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Charities defending legacies against claims

Every year in the UK, around £2 billion is raised for charities through legacies in wills, but like various types of other charity income, this vital source has been threatened by the coronavirus crisis. It is hard to predict with any certainty what impact the crisis will have on legacy income in the long term, but in the short term it is expected that legacy income will decrease significantly as the overall economic downturn impacts upon share values and house prices, which in turn will drive down the values of legacies.

Where the legacy derives from an estate against which there are claims, the threat to the legacy is even higher. Legacies to charities are just as vulnerable as ordinary legacies in contested estates.

This article looks at the main types of claims against estates, some practicalities around defending such claims, as well as trustees’ duties and responsibilities when considering what is in the best interests of their charity.

Claims against estates

Claims disputing the validity of wills, claims for rectification of wills and claims pursuant to the Inheritance (Provision for Family and Dependants) Act 1975, can all give rise to the possibility that the legacy to the testator's nominated charity will be eroded or even wiped out altogether.

The following should be borne in mind by charities in contested situations:

  • Disputed will claims are “all or nothing claims”: either the will is valid or it is not, and the charitable legacy will stand or fall accordingly.
  • Claims for rectification of wills often arise out of negligent drafting where a common argument is that the testator did not intend to benefit a charity, either in full or in part.
  • Claimants under I(PFD)A 1975 will argue that all or part of a charitable legacy should be made available to satisfy their claim for reasonable financial provision.

In estates where any of these claims are brought forward, the trustees of the charity must balance their duties to ensure that the charity receives the monies that are due to it against the time, resources and costs that will be incurred in litigating to protect the legacy.

Adverse publicity can also act as a deterrent to charities who are considering defending claims as they seek to avoid the perception that their defence has caused the case to go to trial and that the costs involved are not a good use of charitable funds.

Defending a claim

As such, there are a number of factors to take into account when considering whether defending a claim is the right course of action.

Fairly early on in the claim, following the service of proceedings, the charity will be asked to elect whether it will actively defend the claim or whether it will not do so and will simply allow the claimant and other defendants to fight it out or settle the matter through an Alternative Dispute Resolution procedure, such as mediation. If electing to actively defend, the time limits for indicating this and also preparing the charity’s evidence in response are short and usually not longer than 21 days, so the charity needs to be prepared to act swiftly.

So how far should charities go in response to such claims? Consideration of the following factors will be important.

What is the value of the legacy? Plainly how much is at stake will be the primary consideration. Trustees may wish to conduct an early cost-benefit analysis of the likelihood that the legacy could be returned to the charity in full if the claim which threatens it is entirely unsuccessful, against the costs, time and resources that would be incurred in defending the claim.

Gather all available evidence as to the associations the testator had with your charity – it is not a requirement, but the court is less likely to make an order disrupting the legacy if there is a long history of close association or a good reason why your charity was chosen as a beneficiary.

Be prepared to analyse and summarise in a witness statement why this legacy income is of value to your charity and what projects it will help you to complete in particular.

Agree to mediate the claim wherever possible. Mediation can often be arranged at short notice of a few weeks and offers a cost-effective alternative to costly court proceedings. This method is likely to secure only a proportion of the legacy, but the costs of mediation are significantly lower than the costs of going to trial.

Team up with other charity legatees to share the costs and burden. Elect a lead beneficiary to run the situation.

Consider what funding options might be available to your charity to enable you to pursue the claim if you have insufficient funds to be able to do so but the legacy is significant enough that it is not an option for the trustees to take no steps to protect it.

Carefully document the trustees’ reasons for deciding to defend the claim or not. For example, if trustees are minded not to defend the claim, they would be giving up an asset of the charity and so should be satisfied they have good reasons to do so. Thus they should record those reasons for their own protection in case they are asked to justify the decision.

Trustees’ obligations

All of the above considerations must be carefully balanced to ensure that the charity’s assets (including its reputation) are preserved, in pursuit of the charity’s objects. The Charity Commission guidance in this area is clear, in that trustees have a duty to act in the best interests of their charity which, where necessary, means there is a duty to protect assets belonging to it.

Assets will include the pledged legacy, even if this has not yet been realised from the assets of an estate. As such, if a claim is rightly defended, and the cost/benefit of doing so is proportionate, then trustees have a duty to seek that the last wishes of the testator are observed.

The Charity Commission expects trustees to consider legal action only after they have explored and, where appropriate, ruled out any other ways of resolving the issue in dispute, such as mediation, but charities should not be afraid to assert their rights to legacies.

Legacies form an important part of the income stream available to charities and a decision to actively defend a claim does not necessarily carry with it adverse cost consequences providing the charity acts reasonably in its defence.

A cost/benefit analysis will always be essential but charities should be comforted by the fact that the Civil Procedure Rules allow the charity to take a diplomatic approach to help avoid any perception that the charity has forced the matter to go to court.

If a charity files a neutral defence asserting the intentions of the testator in relation to the legacy and then proposes mediation at an early stage, this will limit costs and, if successful, achieve a negotiated solution and ensure maximum recovery of the charity's costs from the estate.

BDB Pitmans’ Kate Parkinson and Lucinda Brown – when deciding whether to resist a claim against a legacy, how much is at stake will be the primary consideration for charities;
"…if a claim is rightly defended, and the cost/benefit of doing so is proportionate, then trustees have a duty to seek that the last wishes of the testator are observed."

Finding out how engaged your people are

One of the challenges facing every organisation at present is the recruitment and retention of staff, and also, in the case of charities and community projects, of volunteers. Knowing how involved or engaged with their work your people feel is key to retaining them and moving your organisation forward. So how do you measure what can seem like an elusive concept, and what should you do with your findings?

The most straightforward way to find out what your team are thinking and feeling is to ask. Measuring their level of engagement – how involved and attached to their work they feel – is something of a specialist discipline. More and more industry sectors are starting to use engagement surveys on a regular basis and this is now being adopted by the charity sector. Employee or volunteer engagement surveys in charities can take a number of forms.

If you only have a handful of people in your charity team, engagement research might be as simple as having a conversation. Of course, it may involve hearing some uncomfortable truths as well as some encouraging feedback.

Frank interaction difficult

However, not every employee or volunteer is brave enough to tell you what they really think, and this sort of frank one to one interaction relies on there already being a fairly good relationship. But in instances where that rapport hasn’t been established, and especially for charities with more than a few staff and volunteers, individual chats simply may not be practical. So, what can you do?

The most accurate way to measure engagement is by using what is known as an employee engagement survey. This can be applied equally to volunteers as well as paid staff, although you may need to ask slightly different questions of each set of people, as their circumstances and experiences may differ widely.

There are several approaches that can be taken including a deep dive traditional engagement survey, a “pulse” survey and an “always on” survey.

As the names suggest, the “pulse” survey is run at intervals for a set period of time, so you can “take the pulse” of your charity’s engagement or morale.

