Despite the looming festive period, the charity and not-for-profit sector remains busy, and a host of live issues are still being raised.
These include charity banking, returning donations, and the prospect of a looming general election – and that's before the next tranche of changes to the Charities Act 2022 is introduced in the new year.
Charity banking
Secure and transparent
The underlying principle for charity banking is that the Trustees should ensure that their charity's assets are held securely and that the organisation accounts for those funds both promptly and transparently.
All charities should have a bank or building society account in the charity's name, and it is important that bank mandates are in place setting out which trustees or senior staff are able to authorise management of that account.
There should also be clear procedures in place for bank transfers and payments.
Accounts should be prepared each month and reviewed so that discrepancies can be identified, and duties and responsibilities should be allocated among a number of people so that no single person has control of the funds.
With the reduction in the use of cash, coupled with the closure of local bank branches, it is becoming increasingly impractical to operate using cheques and cash alone and we would advise that Trustees set up online banking provisions if they haven't already done so.
However, it is vital that a dual-authorisation system is used, so that one person can create the request and a second approve it.
Most banks provide this service, so we suggest checking with your bank if you don't already have this in place.
If it isn't available, it would be best to review your charity's banking arrangements to make sure that the bank account held for your charity is the most appropriate.
High Street banking
The service for charities from High Street banks has been a long-standing talking point.
Last month, the Chief Executives of the Charity Commission for England and Wales, the Office of the Scottish Charity Regulator and the Charity Commission for England and Wales wrote a 'Letter to the Chief Executives of UK Banks'.
This letter urged banks to support charities in managing their funds appropriately and transparently by ensuring the availability of adequate banking provision.
The letter urged banks to improve the process for setting up charity bank accounts to make it more straightforward and ensure that banking staff had appropriate training to understand the usual legal structures charities should operate within.
It was hoped that this would ensure that the relevant documentation was requested and accounts could be opened without unnecessary delay.
Earlier this month, the Civil Society reported that it had been in touch with high street banks and had received responses from a number confirming their commitment to the charitable sector.
Things to consider
This is a helpful intervention from the Charity Commission and we hope to see changes made across the High Street banks as a result.
However, we have seen some of our clients struggling with the banking processes and effective accounting and below are a few snippets of advice on how to avoid potential issues.
- Review your account: there are lots of banks and building societies around and various accounts on offer at each, so make sure that the account you're using is the most appropriate. Consider branch locations, fees and charges and – most notably - the provision for dual-authorisation for online transactions. Customer service and understanding of the charitable sector can also be extremely relevant for a productive relationship with your bank.
- Updating bank mandates: we've sometimes seen bank accounts frozen when a charity provides an updated bank mandate, but the individuals named on it don't match the Trustees formally identified by (or for) the bank. This can be an awkward issue to manage and we've seen situations when this brings to the fore gaps in the effective appointment and retirement of trustees more generally, which can be time consuming to correct. Make sure that you are crystal clear on the formalities for changing your Trustees and that updating the bank mandate is a fixed part of the Trustee retirement and appointment process.
- Effective controls: a theme of many of the Charity Commission's statutory inquiry reports is poor financial controls. Trustees remain responsible for the charity's financial operation, whether they decide to delegate elements of this to employees or not. Trustees should make sure that their controls and operations include the use of the charity's bank accounts, prompt and recorded payment of cash into bank accounts, accounting for all expenditure in full, and dual-authorisation of all payments while making sure that conflicts are effectively managed throughout.
Returning donations
The Charity Commission's advice on charities and fundraising is very helpful in setting out some key principles for charities engaged in fundraising. One of these aspects is the requirement to make sure that charities know their donors, particularly if receiving a large donation, or one that is anonymous or comes with conditions.
The Commission has provided a helpful checklist of questions which trustees might want to consider when reviewing donations. This is particularly relevant to highlight cases where a charity might be being used to facilitate money laundering or other criminal activity, or where there might be a reputational risk to receiving a significant donation.
