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: j@hmitchell.co.uk44