Charity Commission issues warning and guidance to local authority charity trustees

The Charity Commission has issued an Official Warning to Calderdale Metropolitan Borough Council for failing to manage 13 charities properly, marking the first instance of such action against a local authority. The council's lapses included not filing annual returns and failing to act on an action plan from the Regulator.

The Commission has now published new guidance to help local authorities understand their duties as charity trustees, manage conflicts of interest and adhere to financial reporting requirements to avoid similar issues occurring in the future.

Here, Graeme Hughes from our charities, not-for-profits and social enterprises team reveals the three key themes to ensure compliance with legal and regulatory requirements.

1. Understanding trustee responsibilities and conflicts of interest

Local authorities that act as trustees must adhere to the specific duties of charity trustees. 

These include:

• acting in the charity’s best interests
• managing resources responsibly
• ensuring compliance with legal obligations.

Trustees should also act independently, without undue influence from external pressures such as political agendas or local government priorities.

A critical area of focus is the need to manage conflicts of interest. This is a particularly challenge for a local authority as it may need to balance its role as a trustee with its duties to the wider community. 

The guidance recommends that councils should establish clear policies to identify and manage conflicts of interest to prevent any compromise of the charity's purpose or public trust.

2. Balancing legal and government frameworks

When acting as charity trustees, local authorities must operate within both charity and local government law. Understanding the boundaries between these legal frameworks is crucial. The Charity Commission’s new guidance provides specific advice on how councils can fulfil their roles legally.

For instance, while councils have statutory obligations under local government law, they mustn’t use charity resources to fulfil their statutory duties unless this aligns with the charitable purposes. 

It’s essential to establish robust governance structures that separate the council’s decision-making as a local authority from that as a charity trustee. This may involve creating separate boards or committees to handle charity business.

3. Ensuring proper financial management and reporting

A core responsibility for councils that act as charity trustees is to maintain proper financial controls and ensure transparent and accurate financial reporting.

Local authorities must ensure that the charity's funds are used solely for charitable purposes and not conflated with council funds. Proper accounting records should be kept in-line with both charity law and any additional statutory requirements that apply to local authorities. Regular audits and reviews can help in maintaining financial integrity and accountability. Financial management practices must also align with the guidance provided by both the Charity Commission and local government oversight bodies.

Charity Commission will take action against public bodies

The Calderdale case is significant not only because it’s the first of its kind but also since it underscores the Charity Commission's willingness to take action against public bodies. 

This sends a clear message that local authorities acting as trustees must adhere to the same standards as any other charity trustee — ensuring that the charity’s interests are paramount and managed independently of other considerations.

For local authorities, the key takeaway from the new guidance is the need for a dual approach that respects the distinct legal and operational frameworks of both charitable and local government responsibilities. 

By adopting clear governance structures, managing conflicts of interest and maintaining robust financial oversight, councils can fulfil their trustee roles effectively while upholding public trust.

Talk to us

Our specialist charities, not-for-profits and social enterprises team is recognised by The Legal 500 as a leading team of experts with a national reputation for providing accurate, pragmatic and commercially focused advice.

Talk to us by giving us a call, sending us an email or completing our contact form below.