CONFLICTS OF INTEREST RELATED PARTIES RELATED PARTY TRANSACTIONS

Transcription

1 CONFLICTS OF INTEREST RELATED PARTIES RELATED PARTY TRANSACTIONS

2 The problem Charity Trustees naturally bring with them to their position connections which can be of benefit to the charity Can lead to conflicts of interest or loyalty

3 Why is this an issue? Trustees have a legal duty to act only in the best interest of the charity Decisions not being made in the Charity s best interest Reputational damage Can be invalid or open to challenge Conflicts of interest are not a problem providing they are correctly and transparently addressed

4 Why is this an issue? Charity Commission see many cases of charities getting into difficulty because conflicts of interest were not addressed or were handled incorrectly Important to have in place robust systems

5 Who does this apply to? Trustees Senior management Someone able to engage charity in significant financial transactions

6 Three step process IDENTIFY PREVENT RECORD

7 IDENTIFY A conflict of interest is any situation in which a trustee s personal interests or loyalties could, or could be seen to, prevent the trustee from making a decision only in the best interests of the charity. There is a conflict of interest where there is a proposed transaction between the charity and a connected person of a trustee or senior person in the organisation. Similarly, there is a conflict of interest where there is a benefit or a potential benefit to a connected person

8 PREVENT Remove conflict of interest by not pursuing that action, undertaking it differently, not appointing trustee/trustee resignation Conflict of loyalty e.g. potential new trustee who is a trustee or is connected with another organisation operating in the same field / competing for funds etc.

9 PREVENT Follow law/governing document in respect of managing conflict In absence of governing document/legal provisions: require conflicted trustees to declare their interest at an early stage and, in most cases, withdraw from relevant meetings, discussions, decision making and votes consider updating their governing document to include provisions for dealing with conflicts of interest

10 PREVENT Exceptionally, need to seek the authority of the Commission where the conflict of interest is so acute or extensive that following these options will not allow the trustees to demonstrate that they have acted in the best interests of the charity

11 PREVENT Conflicts of interest often arise because a decision involves a potential trustee benefit. Trustee benefit must be properly authorised and the trustees must follow any conditions attached to the authority which say how the conflict of interest should be handled (legal requirements)

12 RECORD Trustees should formally record any conflicts of interest and how they were handled and must, if they prepare accruals accounts, disclose any trustee benefits in the charity s accounts

13 Examples of benefits to trustees Sell, loan or lease charity assets to a charity trustee acquire, borrow or lease assets from a trustee for the charity Pay a trustee for carrying out their trustee role Pay a trustee for carrying out a separate paid post within the charity, even if that trustee has recently resigned as a trustee Pay a trustee for carrying out a separate paid post as a director or employee of the charity s subsidiary trading company Pay a trustee, or a person or company closely connected to a trustee, for providing a service to the charity. This covers anything that would be regarded as a service and includes legal, accountancy or consultancy services through to painting or decorating the charity s premises, or any other maintenance work employ a trustee s spouse or other close relative at the charity (or at the charity s subsidiary trading company) Make a grant to a service user trustee, or a service user who is a close relative of a trustee Allow a service user trustee to influence service provision to their exclusive advantage

14 Good practice Include provisions in governing document to deal with conflicts of interest Conflicts of interest policy and register of interests Ensuring that meetings include an item to declare potential conflicts at the start and have it minuted Transparency public availability of register Pre-appointment issue for new trustees

15 RELATED PARTY TRANSACTION A related party transaction is a financial transaction between the related party and the charity. A related party transaction involves the transfer of assets or liabilities or the performance of services by, to or for a related party As auditors we have a duty to undertake work to identify such transactions

16 Donations from trustees Trustees may also give to the charity. Donations which are unrestricted do not have to be separately disclosed. However, if the trustee specified how the funds had to be used, then this may be exerting significant influence and so restricted donations by trustees do have to be disclosed.

17 Charity Commission Guidance /conflicts-of-interest-a-guide-for-charitytrustees-cc29/conflicts-of-interest-a-guide-forcharity-trustees

18 The Charity Commission's new regulatory approach - are you informed? Steve Law Head of Investigations Team Charity Commission for England and Wales Charity seminar HW Fisher & Company 11 November 2014

19 The Charity Commission The independent regulator of charities in England and Wales Five statutory objectives (s14 CA 2011) The compliance objective promoting compliance by charity trustees with their legal obligations Commission s functions (s15 (1)(3) CA 2011) Identifying and investigating apparent misconduct or mismanagement in the administration of charities taking remedial or protective action

