The Trustees’ Toolkit
byColin Liddell
accredited specialist in Charity Law
Fife Rural Partnership31 March 2011
Becoming a Trustee
• table of Trustees’ skills - see next
slide:
•marked individually as:
•3 = expert
•2 = reasonable knowledge
•blank = little/no knowledge
• skills specific to Charitable Purposes
• and other more general skills
Skills Matrix
3
Adamson Benson Carson Davidson
animals 3 3
veterinary 3 2
finance 3
marketing 2 3
charity experience
2 3 2
fund-raising 2 3 2
human resources
3
IT 3
legal knowledge 2 2
Chair experience
3
etc......
excerpt from the Skills Matrix for an animal charitynote that there is no 1 or 0 anywhere - clearly to
show the gaps
Conflicts of Interest two types of conflict of interest:
• conflict upon appointment as a Trustee
- a Trustee must always represent the best interests of the charity and put those before the interests of any organisation/person who is responsible for that Trustee’s appointment as a Trustee (s. 66(1)(a) and (c))
• conflict whilst acting as a Trustee
- a Trustee must disclose any conflict of interest to the charity
- a Trustee must refrain from participating in any deliberation or decision of the other Trustees with respect to the matter in question (and this may affect quorum)
- Code of Conduct (or Board Policy) for managing conflicts
- maintaining a Register of Interests for Trustees (and staff)
5
Accountability of Trustees
Statutory Duties of Trustees-1
section 66(1):• act in the interests of the charity
• seek, in good faith, to ensure that the charity acts in a manner which is consistent with its charitable purposes; and
• act with the care and diligence that it is reasonable to expect of a person who is managing the affairs of another person
• act without allowing any conflict of interest between the charity and the person appointing the trustee [independence] - with disclosure too
8
Charity Trustees must ensure...• that all activities must fall within the
Charitable Purposes (and provide Public Benefit)
• their guardianship of the charity’s assets
• that the charity is run properly, independently, responsibly and lawfully
• that the charity is financially stable and solvent
• their efficient and prudent use of resources
• that they exercise sound business judgement
• quality of governance
• risk management [see later]
• succession planning
10
• shared responsibility - all Trustees are equally accountable
• Trustees can delegate duties, but not responsibilities
• collective responsibility on each Trustee to ensure compliance by each of the other Trustees of the main duties imposed by the Charities Act - s.66(2) and s.66(5)
• each Trustee has to ensure that a breach by any other Trustee of the main duties imposed by s.66(1) and (2) is corrected and not repeated
• and that any Trustee in serious or persistent breach is removed from acting as a Trustee** - s.66(5)
** does your charity's constitution permit this? If not, you would have to involve OSCR. This would result in a report on your charity’s Register entry... Better to avoid that!
The Collective Responsibility
11
Staying as a Trustee
Working with Others
Collaborative Working• sharing ideas
• sharing premises
• sharing administration
• sharing business (joint venture, franchise, consortium)
• sharing funding
• sharing approaches to community of interest
• acting as an umbrella group - providing information and promoting best practice
• may lead to merger...27
Mergers• business case for merger - is there one?
• social case for merger - for employees, volunteers, donors, funders?
• assessment of risk in being part of a larger organisation - skills, new areas, ‘remoteness’ from supporters
• commitment by Board and management
• structure
• identity and ‘image’
• staff (incl. TUPE and pensions)
• asset transfers (incl. bank accounts - Standing Orders, etc.)
