“The Dangers of Being Kind”

September 2, 2015 11:09 am - Categorised in: Charity Services

The report of the Charity Commission following its investigation into the operation of registered charity, The Air Ambulance Service, provides a salutary warning for all charity Trustees serving on Boards up and down the country.

As part of its investigation, the Commission found that the Chair of Trustees had personally sanctioned a loan of £27,000 to the CEO of the charity out of charity funds. Good intentions no doubt lay behind the Chair’s decision to make the loan. Indeed, the justification for the loan was that the Chair was keen to retain the high-performing CEO who it seems had been working to the great benefit of the charity. At all times it appears the loan was being repaid by the CEO and, in addition, the size of the loan was not outrageous given that such loans are sometimes made between a company and its senior staff in the private sector.

However, whilst the Chair may only have intended to be generous, the deal made between the Chair and the CEO betrayed a clear lack understanding of good charity governance. In this case the loan had been sanctioned and actioned by the Chair well before the other Trustees had been consulted. The Chair forgot to abide by the crucial rule that the Trustees of a charity must act collectively. In practice, proper dialogue should have taken place between the Trustees as to why the loan was required, whether it was a good use of charity funds and whether the Board were all in agreement to its terms. The Charity Commission make expressly clear that such an important decision is a matter for the whole Board of Trustees to consider with the benefit of proper advice either by way of formal response from the Charity Commission in reply to a written request or from a charity law specialist.

In practice it is possible for a charity to make loan of this nature. The loan must be enshrined in a formal agreement following clear authorisation from the Trustees. Consideration should also be given as to whether Charity funds may need to be protected by way of a mortgage or by a guarantor.

This case together with the recent high profile collapse of the charity, Kids Company, has focused the gaze of the public, commentators and regulators on the role and responsibilities of charity trustees. “Review of internal governance” is not the most exciting topic on the agenda at a trustees meeting but it is crucial to ensuring healthy compliance.

Practical Solutions

What can your church or Christian organisation do to ensure better governance?

1. Avoid the danger of leaving the decision making to the Trustees who are most involved in the day to day running of the charity: As a trustee you have a duty to be pro active in the charity’s management. Do you need to put together a policy to make it clear which decisions should be made by the whole Board?
2.  Ensure the trustees carefully focus on the charity’s expenditure as well as its income.
3.  Ensure reporting procedures are clear: individuals should know the limit of their authority and when decisions require the approval of the Board.

A link to the Charity Commission report can be found at https://www.gov.uk/government/publications/the-air-ambulance-service-case-report

Ben Bourne helps charities with their governance and is a charity and employment solicitor at Ellis-Fermor & Negus Solicitors.