagement by that charity's trustees. For example, a fraud carried out by one of a charity's employees may be evidence of a governance failure on the trustees' part to establish a proper process for dealing with funds.
The main aim of the reporting regime is therefore to place the onus on charities to bring incidents to the Commission's attention, so that it can decide whether it needs to take any action as regulator, which could include opening a statutory inquiry. Where an incident is particularly serious, the Commission may also report the incident to the police, social services or other regulators.
The Commission is uniquely placed, as regulator, to know when an issue affecting one charity may affect another (for example, allegations in relation to a trustee who is also a trustee of other charities), but also to offer support and guidance to trustees on how to manage serious incidents and the risks associated with them.
Why report?
The Commission considers that complying with its guidance on reporting serious incidents is evidence of good governance and management by a charity's trustees and, in particular, that the trustees are actively considering the risks faced by their charity. A failure to report may therefore be treated as evidence of mismanagement or misconduct and may be investigated by the Commission, which has been known to investigate incidents which have not been reported to them but which are reported in the local or national media or reported to them by other bodies (such as the police or social services).
Although the Commission's guidance is not strictly binding on trustees, the Commission now requires any charity with an annual income over £25,000 to submit its annual return to the Commission with a declaration made on behalf of its trustees that no serious incidents have occurred in relation to the charity which have not been reported to the Commission. Although the annual return does not say so expressly, there is obviously a risk that, if given knowingly or recklessly, an incorrect declaration may constitute providing the Commission with false or misleading information, which is a criminal offence under the Charities Act 1993.
From the point of view of both good governance and the risk of committing an offence, it is important that charity trustees understand and comply with the Commission's guidance on serious incident reporting.
Serious incidents
The Commission considers that any incident which presents a serious or significant risk to a charity, its beneficiaries, reputation or assets is reportable. In particular, this includes:
- fraud, theft or the significant loss of property or funds
- significant sums of money or other property being donated to the charity from an unknown or unverifiable source
- any known or alleged links to terrorist or criminal organisations
- a person acting as a trustee who is disqualified from doing so
- a failure to have in place proper vetting arrangements or a policy for safeguarding children and other vulnerable beneficiaries
- the abuse or mistreatment of children or other vulnerable beneficiaries
- the charity being subject to a criminal or regulatory investigation.
Some of these incidents are more likely to occur than others and will depend to a great extent on the activities a charity undertakes but, particularly when children and vulnerable beneficiaries are involved and the trustees are dealing with allegations or suspicions, their investigation, management and reporting will need to be handled carefully.
Fraud, theft and significant loss of property or funds
Any actual or suspected fraud or theft should be reported to the Commission. Any other significant losses to a charity's property or funds should also be reported if they exceed 20% of the charity's annual income or £25,000 (whichever is the lower figure). This does not apply to any loss in the value of investments because of fluctuations in their value.
Case study
A playgroup charity had been established by the supervisor of the playgroup. The supervisor was not a trustee, but arranged for the purchase of the charity's main property to be carried out and registered in her name. The trustees paid off the mortgage interest each month, but when the time came to sell the property, there was a significant risk the proceeds of sale (over £200,000 and in excess of 20% of the charity's annual income) would be retained by the supervisor because the property was registered to her.
This should be treated as a serious incident (because of the risk of a significant loss of charitable funds) and should be reported as soon as possible to the Commission. In the event, the Commission became involved and appointed new trustees to administer the proceeds of sale.
Donations
Trustees are required by law to keep records of donors who make substantial donations to their charity. Not only is this good governance (there may be conditions attached to the donations which will restrict how the funds can be used), but it will also reduce the risk the charity may unknowingly be used for money laundering. Again, the threshold is £25,000 for reporting to the Commission, but it may be that the circumstances surrounding a gift of a smaller amount will still give trustees sufficient concern to make a report.
Disqualified trustees
There are various reasons why a trustee may be disqualified from acting, although the most obvious example is where the Commission or the Court has made an order prohibiting someone from acting as a trustee (or, for companies, as a director). Checks should be made before offering to appoint a new trustee, including asking the trustee to sign a declaration that he or she is not disqualified from acting.
Safeguarding vulnerable beneficiaries
There are some particular issues where a charity is involved with children or vulnerable adults. Charities working with these groups must ensure they have proper vetting arrangements in place (which can be extensive and include, where necessary, obtaining a full employment history, direct contact with referees, undertaking checks with the CRB and the Independent Safeguarding Authority etc.). Up to date policies and procedures must also be in place that comply with safeguarding legislation. If inadequate procedures are in place, the Commission regards this as reportable, regardless of whether any abuse or mistreatment has taken place as a result.
