Trustee Benefits. 1. Expense payments

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1 Trustee Benefits 1. Expense payments Expenses shuld be reasnable in the cntext f a charity s assets and resurces, and prperly incurred in the furtherance f a charity s activities. They are generally always permitted as an expense f the charity and therefre d nt need an express authrity althugh almst all gverning dcuments will prvide fr expense payments. Examples given by the Charity Cmmissin include, travel t and frm trustee meetings and vernight accmmdatin pstage, telephne and bradband time fr charity wrk childcare r care f ther dependants while attending meetings Examples given by the Cmmissin that are nt cvered, allwances, particularly f a persnal nature cmpensatin fr lss f earnings 2. Payment fr Gds and Services This can invlve remuneratin which is cntractual, but is distinct frm remuneratin under a cntract f emplyment. It cvers any payment r benefit made even if it is a fair bargain. Examples given by the Cmmissin include, building wrk prviding specialist services, such as an agency r cnsultancy prviding premises r facilities fr ccasinal use administratin r secretarial wrk The starting pint is t review any pwer prvided in the charity's gverning dcument which may expressly authrise such a payment. Mst mdel dcuments and thse prduced r amended in the last tw decades cntain such pwers. Alternatively, trustees can use the statutry pwer cntained in s185 f the Charities Act This pwer is additinal t any pwer in a gverning dcument and is ften used where the latter is mre restrictive. Many gverning dcuments explicitly require Cmmissin cnsent t use an express pwer. Hwever charities are able t use the pwer withut needing t btain such cnsent, but nly t the extent permitted by the statutry pwer. Hwever the statutry pwer cannt be used if there is an express restrictin preventing any benefits t trustees (ther than a cnditinal requirement t btain cnsent). There are further cnditins n using the statutry pwer, bradly, 1

2 a written agreement setting ut the exact r maximum amunt t be paid trustee(s) cncerned must be in a minrity and may nt take part in decisins abut the agreement r the service t be prvided the payment must be reasnable and in the best interests f the charity the trustees need t cmply with a duty f care and have regard t the Cmmissin s guidance Fr charitable cmpanies and CIOs, the trustees cncerned will need t cmply with additinal duties under the Cmpanies and Charities Acts 2006 and 2011 respectively. 3. Emplying Trustees An express authrity is required in a gverning dcument t remunerate trustees under a cntract f emplyment. It is unlikely that a gverning dcument will prvide fr this. Otherwise, authrity will be required frm the Cmmissin. The charity needs t establish, a need fr the rle the trustee has the apprpriate knwledge and skills the payment terms are reasnable there has been a transparent selectin prcess invlving cnsultatin where necessary the trustee invlved has nt been invlved in the decisin t appint any cnflicts f interest have been dealt with The Cmmissin will deal with applicatins fr authrity n their risk based apprach and s in additin t demnstrating the abve, the charity will need t identify the risks invlved, quantify the harm and explain hw any harm has been mitigated. Authrity will be required where an ffer is made t a trustee even thugh the appintment subsequently takes place nce the trustee is n lnger a trustee, r where a trustee is invlved in devising r scping a rle in cntemplatin f emplyment fllwing an appintment as a trustee. 4. Other Benefits Benefits include direct and indirect benefits and thse capable f being measured. Sme financial benefits which are nt classed specifically as gds and services are nly permitted if they are expressly permitted by a gverning dcument. These include fr example interest n lans made t the Charity and rents received fr premises let t the Charity. Mst mdel dcuments include such prvisins. Other transactins invlving trustees may give rise t benefits. Sme will require Cmmissin cnsent in any event. Fr example, dispsals f charity land t a trustee require a Charity Cmmissin Order. Benefits received as a beneficiary f the Charity s activities are generally permitted as lng as trustees are treated the same as ther beneficiaries and d nt receive any preferential treatment. Hwever, sme mdel dcuments state that a majrity f trustees cannt benefit in their capacity as beneficiaries. 2

3 5. Paying Trustees fr being Trustees Generally there is n pwer in law t pay trustees fr their appintment as such unless there is an express prvisin in a charity s gverning dcument, r the payment has been authrised by a Curt r the Cmmissin. Unauthrised payments are likely t be a breach f trust which may require repayment by the trustee cncerned, as well as prvide the Cmmissin with grunds t establish miscnduct r mismanagement. The Cmmissin s apprach t apprving payments, Only when there is a clear and significant advantage t the charity that will utweigh any disadvantages. If we are asked t apprve a payment, we will nrmally nly d s where a charity s cmplexity f peratin has led t an unusually high burden f trusteeship. This will usually invlve a trustee exercising a higher degree f respnsibility and supervisin in a cmplex field f activity, perhaps because f the breadth and range f activities undertaken by the charity In reality, payments are rarely apprved unless there are exceptinal circumstances A pssible exceptin is making small usually hnrary payments fr service. The Cmmissin state that their general apprach is that charities d nt require their cnsent fr small payments up t 1,000 in any ne financial year, and in particular, similar ne ff payments. Hwever, any such payments need t be reasnable and prprtinate in the cntext f a charity s resurces. If they are nt, the Cmmissin may establish miscnduct r mismanagement. 6. Remving a Prhibitin Althugh Cmmissin cnsent is nt required t exercise a cnditinal pwer, a charity wishing t remve a prhibitin and authrise payments fr gds and services t the extent permitted by and in cmpliance with the statutry pwer can d s and in the prcess intrduce an apprpriately wrded pwer. As lng as there is a majrity r sufficient number f members r trustees wh are nt cnflicted, charitable cmpanies and CIOs are able t d this by passing a reslutin. If the cmpany r CIO wishes t remve a prhibitin t intrduce benefits and payments ver and abve thse authrised by statutry pwers, these will be regulated amendments and will require Cmmissin cnsent. Irrespective f the type f prhibitin being remved and/ r benefits being intrduced mst ther types f charity may require Cmmissin cnsent depending n the pwer f amendment in their trust dcument r cnstitutin. If there is n pwer f amendment the Cmmissin may have t authrise a Scheme. 7. Cnnected Persns The rules relating t benefits and payments t trustees apply t cnnected persns. These include, fr example, a spuse r partner, siblings, a brther- r sister-in-law, parents and a business partner. 3