In contrast, the “always on” survey is left running continuously, so that people can voice their opinions at any time.

The deep dive engagement survey is usually an excellent starting point for charities to get a line in the sand of where engagement levels are. Pulse and always on surveys are then used to track and monitor progress. Questions can be a simple “yes” or “no”; maybe based on a scale against which people are asked to judge their opinions; or you may need to ask some open-ended questions which encourage feedback in the respondent’s own words.

The response rate to a pulse survey is usually higher and more evenly spread across the charity than an always on survey, and so provides more accurate data to observe any trends. Respondents are given a set amount of time in which to provide their answers to a set of questions, with a cut off deadline.

Depending on the issues that you want to address or investigate further, you can decide how far apart your pulse intervals should be. Urgent issues will probably require more frequent follow up to measure progress.

Tailored follow-up

However, many charities find that, once they have conducted a successful deep dive survey, regular pulse surveys (commonly six monthly) will be sufficient to track and monitor progress. Follow-up can be tailored to your charity’s specific needs.

A response rate of 40% is not unusual for engagement surveys but, with the right approach, one can achieve in excess of 80%, which happens fairly routinely. The advantage of this is, of course, that you have more data to analyse and can obtain a much clearer picture of how your teams are actually feeling.

One of the best ways to achieve a higher response rate is with careful preparatory work. For a start, you need to communicate to people that the results of the survey will be taken seriously and will result in progress. When people take the time to answer a set of questions, they have a right to expect that their opinion will matter.

So, if you don’t intend to use survey findings to make positive changes, don’t bother to run the survey. Ignoring opinions that you have asked for can be worse than not asking for opinions at all.

Organisations which make positive steps towards progress, based on survey results, usually see a higher response rate on their next survey, creating something of a virtuous circle. The opposite is also true: the less you genuinely listen to opinions, the less they will be offered, leaving you with no clue as to why people are dissatisfied and why some of them choose to move on.

Crafting questions carefully

Just as importantly, you need to craft your questions carefully. Irrelevant questions, or ones that miss the point, will lead to incomplete answers and/or a rapid decline in responses in future surveys. The best way to find out what to ask people is to talk to them.

Most line managers or supervisors have a vague idea of what bothers or engages their team. However, most have no way of judging how deep or widespread that feeling is, especially in an organisation with a significant geographic spread (regionally, nationally or abroad). Talking to a small focus group, or even to a few key team members, can be very enlightening. It can guide you towards the questions that you should be asking, to make sure that they are both relevant and at the heart of people’s concerns.

While you do need your questions to be relevant and tailored, you might not need them to be exclusive. It can be helpful to ask questions which have been asked elsewhere, even in commercial companies, as these can show you how you are doing compared to other organisations and sectors. This ability to benchmark your team’s engagement can be invaluable. Not only can you flag up and act to head off problems, you can also discover that you are doing better than you thought.

It is essential to encourage responses from every level of the charity from the board of trustees to the front line – both paid staff and volunteers. Naturally, in the third sector, this should involve both paid staff and volunteers. Your survey should be available to complete online anonymously, so that people feel free to give frank and honest responses.

It should be open for responses for a set time, so that the data gathered is a genuine snapshot of a distinct time period, which can be compared with responses from later surveys as progress is made. Surveys can be run every few months, or annually, whichever suits your aims best.

Issuing paper copies

It may well be the case that not everyone in the charity will have access to smart technology. This need not be a barrier to them. Paper copies of the survey can be issued to those without access to your survey portal, and these can be sent anonymously to your survey provider, using a prepaid envelope. Handwritten responses can then be transcribed and added to the digital data ready for analysis, so that you can gather as much representative data as possible.

Don’t make your survey too long. It should take people no longer than a few minutes to complete. People like to be asked their opinions, but few like the feeling of being quizzed or interrogated. Again, response rates can fall dramatically when surveys are simply too long.

Once the data has been carefully analysed, you need to act on the results. Ideally, you should disseminate the findings as widely as possible. Some organisations communicate the findings to the board alone, while others make them available to area managers or team leaders as appropriate. What you make available, and to whom, may vary according to what you have asked and what issues your responses have revealed to you.

Some findings may necessitate further investigation so you may delay communicating them. You may choose to make the survey results available to the entire charity. This level of transparency does foster trust and engagement, but only if you then act on the findings.

Addressing issues quickly

If it becomes apparent there are issues you need to address or areas of improvement to be made, the sooner you can make progress on these the better, keeping your people as informed as possible. When people see that you are listening and taking action, they are far more likely to be loyal and to continue working with you.

Used correctly, employee – or volunteer – engagement research can be a valuable tool in retaining your people and building your charity’s teams.

The Survey Initiative’s Gary Cattermole – the most straightforward way to find out what your team are thinking and feeling is to ask.;
"When people take the time to answer a set of questions, they have a right to expect that their opinion will matter."

Working from home brings charity employer responsibilities

The global outbreak of Covid-19 has changed the way charities operate, with staff and volunteers quickly adapting to working from home [WFH] where necessary. WFH throws up challenges to charities, however, even where staff [paid and volunteers] seem to have settled into what is for many a new way of working. A prime challenge is meeting duty of care obligations.

Duty of care? Duty of care is, in general, about workers’ wellbeing and welfare and, related, compliance and good practice by the employer. All employers have a moral and a legal obligation to ensure that all their workers are fully protected from personal physical and/or emotional harm, either on or away from the employer’s premises. But charities in particular have an ethical responsibility if only because of the ethos of being a charity.

Measures will already be in place to reduce and manage risks to staff and volunteers in a charity’s office environment. However, with WFH, the risks increase because charities no longer have easy and visual control over the working environment. Thus charities still need to protect and support their workers.

Rethinking work procedures

It’s no surprise that in such challenging times they have had to quickly rethink their working procedures and practices. Have some overlooked aspects of duty of care?

Safety of workers encompasses both their physical and mental health. As far as physical health is concerned, thought should be given to ensuring workers have the correct equipment at home, if they don’t already. Included can be the simplest of things such as an appropriate chair - set to the correct settings, if the chair has settings - to reduce the likelihood of physical strains.

In relation to supporting workers with their mental health, charities should ideally ensure they have regular contact with them in order to check their wellbeing and reduce the risk of any employee feeling isolated and perhaps suffering the consequences. Monitoring could be through scheduling regular phone calls or by video chats or other method via an app.

External risks

External risks – risks outside the home or office – are brought into focus where a lone worker visits an individual they don’t know, as part of their work, or when they visit hospitals or other buildings - again, as part of their work. Ways to help lone workers would include an app that has a check-in/check-out function which alerts a charity’s admin to the worker entering a property they don’t know and/or meeting someone they don’t know or don’t know very well; or simply meeting an individual they feel uneasy about.