20 Facts about charity 164,000 registered charities 4,968 new registrations in million regular volunteers 1m charity trustees 940,000 charity workers > 64bn annual income of registered charities 106bn long term investments held by charities

21 Scale of charitable sector

22 Upholding public trust in charity Commission s work to uphold public trust our strategic approach how we are improving already plans for the months ahead Charities role in promoting public trust what the public expects of you what we expect of you

23 Context for charity regulation Changing public expectations of charity Demands for greater accountability Evidence of public giving charities less benefit of doubt Media focus on charities (e.g. pay, investments) Increased external scrutiny of Commission National Audit Office review of Commission s work Public Accounts Committee hearings Debates in Parliament Significant cuts to Commission funding CC budget m CC budget m = c. 50% real terms cut since 2007 New 8m funding To invest in technology and frontline operations

24 Our new strategic approach One of our most important statutory objectives is to increase public trust and confidence in charities. by concentrating on promoting compliance by charity trustees with their legal obligations, by enhancing the rigour with which we hold charities accountable, and by ensuring that we uphold the definition of charity under charity law (Statement of regulatory approach, Commission s Annual report and accounts 2013/2014)

25 Robust regulation in action 64 charities placed under inquiry (15 in ) 540 use of legal powers in investigative work (216 in ) Regulatory alerts e.g. recent alert on reporting serious incidents.

26 More proactive approach Operations / registrations New operations monitoring team 318 referrals, including 89 from registrations (between October 2013 & April 2014) Accounts monitoring Casework related and themed accounts reviews 1,664 sets of accounts reviewed Smarter, more focused guidance Clearer focus on expectations of trustees E.g. new Conflicts of Interest guidance

27 Greater transparency Greater openness about statutory inquiries announcing inquiries when its in the public interest marking open inquiries against charities online entry Reports of operational cases New online charity search tool more information about charities easier to access from mobile devices

28 What we need to do now Risk Better use of data Targeting work where it makes greatest impact Supporting increasingly proactive approach to case work Digitisation Digitising front-end services Streamlining low risk customer-facing services = recognising charities are our customers Structure Recruiting 5-strong senior management team Skills and talent management agenda

29 Over to you What can you do to promote public trust in charity?

30 Show integrity Have trustees: acted within their powers? acted in good faith and only in interests of charity? adequately informed themselves? taken into account all relevant factors, disregarded irrelevant factors? managed conflicts of interest? made decisions within range of decisions that reasonable trustee body would make?

31 Be accountable It is important that charities provide the public with information about how they spend their money

32 How accountable are charities? 86% charities filed annual returns on time 86% charities filed annual accounts on time 99% of sector income accounted for = over all compliance is high but: 58 charities have been subject to double defaulters class inquiry 47m of charitable funds now accounted for

33 Report serious incidents 1,280 serious incidents reported in > 580 reports so far this year = huge underreporting by charities Serious incidents include: fraud, theft, significant loss abuse of beneficiaries financial links to banned group Investigation by another regulator = actual or suspected

34 Final thought Charities play an essential and important role in society

35 Mismanagement in the Administration of a Charity Practical Examples of when an Interim Manager had been appointed and the actions that might be taken BRIAN JOHNSON

36 Mismanagement in the Administration of a Charity Busy people with good intentions and good causes Rapid growth and the need for time and skills resource Resource deficiency leading to shortcuts Leading to: governance failings; risk management short-comings; Late filing of statutory documents; and Value for money reduction. 36

37 Mismanagement in the Administration of a Charity Practical examples of governance failings charity acting outside of its constitution; proper meetings not being held; conflicts of interests; Trading subsidiaries acting reasonably; trustee remuneration; and Statutory documents not being filed on time. 37

38 Mismanagement in the Administration of a Charity Practical examples of risk management failings Entering into agreements without professional advice; Failing to keep a risk register; Controls, cash and fraud; Brand management; Trading and losses; Ensuring proper security is in place; Restricted funds; Insuring activities properly; and Ensuring the charity is meeting its objects. 38

39 Mismanagement in the Administration of a Charity Examples of when value for monetary considerations have been neglected: Not tendering properly; Not reviewing on-going contracts; Tax and corporate structures; Effective advertising and brand maintenance; All costs incurred are in pursuance of the charity s objects; and Capital expenditure and infrastructure programs are kept under control. 39

40 Mismanagement in the Administration of a Charity Professional advice; Auditors; Corporate structures and SPVs; Tax; Legal support; Employment; Health & Safety; Environment; Contractual and fundraising; and Charity Commission guidance 40

41 Mismanagement in the Administration of a Charity 41