The top 3 governance issues identified in Charity Commission inquiries 2025 and what steps charities can take to support compliance

Financial controls

Lack of effective financial controls is the most common issue that has featured in inquiry reports this year and remains a key regulatory focus. In the Charity Commission's "Charity Sector Risk Assessment 2025", the Commission notes that weaknesses in financial governance increase when resources are stretched, particularly for small and medium sized charities. Larger charities are now subject to the recent change in law creating a new offence of failure to prevent fraud which came into force in September. Trustees of larger charities should assess their exposure to this and put in place the required procedures.

Common governance issues

The governance issues coming up in recent reports have been:

• Inadequate policies and procedures on financial controls that are proportionate and tailored to risk
• Charities' financial controls, where they exist, not being adhered to by trustees, staff, and volunteers
• Not properly recording the financial activities of charities, and financial governance not being transparent
• A lack of adequate control or oversight of the charity's finances
• Insufficient personnel resource within the charity to adequately complete the necessary financial administrative processes leading to backlogs and errors
• Unauthorised trustee benefits and inadequate conflicts management
• Weaknesses in restricted fund tracking and reconciliation.

Practical steps to support compliance

Trustees have a legal duty to ensure that their charity’s funds are applied solely and reasonably in furtherance of its objects and to manage their charity's resources responsibly, as set out in "The essential trustee: what you need to know, what you need to do". Controls work best where the culture encourages openness and challenge. They need to be strong enough to minimise errors and deter fraud, but not burdensome so that they impede delivery. As part of their duties, trustees need to ensure that they put in place a policy and procedure on financial controls which is tailored to the size of the charity and its risk profile and kept under regular review. Applying the "two pairs of eyes" principle to ensure segregation of duties is key to ensuring that no single individual can initiate, approve and reconcile the same transaction. 

The policy and procedures need to be understood and implemented effectively - to ensure this, trustees should consider whether staff and/or volunteers (including trustees) need training and should use the "Internal financial controls for charities" document as a baseline. There is also a checklist for trustees to help evaluate their charity’s performance. 

There needs to be effective oversight of financial controls by the trustees. They don't need to be finance experts, but they do need enough financial literacy to ensure they ask the right questions, challenge constructively and can spot red flags. Trustees might have a lead finance trustee or appoint a finance committee but all trustees remain ultimately responsible for having effective controls and oversight.

Triangulation, meaning comparing multiple, independent sources to ensure the numbers and the narrative align, is important, for example, comparing management accounts with budgets and forecasts and reviewing bank reconciliations against cash flow. Short pre‑board briefings with the finance lead can help trustees test the 'story' behind the numbers. Board reporting needs to be consistently robust requiring clear narratives explaining variances and a standard set of financial documents and reports.

Failure to comply with governing documents and the law

The Charity Commission’s strategy and regulatory focus emphasise its commitment to ensuring public trust and confidence in charities by promoting compliance, accountability, and good governance. Charities not complying with their governing documents and legal requirements has come up in several inquiries in 2025.

Common governance issues

Common governance issues which are cropping up in inquiry reports include:

• Operating without the required number of trustees and this, in turn, giving rise to issues around managing conflicts of interest with a reduced number of trustees on the board
• Acting outside of the charity's objects and failing to update them
• Failure to comply with the benefits to members and trustees clause of the charity's governing document
• Not holding the number of meetings required by the charity's governing document
• Failure to keep minutes of meetings in accordance with the governing document.

Complying with a charity's governing document and the law is a core trustee duty. "The essential trustee: what you need to know, what you need to do" document makes clear that trustees must act within their powers and only to further the charity’s purposes. Decisions taken outside the charity's objects, without the required quorum, or in breach of conflicts and benefits provisions risk being invalid, may need to be unwound, and can expose trustees to personal liability. Sustained or serious non‑compliance can lead to regulatory engagement, damage the confidence of stakeholders, and in some cases may require a serious incident report to the Charity Commission. Conversely, getting this right protects beneficiaries, safeguards the charity's assets and reputation, and underpins public trust.

Practical steps to support compliance

Trustees should consider building an annual “governing document health‑check” that sets out the requirements of their governing documents against current practice and should then consider updating their governing document if needed. Before taking major decisions confirm that you have the necessary powers and whether Charity Commission consent is needed (for example, when changing objects). Trustees should consider steps to strengthen board reporting and control oversight and there should be a focus on the provision of a comprehensive trustee induction and ongoing training. If you identify a material breach, document remedial actions promptly and assess whether it meets the Charity Commission’s serious incident reporting threshold.

Conflicts of interest

Trustees must act only in the charity’s best interests and manage conflicts appropriately. "Conflicts of interest: a guide for charity trustees" sets clear expectations: identify conflicts early, prevent undue influence on decision‑making, and record how the conflict was handled. Poor practice risks invalid decisions, unauthorised trustee benefits, regulatory engagement and loss of public trust.

Common governance issues

Common governance issues seen in recent cases include:

• Conflicts not being declared promptly or fully, including those involving connected persons.
• Conflicted trustees taking part in discussions or decisions or influencing outcomes informally outside meetings.
• Decisions made without a valid quorum once conflicted trustees are excluded, or where the governing document’s quorum rules were not applied correctly.
• No 'live' register of interests, or outdated declarations which have not been reviewed annually or on re-appointment.
• Inadequate documentation in minutes: missing declarations, unclear rationale for decisions, and no record of steps taken to manage the conflict.
• Unauthorised trustee benefits or related party transactions, including procurement and grant‑making, without proper authority from the charity's governing document and a failure to follow the Charity Commission's guidance.

Practical steps to support compliance

Effective conflicts management means identifying conflicts through early, full disclosure and maintaining a comprehensive register of interests. To prevent undue influence, conflicted individuals should withdraw from discussions and decisions, and the chair should actively manage the process in accordance with the charity's governing document and its conflicts of interest policy. This should be reviewed annually. Trustees should consider whether the conflict can be managed, for example by withdrawal and independent decision-making, or whether it is so pervasive that a trustee should not continue in the role. Authority and transparency are essential.

Training for trustees and senior staff should be provided at induction and refresher training using "The essential trustee: what you need to know, what you need to do" and "Conflicts of interest: a guide for charity trustees", and the chair should be trained on practical management of conflicts.

Any trustee or member benefits must have clear legal authority in the governing document, through Charity Commission consent or a statutory power, and they should be transparently recorded.

Charities should have a standing item on their agenda for conflicts. Check that once the conflicted individuals withdraw, you still meet the quorum and voting thresholds under your governing document and postpone decisions if not. Where the board is small or conflicts are frequent, consider appointing additional independent trustees. Minutes should be set out in a standard format which clearly records the declarations, the quorum, the powers relied on, how the conflict was handled, and the reasons for the decision. 

The Charity Governance Code, which has recently been updated, provides a set of universal principals for all charities, regardless of size or complexity, to foster discussions about standards, behaviours and processes that contribute towards good governance.

For more information or advice, please contact Sarah Clune in our Charities team.