Tag: Charity Commission

Charity Purposes and Rules

As a trustee, you must run your charity in a way that complies with your charity’s governing document and the law.

This includes making sure your charity achieves its purposes.

Every trustee is responsible for this. Even if certain tasks are done by individual trustees, employees or volunteers, all trustees are responsible.

Every charity has a governing document. It contains:

your charity’s aims or purposes (often referred to as its ‘objects’)
rules for how it must operate

Focus on your charity’s purposes

You must deliver only your charity’s purposes. Your charity’s funds can only be spent on supporting the delivery of these purposes.

Read the governing document. Make sure you understand:

what your charity is set up to achieve (its purposes)
who your charity is there to benefit (its beneficiaries)
what your charity can or cannot do to carry out its purposes (its powers)

Checking that your charity is furthering its purposes is something you will do all the time as a trustee.

Drifting into activities that your charity is not set up to do

This can happen if you do not focus on your charity’s purposes. For example, where the charity:

wants to deliver a new service, but trustees have not checked that this new work fits the charity’s purposes
has applied for a grant, which must be spent on activities that do not match the charity’s purposes

Using charity funds or resources on other purposes is very serious. Trustees may have to repay the charity from their own money.

Keep your charity’s purposes under review to ensure that they properly reflect what the charity does.

Finding New Trustees

There are a variety of methods which trustee boards can use to recruit new trustees. Using wider and more inclusive methods of searching for new trustees, by, for example, using trustee brokerage services, can access a wider range of applicants than just from personal recommendation and word of mouth.

Help to find trustees

A number of organisations maintain registers of potential trustees, or offer a trustee brokerage service, matching potential trustees with vacancies on the boards of charities.
The National Council for Voluntary Organisations (NCVO) operates Trustee Bank which allows you to advertise and view trustee vacancies.
Networking with other charities, either from the same local area or offering similar services, can be another way of finding new trustees. This can also be a useful way of sharing information and best practice.

How can a charity make its trustee board more diverse?

Practical ways of increasing diversity on the trustee board include:

making use of more active, open and inclusive methods of recruitment, such as advertising or using trustee brokerage services
organising trustee board meetings at the most convenient times, or at different times so that people who cannot attend at a particular time are not excluded
holding trustee board meetings in a venue which is accessible for people with disabilities
having a policy in place for paying childcare expenses or providing childcare arrangements
considering people’s needs for translators or sign language interpreters, or for documents available in large print, tape, CD or Braille
in Wales, taking full account of the bi-lingual society, and ensuring that everyone is able to use either English or Welsh as their language of choice, including receiving written communication in that language

Don’t miss Trustees’ Week 4-8 November 2024

Keep a watch on their website nearer the time

Taking or defending legal action – the general position for charities

Trustees have a general duty to act in the best interests of their charity. They have a duty to protect, and where necessary, to recover, assets belonging to the charity. The decision whether or not to initiate or defend a legal action must only be made in the best interests of the charity and be balanced against the risks and consequences that any legal action could bring.

The commission expects trustees to consider legal action only after they have explored and, where appropriate, ruled out any other ways of resolving the issue in dispute.

Trustees need to bear in mind that taking or defending legal action must be in their charity’s best interests. They must be able to demonstrate that their decisions were made accordingly. However, in some cases the commission’s consent is necessary

The legal structure of the charity means there are differences in how legal action may be taken or defended:

Incorporated charitiesIncorporated charities such as charitable companies, corporations or CIOs take or defend legal action in the name of the charity as a legal entity in its own right. If an action is brought by or against an incorporated charity, the incorporated charity will be named as a party to the action in its corporate name. In most situations, if the charity is incorporated, it is the charity itself, rather than the members or the trustees, which is responsible for the charity’s debts or for any other liabilities which might arise.However, if there has been any breach of duty or the decision to bring or defend the legal action has not been taken reasonably, the trustees may be personally liable for any costs arising from the proceedings.
Unincorporated charitiesUnincorporated charities such as associations and trusts usually take or defend legal action in the names of their charity trustees. If such a charity has insufficient funds to meet any claim, its trustees may be personally liable irrespective of whether there has been any fault or breach of duty on their part.

Some types of legal action, whatever the legal structure of the charity, need the consent of the commission. These are a specific category of legal action, concerning the constitution or administration of a charity and are called charity proceedings.

You can find further information on charity proceedings and how to apply for the commission’s consent here

Merging Charities – Due Diligence

A merger of charities means two or more separate charities coming together to form one organisation. Either a new charity is formed to continue the work or take on the assets of the original charities, or one charity assumes control of another.

