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New Guidance for Reporting Serious Incidents - What's Changing?

on Wednesday, 06 December 2017.

The Charity Commission has issued new guidance on what a serious incident is and what governors must report.

What Is a Serious Incident?

At the core of the Commission's guidance is their most refined explanation yet of what a serious incident is. A serious incident "is an adverse event, whether actual or alleged, which results in or risks significant:

  • Loss of your charity's money or assets

  • Damage to your charity's property

  • Harm to your charity's work, beneficiaries or reputation."

Governors need to ensure that their internal risk monitoring processes enable events of this type to be quickly identified, addressed and escalated to a level at which a decision can be taken about serious incident reporting. The Commission has emphasised the expectation of speed, saying reports must be made promptly, as soon as is reasonably possible after it happens or immediately after the charity corporately becomes aware of it.

The guidance does go on to flesh out a little more what a serious incident is, but it cannot cater for every eventuality. In many cases, the decision whether or not to make a serious incident report will involve applying the core explanation above to the circumstances.

Reporting to the Police and Other Regulators

The guidance does not directly say that if the charity makes a report to the police or another regulator, that is a serious incident. It would however, be a useful working assumption for governors to adopt.

Making a slightly different point, the Commission reminds readers that it is not enough to report a serious incident to the police or other regulator. A report must also be made to the Commission. Clearly the two are linked in the Commission's thinking.

Another reason for adopting the working assumption include the Commission's comprehensive powers to share information with other regulators and the police. It is better for the governors to contact the Commission themselves than to have the Commission find out about circumstances from other regulatory bodies.

The Commission specifically says that significant investigations and significant financial penalties imposed by regulators amount to a serious incident report. If that is the case, it may well be better to have the Commission on-board from the outset, before the situation develops.

Finally, in December 2016, the Commission went on record (in a fundraising context) to say that charities have to make serious incident reports in respect of any matter they report to the Information Commissioner. What is true for the Information Commissioner in one context is probably true of other regulators in other contexts.

Main Categories of Serious Incidents

The Commission envisages six main categories of serious incident report:

  • financial crime including money laundering

  • large donations from unverifiable sources and other suspicious financial activity

  • significant financial loss

  • links to terrorism or extremism, proscribed organisations or being subject of a kidnapping (we would add, ransomware) incident

  • suspicions, allegations or incidents of abuse involving beneficiaries

  • other significant incidents

The guidance explains these, often with examples, in more detail. In this article, we highlight some of the new, less obvious and most important examples of serious incident.

Unverified or Suspicious Activity

The Commission recommends that governors undertake due diligence on donations and in particular that they report unverified or suspicious donations totalling £25,000 or more. Other suspicious activity to report includes being asked to cash a cheque, convert cash between currencies or to pay fees (or, we would suggest, take any unusual steps) in order to secure or release donated funds.

Financial controls as well as a clear donations acceptance policy are key to compliance. Anonymous donations remain a tricky area, but there are solutions, for example assurances from regulated professionals who have or can themselves carry out due diligence into an anonymous donor.

Significant Financial Loss

This includes losing a court case and incurring substantial fees, damages and costs. It also includes losing substantial donors or contracts, particularly if the school is financially dependent on them and they cannot be replaced.

As a rule of thumb, the Commission would expect losses exceeding £25,000 (or in respect of any small, linked charities, 20% of their income if less than £25,000) to be reported.

Safeguarding

The guidance is clear that abuse or mistreatment under the care of the charity or otherwise connected with the charity must be reported. That includes allegations as well as proved incidents.

This edition is clear that allegations must be reported. The new edition of the guidance includes a clear call to report "any actual or suspected criminal activity". The equivocation in the previous edition around levels of and grounds for suspicion is gone, replaced with a clear direction not to wait until someone is arrested, charged or convicted.

Other Significant Incidents

The Charity Commission's interest in the financial health of charities continues, expecting to be alerted to situations of insolvency.

The Commission is also concerned about the impact of the financial services sector de-risking by withdrawing services from charities. If this happens to your school and you have difficulties getting replacement services, you should tell the Commission. Governor and staff resignations may also be reportable, if they are linked to or impact on governance issues.

What to Report?

We see serious incident reporting as the governors' opportunity to be in control of the way the Charity Commission forms its first impression of an incident. The governors can explain the context, the policies, procedures and culture the school has to guard against such incidents, how it is managing the incident (including media) and what it is learning for the future. It is a narrative of reassurance. That is not the narrative that another regulator or a complainant is likely to give the Commission.

It is also the narrative that the Commission asks for in their list of required information:

  • who is making the report and their role

  • what their authority is to report on behalf of the governors

  • which governors are aware of the incident what has happened and when the school became aware of it

  • what action is being taken to deal with the incident and to prevent future problems

  • whether it has been reported to the police or other regulator (with reference numbers)

  • whether there are media handling lines in place

Conclusion

In the midst of an incident, reporting to the Commission is an easily missed step, particularly now that the Commission's expectations have expanded. Whilst it is a regulatory burden, it is also a reliable and well-used platform for schools to make the first move, setting the tone for dealings with an increasingly active regulator with an increasingly impressive arsenal of powers.


For more information, please contact Andrew Wherrett, in our Charity Law team, on 0117 314 5269.

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