When a charity trustee breaks the rules
Naomi Campbell has recently hit the headlines after she was banned from being a charity trustee following claims that her own charity, Fashion for Relief, was not upholding its fundraising promises, and its trustees were spending funds on luxury hotels, spa treatments and more. The discovery was made after concerns were raised to the Charity Commission by Unicef UK, which rejected claims that it had ever partnered with the charity and had not received funds reportedly raised on its behalf from an event in 2019.
When it comes to charity management, the role of a trustee can be misunderstood, but what can charity leaders do when a trustee breaks the trust – and how can they prevent it?
It can be said that a charity’s trustees are its ultimate volunteers, as, once they have taken up their official role, they become jointly responsible for everything their particular charity does. This includes all legal and financial responsibilities, from how the charity is run to how its all-important funds are spent, its assets managed and how this is all reported. This position of responsibility is one that, if done well, often fades into the background as the charity goes about its vital work. However, if managed poorly, the trustees are often the first in the firing line.
Examine motivations
This means it’s vital for those considering becoming a charity trustee to really examine their motivations for doing so, as the role requires vigilance and teamwork to get things right. For example, trustees should be aware of what their counterparts are doing at all times, and alarm bells should ring if another trustee begins to get more involved than the rest of the group. Whilst there may be no bad intent involved, the trustees’ position is one that works best as an informed group which collaborates in order to make decisions that are in the best interest of the charity.
When it comes to charities bringing famous trustees onboard, there are a host of benefits, from utilising their profile to raise awareness of the charitable cause to an uplift in donations. In the case of Fashion for Relief, Campbell did what many celebrities have done before her and set up a charity using her own funds to make a difference. However, it is important to understand that no matter the source, the moment any money hits a charity’s bank account it ceases to belong to an individual and is subject to a level of scrutiny that would not apply to personal finances.
Thus it should be clear that all potential and current trustees must ensure they are aware of all obligations regarding a charity’s finances, understand what is expected of them and ensure that any spending is treated accordingly. A wealthy individual cannot set up a charity for use as a nest egg or an excuse for frivolous spending, as this will quickly come to the attention of the Charity Commission, which has regulatory powers to ensure that funds are being used appropriately.
Whilst investigations can take some time to complete, should the Commission decide that the charity’s resources were not being applied appropriately, the charity could ultimately be shut down.
Potential consequences
This demonstrates the importance of ensuring trustees fully understand the role that they are taking on and the potential consequences for the charity and its beneficiaries should they fail in their duty and misapply funds. These conversations should happen early in the process, ideally before a new trustee is appointed to what is often a very busy and demanding role.
In rare cases, trustees have been known to conduct fraudulent or criminal behaviour, for which the legal consequences can be severe, including fines and even jail time. However, more common is what is known as “misadministration”. This means that the trustees did not discharge their duties correctly and can have various negative outcomes including damage to both the charity’s reputation and the personal reputation of the trustee.
In a sector where reputation and integrity mean everything, it can be extremely hard for a charity to recover from negativity, meaning that it may be unable to continue. This not only impacts its internal staff as they seek new employment, but also has a severe impact on the people and initiatives which it was set up to serve.
This ripple effect demonstrates the importance of the role of a trustee, and the accountability that comes with such a privileged position within a charity. Whilst trustees are not directly accountable to other members of the charity, other than the other trustees, concerns can be raised by others and brought to the Charity Commission. In the case of Fashion for Relief, the concerns were raised by another charitable organisation; however, anyone can report a concern, including the charity’s beneficiaries or other staff or members of the charity.
Intervention powers
As the regulator of charities in England and Wales, the Charity Commission has powers to intervene in cases where inappropriate spending is suspected or discovered, often putting the affected charity on an improvement plan to fix the issues. However, where things go seriously wrong, the charity may end up closing. In these instances, the Charity Commission has powers to make a restitution order to recover the funds, but whether action is taken will vary on a case by case basis.
For example, should fraudulent activity or theft be discovered, this would be a criminal matter, or if the charity itself was set up as a shield for unauthorised spending, this is known as a breach of trust and the trustee can be personally liable to pay back the funds.
It is up to the Charity Commission to direct this activity, taking into account the actions of the trustees as well as the reasoning behind any inappropriate spending – for example, the trustees may have received poor or inaccurate advice. Where grant funding has been spent inappropriately, the grant organisation can seek “clawback” from the charity due to a breach in contractual terms as a result of the trustees misapplying the funds given away from their intended purpose.
With the potential impact of wrongdoing, whether intentional or not, so severe, how can potential trustees and charities mitigate the risk of funds being spent in the wrong places? For trustees, seeking advice at the earliest stage will provide a greater understanding of the role expectations.
Bad advice can have lasting consequences, so it is vital to ensure that this is taken from an independent third party or other appropriate channel. It is also important for a trustee to ensure that they are taking on the position for the right reasons: to benefit those whom the charity serves. Clear direction from the outset will make it easier to make decisions on what is an appropriate way to spend funds and what is not.
Trustee training
Charity leaders can also help to ensure their trustees are operating in the best possible way by implementing trustee training for new team members, or annual refresher courses to reinforce the mission of the charity and ensure it continues to shine a light on the people and causes it has been set up to serve.
When committing to become a trustee, individuals should be aware of the weight of responsibility that will rest on their shoulders. Such a role should not be sought for personal PR, and in a highly regulated sector, trustees should endeavour to work for the collective good rather than their own benefit.
