Charity Commission inquiries: Some learning points

Background

Comments from regulators are always interesting. Not just as Romans 13 calls us to be those that are ‘subject to’ governing authorities, but also it is better to learn from other’s mistakes than to be those that are called to account for our own!

Over the eight months from September 2023 to May 2024 the Commission opened or reported on something like 20 charity inquiries. Around half of them were ‘faith charities’. Of those, less than half were Christian charities. (A higher than normal level of inquiries into charities linked to the current situation in Gaza distorts this period’s statistics).

There were common themes that we can all learn from, and three of those are considered in this article.

Failure to file accounts and returns on time

Of the total, almost half (or nine) of the inquiries were initiated because the charity had filed their accounts and annual returns late twice in the last five years. The Commission consider this, of itself, to be an issue, as it shows the charity is not really concerned with public accountability. However, being late nearly always indicates that there are other problems of governance, which the Commission will expect from their experience in cases like this.

Make sure this (literally red) ‘flag’ does not apply to your church/charity. It may seem like nothing more than minor admin, but make sure time is given to filing these documents.

Also, we do advise using professionals who understand the church/charity sector. This not only helps identify issues that you may not be aware of (“wisdom is found in the counsel of many”) but also because, in 2024, there are more independent examination firms withdrawing from the market as it really is a specialist area and there is a general capacity shortage in the accounting industry.

Example: London church

In October 2023, the Commission opened an inquiry into “Jesus Power House Ministries”. The London-based church was registered as a charity in 2009 and its aims are the advancement of Christian religion and education, alleviation of poverty and supporting humanitarian causes.

The Commission’s concerns (as they outlined) “include possible misapplication of funds for unauthorised payments to a trustee, the submission of potentially inaccurate financial accounts suggesting a lack of transparency, and it has also noted the charity has submitted accounts which do not comply with the Statement of Recommended Practice (SORP)”.

Their concern was significant enough that they said, “Due to the concerns over financial mismanagement and risk to assets, the Commission has already utilised its powers to freeze the charity’s bank account while it investigates these matters”. To freeze a charity’s bank accounts shows a significant level of immediate concern that the charity is being managed very dangerously.

It is clear from the published accounts of the church that the person helping with the accounts and doing the independent examination did not have good knowledge of charity accounting or the duty under charity accounting to report on transactions with ‘related parties’. Accounts are not just ‘accounts’. In this case they were clearly ‘defective accounts’!

Questionable payments to ‘connected parties’

Charity regulation places strict requirements on those that run charities not to profit from their position, intentionally or unintentionally. Eight of the inquiries found there were payments made to trustees or managers which appeared to be more motivated by helping that individual than helping the charity.

It is probably the most common issue we see with churches and charity regulation, that they fail to check that they have dealt with issues of payments to leaders and trustees. This is often unintentional but still very harmful to their reputation.

Example: Community support charity

The BBC reported that the CEO of Colchester charity ‘Community360’ “loaned herself £206,341 in the financial year to 31 March 2023. Colchester City Council wrote to the charity on Thursday seeking "clarity and assurances" about the deals”, and that “The loan was documented in Community360's published accounts for 2022-23. .. Her husband…  also received £39,389 and his construction company a further £65,571”.

The charity has responded to the BBC article stating that the loans were legal.

Even if they may be legally allowed, the question of perception (“church/charity leaders looking after themselves and not others”) is often strong. There is real value in following the example of Billy Graham who made a very high priority of financial accountability, taking the advice of the Apostle Paul “taking pains to do what is right not only in the eyes of God but also in the eyes of men”.

Internal conflict

A third area that I would draw attention to, which can affect Christian charities, is unfortunately that of internal conflict in management and governance. This is exacerbated by poor decision making and, sometimes, simple misunderstandings.

We know that unity is a vital ingredient in the blessing of God, but also that, at times, the effective working of a good team should challenge and question. This can produce the sparks of ‘iron sharpening iron’ as we develop strategy and direction. What should not be allowed to happen is that the disagreements become entrenched, with the leadership and governances focused on each other rather than the mission.

Example: The Actors’ Benevolent Fund

The conflict was so significant that, in their report on 31 May, the Commission considered that it was overshadowing the whole work of the charity.

The lessons they wanted to draw out were these:

• Ensure good practice on governance essentials, such as running effective meetings and being clear on how to appoint or elect trustees in line with the charity’s governing document.  
• Ensure transparency in decision making and governance processes. Minute taking protects charities when decisions are challenged during an internal dispute or from external critics. The regulator has guidance on taking minutes and running meetings. 
• Ensure regular trustee rotation. There is no legal requirement for fixed-term board appointments, but the Charity Governance Code recommends rigorous review of the reappointment of any trustee who has served for nine or more years. 

Governance and mission

Focus on governance can seem a million miles from the mission of the church. However, a church or Christian ministry which operates with the culture of good governance strengthens and protects the mission, supporting and not detracting from it.

Let us be those that follow the Apostle Paul’s advice, to be intentional about ‘doing what is right in the eyes of men’ and in Romans 13 about regulators, and to learn from the mistakes of others, not our own! In a world where scrutiny is public, good governance is good witness.