Resources / What happens when trustees get it wrong? Charity Commission inquiries and trustee liability
What happens when trustees get it wrong? Charity Commission inquiries and trustee liability
Honest mistakes, handled honestly, rarely end badly. The Charity Commission acts on serious mismanagement, and its strongest powers follow a statutory inquiry. Trustees who acted honestly and reasonably are protected. What decides the outcome, in inquiry after inquiry, is what the trustees do once the problem is found.
What counts as getting it wrong?
The law separates three things, and the difference matters.
- An honest mistake. A decision made carefully and in good faith that turned out badly. This is not a breach of duty. Trustees are allowed to be wrong.
- Mismanagement. Running the charity in a way that loses or risks its money, or harms its name. Not keeping records, not meeting, and not filing accounts all count.
- Misconduct. Doing something you knew, or should have known, was criminal, unlawful or improper. Taking charity money without authority is the obvious example.
The Commission's inquiry guidance (CC46) turns on those last two words. The standard you are measured against is the six duties in The Essential Trustee (CC3). If those are new to you, start with what a charity trustee does.
What does the Charity Commission actually do?
The Charity Commission for England and Wales works up a ladder, and most concerns never get past the first rung.
- Advice and guidance. A letter setting out what the trustees need to put right. For most charities that is where it ends.
- An action plan. A list of required steps with dates. The Commission checks that the trustees followed it.
- An official warning. A formal, published notice that the charity or a trustee has breached duty.
- A statutory inquiry. The Commission's formal investigation into misconduct or mismanagement, with a published report at the end.
An open inquiry gives the Commission its strongest powers. It can:
- freeze the charity's bank accounts, and restrict what the trustees may do without its consent
- appoint an interim manager to run the charity in the trustees' place
- remove or disqualify trustees
- order charity money to be recovered, and in the end remove the charity from the register
Interim managers are paid from the charity's own funds. In one published inquiry that cost the charity over £1 million. The reports also note the costs were higher because the trustees withheld information. Cooperation is cheaper.
When are trustees personally liable?
Rarely. A trustee who acted honestly and reasonably is well protected, even when a decision goes wrong. Incorporated charities (CIOs and charitable companies) limit personal liability further. Where published inquiries have made trustees repay money, it was money spent without authority in the first place: unauthorised payments to trustees, or charity funds used for private benefit. The worst cases end in disqualification for ten years or more. Those are the cases with dishonesty or defiance in them, and they are a small minority.
What patterns actually appear in inquiries?
We read 45 of the Commission's published inquiry reports, spanning six years. Not one was caused by a clever or unusual risk. Every one was ordinary governance that stopped happening. The same findings repeat:
- Late accounts as the tripwire. Late filing is how most of these charities came to the Commission's attention. The Commission says it plainly: "late filing is often indicative of wider governance problems". The inquiry then found what sat underneath.
- Money nobody could account for. The recurring finding is missing records, more often than theft. "Could not account for" is the phrase that ends charities.
- A board that stopped meeting. Some boards had not met for years. The Commission treats that as mismanagement in itself. A decision with no minute has no defence.
- Too few trustees. Boards that fell below the minimum in their own governing document kept deciding anyway. Those decisions were legally invalid.
- Unmanaged conflicts of interest. The most common substantive finding, usually payments to a trustee's own company. Read how to manage conflicts of interest.
- One dominant individual. One person ran everything and the rest deferred. In the Commission's words, trustees who simply defer to the decisions of others are not fulfilling their duties.
- Charity money outside charity control. Charity funds run through personal bank accounts, pre-signed cheques, and bank mandates never updated after a trustee left.
What should we do when we discover a serious problem?
The clearest signal in the whole set of inquiry reports is this: what you do after the mistake decides the outcome.
- Face it as a board. Put it on the agenda, and minute what you decide.
- Take advice. From your accountant, a solicitor, or the Commission itself.
- Report it if it is serious. Significant loss of money, harm to people connected with the charity, or a crime should be reported to the Commission as a serious incident. Read the Commission's serious incident reporting guidance and use our free serious incident reporting policy.
- Fix the cause, then check the fix happened. A policy adopted and never followed appears in the reports as often as no policy at all.
Charities with serious findings that cooperated and completed the Commission's action plan came away with advice, and survived. Charities that obstructed or delayed lost their trustees, and sometimes their registration. The Commission is explicit that obstruction or a lack of frank disclosure "may in itself be evidence of mismanagement".
Could this happen to a small charity like ours?
Most of these inquiries are about small charities, and the failures are ordinary. A treasurer left and nobody took over the filings. Trustees drifted away until one person held everything. None of it needs sophistication to fix. It needs the basics done on time: meet, minute, file, and keep every pound of charity money in the charity's own account. A board doing those four things sits outside almost every pattern in the published reports.