Such a function could include a time limit – e.g. 30 minutes - set for a meeting. If the worker doesn’t check-out via the app on their smartphone after 30 minutes, the charity’s admin would be alerted automatically and set in motion steps to help the worker. In tandem with the function, or not, a panic button on the app could be activated by the worker if they are, or feel, in danger.

In addition, this kind of app can show the location of lone workers who are working outside the office or home -when they are working in or near at-risk areas. “Geo fences” could be set up by a charity’s admin to let the worker know when they have entered and left such an area.

Exact locations

Giving exact locations of individuals as they do, GPS-based apps on phones can be very useful in at-risk and extremely at-risk situations and can be used for the same purpose. Duty of care covers people working abroad as well as in the UK.

Although estate agency worker Suzy Lamplugh was not an employee of a charity, her case – she went missing, presumed murdered, after agreeing to show someone around a house - has echoed down the years.

While it has become the “new norm” for many employees to work from home, in order to meet government regulations and help stop the virus from spreading, Covid-19 still does, as we know, spring up expectedly or unexpectedly in cities, towns, villages and regions - as do other emergencies.

In cases of local outbreaks of Covid-19, severe weather or industrial accident, charities will need to quickly contact their workers in the affected locality. App-based solutions can help to by sending alerts, via a mass notification feature where appropriate, containing critical information to those at risk, whether they are at home, in an office, or elsewhere, including travelling between places.

Work stresses

Some charity workers have to deal with highly stressful situations and face very challenging situations on a daily basis. Examples include dealing with emotionally charged conversations on their phone or, virtually, via tablet or computer, all the time up against deadlines and projects to be started or completed. WFH, as in working in the office, can get stressful and lead to health problems – physical as well as mental.

If they don’t already, charity team leaders or managers need to understand issues like these which workers can face when WFH and try to resolve problems. To help both manager and worker, app-based solutions allow discreet two-way dialogues, starting with the affected worker raising an issue or query with the appropriate team leader or manager.

An approach like this enables the worker to feel more confident and less embarrassed or stressed about discussing problems, and seek help if necessary. It’s useful for the team leader or manager because it’s a quick route to knowing issues they may not have been aware of.

WFH brings benefits to our personal lives. Many workers experience an improved work-life balance, which can be highly influenced by less commuting stress. This can significantly increase a worker’s spare time in which they would otherwise be commuting; and saves them money. However, some can feel lonely, isolated and less motivated, even as they appreciate some aspects of WFH.

Although employees can have an increased sense of wellbeing when working from home – and be able to manage their time more effectively while enjoying a sense of freedom - they will need to be monitored one way or another, if “only” for reasons of their mental health.

Understanding workloads

In terms of a charity’s perspective on home working, the main priority should be the duty of care to the employees. With staff remotely working, it is difficult for managers to keep track of an employee’s workload and daily tasks, and perhaps understand workloads in the new WFH world that many people inhabit. One way to overcome these issues would be, again, via an app, whereby the employee quickly updates tasks that are ongoing or completed.

As stated earlier, charity workers can be dealing with highly emotional and stressful situations on the phone - or through other means, including face-to-face. As ever, they will want to feel protected or understood. Many charity helplines are now being handled from home, which can be mentally and emotionally challenging for workers. Even with virtual support from a charity’s HR people, dealing with the situations on a daily basis can significantly impact workers’ wellbeing.

A plus for charities is that WFH can impact their financial situation positively. Many are struggling for funding while relying on events or donations for income. However, as we know, the pandemic has put nearly all events on hold and making other fundraising more difficult. WFH can reduce the need for office space and reduce operating costs, hopefully freeing money up to help manage day-to-day expenses.

More flexible approach

In the long run, many charities may decide not to bring employees back into the workplace full or even part time, because of cost savings and the increased efficiencies of WFH. Another work solution for charities to consider – but some have been doing it for years - is a more flexible approach to working environments to incorporate a mix of working in an office environment and home working.

Ensuring charity workers are supported and protected is key to a happy and productive workforce. Implementing a solution that monitors employee wellbeing, sends alerts if required and has the ability to send mass notifications in case of an emergency could be vital in protecting employees and meeting duty of care obligations.

Vismo’s Craig Swallow – in terms of supporting workers with their mental health, ideally charities should ensure they have regular contact with them in order to check their wellbeing.;
"…app-based solutions allow discreet two-way dialogues, starting with the affected worker raising an issue or query with the appropriate team leader or manager."

Key issues facing charities in 2022

Effective and compliant governance and operation remain key priorities for charities, but are once again under the spotlight in the wake of high profile cases making the news. There are key issues facing the charity sector this year and lessons to be learned from these recent cases.

A continuation of virtual and/or hybrid working as a result of Covid continues to dominate the agenda for many charities, as well as the need to maintain team cohesion and relationships with beneficiaries and other associates.

Focus on purpose

There is also a shared desire to focus on the aims and purpose, and take account of the changing needs of beneficiaries, for example where individuals have been affected by Covid. So, it is timely and appropriate to review the objects of a charity, and the possibility of a change to these becoming easier now that Parliament has passed the Charities Act.

The Charities Act 2006 was intended to simplify and clarify the law, by reducing bureaucracy, especially for smaller charities; providing a definition of charity; and modernising the Charity Commission's functions and powers.

This was followed by the Charities Act 2011 which consolidated the bulk of the Charities Act 2006, outstanding provisions of the Charities Act 1993, and various other enactments.

Only the beginning

The Charities Act 2022 became law at the end of February, but this is only the beginning of the story. The new Act is to be welcomed and will be implemented on a phased basis. The Charity Commission is currently considering the order in which the various segments of the Act come into force, some of which require secondary legislation. There will also be changes to Charity Commission guidance. Within the Act, there are a number of helpful key features that create greater flexibility for charities. Among them are these highlights:

  1. Greater flexibility for the disposal and mortgaging of land, subject to various safeguards.
  2. The ability to change governing documents aligned as between unincorporated charities and corporate charities (whether companies or charitable incorporated organisations), which should make it more straightforward for unincorporated charities to change objects.
  3. More flexibility to deal with permanent endowment funds, simplifying the power to spend permanent endowment capital, and creating a statutory power to borrow against permanent endowment.
  4. Better ease for small ex gratia payments to be made.

In the news

Two very high profile charities recently hit the headlines, highlighting the need for good governance and also certain key issues faced by charities going forward.

KIDS COMPANY. The first is Kids Company (Keeping Kids Company) and the extensive report published by the Charity Commission on 10 February, which raised a considerable number of issues in relation to the running of charities generally.

This demand-led charity failed to maintain sufficient reserves to enable it to withstand difficulties. In particular, it did not carry the reserves to enable it to either continue or conduct an orderly winddown.

