What we can learn from Charity Commission inquiry reports

The Charity Commission probably issues two to three inquiry reports each week on churches and charities that they believe have a serious problem with their governance and finances.

We take a look here at one church based in north London. The church has filed accounts with the Commission showing annual income for the past five years ranging between £400,000 and £900,000, so requiring accounts to be either audited (before the threshold was lifted) or independently examined. In each of those five years the accounts were filed late and, in three of the five, filing was more than a year late.

The Commission’s inquiry led to a damning report which has resulted in the whole trustee body standing down and being replaced. The original trustees have subsequently been disqualified from acting as charity trustees in the future, but it appears that no financial penalties or sanctions have been imposed. There were numerous issues identified in the inquiry, but three in particular were highlighted:

1. Unauthorised trustee remuneration

In breach of a clause to the contrary, trustees received significant payments which were not allowed by the governing document. Some payments were clearly for remuneration; others were argued by the trustees as the reimbursement of expenses incurred on behalf of the church. The inquiry found that there was insufficient evidence and supporting documentation to support this claim, with the charity’s position not helped by many payments being round sum amounts.

2. Failure to manage conflicts of interest

In accordance with its governing document, the charity had three trustees; however, two were married to each other. As a result, the inquiry found that for a period of more than ten years there was only one independent trustee and that the church had done nothing to identify or to manage any conflicts of interest. The inquiry found that in at least one instance the trustees had decided on their own remuneration levels.

3. Poor financial management

The inquiry found that:

• Annual accounts were consistently filed late;
• Accounting records did not properly account for the church’s income and expenditure;
• Cash withdrawals were not supported by sufficient documentation to determine how the cash was spent;
• Following an order that trustees should not enter into financial transactions with the church, there was suspicion that funds donated to the church were not being recorded in the church’s accounts.

Not surprisingly the inquiry found that the trustees had failed to comply with their statutory duty to keep proper accounting records. Over and above that, the trustees failed to comply with statutory orders and directions issued by the inquiry and failed to take any action to rectify issues outlined in an official warning.

This inquiry suggests that the church trustees had a significant disregard for the regulations and the regulator. The report is a poor witness for the Christian church going against the teaching in Romans 13 and 1 Peter 2 about submission to authorities, and in 2 Corinthians 8 about doing what is right in the eyes of man as well as the eyes of God.

What can we learn?

Time and again issues arise when payments are made to trustees. So, what steps should we take?

• Make sure that payments are allowed by your governing document or specifically allowed by the Charity Commission.
• Where trustees are remunerated, manage conflicts of interest properly: (i) Ask the trustee and any connected persons (close relatives) to leave the meeting; (ii) Ensure that, after so doing, the meeting has a sufficient quorum to make decisions; and (iii) Make sure that this is clearly documented in the minutes of the meeting.
• Where trustees are reimbursed expenses: (i) Ensure that the nature of the reimbursement is clear; (ii) Maintain proper supporting documentation for all payments made; and (iii) Avoid ‘round sum’ allowances unless treated as remuneration.
• Look out for the ‘smell test’: (i) How would other people perceive payments made to trustees – above board or ‘dodgy’?

Link to the full inquiry and further information on trustee expenses and payments (CC11) are included below.

Charity Inquiry: Kingdom Life Ministries

Trustee expenses and payments (CC11)