A Crisis of Confidence

Loss of confidence

The Charity Commission has been tracking public confidence in the charitable sector for over a decade. It is currently at its lowest level since monitoring began. Scandals involving the sector have taken their toll, including:

• The Cup Trust – a tax scheme that abused GiftAid relief, which highlighted the weakness of the Charity Commission as a regulator;
• Olive Cooke – the elderly lady who committed suicide having been targeted by persistent aggressive fundraising;
• Kids Company – inadequate financial controls, a dominant founder and trustees who did not exercise proper oversight;
• Oxfam – sexual abuse carried out by fieldworkers and a management that appeared to be more concerned about the image of the charity;
• RSPCA - excessive remuneration and severance pay awarded to its chief executive.

The Charity Commission’s response

In a speech given on 4 October 2018, Baroness Stowell the chairman of the Charity Commission launched a Statement of Strategic Intent. The links to both the text of her speech and the statement can be found on the Charity Commission website at https://www.gov.uk/government/news/ensuring-charity-can-thrive-and-inspire-trust-so-that-people-can-improve-lives-and-strengthen-society .

She recognised the threat to charity “unless all of us involved in charity – that means all charities, and the Commission as regulator, take steps now to promote what is special about charity, and to meet legitimate public expectations of charity, then we risk being complicit in its decline.”

According to Baroness Stowell, both charities and the Commission must change. “A charity…must be more than an organisation with laudable aims. It must be a living example of charitable purpose, charitable attitudes, and charitable behaviour…The Commission cannot afford…to see the fulfilment of our statutory functions as the totality of its mission. (It) will do more to hold charities to account against…the expectation that a charity must behave like one…we will speak out more strongly to encourage the behaviour that people expect. It is the job of the Charity Commission to represent the interest of the public to charities – not to represent the interests of charities to the public.”

How should charity trustees react to the challenges laid down? Trustees must anticipate changes in public expectations by adopting principles that show charities in their best light. They might include:

• Incorporating environmental, social and corporate governance considerations into their investment policy statement;
• Adopting robust procedures to manage conflicts of interest, including remuneration and benefits paid to trustees and senior management;
• Transparency in the grant-making process;
• Avoiding involvement in tax arrangements that might be viewed as inappropriate.

Annual return

The annual return requires trustees to confirm that they have written policies in place dealing with key areas of risk and financial control. Those providing an assurance report (auditors and independent examiners) on the trustees’ annual report and accounts will also want to be provided with evidence that policies have been adopted and are subject to regular review.

Failure to adopt and comply with such policies may result in investigation by the Charity Commission and a requirement to take remedial action.
The return now includes a number of new questions highlighting areas of financial and reputational risk, including:

• Agreements with professional fundraisers and commercial participators;
• Contracts with central and local government;
• Foreign income;
• Methods used to transfer money abroad;
• Salaries and remuneration;
• Work with children and adults at risk.

While all of this may require trustees to expend additional time and resources in updating and implementing policy statements and procedures, it is a price worth paying, both for the individual charity and the health of the sector at large.

DISCLAIMER
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.