The Charity Commission’s report placed emphasis on having the right blend of skills and knowledge. It pointed out that some trustees and the chair had been in post for a long period, and that a rotation of roles - which would have allowed for an injection of new ideas and challenges about the way in which the charity operated - would have been sensible, and that this would have assisted with challenging the senior executive who had been in post for many years.

The report references:

  • That the Public Administration and Constitutional Affairs Committee reports a failure to refresh the leadership of the charity.
  • The need for board decisions to be documented carefully, particularly in relation to evidence of financial planning, to assist both donors and funders, and to protect trustees.
  • The need to build a sustainable business model which does not disproportionately rely on government funding, nor a key individual for fundraising, which were issues in this case - acknowledging governmental or other similar granting models are present in other charities.
  • Experience on the board of how reserves are dealt with in charities with similar business models would have been helpful.

The High Court judge’s findings in relation to the Official Receiver’s application for a disqualification order, included that the conduct of the trustees did not amount to incompetence of a high degree. The judge emphasised the need to ensure that individuals are not dissuaded from becoming trustees because of sanctions which might be imposed.

Notwithstanding this, the Charity Commission’s investigation was on the wider test of whether there had been misconduct or mismanagement.

Most important issues

The Charity Commission’s resulting report highlights issues for the sector as a whole, from which charities of all sizes should learn, most importantly:

  • The importance of checks and balances, with the right mix of skills and experience on charity boards.
  • Operating models to reflect the nature and scale of charities.
  • The need for a proper reserves policy and financial planning.
  • The need for a consideration of issues arising when charities get bigger.

CAPTAIN TOM FOUNDATION. The Captain Tom Foundation raised concerns from three regulators: the Fundraising Regulator, the Charity Commission and the Information Commissioner’s Office. It is understood that the charity has sought to work with the regulatory bodies.

What the charity’s situation highlights is the need for transparency and care with legal compliance in relation to fundraising as, once again, we have a case which shows that damage may be caused to an individual charity, and the charity sector as a whole, because of issues raised – whether perceived or real.

Necessary details

Charities must ensure that statements concerning fundraising contain the necessary details, including compliance with statutory requirements in relation to amounts received by commercial organisations connected with it. They must also make sure that data protection issues are properly addressed.

The Captain Tom Foundation is a high profile charity which has raised a lot of money, and so it is essential that concerns are seen to be dealt with seriously, as does seem the case, to maintain trust and confidence in this charity, and also fundraising in the charity sector.

GIVING INITIATIVE TO SUPPORT UKRAINE. This initiative raises various issues which have been highlighted by regulators including:

  • The desirability of giving to registered, regulated charities.
  • The need for charities to observe sanctions requirements.
  • The need for safe giving to registered charities with both government and fundraising guidance available.
  • The need for charities to follow guidance when operating in high risk areas – in particular the Charity Commission guidance: “Charities: how to manage risks when working internationally”.
  • The need for care when accepting donations, which may lead to reputational damage and also because it may be difficult to return a donation once received.

LEHTAMAKI v COOPER. A separate case has clarified and set out the duties of members of charities, and whilst the case of Lehtamaki v Cooper relates to members of charitable companies limited by guarantee, it also applies to other forms of charity.

Fiduciary obligations owed

Essentially, the case provides that members owe fiduciary obligations to exercise some of their functions for the sole purpose of advancing the charity’s objects. This means that members of charities would be expected to exercise their functions in such a way that they disregard any self-interest, and that the members have fiduciary duties in relation to those functions.

The extent to which members are required to comply with these duties will depend on the precise circumstances of each case, and it is difficult to generalise.

That said, this case provided that the court had the power to direct a member as to how to exercise the fiduciary duty – very much on the facts of the case.

The case is complicated, not least because, although the ultimate decision of all the judges of the Supreme Court was the same, the reasoning used differed.

Fiduciaries and their duties

A fiduciary relationship is one of trust and confidence, with the fiduciary owing a single-minded duty of loyalty, which means that fiduciaries cannot exercise any power so as to benefit the members.

These are some of the facets of a fiduciary relationship:

  • Fiduciaries must not put themselves in a position where their interests and the interests of their beneficiaries conflict.
  • Fiduciaries must not make a profit out of their position.
  • Fiduciaries must act in good faith to serve the best interests of their beneficiaries.

The principles of the case apply to members of other types of charitable organisation and the differences between the duties of members in different types of charity will have to be worked out.

The differences between duties of members of other forms of charity and CIOs are yet to be worked out.

It is not considered that the obligations should depend on the size of the membership. However, there may be reasons why people become members which may affect the extent of their duty – for example, supporters of its aims, those who wish to obtain a benefit from it, and those who wish to play a role in its governance.

In conclusion, charity members are considered to have agreed to exercise at least some of their functions for the sole purpose of advancing the charity’s objects, and as a consequence those functions must be exercised in such a way that members satisfy fiduciary obligations in relation to those functions as set out above.

It is hoped that the Charity Commission will provide clear guidance in due course.

Lodders’ Mark Lewis – the Charity Commission’s report on Kids Company placed emphasis on trustees having the right blend of skills and knowledge.;
"The Charity Commission is currently considering the order in which the various segments of the Act come into force, some of which require secondary legislation."

Charities employing people with criminal records

Employees with criminal records, or those who have been accused of, or charged with, criminal offences, may present particular risks for employers within the charity sector. Let us take a look at some of the more common questions that arise.

CAN OUR CHARITY EMPLOY SOMEONE WITH A CRITICAL RECORD? Potentially – but this will depend upon what the offence is and what potential impact it could have on the proposed role for the individual. Particular care should clearly be taken where the role involves working or interacting with more vulnerable members of society, or dealing with charitable funds.

CAN WE REFUSE TO EMPLOY SOMEONE WITH A CRIMINAL RECORD? This will depend on whether their conviction is spent or unspent, and whether they are applying for an excepted occupation, profession or office (such as roles working with children or vulnerable adults).

Spent conviction

If the conviction is spent, then unless the role is for an excepted occupation, profession or office, employment cannot be refused on this ground. Where the role is for an excepted occupation, profession or office, employment may be refused, and in certain circumstances should be refused.

If the conviction is unspent, then a charity employer may refuse to employ the individual. However, it would be usual to consider whether the conviction actually affects the role for which they are applying.

WHAT IF SOMEONE DOESN’T DISCLOSE A CRIMINAL CONVICTION? Again, this will depend on whether their conviction is spent or unspent. If their conviction is spent, then they are under no obligation to disclose this unless they are applying for an excepted occupation, profession or office.

If the conviction is unspent (or is spent but they are applying for an excepted occupation, profession or office) and the employee/applicant does not disclose this in response to a direct request, then an employer may wish to take further action if either the nature of the conviction affects the role that the individual is carrying out (or is to carry out), or if concerns over the employee’s honesty affects their suitability.

Individual circumstances

It is suggested that employers seek advice on the individual circumstances, particular if the individual has been employed for some time before the issue comes to light.