Case study
The headmaster of a charitable school was the subject of allegations of physical harm towards pupils. The trustees were unwilling to suspend the headmaster while the allegations were investigated, despite clear advice from social services and the police to the contrary. The school did not inform the Commission of the allegations, nor of the investigations by the police, social services, OFSTED and the DCSF. When the Commission was informed by the other regulators, it opened an inquiry and found that the school's child protection and safeguarding arrangements were inadequate.
A failure to have in place proper safeguarding procedures is treated by the Commission as an unmanaged risk to a charity and its beneficiaries. The school should have put proper procedures in place and reported the initial allegations to the Commission, as well as informing it of the later involvement of other regulators. In line with the Commission's guidance, the school's trustees should also have identified and reported the defects in the school's procedures, ideally with a clear explanation of the steps being taken to rectify them.
Abuse or mistreatment of vulnerable beneficiaries
Where vulnerable beneficiaries have been abused or mistreated whilst in the care of the charity or by someone connected with the charity (e.g. employees and trustees, but also volunteers), then the Commission expects a report to be made. The Commission's guidance is widely drafted in relation to vulnerable beneficiaries and catches incidents which take place in the course of activities which may be more remotely connected with a charity as well as those which take place as an intrinsic part of what the charity does.
Case study
A religious educational charity was informed that one of its members had been arrested by the police after allegations of sexual abuse. The member had met the victim through the charity's work but the abuse was alleged to have taken place outside the charity's premises. Subsequently the individual was convicted and sentenced to 8 years in prison.
The charity immediately reported the arrest to the Commission and took positive steps to protect its reputation (taking professional advice, informing parents and supporters of the charity and engaging with social services and the police). The Commission said this demonstrated an awareness of the trustees' duties and responsibilities.
Suspicions, allegations and investigations
Particularly in cases of fraud, theft or the abuse of vulnerable beneficiaries, trustees may not immediately know if an incident has actually occurred and, if it has, whether it is "serious". Often, trustees will be presented with suspicions or allegations which need to be investigated before they can come to a conclusion about the correct approach.
Although the guidance states that suspicions and allegations of serious incidents should be reported to it "immediately", the Commission has also stated that there is a degree of proportionality involved. It does not expect every allegation to be reported to it and says it is for trustees to decide whether it is appropriate to report an allegation based on the particular circumstances.
There is obviously a balance to be struck between investigation and timely reporting and trustees will need to exercise their discretion and judgement depending on the particular circumstances that apply. But the more serious the allegations or suspicions, the more likely it is the Commission should be informed immediately (particularly if the police or another regulator is in control of the situation).
A rule of thumb suggested by the Commission is that if an incident, including an alleged or suspected incident has been reported to trustees by their staff or volunteers, then they should consider reporting it to the Commission. Clearly, this assumes that trustees already have in place an effective reporting process.
The Commission's response
Dealing with a serious incident is often a difficult and stressful experience for trustees, employees and volunteers and there may be understandable reluctance to involve the Commission, particularly where the police or social services are already involved. Having said this, part of the Commission's role is to advise and support charities through a serious incident and, where trustees can demonstrate they are following established policies and procedures (including engaging with the police or other regulators), the Commission is likely to take a more "hands-off" approach and only require regular updates.
However where the Commission believes that charity trustees are not dealing with an incident appropriately, or the risks to the charity are so significant that the trustees cannot manage them alone, then the Commission is likely to take a more active regulatory interest.
The key points
The key points for charity trustees in relation to serious incident reporting are:
- ensure that you understand the scope of the Commission's guidance
- consider identifying a senior employee or trustee as the primary internal contact in relation to serious incidents
- ensure that other internal reporting procedures are clear, robust and reflect the Commission's guidance
- ensure that proper vetting and safeguarding policies and procedures are in place in relation to vulnerable beneficiaries
if a report is made, ensure that it explains the approach taken by the trustees from a governance perspective e.g. that the charity's policies and procedures are considered to be effective or that they will be reviewed in the light of the incident.
To discuss any aspect of the Commission's serious incident reporting guidance, please contact Con Alexander on 0117 314 5214 or Jon Napier on 0117 314 5480.
This article featured in the Caritas Magazine - July 2010.
This publication is for guidance only. Reliance should not be placed upon it and nor should action be taken, without obtaining advice in respect of the specific circumstances applicable. We will be pleased to provide such advice or assistance.