Trustees’ role

Trustees are responsible for deciding on the appropriate level of due diligence required when considering a merger with another charity/ies or a complex collaboration. They have a legal duty to act prudently. When planning a proposed merger or contractual collaborative arrangement, they should ensure they have identified any potential risks to their charity before entering into any agreement.

Depending on their initial assessment, trustees may require professional advice to ensure that there is an appropriate level of due diligence.

What is due diligence?

‘Due diligence’ is a phrase used to describe the steps organisations take to assure themselves that a merger or complex collaboration is in their best interests. The result of a due diligence exercise is that a charity has full knowledge of the organisation they seek to merge or work with (ie there are no surprises).

The costs of commissioning due diligence work are a proper use of charitable funds, but should be forecast at the outset and regularly reviewed to ensure they remain proportionate to the risks involved.

Due diligence checks fall into three main categories:

commercial
financial
legal

The nature of the checks should be proportionate to the:

size and nature of the proposal
amount of income and expenditure involved
nature of the existing and planned activities

A more rigorous exercise may be necessary where charities have one or more of the following:

complex service delivery arrangements
high profile or sensitive work
links with affiliated charities
operations in a number of geographical locations
one or more trading subsidiaries
extensive property holdings and assets
restricted funds or permanent endowments

For further information:

Independent Examination of Accounts

How to appoint a suitable person to carry out the independent examination

The trustees have a legal duty under the Charities Act 2011 to appoint ‘an independent person who is reasonably believed by the trustees to have the requisite ability and practical experience to carry out a competent examination of the accounts’.

‘The requisite ability and practical experience to carry out a competent examination’

The examiner must have the skills and experience needed to carry out his or her responsibilities. The starting point for all independent examiners is an understanding of their responsibilities, as explained in Independent examination of charity accounts: examiners (CC32). All examiners must also understand the key governance and reporting requirements that are specific to charities. These include the responsibilities of trustees and the requirements to produce a trustees’ annual report and to account for the different types of charitable funds. Whatever their skills and professional qualifications, new examiners who are not familiar with the charity sector will need to gain this background knowledge before starting their examination.

An examiner must also have sufficient accounting skills to carry out an independent examination.

The trustees may find it helpful to draw up a set of questions to ask their proposed examiner to help them check that the person has the skills and experience needed. You should ask:

all examiners, to confirm that they have read and understood the Commission’s Directions and guidance
professional examiners, to provide proof of membership of one of the professional bodies listed in the appendix and that they meet that body’s requirements for acting as an independent examiner. In particular, the examiner is likely to need a practising certificate or licence, although if he or she is not charging a fee to carry out the independent examination this may not be necessary. This check can be done using each body’s on-line member search tool, or directly if the body does not have this facility
non-professional examiners, to explain their skills and experience and why this makes them competent to carry out the work. For example, the examiner may work in a role that involves financial management, such as setting and managing budgets and reviewing financial reports, or that requires knowledge of accounting systems, such as maintaining financial records and internal controls

The trustees’ decision to appoint a person to act as the charity’s examiner should be in writing and recorded in the charity’s minutes. The examiner should confirm their appointment and this can be done by an exchange of emails. Professional examiners may issue a letter of engagement, setting out the terms of their appointment including their fee.

The process of finding and appointing an examiner can take time and so should not be left until the trustees’ annual report and accounts are due for filing.

Each year, check that the independent examiner remains independent and has the ability and experience needed

Charity Annual Returns due by 31st January 2023

When to submit your annual return

You must submit your annual return within 10 months of the end of your financial year.

For example, if your financial year end was 31st March 2022, your deadline is 31st January 2023.

If your financial year end was 31st December 2022, your deadline is 31st October 2023.

What charitable companies and unincorporated organisations need to submit

Income under £10,000

You only need to report your income and spending.

Income between £10,000 and £25,000

You must answer questions about your charity in an annual return.

You do not need to include any other documents.

Income over £25,000

You must answer questions about your charity in an annual return.

You will need to get your accounts checked and provide copies of your:

trustee annual report
accounts
independent examiner’s report

You also need a full audit if you have:

income over £1 million
gross assets over £3.26 million and income over £250,000

Prepare your annual report and accounts first. You can then upload them when you complete your annual return.

What type of accounts you need to prepare depends on the type of charity and its finances.

What charitable incorporated organisations (CIOs) need to submit

You must answer questions about your charity in an annual return and include copies of your:

trustee annual report
accounts

If your income is over £25,000 you also need to:

get your accounts checked
submit a copy of the independent examiner’s report

You also need a full audit if you have:

income over £1 million
gross assets over £3.26 million and income over £250,000

Prepare and agree your annual report and accounts first. You can then upload them when you complete your annual return.