However, if the employer is proposing to dismiss for conduct-related reasons, then the same usual principle will apply: it must have a reasonable belief in the employee’s guilt, it must have reasonable grounds for that belief, and it must have carried out a reasonable investigation. The mere fact of a police investigation would not be sufficient, nor would a decision to charge.

But where the offence occurs in the course of their duties, the employer is likely to have access to further evidence on which to base its decision.

In some cases, it may also be appropriate to “clear” such action with the police first, so as not to prejudice any ongoing investigations.

WHAT ABOUT OFFENCES OUTSIDE WORK? CAN CRIMINAL CHARGES FOR AN OFFENCE OUTSIDE WORK SUPPORT A CONDUCT-RELATED DISMISSAL? In limited circumstances, yes. However, the offence must be relevant to the nature of the work in question. For example, fraudulent offences may well be wholly incompatible with a role dealing with charitable donations. This would also be particularly relevant if the role in question affords the employee the opportunity to commit offences of the type for which they have been charged.

Sufficient evidence

Where the offence takes place outside work (and the individual has not been convicted), the employer may not, however, have sufficient evidence available to justify a conduct dismissal. An exception to this may be where another employee is in some way involved – perhaps as the alleged victim – and so the employer is able to investigate the allegation.

WHAT ABOUT REPUTATIONAL DAMAGE? If there is insufficient evidence available to support a conduct-related dismissal, the employer may still wish to take action on other grounds. Although “innocent until proven guilty” underpins our criminal justice system, this does not mean that an employer is required to continue to employ an employee who is charged with a criminal offence where, if found guilty, this could damage the charity’s reputation.

This was precisely the position in the Employment Appeal Tribunal (EAT) case of Lafferty v Nuffield Health. Mr Lafferty was employed as a hospital porter in Glasgow and his role included transporting anaesthetised (and therefore particularly vulnerable) patients to and from theatre.

He was charged with assault to injury with intention to rape. Nuffield Health took the decision to dismiss Mr Lafferty, deciding that the risk to its reputation of continuing to employ him was too great. The Employment Tribunal concluded that this dismissal was fair and its decision has been upheld on appeal.

Acquittal outcome

This does not mean that it will always be fair and reasonable to dismiss in these circumstances and the EAT readily acknowledged that it had found this case to be a difficult one – perhaps made more so by the fact that Mr Lafferty had in fact been acquitted after the original Employment Tribunal hearing and before the EAT.

WHAT ADDITIONAL FACTORS SHOULD BE CONSIDERED IN “REPUTATIONAL DAMAGE” CASES? There is indeed a risk of injustice to employees if employers rely on charging decisions where the employee is contesting that charge and has not yet had an opportunity to fully challenge those allegations.

Nevertheless, in line with the previous guidance given in Leach v Ofcom, the relevant test when considering an unfair dismissal claim is not whether the employee has suffered an injustice; it is whether the conduct of the employer towards him was fair.

The extent to which an employer can challenge information provided by the police, the CPS or another official body may well be limited, and employers will often not have the expertise of resources to realistically test the evidence provided. But this does not mean that they should not take a critical view – some inquiry is required.

However, where the employer is not trying to rely on an assertion that the individual is guilty of the criminal misconduct alleged – but rather is taking action because of the adverse effect that the fact of the charge could have on its reputation - the investigation will be justifiably more limited.

Particular scrutiny

In the Lafferty case, it was held that the employer was entitled to take into account the particular scrutiny that it was facing within the charitable sector as a result of recent conduct in relation to employees engaging in sexual offences. It was also entitled to take into account the risk of reputational damage which would arise out of a suggestion that the employer had continued to place vulnerable patients at risk.

Alternatives to dismissal should be considered. The employer in Lafferty considered that the only other option potentially available to it was suspension. Given that this would involve full pay, and would be open-ended as Mr Lafferty was unable to provide any timescales as to when his criminal trial would take place, Nuffield Health concluded that this would not be a reasonable expenditure, given its charitable status. This decision was held to fall within the band of reasonable responses open to a reasonable employer.

It is worth noting that the employer did, in this case, confirm to the employee that if acquitted, he could return to work on the same terms and conditions and with continuity preserved. His post was held open in the interim, covered by temporary staff. Mr Lafferty did in fact return to his role after his acquittal.

Please also remember that, unlike gross misconduct dismissals, an employee who is dismissed for reputation-related reasons will be entitled to be paid notice.

WHAT ABOUT OFFENCES COMMITTED ABROAD BY EMPLOYEES OF INTERNATONAL CHARITIES? DOES IT MAKE A DIFFERENCE IF THE HOST COUNTRY DOES NOT PROSECUTE? Assuming the employee is UK based and was travelling at the time, then whether or not the offences are committed abroad or in the UK does not affect the principles set out above and so the determinative factor would not be whether or not the host country decided to prosecute.

However, practically speaking, it is likely to be considerably harder for the employer to be able to access information in respect of any ongoing investigation.

Wholly abroad

Where the charity employee is wholly based abroad, consideration would need to be given to jurisdiction, and which employment laws were applicable, before decisions were taken in respect of terminating employment.

WHAT HAPPENS IF THE EMPLOYEE IS DETAINED IN CUSTODY? There may be also additional issues caused if the employee is detained (whether in the UK or abroad) during the investigation or following a charge being made as a prolonged absence could provide the employer with additional grounds for terminating employment.

This will always depend upon the circumstances of the case – such as the likely length of the detention and whether any such absence can reasonably be sustained by the employer – and so advice in respect of individual circumstances should be sought.

Browne Jacobson’s James Tait – where the role is for an excepted occupation, profession or office, employment may be refused, and in certain circumstances should be refused.;
"Where the offence takes place outside work (and the individual has not been convicted) the employer may not…have sufficient evidence available to justify a conduct dismissal."

Addressing the property issues for charity trustees

Most charities have a connection to property ownership - whether it be a generous donor who has bequeathed property, a lease on premises from which to operate, a string of investment properties, or retail premises occupied for the purpose of raising funds to support the charity.

With the complexities of property management, hiring a property professional to offer advice and guidance on the multiple issues relating to property which can arise would be beneficial for trustees, allowing them to feel less exposed to significant risks.

However, this would require an additional cost, eating into the precious funds that would otherwise be spent on the charitable purpose. Trustees are therefore tempted to save money by taking decisions without obtaining advice.

But is that a false economy? In avoiding taking advice, what risks does a trustee face?

Consider some of the common issues relating to property ownership that charities might come across on a daily basis.

Selling or letting

If the charity’s governing document allows the charity to buy or lease a property, then the trustees must ensure they have secured the best deal for the charity in any proposed sale or letting. The Charities Act 2011 requires that written advice from a qualified surveyor must be sought (unless the lease proposed is less than seven years).

The property identified to be sold or let must have been openly marketed for sale to ensure that best value can be shown to have been obtained. Any trustee not following these rules is opening themselves to a possible challenge.