We would always recommend that a charity has a policy setting out its considerations on receipt of donations, and we'd be happy to help prepare one for your charity.
The potential reputational damage arising from the receipt of donations has been in the press frequently over the years, as well as considerations about the retention of donations made many years previously. Examples include:
- Earlier this year, the University of Oxford undertook a review of its relationship with the Sackler family, resulting in the decision to remove the Sackler name from buildings, spaces and staff positions.
- Following the allegations of inappropriate behaviour at a fundraising event held by the President's Club Charitable Trust, such was the concern from charity funding recipients that the Charity Commission published specific advice. [Please note this advice was formally withdrawn on 6 November 2023 although can still be viewed].
- In October of this year, National Trust confirmed that it had returned funds donated by the Hamish Ogston Foundation following "the extremely serious nature of the recent allegations concerning Hamish Ogston."
The Charity Commission's Chair, Orlando Fraser KC, spoke at the Commission's Annual Public Meeting in November, referring to the forthcoming guidance on refusing donations to be published by the Charity Commission. He emphasised the importance of accepting monies without a very good reason not to:
"We will also publish updated guidance on Accepting or Refusing Donations which will make clear to Trustees that the law generally expects charities to accept monies where they are available, and not to refuse or return them without very good reason – and, while we will always treat Trustees' decision-making in this difficult area with respect and understanding, it is our important statutory role to explain and enforce the law."
This followed a previous speech given at the University of Kent, in which Orland Fraser KC, speaking on the same point, explained that sometimes the Commission would find it necessary to become involved.
He said: "In this area, as in many others, largely speaking the Commission will respect the Trustees' exercise of their discretion, and thus will rarely intervene when Trustees decide to accept, refuse or return a donation.
"However, rarely is not never, and the Commission may well intervene if we consider that such intervention would be consistent with our Risk and Regulatory Framework, including if any decision-making is materially irrational.
"One example of materially irrational decision-making would be when it is apparent that the motivations for a return or refusal are simply the personal worldviews or preferences of the relevant trustees, rather than the best interests of the charity.
"Demonstrative personal squeamishness around sources of philanthropic funding may benefit the sense of righteous progressiveness of a trustee or charity executive, but it will most likely not serve the beneficiary reliant on the services a charity provides."
We wait to see what the Commission's guidance says when it is released and, in the interim, suggest that charities take the time to review their policies and procedures for considering and accepting donations.
General Election potential
We mentioned the importance of being aware of the rules relating to political campaigning during Trustee Week at the beginning of November. Earlier this month, the chairs of the Charity Commission (Orlando Fraser KC) and the Electoral Commission (John Pullinger) released some helpful advice for charities engaging in public debate.
This drew attention to the guidance produced by the Charity Commission on campaigning (both the full guidance and the 5-minute guide), as well as noting the social media guidance published this autumn, which is ever more relevant. The new Non-party Campaigner Code of Practice is now in effect, and the Electoral Commission also provides a range of resources for local councils, charities and other organisations engaging with voters.
The advice from the Charity Commission and Electoral Commission chairs highlights three key things to know:
- Activities are "regulated" if they can reasonably be regarded as intended to influence people's voter choice;
- If a charity spends more than £10,000 on regulated activity across the UK, it will be required to register as a non-party campaigner; and
- When producing digital material within the definition of regulated campaign activities, an imprint must be included telling voters who is responsible for publishing and promoting that campaign material. This includes social media posts.
If you think this might be relevant to your charity, we suggest you make sure you're prepared for the requirements and potential registration ahead of any election being called.
When the election is called, your charity might want to increase its activities in this area quickly, and you won't want to be caught out.
If an election has been called, and you're not registered, you won't be allowed to spend over the £10,000 threshold until your registration has been confirmed.
And finally . . .
We're grateful to you for all you've done in the charity sector this year, thank you. Our team of specialist charity lawyers hope you have a lovely break and look forward to being in touch again in 2024. No doubt it will be an interesting one!
