Charity Commission Criticises Under-Reporting of Serious Incidents as it Publishes New Guidance
New guidance underlines the importance of reporting serious incidents to the Charity Commission.
The Charity Commission has reiterated the importance of serious incident reporting at the same time issuing its new guidance: How to report a serious incident. This followed a consultation to which over 50 charities, professional organisations and legal advisers responded. VWV is pleased to have taken part in the Charity Law Association working party which responded to the consultation.
The Commission regards serious incident reporting as one of their key compliance and monitoring tools. Effective reporting of serious incidents is important for trustees to demonstrate that they are fulfilling their legal duties and also demonstrating good governance and management. Of course it also places a burden on charities, which can be difficult for small charities. The Commission has suggested that there is significant under reporting of serious incidents which increases the risk of further harm, in particular to a charity's reputation.
What Is New?
The meaning of a serious incident remains the same but has been given a more succinct definition: "an adverse event, whether actual or alleged, which results in or risks significant (a) loss to your charity's money or assets; (b) damage to your charity's property; or (c) harm to your charity's work, beneficiaries or reputation".
Despite some criticism that allegations should not need to be reported, the Commission has determined that its regulatory remit requires it to oversee the risks facing charities and to ensure allegations are handled responsibly.
The new guidance:
- provides new reference tools to illustrate when trustees should, and should not, report incidents
- clarifies the procedure for making multiple reports
- expands on what is meant by 'significant financial loss' including clarifying the types of incident the Commission would consider to be reportable
- removes the requirement to report the lack of a safeguarding policy or procedure.
New Reference Tools
One helpful feature of the new guidance is the new checklist and examples table provided to assist trustees in deciding whether to report an incident and the steps to take when reporting. The guidance also includes examples of incidents which do not need to be reported, which is likely to assist trustees.
The new table of examples includes example scenarios for each category of serious incident. For some categories, including fraud and money laundering and links to terrorism or extremism, the guidance simply advises "if in doubt, report it", although this principle will apply in respect of all categories of incident.
While the examples table is a helpful addition to the guidance, it is important to remember that it is not exhaustive and the guidance should always be considered as a whole. If in doubt, trustees should seek legal advice in respect of whether a particular incident affecting their charity should be reported to the Charity Commission.
It is always necessary to look at the examples as a whole and consider if a particular incident needs reporting in any category. For example, under theft, the guidance provides an example of a one-off random theft of a mobile phone from the charity's premises as an incident that does not need reporting. However, if this mobile phone contained personal details of beneficiaries or staff, this would need reporting as a result of a breach of data protection requirements.
Significant Financial Loss
Trustees have always needed to report significant financial loss to their charity where this threatens the charity's ability to operate and serve its beneficiaries, or where the charity's financial reserves are not sufficient to cover the loss. However, the new guidance offers further direction on what type of financial loss is considered significant.
The new guidance provides new examples of significant financial loss which includes losing significant funding or contracts that cannot be replaced or substantial payments of legal fees or damages as a result of losing a court case. Significant financial loss generally is defined as at least £25,000 or 20% of the charity's assets, however, other factors can mean that losses of values lower than this can be significant and therefore should be reported. For incidents involving financial loss, it may therefore be appropriate to take legal advice to establish whether it is significant and therefore needs reporting.
Legal Duties and Best Practice
In practice, the Charity Commission expects all charities, regardless of their size, to report serious incidents. Not only is this a matter of good practice, but it also demonstrates that the trustees have complied with their legal duties and the charity is practising good governance.
Whilst the new guidance highlights that reporting of serious incidents itself is not a legal duty, the guidance correctly explains that charities with an income of over £25,000 have a legal obligation to sign a declaration in the Annual Return confirming that there are no serious incidents that should have been reported to the Commission but remain unreported.
The new guidance clarifies the Commission's expectations in respect of the timing of making serious incident reports. Charities 'should' report an actual or suspected incident 'promptly'. By promptly, the Commission means "as soon as is reasonably possible after it happens or immediately" after the charity becomes aware of it. In practice, however, this can often be a difficult judgement to make.
How We Can Help
The new guidance does not substantially differ to the previous guidance, but it is more user friendly and we would encourage trustees to familiarise themselves with it.
There still will be situations in which trustees are unsure and in such circumstances we recommend that trustees seek legal advice. We are very familiar with the Charity Commission's approach to serious incidents and we have significant experience of carrying out risk based assessments of incidents occurring in charities. We can assist trustees in considering whether a report is necessary in all of the circumstances and in drafting any reports to the Commission as well as advising on other steps that may be necessary.