Of course, there are exemptions to these rules that trustees can explore, but if selling to a connected party, or below market value or if the charity wishes to ignore the advice of the qualified surveyor, then formal Charity Commission approval will also be required.

Obtaining a qualified surveyor’s report will give the trustees peace of mind that the action they propose is right in property terms.

Using surveyors to sell property on behalf of the charity also means that responsibility for matters - such as demonstrating best value has been obtained, the property has been fully marketed, complying with money laundering legislation and undertaking identity checks of potential purchasers - will be passed to the appointed agent, shielding the trustees from the responsibility.

Organised criminals

Given that buying property is a common method used by organised criminals to launder proceeds of criminal activity, this is a very real responsibility and failure to undertake such checks can lead to significant fines.

Similarly, for buying property, the trustees must be able to demonstrate the price proposed to be paid is fair, that it is in the best interests of the charity to acquire the property and that all the obligations of ownership - including any restrictions on title, on the lease or in planning terms - are fully understood before taking ownership. Without specialist advice there is a risk that decisions taken can be challenged or onerous property can be acquired.

If taking a property by lease rather than outright ownership, there is the added complexity of negotiating the lease terms. It is essential to avoid undue liability falling to the charity. The lease is clearly a negotiation between the landlord and the tenant on all matters relating to the occupation of the property and, as such, it is essentially market driven.

In a strong property market where landlords have queues of potential occupiers for their premises, the lease clauses will favour the landlord as alternative tenants can easily be found. In a poor market where landlords are faced with rental voids, or costs of vacant property, they may be more open to occupiers’ demands. In this way liabilities such as dilapidation and repair can be limited, break clauses inserted, and other terms drafted to suit the occupier.

Bargaining position

It is essential that this bargaining position is understood at the outset of a negotiation, so it is therefore imperative to seek trusted, market based property advice. Having clarity on the charity’s “must haves” in any negotiation allows a property adviser to negotiate to best effect. Landlords are currently very concerned about voids – especially in their retail portfolios, so are willing to consider changing leases to secure good quality tenant covenants. Charities need to take advantage and drive hard bargains.

When taking property for investment purposes, the need for market related advice is clear. Significant risk is attached to owning property as an investment, as occupying tenants can go into receivership, leaving rental voids and significant unexpected liability for the trustees. Taking advice on the lease terms, covenant strength and the market trends in the vicinity will ensure the trustees are acting in the best interests of the charity and with the benefit of specialist, independent advice.

Business rates

Once in ownership or occupation of property the complexity does not end. Possibly the highest expenditure relating to most commercial property after staff costs (and rent if a leased property) are business rates. The rates liability is based on the Valuation Office calculation of a hypothetical rental value of the premises, known as a rateable value.

Revaluations are undertaken on an irregular basis and look at the market evidence at that date. The most recent revaluation was undertaken in 2017 with a valuation date of 1 April 2015. Charities and community amateur sports clubs receive a mandatory charitable rate relief of 80% if a property is used for charitable purposes. A further 20% can be applied for and given at the discretion of the local authority, although rules do vary from authority to authority.

Without professional advice, many charities are missing out on business rate relief and consequently overheads are higher than necessary. Even if a relief has been claimed, sometimes the valuation itself can be challenged and a further reduction effected, in some cases removing the liability altogether.

Legislative compliance

Further occupational liabilities that fall to the trustees as owners or occupiers include property maintenance, ensuring compliance with fire safety regulation, asbestos regulation, legionella testing, health and safety regulation, equality legislation, energy performance regulations, electrical appliance checking regulation, to name a few.

Residential premises attract additional regulations and include annual gas safety checks, fire appliance checks, EPC certificate, compliance with the Fit for Human Habitation Act, as well as regulations concerning the way in which landlords hold deposits and implement service charges. Further regulation will apply if the property is a house in multiple occupation (HMO). Evidence of compliance will be required in order to avoid fines or prosecution.

Property owners or occupiers need to have good data management systems to record when inspections have occurred and set reminders for when future inspections are due, to avoid running the risk of fines or worse.

Rent review

Even when the lease is in place and all the occupier’s responsibilities have been satisfied there is the periodic rent review provision.

The charity might be either the landlord or the tenant, but in either case careful consideration needs to be given to the terms of the lease at rent review. Some leases allow for upwards or downwards reviews, so careless triggering of a rent review clause may cause unwanted results.

Market knowledge is essential to inform the rent review process as, unless index linked, rents are usually calculated by reference to transactions involving similar properties. Remember, the rent is being agreed until the next rent review period, so even small annual reductions or increases can multiply into bigger savings or costs when looked at over the period to the next review.

Trustees should therefore ensure they have access to good market knowledge at rent review and lease expiry, as well as advisers with a thorough understanding of the Landlord and Tenant Act 1954 if the lease in place is covered by its provisions.

Strategic matters

So, having made sure the lease is well negotiated, the terms are fair and the property inspections are up to date, does the duty to do the best for the charity end there? No, I’m afraid not. Property owning charities must then ensure they keep their eye on what is going on in the surrounding area, particularly with regard to the statutory Local Plan which will go through periodic review.

As a consequence of such review it is possible that the property will have potential development value, or will be affected by development proposed in the vicinity. Going back to one of the main duties of a trustee – to manage the charity’s resources responsibly – if development potential exists then it would be sensible to be aware of this in order that opportunities to secure additional value can be exploited.

Property owning trustees should therefore actively interact with the Local Plan process in each property location, be aware of proposals for development and respond to calls for sites that might enhance the value of property assets.

Annual valuation

Charities may be required to provide annual valuations of their property assets for financial statements under the Charities SORP Regulations FRS102. These are usually formal valuations that require to be undertaken by RICS registered valuers under the auspices of the RICS “Red Book”. Whilst a seemingly expensive exercise they provide an excellent opportunity for the selected adviser to review many matters raised in this article, making the most of the single inspection.

Considerable responsibility

In summary, owning property is a considerable responsibility and potential liability as well as a significant asset. It is imperative for property owning charity trustees to ensure they access market focused, specialist advice, to avoid costly pitfalls. This way property can be a true asset, helping to deliver the charity’s core objectives.

Bruton Knowles’ Amanda Briggs – without professional advice, many charities are missing out on business rate relief and consequently overheads are higher than necessary.;
"Property owning charities must…ensure they keep their eye on what is going on in the surrounding area, particularly with regard to the statutory Local Plan which will go through periodic review."

Linking improved governance to innovation

Air Ambulance Kent Surrey Sussex (AAKSS) is a helicopter emergency medical service which operates out of Redhill, Surrey and Rochester, Kent. We serve a population of 4.7m people plus those who travel through the area. Our crews of pilots/co-pilots operate three helicopters and fly 2,500 missions a year with on-board medical assistance provided by doctors and paramedics. Of the more than £11m needed to sustain the service each year, 92% is raised by public donation and fundraising with the remaining 8% provided by the NHS.

