Charities monthly round-up July 2022

Welcome to our July newsletter!

What a month it has been. We hope you all managed to cope well with the unprecedented heat wave, and that your desk fans managed to pull through!

Of course, we cannot get through a newsletter without mentioning the drama that we’ve witnessed in Westminster this month, resulting in the resignation of Boris which makes way for a new leader.

Many individuals and organisations within the charities sector have responded to this, with many looking to the future and considering what the new leader can do for the sector. Some, such as voluntary sector umbrella body NCVO, have urged the next prime minister to champion the voluntary sector; and Bond, the umbrella organisation for aid charities, is campaigning for the restoration of the aid budget.

Whoever takes the role of PM, the fact remains that good leadership is so important to the shape and destiny of anybody, be it a country or a charity. This month’s newsletter contains several nuggets about how charities can ensure they have good governance and leadership, as well as news stories about the fates of those who haven’t…

Military charity ordered to wind up following ‘misleading’ the public

Support the Heroes, a charity founded to support people currently serving or who have served in the armed forces, has been ordered to wind up by the Charity Commission.

This follows an inquiry over concerns about the trustees’ management of conflicts of interest and the charities’ fundraising activities.

The only two trustees were sisters, one of whom was closely connected with the sole director of a third-party company, Targeted Management Limited (TML). The charity then entered into various agreements with TML which proved costly to the charity. TML also received approximately 67% of proceeds raised by the public, with approximately only 18% going to charitable causes between 2015 and 2017. This was done without approval from one trustee and without declaring or managing the conflicts of interest.

After appointing an interim manager to Support the Heroes, the Commission later ordered the charity to wind up.

This highlights the importance of trustees managing their conflicts of interest and always acting in the best interests of the charity.

If you have any queries or uncertainties about the obligations and duties of trustees, please get in touch with your usual ACS contact or Edwina Turner.

Trustees issued with official warning due to accounting and reporting failures

Macbeth Memorial Trust – which operates as a grant-making body – had failed to file its annual returns for reporting years ending December 2018, 2019 and 2020. The Commission tried to engage with the trustees on this matter but was met with an unwillingness to co-operate. Consequently, they have been issued with an official warning.

An official warning is issued to ensure that the trustees know about the non-compliance and how it can be rectified to prevent further enforcement action. Further information about official warnings can be found here.

Please also see our article below – ‘Reporting requirements of charities’ for information about what is required.

Nowzard compliance case concludes

Nowzard – a British-based animal welfare charity – used to operate in Afghanistan prior to its fall in 2021.

It was reported that the charity had made efforts to evacuate people and animals from Afghanistan (which became known as Operation Ark). The Commission investigated whether this was within the charity’s purposes and complied with charity law.

The conclusion was that Operation Ark did fall within the charity’s purposes. The objectives of Operation Ark were made clear to donors during fundraising and there were no regulatory concerns.

If you are unsure about what falls within your charity’s objects and purposes, please get in touch with your usual ACS contact or Edwina Turner.

Commission finds misconduct and mismanagement in charity with poor accounting

One Community Organisation, a Birmingham-based charity, has been found responsible for misconduct and/or mismanagement over financial and governance issues.

It was found that the trustees would make payments on behalf of the charity using their own bank accounts (because the charity didn’t have its own bank card) and those trustees would then be reimbursed without the supervision or authorisation of the other trustees. This happened against a backdrop of poor record keeping and the end result was that the charity could not provide the supporting documentation for around £100,000 worth of ‘reimbursements’. The Commission was therefore unable to conclude that this money had been spent solely in furtherance of the charity’s objects.

The inquiry also found that the trustees lacked basic understanding of their governing document and role as trustees.

The Commission has issued an action plan to the charity to improve its governance and decision-making procedures.

This demonstrates that sound governance is of paramount importance when acting as a trustee of a charity. If you need any assistance navigating this, please do get in touch with your usual ACS contact or Edwina Turner.

Tribunal upholds trustee ban for benefit fraud founder

A founding trustee of a charity was convicted of dishonesty due to false statements to the DWP. He had also been struck off the roll of solicitors after breaching the SRA Code of Conduct.

As a consequence, he was disqualified from being a trustee of the charity. He applied for a waiver. The Commission refused to grant him the waiver on two separate occasions.

He filed an appeal against the refusal of the waiver, arguing that the Commission had not properly assessed the risk of him being a trustee and that refusing the waiver was disproportionate.

The court accepted that granting a waiver is a matter of balancing the ‘pros and cons’ but that, on this occasion, there were limited factors in favour of granting a waiver.

The Commission has published guidance on who can become a trustee, which can be found here. Trustees and prospective trustees should familiarise themselves with this guidance. In very brief terms, various conditions must be met including not having been disqualified under the Charities Act 2011. Reasons for such disqualification include:

• being disqualified as a company director;
• having an unspent conviction for dishonesty or deception (including fraud);
• being an undischarged bankrupt;
• having been removed as a trustee of any charity by the Commission or court; or
• being on the sex offenders’ register.

When new trustees are being appointed, the Charity Commission recommends that part of best practice is for them to sign a declaration that they are not automatically disqualified from being a trustee.