What type of accounts you need to prepare depends on your charity’s finances.

Tell the Charity Commission about a Change to Your Charity

Changes you can make yourself

You can change your charity’s governing document yourself if either:

your governing document specifies that you have ‘the power’ to make the change
the law (for example, the Charities Act or the Companies Act) allows you to make this kind of change

Changes allowed by governing documents

Your charity’s governing document may contain a ‘power of amendment’ that allows you to make certain changes yourself. If it does, check if:

the amendment you want to make is allowed by that power
you need to get the commission (or someone else) to approve the change

If your charity is a company or CIO, you can usually change its articles of association (for companies) or constitution (for CIOs) yourself, unless the change is a ‘regulated alteration’ (see ‘changes the commission needs to approve’).

Use this service to update your charity’s details, such as the:

name of the charity
governing document
contact details, address or bank account details

You can also use it to ask the Charity Commission for permission to make a change, if your governing document says you need to.

Tell the Charity Commission online

You’ll need your charity registration number to sign in

If you’re changing your charity’s name or governing document, you’ll need to upload a PDF of the decision (‘resolution’) to make the change.

You may also need to upload a PDF of your:

updated certificate of incorporation from Companies House, if your charity is a company and you’re changing its name
new governing document, if you’re a charitable incorporated organisation

Start now

Charity fundraising appeals: using donations when you’ve raised more than you need

If your charity makes an appeal for a specific purpose or purposes, you must use the donations only for that purpose or purposes.

However, you may receive more donations than you need. For example:

an appeal to refurbish a community café might raise more than needed for the refurbishment; that is, the café is refurbished and there is money left over

an appeal to buy equipment for a playground might raise more than needed – all the equipment has been bought and there is money left over

If this happens, you have donations given for a particular purpose, but you cannot use them for this.

Look at your appeal wording. It may allow you to spend the donations on your charity’s other projects.

If not, you will need to follow the required process set out below to decide a new purpose for the donations, so that you can use them.

Donations to an appeal are usually money, but can be property of any kind. For example, goods.

More detailed information and guidance can be found here

The Importance of Volunteers

DCAS has always been proud of its record in providing volunteering opportunities and this has in many occasions helped further the careers of our volunteers.

This has never been more true than the case of Baker Salah, who after helping write our accounting manual ‘The Adventures of Mr Claw in the World of Charity Accounting’ has gone on to become a University Lecturer and will soon be awarded his Doctorate in Accounting and Finance. Well done Baker!!!

Volunteers are the bedrock of the voluntary sector. Without them we would not exist, as it is volunteers when acting as trustees who run charities.

Charity trustees

Charity trustees direct how a charity is run and help make sure it does what it was set up to do. This includes making sure the charity:

sticks to its charitable mission
has the money it needs
spends that money responsibly on the activities it was raised for
follows the law and doesn’t break its own rules

Charity trustees are also known as:

directors
board members
governors
committee members

Find out more here

The 6 Main Duties of Trustees

Trustees have overall control of a charity and are responsible for making sure it’s doing what it was set up to do. Their main duties are:

1. Ensure your charity is carrying out its purposes for the public benefit

You and your co-trustees must make sure that the charity is carrying out the purposes for which it is set up, and no other purpose.

2. Comply with your charity’s governing document and the law

You and your co-trustees must:

make sure that the charity complies with its governing document
comply with charity law requirements and other laws that apply to your charity

3. Act in your charity’s best interests

You must:

do what you and your co-trustees (and no one else) decide will best enable the charity to carry out its purposes
with your co-trustees, make balanced and adequately informed decisions, thinking about the long term as well as the short term
avoid putting yourself in a position where your duty to your charity conflicts with your personal interests or loyalty to any other person or body
not receive any benefit from the charity unless it’s properly authorised and is clearly in the charity’s interests; this also includes anyone who is financially connected to you, such as a partner, dependent child or business partner

4. Manage your charity’s resources responsibly

You must act responsibly, reasonably and honestly. This is sometimes called the duty of prudence. Prudence is about exercising sound judgement.

5. Act with reasonable care and skill

As someone responsible for governing a charity, you:

must use reasonable care and skill, making use of your skills and experience and taking appropriate advice when necessary
should give enough time, thought and energy to your role, for example by preparing for, attending and actively participating in all trustees’ meetings

6. Ensure your charity is accountable

You and your co-trustees must comply with statutory accounting and reporting requirements.

Find out more here