As an independent charity delivering pre-hospital emergency medicine, AAKSS is accountable to five principal regulators including the Charity Commission, Care Quality Commission and, perhaps less predictably, the Gambling Commission. A successful lottery accounts for over 50% of our income and a CQC inspection conducted last year provides a glowing account of outstanding patient care.

A governance review could appear – and perhaps has appeared - as an attempt to fix what isn’t broken given that we are considered a leader in our field and have benefited from a relatively secure financial position. However, for the current board of trustees, the imperative to diversify our income streams and standardise safeguarding across the charity has become increasingly urgent, not only from the perspective of risk but also of values.

Caring is one of our core values and a considered approach to what this means in the context of pre-hospital emergency medicine raises some important ethical and organisational implications.

Potential income

Our staff care deeply about patient outcomes. However, the clinical involvement of doctors and paramedics with the patient is an intense and relatively brief one and often they will never know what happened following handover at the receiving hospital. It is clear that a significant number of patients want to express gratitude to the people and organisation that, in their view, saved their lives. This gratitude represents considerable potential income.

Strong evidence from the United States suggests that, when appropriately stewarded, this expression is beneficial to both the patient and to those who provide care. Sadly, not all patients survive and bereaved relatives care that all that could have been done was done, and some feel the need to meet those present in their deceased relative’s final moments.

One of the challenges of pre-hospital emergency medicine delivered by a charity such as AAKSS is that normally there is no formal mechanism for maintaining a dialogue with patients and relatives. A relatively small proportion find their way back to us and the “base visits” which feature prominently on our website tell moving stories of patient and crew reunions. In light of the evidence of the emotional benefits of maintaining this connection, our digital strategy including our website design, will optimise opportunities for former patients and relatives to get in touch.

A newly created patient liaison role is intended to provide specialist expertise to manage these important relationships. It takes into consideration both the nature of care in this context and the nature of risk, and reinforces the need for specialist skills and for a holistic approach. This extends to the safeguarding and care for our own staff in relating to people who have experienced major trauma, including life changing injuries, and bereavement.

Emotional reunions

Reunions with former patients or relatives can be emotional for the crews and, given that they take place at an airfield where the helicopters are based rather than in a hospital, appropriate boundaries and safeguards need to be in place. As one highly experienced paramedic pointed out, the reunion can close a loop for them too and reunite them with people they feared would not survive.

The patients themselves may be unconscious but the crew members are acutely aware of what have often been harrowing events. They need to make judgments about how much they should share and how involved they want to be in a visit, if at all.

In a culture of continuous improvement in which our teams take enormous pride in delivering outstanding patient care, the creation of the patient liaison role represents an incremental step in further developing the nature of care provided. In this we have taken notice of the approach of our peers, notably the London Air Ambulance, in not limiting the caring relationship to the pre hospital period but to think much more holistically about what it means.

This could include signposting former patients to other services or establishing peer relationships with others who have experienced major trauma.

Of primary concern in all of this is our commitment to ensuring the physical and emotional safety of people who have been through a major trauma and may have suffered life changing injuries or bereavement. Given that our crews are treating the most sick and seriously injured people, patients themselves often have no recollection of events but may feel a need to know what happened.

Meaningful way

Significantly, the patient liaison role needs to respect their desire to give back to the charity in a meaningful way and to ensure a sense of belonging, assuming that it is part of our duty of care to do so. Many people are unaware that air ambulance services are delivered by charities and a very common response is a strongly felt desire to raise money, both by donating directly but also by using networks to achieve greater effect.

Over the years many of our volunteers have come forward because they have been touched personally by the charity and are given roles within our offices, helping with the administration of our fundraising or going out into the community to give talks.

However, the increased scrutiny of fundraising practices within the charity sector with safeguarding as its dominant theme has necessitated a hard look at freedoms that, in the past, have been taken for granted.

Our safeguarding review of fundraising has resulted in much tighter recruitment processes for volunteers including consideration of DBS checks and placing restrictions on public facing roles which may include entering schools. It has also prompted consideration of how we create meaningful engagement for former patients and relatives who may not necessarily fit existing volunteer role profiles.

Two important additions to our board of trustees are providing further enlightenment for our considerations of the relationship of care. In an open recruitment process, one of them began his application with the words “this charity saved my life”. Once recovered he insisted on paying for the cost of the mission that saved him and took the opportunity to join the board as soon as it became available.

Patient advocacy

The other new trustee is a very senior clinician who has been a leader in the Surviving Sepsis campaign and has first hand knowledge of the power of patient advocacy following trauma, as well as a strong commitment to ensuring emotional safety in acute medical situations.

These improvements to our governance and consequent organisational changes have required balance and real thought about what it means to be caring. Recognition of the need of former patients and relatives to express gratitude takes into account the concern of staff not to appear to be “ambulance chasing” or to take advantage of people at a time of vulnerability.

Care for their emotional safety needs to be balanced against the welfare and emotions of our staff, including of course the clinical and operational crews. Current anxieties about safeguarding in the charity sector need to be balanced against the good will and trust that former patients and relatives feel for our charity and that we wish to honour in return. It is not always an easy balance to achieve but our governance review has produced new opportunities for meaningful engagement and for philanthropy.

Air Ambulance Kent Surrey Sussex’s Helen Bowcock – improvements to the charity’s governance and consequent organisational changes have required balance and real thought about what it means to be caring.;
"One of the challenges of pre-hospital emergency medicine…is that normally there is no formal mechanism for maintaining a dialogue with patients and relatives."
"Our safeguarding review of fundraising has resulted in much tighter recruitment processes for volunteers…"

Preventing, detecting and responding to fraud

Prince Harry’s charity Sentebale is said to have become a target for “cyber crooks” who are “making sustained attempts to exploit the charity…by luring potential supporters into making donations to bogus online accounts”, according to the Daily Mail.

Fraud not only impacts hugely on the vital work charities do but can also be extremely damaging from a reputation management perspective. The estimated annual fraud loss in registered charities in 2017 was approximately £2.3 billion and more recent indications suggest that this figure is only set to increase.

Fraudsters are becoming ever more sophisticated in their methodology and whilst we are still seeing regular instances of internal fraud, such as misuse of charity money, and external fraud, such as false invoicing and fake fundraising, there can be little doubt that cyber fraud is on the up.

The Department for Media and Culture estimates that in the last year 22% of charities have experienced cyber security breaches with the most common forms of attack phishing emails, others impersonating an organisation online (as is reported to be the case with Sentebale) and viruses or other malware, including ransomware (a form of software preventing effective control of data stored on a device until a ransom is paid).

