Charities Update – Managing Conflicts Of Interest

Whilst it is important for a charity to focus on carrying out its role to perform the main function of its existence, it is vital for them to do so in accordance with their duty to avoid any conflicts of interest and in accordance with the Charities Act 2011.

It is important for any charity to identify as early as possible whether there is a conflict and if so take any necessary action. Any trustees appointed by a charity should act solely in the best interests of the charity and any decisions made by them should only be to further the charitable purpose of the charity.

Avoiding conflicts of interest as a charity – Case law

The conflict issue was recently addressed in the enquiry which was made into the charity, Combined Funds Ltd (CFL). CFL was set up in March 2018 for the purposes of relieving poverty and advancing religion in accordance with the Jewish Orthodox faith.

There were serious concerns surrounding unmanaged conflicts of interest and unauthorised trustee personal benefit, as well as loans from the charity to its trading subsidiaries. CFL was further found to have covered the cost of £250,000 of private medical care of a person connected to the original trustee. The trustees’ connection to each other and the beneficiary meant they were unable to appropriately manage this conflict of interest. By the trustees’ own admission, there were no formal systems in place to manage applications. Applicants were either known to the trustees, called in, or applications were made by telephone. Furthermore, no records of applicants or the decisions made in respect of applications were kept.

A further concern regarding CFL related to over £1 million in loans to four subsidiary companies, of which a trustee was the sole director. The original trustees’ connection to one another meant they were unable to make un-conflicted decisions in relation to CFL’s subsidiaries.

It was also found that there were serious lapses in the administration of the charity – the original trustees failed to register it despite the legal requirements to do so and failed to properly prepare and ensure independent scrutiny of the CFL’s accounts.

Whilst investigations were carried out by the investigators, access to the CFL’s bank accounts was restricted.

Despite all of CFL’s misgivings and questionable conduct, the regulators issued the original trustees with an official warning, together with an action plan for CFL to follow.

Comment

The investigation acts as a reminder to all charities that good governance is not simply bureaucratic, it is fundamental to the delivery of a charity’s purpose and the standards expected of them.

The above sets out the steps which should be avoided by charities, however, if as a charity, you require assistance with setting up your charity or you find yourself conflicted or you foresee there may be potential conflict contact one of our experts for advice and how you may overcome such issues.