• protecting future legacies
• other issues (e.g. Care Commission)28
• non-charitable trading (and where not sure if activity is charitable)
• wholly-owned
• but watch the ‘one-way’ street
• need accurate budgeting and financing
• surplus (not profit) goes to the charity at end of each year
• avoid ‘intermingling’ if to be separation of risk/liability
• chain of responsibility for subsidiary
• risk of subsidiary being ‘too’ independent
• OSCR entitled to examine subsidiary too
Trading Subsidiaries
29
Trustees - and Risk
• identify risk
• evaluate risk [see next slides]
• manage risk
• report on risk (in Accounts, etc)
• monitor risk on an ongoing basis
• review Risk Management Policy
Risk Analysis - where to begin
31
•The Charities Commission (England & Wales) lists 37 potential risks, grouped under 5 key headings:
•1. Governance & Management
•2. Operational Risk
•3. Financial Risk
•4. External Factors
•5. Compliance (law and regulation)
Risk Analysis - topics
32
• Governance Risks
– ineffective constitution and/or structures
– loss/succession of key Trustees/employees
– conflicts of interest
– acting within Charitable Purposes - and Powers
– compliance with all relevant law and regulations
– poor/no complaints procedure• Financial Risks
– Human Resources, Health & Safety, working environment
– accuracy and relevance of financial information
– adequacy of reserves and cash flow
– diversity of income sources
– management of investments
Internal Risk - examples
33
• External Risks
– appropriateness of pricing/charges for services delivered
– reliance upon a major contractor/funder
– demographic changes
– competition in sector
– Government (and Local Authority) policy
– economic environment
– changes in relevant law and regulations
– involvement of Regulator(s)
– reputation/public perception (adverse publicity)
External Risk - examples
34
•scoring of risk is usually carried out thus:
•1. Probability (that the statement could be true for us)-score between 1 - 5
•2. Impact (if the statement were true for us)-score between 1 - 5
•3. Total-multiply Probability x Impact = score of between 1 - 25 for each item of risk-each Trustee scores each item; the scores for each item are then averaged to provide a single score per item
•see next slide
Risk Analysis - scoring
35
Risk Analysis - scoring
perceived riskprobab
leimpac
ttotal score
reliance on one large annual grant
3 5 15
loss of Chief Executive 2 4 8
adverse publicity 1 4 4
threat of existing competitors
2 2 4
lack of financial skill in Trustees
2 2 4
unauthorised payments made
2 2 4
• thankfully, deliberate fraud does not occur often but, if it does, it can sink a charity and leave Trustees compromised or disgraced
• the starting principle is that reasonable steps have to be taken by the Board to protect the charity’s assets - its responsibility to do so
• adopt a healthy suspicion in all actions in order to minimise risk• ensure:
- good communications- good recruitment policy- suitable risk assessments and internal financial controls- that the work of others is monitored, checked or shadowed- that computer records (+ passwords) are backed up, off
site- multiple signatures in cheque and financial transactions
• consider a Fidelity Insurance policy• look at OSCR’s Anti-Fraud Strategy
Trustees and Fraud
38
The Charity Trustee: sum-up• the price of altruism has increased
• Trustees need to pay much closer attention to the charity’s administration, policies, finances and financial well-being…
• …which may lead to a potential clash between voluntary trustees and employed management (quality of information)
• be independent-minded, but not isolated
• do not be ashamed of profit (charities are “non-profit-distributing” not “not-for-profit”)
• Trustees need help, guidance and encouragement, not threats of fines and imprisonment
• education…education…education…
• (and some honest self-appraisal)39
The SCIO is coming...
Scottish CharitableIncorporated Organisation
• a creature of statute - Chapter 7, Charities and Trustee Investment (Scotland) Act 2005 and Regulations (to come)
• designed to provide limited liability without being a limited company
• OSCR is the Regulator
• a Guarantee Company or I&P Society can become a SCIO
• but a SCIO can only be a SCIO
• its members’ duty is higher than in Guarantee Company - s.51 incorporates s.66(1)(a) - “seek, in good faith, to ensure that the charity acts in a manner which is consistent with its purpose”40
• Our Fact Sheets include:
• ‘Setting up a Charity’
• ‘What is a Guarantee Company?’
• ‘The Role of the Charity Trustee’
• ‘What is a SCIO?’
• ‘Gift Aid’
www.hmitchell.co.uk
Colin Liddellaccredited specialist in
Charity Lawe-mail: [email protected]