Experience shows that prevention is the best cure when it comes to any kind of fraud. Charities, irrespective of size and stature, need to prioritise reflecting on their own potential exposure and working to not only protect against fraud but also to have a plan in place to ensure an effective response if fraud is detected.

Risk assessment

The first step for all charities is to conduct a thorough risk assessment. Whilst any such assessment would be specific to each organisation this would be likely to include considering which of the charity’s activities leave it most vulnerable to fraud, the level of existing fraud awareness within the charity and whether the charity has an appropriate anti-fraud policy in place.

A charity’s potential vulnerabilities are far ranging but some of the most common include reliance on multiple volunteers with a high turnover (who are therefore difficult to closely monitor), cash-based fundraising, the numerous complexities involved with international work (see further below) and technological advances such as mobile banking.

Something also often seen is one individual at a charity having sole charge and responsibility for all financial processing and reporting. This clearly leaves the charity unnecessarily exposed. The introduction of internal controls to ensure adequate checks are in place for making and authorising payments, or rotating responsibility for certain tasks in high risk areas to ensure no one person has control for an extended period of time, are relativity straightforward ways to alleviate this risk.

Overseas projects

Project funding, particularly abroad where there might be inadequate legislation surrounding bribery and corruption, is another significant risk area. It is of course vital that funds hard- earned for a particular cause end up in the right place. Without carefully monitoring, and the appropriate level of checks of a charity’s partners on the ground, it is sadly too often the case that this does not happen.

As to awareness, training should be implemented to ensure that employees at all levels have a basic knowledge of potential threats as well putting in place the appropriate mechanisms to alert the charity to potential new fraud risks. Recent examples of cyber fraud might include phishing, ransomware, cyber-hacking of financial accounts and interception of email communications to third parties containing sensitive financial information.

Electing a senior staff member (or members) to keep on top of industry news and take responsibility for circulating updates and guidance is a good starting point.

For example, in December last year it was reported that the Save the Children Federation (part of the global Save the Children organisation) had fallen victim to a scam whereby the fraudster had accessed an employee’s email account and used that to channel requests for approximately $1 million of charity monies to be transferred to an unauthorised third party.

Alerting employees to reports like this, as well as formal guidance such as that recently issued by the Charity Aid Foundation in relation to fraudulent emails, can only serve to bolster a charity’s fraud defence.

An appropriate anti-fraud policy is central to a charity’s ability to reduce the risk of fraud and can also act as a deterrent to potential fraudsters. The purpose of the policy is to provide a definition of fraud and define authority levels, responsibilities for action, and reporting lines in the event of suspected, attempted or actual fraud. 

Fraud detection

When it comes to fraud detection, it is important to know the warning signs of a potential fraud. Red flags might include irregular invoicing, a sudden change in an employee’s behaviour or missing documents or records. Thorough checks and controls are central to identifying possible anomalies.

For example, an obvious reoccurring theme with fraudulent activity is the processing of false financial or other documentation and therefore producing an internal document highlighting some of the possible warning signs provides a relatively straightforward additional layer of protection.

One often sees fraudulent payments made to an account seemingly in the correct name, but on closer inspection historically the formatting of that name has previously been different (i.e. an initial for the forename instead of the full name or the surname has featured first). Whilst this is a very subtle difference to an untrained eye, it is not difficult to spot if working to a checklist alerting the employee to look out for such a change.

Employees’ help

It is common knowledge that an organisation’s eyes and ears are its employees and therefore ensuring that they are comfortable in reporting a suspected fraud may help to minimise any potential fall out.

A culture of transparency and clear communications, and making it known that everyone associated with the charity has a responsibility for being vigilant and keeping an eye out for any signs of fraud are important. As is a written procedure that deals with how to report suspected fraud confidentially. It should be borne in mind that an internal disclosure is likely to be less damaging than a report made to an external third party.

A question that often arises is the extent to which an accountant or auditor is expected to spot fraudulent activity. This is not always clear cut. Best practice guidance issued by the Financial Reporting Council (with reference to the International Standards on Auditing) records:

“The auditor of a charity is responsible for forming an opinion as to whether financial statements show a true and fair view and to this end the auditor plans, performs and evaluates the audit in order to have a reasonable expectation of detecting material misstatements in the financial statements arising from error or fraud.”

Ultimately however, it is the trustees of a charity who are responsible for the prevention and detection of fraud.

Effective response

Failure to react quickly and properly investigate a fraud can have potentially disastrous consequences, not least the possible destruction of crucial evidence necessary to pursue criminal or civil proceedings. A taiIored fraud response plan clearly setting out what steps should be taken when a suspected fraud is first identified (and subsequently) will assist greatly in ensuring a considered but efficient response should the worst occur.

A checklist of steps likely to be required within 24 hours of a fraud being detected is as follows:

  1. Contact the charity’s legal advisers and ensure that they are copied in to correspondence relating to the investigation to preserve legal professional privilege.
  2. Assemble an investigation team (a core team of people to work together to investigate and combat the fraud).
  3. Determine the charity’s objectives in conducting the investigation in order to develop a strategy for moving forward.
  4. Review how the potential fraud and related investigation could affect the charity’s public relations were details to be made public.
  5. Consider privacy and data protection issues.
  6. Secure evidence lawfully. Capture relevant data and preserve it.
  7. Ensure that the suspected fraudster is not aware that the potential fraud has been identified.
  8. Identify and interview witnesses ensuring detailed records are kept of each witness’s account.
  9. Keep under review whether it is necessary to notify the Charity Commission of, or update it on, the suspected fraud/investigation.
  10. Review any loss that has been suffered and any risk that this might increase.
  11. Follow and preserve the charity’s money/assets putting in place restrictions as required.

Next steps

Once a thorough investigation has been completed it will then be necessary to consider next steps including the legal options. It is possible that the police may need to be involved and steps taken in relation to a criminal prosecution or civil action pursued to recover funds.

Trustees have a general duty to act in the best interests of their charity. They have a duty to protect a charity’s assets and where necessary to recover assets belonging to the charity. The risks and consequences of any potential legal action, including the potential costs and time ramifications, should always be carefully considered in light of these duties.

The Charity Commission, in partnership with the Fraud Advisory Panel, has recently launched a fraud resilience survey with the aim of getting a better understanding both of charities’ resilience to fraud and their levels of cyber security. One awaits with interest the outcome of this survey but in the interim can only reiterate the importance of taking preventative steps now to seek to best protect your organisation.

Charities are built on foundations of public trust and confidence and every effort should be made to avoid the potential financial and reputational damage of falling victim to fraud.

Kingsley Napley’s Katherine Pymont – an anti-fraud policy is central to a charity’s ability to reduce the risk of fraud and can also act as a deterrent to potential fraudsters.;
"One often sees fraudulent payments made to an account seemingly in the correct name, but on closer inspection historically the formatting of that name has previously been different…"
"Ultimately…it is the trustees of a charity who are responsible for the prevention and detection of fraud."
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