Do you know what your regulatory obligations are before becoming a Trustee?

Trustees are legally responsible for the management and administration of their charity.  Whilst the Charity Commission (the registrar and regulator of charities in England and Wales), recognises that most trustees are volunteers and (thankfully) does not expect them to be perfect, a trustee who breaches their legal duties may be held responsible for any resulting loss to the charity and risks damaging their own and the charity’s reputation. From a regulatory perspective, good governance should be the touchstone for all trustees, both new and established, throughout their tenure. 
 

In this blog, we will take a brief look at what good governance looks like for trustees.[1]

As a starting point, Trustees must:

• ensure their charity is carrying out its purpose(s) for the public benefit;
• comply with their charity’s governing document, the law (including the Charities Act 2011 and laws on trading, political activities and fundraising) and the regulatory requirements of the Charity Commission;
• act in their charity’s best interests;
• manage their charity’s resources responsibly;
• act with reasonable care and skill; and
• ensure their charity is accountable to its members, if it has a membership separate from the trustees and ensure accountability within the charity, particularly where tasks or decisions are delegated to staff or volunteers.

There is a dauntingly long list of obligations to the uninitiated. However, taken in stages and using the many publically available resources for support, these obligations are well within reach of the committed trustee. 

The all-important governing document

Charities are legally required to comply with their governing document in all their operations.  

The governing document is the starting point for good governance as it specifies the focus and purpose(s) of the charity and the parameters within which trustees should act to fulfil them.  For example, it contains rules on trustees’ meetings, appointment of trustees and how to close the charity, should that be necessary.   

The form of the governing document will depend on the size and structure of the charity.  For example, the governing document for charities which are limited companies will be the Memorandum and Articles of Association. The Charity Commission publishes useful guidance on how to prepare a governing document should wider reading on the usual contents of the document be required. 

Trustees ought regularly to refer to the governing document to ensure that the charity only undertakes activities which are within its specified objects and that they are in turn, complying with the rules on the exercise of the charity’s powers.

Legal compliance

Charities based in England and Wales with an income of over £5,000 per annum must register with the Charity Commission unless they are exempt[2] or excepted.[3]

Trustees must ensure that all relevant information is provided to the Charity Commission.  This includes, but is not limited to:

• Informing the Commission of any changes to the information on the register of charities;
• Sending the Commission an annual return (or annual update);
• Complying with any additional accounting and reporting requirements such as filing annual accounts and reports with the Commission, depending on the size of the charity;[4]
• Reporting to the Commission any serious incident.

While some trustees have special roles, such as the chair and the treasurer, trustees are jointly responsible for the charity, including management of the charity’s finances. 

There are also some general laws which charities must comply with, such as equality, data protection and copyright legislation. The other laws and regulations with which trustees must comply depend upon what the charity does, where it works and how it is set up. 

The Charity Commission does not expect trustees to be legal experts, but it does expect them to “take reasonable steps to find out about legal and regulatory requirements and keep up to date, for example by getting mailings from the Commission and other sources, reading relevant guidance and attending appropriate training.” The guidance also reminds trustees that ‘the charity should also have systems and procedures to ensure that it complies with legal requirements.”

Referring to and following the core policies

Having the following core policies in place will assist the trustees to ensure their charity complies with the law:

• A Health and Safety policy;
• A Safeguarding Policy for children and young people and/or vulnerable adults (if applicable);
• A Privacy Policy which covers data protection and GDPR;
• An Equality & Diversity Policy;                                                                                  
• A Risk Management Policy;
• Finance policies – including a Financial Procedures Manual and a Reserves Policy;
• A policy or policies covering Board basics, such as a Trustee Code of Conduct, Conflicts of Interest and Expenses.

Policies can assist in circumstances where a specific procedure must be followed, for example when recruiting staff or claiming expenses. Trustees should ensure they have access to the full suite of policies that the charity has in force, whilst bearing in mind that many day to day decisions in the running of a charity involve the exercise of judgment, for which policies are of limited assistance.  For example, trustees must manage their charity’s resources responsibly: the application of sound judgment is essential in these circumstances.  

A focus on managing resources responsibly

Trustees will be regularly called upon to make and review judgment calls in the area of managing resources, using the charity’s assets in a way that furthers the charity’s objects without over-stretching its resources.  This is particularly difficult at times when there is uncertainty in terms of the economy and future restrictions on charities and businesses.  It may be that financial decisions, such as decisions about spending, investing or borrowing, which would have been perfectly acceptable a year ago, would now not be considered prudent.  Trustees must be flexible, for example, while a charity’s Finance Policy may provide that finances are reviewed quarterly, it may currently be appropriate for reviews to be conducted on a monthly basis. 

At its heart, the need to manage resources responsibly is aimed at managing risks.  The Charity Commission states that trustees “…should manage risk responsibly. You have a duty to avoid exposing your charity to undue risk. This doesn’t mean being risk averse. Risk management is the process of identifying and assessing risks, and deciding how to deal with them. It may involve an element of responsible risk taking, and is central to how trustees make decisions.”

Risks might include fraud, financial crime, extremism and terrorism.  Charities should assess their exposure to these and any other risks and take appropriate action. 

No less important is protecting the charity from financial harm through proper budgeting.  This involves both income in, for which trustees should plan what funds are needed and how to get these, and income out, for which the trustees should monitor expenditure and ensure it is being directed appropriately. 

Summary

Trustees have a challenging task in ensuring their charity is run in a way which furthers its objects, complies with appropriate laws and is sustainable.  This article simply skims the surface in terms of good governance.  We would be happy to provide bespoke advice to any trustee seeking more detailed advice and assistance in relation to their duties to their charity.     

About the authors

Lucy Williams is Legal Counsel in the Regulatory Department with a particular specialism in legal, healthcare and financial regulation.  In her defence practice Lucy represents regulated professionals and organisations facing professional disciplinary proceedings, including law firms, solicitors, barristers, doctors, nurses, psychotherapists and teachers.

Julie Norris is a partner in the Regulatory Team. She specialises in advising in the health, professional services, legal and financial fields, advising professionals, businesses and regulators on regulatory compliance, investigations, adjudication, enforcement and prosecutions.