The name game

Like many public bodies, the Charity Commission is now required to operate with a reduced budget. This should concentrate the mind of the commission on the things that matter most: the regulation of serious cases of mismanagement and abuse in charities.

In recent years the Charity Commission has adopted a risk-based strategy and has focused on cases where there is more charitable property at stake or where the issues are already in the public domain through press and media reports where the commission perceive that the public want to know about the outcome of its investigative work. The commission has raised its profile over recent years through regular press releases and by publishing reports on its research and investigative work.

Expenditure on such matters should come under scrutiny and be carefully monitored to ensure it will actually enable the commission to fulfil its statutory functions and duties and thereby be of benefit to the public and the charities it serves. Cuts in public spending will impact on all areas of the commission's operations and, like charities, it will have to work more effectively with less resources.

The commission will be increasingly reliant on external sources for information about financial abuse in charities. In the discharge of its investigative functions it already relies in large part for its information on press reports and complaints made to it by the public and disaffected trustees, members or employees of charities.

The commission has also enlisted the support of those professional advisers to charities. Dame Suzy Leather in a speech to the South Western Society of Chartered Accountants told accountants that it was their responsibility 'to help [charities] redouble their efforts to be open, be transparent, to be accountable'. Head of compliance at the commission, Michelle Russell, told solicitors to sort out the basic errors being made by trustees in administering their charities (see Solicitors Journal 154/36, 28 September 2010).

Unfortunately the commission no longer provides detailed advice to small charities so, other than the cases where a solicitor is prepared to advise pro bono or act as a trustee, it is hard to see where those charities that can't afford to pay legal fees can receive help.

Charity auditors are required to whistleblow on their charity clients. In addition, charity trustees are required to report 'serious incidents' to the commission in the charity's annual return, although the commission has complained in its latest Charities Back on Track report that there should be more reporting than is actually happening.

Where a serious breach of trust has been committed involving loss of charitable funds, and before the 'serious incident' reporting regime was in place, we would usually advise our charity clients to resolve the matter on appropriate professional advice, taking steps to recover the loss, put in place proper policies, safeguards and reporting procedures to ensure there is not a repeat of the breach and, finally, report the incident and how it had been dealt with to the Charity Commission.

At risk

The release of information to the commission puts the charity at risk of the information being made available to the public via the Freedom of Information Act. This can lead to a loss of reputation, donors and supporters and a public reaction which is not always in proportion to the acts or omissions of the trustees.

There is now a clear focus on reporting high-profile charities or matters which are the subject of press interest and the reports do not always distinguish adequately between cases of serious abuse of charitable funds and mismanagement, and minor failures to follow rules of good governance which do not result in a financial loss.

The damage done to the reputation of a charity in the second type of case can leave many trustees feeling humiliated and wishing they hadn't volunteered to be trustees in the first place. The reports often conclude with lessons for trustees, not all of which are relevant to the case in hand. The commission may achieve press coverage but it is not always clear what public interest is being served by publication.

Word play

A further difficulty arises from the use of language in the published reports. They can convey the impression that trustees have done something wrong without actually saying what it is. This may be because there isn't sufficient evidence to warrant a finding of wrongdoing, but the commission believes wrongdoing has actually occurred.

This can appear unfair or inequitable, particularly to trustees who may feel there has been a slur on their reputation. This is especially the case with the informal regulatory case reports where the trustees really have no redress other then the commission's internal complaints procedure, and, if they really feel strongly, to the independent ombudsman, by which time the damage has already been done and it is too late. No wonder trustees can be reluctant to report serious incidents to the commission. Thankfully, solicitors have no duty (as yet) to whistleblow to the commission!

Opportunity to improve

In many respects, the commission performs a valuable public role and, as charity law practitioners, we value our good working relationship with the commission. The reduction in public funds presents an opportunity for the commission to review its priorities and to focus on those areas which are of most importance to the charitable sector and the public; namely, the proper exercise of the commission's regulatory and advice functions and a review of its practices to ensure that its published reports are focused on cases where there is real evidence of financial mismanagement and abuse leading to loss of charitable funds.

As professional advisers to charity trustees we will then be more willing to encourage our clients to make reports to the commission. If the publication of inquiry and regulatory case reports is intended to encourage and facilitate the better administration of charities rather than to be an exercise in naming and shaming or public humiliation, then it is imperative that the reports are focused on charities where there is real evidence of mismanagement and abuse and that the 'wider lessons for trustees' which are often included in the reports are strictly related to the particular facts of the case.