For further information on who can be a trustee or assistance drafting a declaration, please get in touch with your usual ACS contact or Edwina Turner.

Study finds that some charities have been forced to keep cash in personal accounts

A study of more than 1200 organisations has shown that small charities face problems with day-to-day banking and that the services they need are unavailable or unsuitable for voluntary organisations.

Examples include that business banking requires organisations to make higher deposits and to transfer and spend more money than a small voluntary organisation would normally do.

Some charities have admitted to having to do ‘workarounds’ such as paying cash into their personal accounts and then writing a cheque to the charity’s account or even storing cash at home until there is enough for the bank to accept a deposit.

Other issues include change of signatories, where the original signatory had died or had dementia and the bank would not speak to others due to GDPR restrictions.

The report concludes that the issues cannot be solved by the bank, the government or organisations alone, but by collective effort.

You can access the full report here.

Please be mindful that the ‘workarounds’ listed above are high-risk and trustees should always be aware of their duties and obligations. If you have any concerns, please contact your usual ACS contact or Edwina Turner.

The Fundraising Preference Service and requests to stop communications

The Fundraising Preference Service (FPS) allows individuals to select charities based in England, Wales and Northern Ireland, and to request that those charities stop making direct marketing communications to them.

Where a charity receives the first of such requests, it must set up a profile on the FPS charity portal (which can be found here). Where further notifications are received, the charity must log into the portal and take action to suppress communication to the requesting individuals.

Where charities persistently fail to do so the Fundraising Regulator will ‘name and shame’ them on a list. They may also inform the Information Commissioner’s Office of a breach of the Data Protection Act 2018 and submit a complaint to the commissioner.

The list, and further guidance on this matter, can be found here.

If you have any queries, please contact your usual ACS contact or Natalie Barbosa.

Using reserves to protect against inflation

Chris Philip, who until recently was Minister for Technology and the Digital Economy, recently suggested that charities could consider using some of their reserves to protect against inflation and preserve their services.

Whilst Mr. Philip no longer holds that role, it is important to note that every charity should have a reserves policy.

You can read the Commission’s guidance on reserves policies here if your charity either doesn’t have one or it requires updating.

For further assistance, please get in touch with your usual ACS contact or Edwina Turner.     

Cryptoassets and charities

Most charities are not using cryptocurrencies and, of those that are, they are being used for limited purposes such as to move currencies overseas where there are no regulated banking services.

However, the Commission has urged any charities that are considering investing in cryptocurrencies to evaluate the benefits and risks of doing so and to ensure they take appropriate financial advice.

The Commission has recommended that charities considering cryptocurrencies familiarise themselves again with the guidance on core trustee responsibilities, trustee decision making and investment guidance.

If you have any questions about these duties, please get in touch with your usual ACS contact or Edwina Turner.

Charity Commission publishes data on stakeholder satisfaction

The Commission has carried out its annual research on the public’s trust in charities. It would appear that, overall, public trust in charities ‘has held up better than other institutions’. You can download the full report here.

Meanwhile, the Commission published its customer survey which has shown that 69% of surveyed customers have rated the Commission’s service as ‘good’ or ‘very good’. However, the survey also found that there was an almost 20% difference in satisfaction levels between larger charities and smaller charities, with 75% of charities with income under £10,000 saying that the regulator’s service was ‘very good’, while only 58% of charities with an income of more than £500,000 giving the regulator the same rating.
The report also found that only 64% said their experience of reporting a serious incident was ‘good’ or ‘very good’.

Reporting requirements of charities

In June 2022 the Commission launched a consultation on proposed changes to the way charities submit their annual returns. The Commission has proposed that it will ask a series of core, fixed questions and then charities can choose which other questions it answers, depending on its circumstances. Overall, the number of questions that charities would need to answer would increase but the Commission hopes that the collection of this data will outweigh – the increased burden to charities (see here).

In addition to this, charities will have further obligations depending on their income and structure, as follows:

• Income below £10,000 – an annual update to the Commission, which includes any changes to the charity’s/trustees’ details and their income and expenditure for the year.  
• Income above £10,000 – an annual return to the Commission.
• Income between £25,000 to £250,000 – annual accounts must be independently examined or audited (unless the governing document specifies one or the other) and a trustees’ annual report and an annual return must be submitted.  
• Income between £250,000 and £1 million (with assets worth less than £3.26 million) – must prepare accrual accounts which must be either audited or independently examined by an individual who is a member of a body approved by the Commission (unless the governing document specifies one or the other). The charity must also submit an annual return and trustees’ annual report.
• Income over £1 million (or an annual income of over £250,000 with assets worth more than £3.26 million) – must prepare accrual accounts which must be audited by a registered auditor. The charity must also submit an annual return and trustees’ annual report.
• Charitable companies – must also comply with company law and file accounts and the required information at Companies House.
• Charitable Incorporated Organisations (CIOs) – all CIOs have to register with the Commission, irrespective of income, and must submit an annual return.

For more information

For more information or advice on the topics raised within this month’s newsletter, please contact Edwina Turner or your usual ACS representative.

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