Regulatory Action by the Charity Commission - What Can You Learn From It?

Class Inquiry into Double Defaulter Charities

The Charity Commission recently opened a class inquiry into a number of charities which were in default of their statutory requirement to meet reporting obligations for 2 or more years in the last 5 years.

The charities in default were sent various reminders from the Commission but failed to submit the outstanding documents by the deadline and became part of the statutory inquiry on 12 February 2016.

The inquiry highlighted that trustees of charities with an income of over £10,000 must submit an annual return to the Charity Commission and charities with an income over £25,000 are under a further obligation to also submit annual reports and accounting documents.

The inquiry made clear that a failure by trustees to submit accounts and accompanying documents to the Charity Commission will amount to a criminal offence and is regarded as mismanagement and misconduct in the administration of the charity. This even applies to individuals who were not trustees at the initial date of default, as individuals become responsible for making good the default when they become trustees.

Investigation into Grants Made to Non-Charitable Organisations

In September 2013, the Charity Commission opened a regulatory case into two separate charities, The Joseph Rowntree Charitable Trust and The Roddick Foundation, following complaints that the charities were funding a non-charitable organisation called Cage Prisoners (Cage).

Charities must only fund activities that further their charitable purposes and Cage’s objects were regarded as not exclusively charitable. For both charities, the Commission therefore investigated the following:

• the nature of the charity’s funding relationship with Cage
   
• whether the charity’s funding of Cage’s activities was within and in furtherance of the purposes of the charity
   
• whether the trustees had complied with their legal duties and responsibilities as trustees, in particular, whether due diligence was carried out by the trustees when awarding funding and whether the monitoring of the use of funds was sufficient

The Commission concluded that a charity’s grant making policy should specifically set out that funds can only be used in furtherance of the charitable purposes and the terms of the grant application should expressly prevent the grant being applied for general/non-charitable purposes. The grant application should also include a 'claw back' arrangement whereby the charity can recover funds when evidence cannot be provided to show that the funds have been spent on exclusively charitable purposes. The Charity Commission also suggested strengthening the monitoring process by adopting a 'dip-testing' policy in order to check grants are applied properly.

Charities and Commercial Partnerships

Age UK has a number of trading subsidiaries which offer commercial products and services in conjunction with commercial partners. The trading subsidiaries’ profits are then gift-aided to the charity.

In February 2016, there were concerns that Age UK was receiving £6 million a year from E.ON to promote a particular tariff which was more expensive than others available. The Commission opened a compliance case and examined the following factors:

• whether the trustees were complying with their legal duty to avoid exposing the charity’s assets to undue risk
   
• the risk of marketing commercial products where commercial customers are also the charity’s beneficiaries
   
• the reputational risk of participation in the energy market because of the volatility and competition in the market
   
• whether the trustees had appropriate processes for oversight and control of the commercial partnership
• whether the benefit to the charity from the commercial arrangements was clear and transparent

Best Practice

The Commission concluded that trustees must have effective oversight of any partnership or agreement with commercial organisations, regardless of whether the activities are undertaken by the charity or through a trading subsidiary. Trustees must also be able to show their decisions are made in the best interests of the charity and have appropriate processes in place to ensure their decisions remain effective. The nature of the commercial partnership and the fee or commission received by the charity must also be clear and transparent.

For more information, please contact a member of our Charity Law Team or complete the form below.