4 Cnflicts f Interest Cnflicts f interest have increasingly becme a fcus fr attentin f charity trustees. Such cnflicts have always been an imprtant cnsideratin in the gvernance f a charity. Hwever, the public is nw mre attune t identifying cnflicts and the Charity Cmmissin is fcusing much mre attentin n this area. This is partly due t the fact the Cmmissin have identified that cnflicts f interest are a relevant factr in the majrity f investigatins they carry ut int charities encuntering difficulties. 1. Why shuld trustees be aware f this issue? Failure t handle cnflicts f interest crrectly can have serius implicatins fr trustees and the charities they run. Decisins made can be verturned; there may be reputatinal damage; r trustees culd be persnally liable t reimburse the charity. 2. What is a cnflict f interest? Trustees have a fundamental duty t make decisins nly in the best interests f a charity. A cnflict f interest arises when a trustee s persnal r ther interests r lyalties culd r culd be seen t prevent the trustee frm making a decisin in this way. A cnflict f lyalty is a particular type f cnflict f interest, in which a trustee s lyalty r duty t anther persn r rganisatin culd prevent the trustee frm making prper decisins. Interests can be financial r nn-financial and direct r indirect. An indirect benefit is ne which accrues t a clse member f the trustee s family, a business clleague r ther cnnectin. The Charity Cmmissin s view f what can be a cnflict f interest is wide-ranging and can be based n what we wuld cnsider t be miscnceptins. That said, identifying cnflicts can be quite difficult in certain situatins r they may nt be bvius. We will highlight sme examples f ptential cnflicts. 3. Charity Cmmissin guidance The Cmmissin have issued guidance in this area. apprach f identify, prevent, recrd. This is based n a three-prnged 4. Gverning dcument Any relevant prvisins in the charity s gverning dcument shuld be taken int accunt. 4

5 5. Legal restrictins There are restrictins n certain types f transactin cncerning trustees which need t be taken int accunt. Generally the Charity Cmmissin will need t be invlved in situatins where these restrictins are relevant. 6. Our recmmended apprach Every bard f trustees shuld cnsider having a cnflicts f interest plicy. The charity s size and cmplexity will be factrs which affect hw wide-ranging this plicy needs t be. We can assist with drafting a plicy which can cver the fllwing aspects. The matters mentined abve shuld be cvered i.e. definitin f cnflicts; requirement t bserve Charity Cmmissin guidance; requirements f gverning dcument; bservance f legal restrictins. As a minimum, at every meeting r when invlved in any decisin-making prcess, trustees shuld be required t declare any interests r lyalties which culd influence their decisin-making r nes which might be perceived t d s. Any such declaratins shuld be recrded in relevant minutes r ther frmal recrds f decisins. Every meeting agenda shuld include a relevant item. A further step is t maintain a cnflicts f interest register which shuld be updated n an nging basis. Trustees shuld ensure that they keep this up-t-date and cmplete a declaratin f interests frm when first appinted and each year subsequently. The register shuld be available at every meeting. An example f such a register is attached. The advantage f cmpleting such frms is that all ptential interests can be identified and then nly thse directly relevant need t be declared as regards specific decisins. Requirements cncerning disclsure f gifts and hspitality shuld be included. Declaratin f interests frms shuld be cnsidered befre a trustee s appintment is cnfirmed. One way f preventing cnflicts f interest affecting decisin-making is t ensure that trustees are nt appinted wh are perceived t have ptential cnflicts which may affect their ability t act nly in the charity s interests. Prcedures must be laid dwn as t hw cnflicts will be managed if they are declared. At a minimum, trustees must make decisins by majrity as t hw t manage a cnflict and the cnflicted trustee must nt vte r be cunted fr qurum in such a decisin. A risk-based apprach t managing cnflicts may be sensible. This will allw the trustees t assess what harm, if any, there may be t the decisin-making prcess and the cmmensurate level f management f the cnflict required. Any matter cncerning a persnal benefit t a trustee shuld be regarded as at the higher end f the risk scale. The different levels f management shuld be set ut. These can invlve: 5

6 At the highest risk level, nt pursuing a particular curse f actin, requiring a trustee t resign r deciding nt t appint a trustee; Requiring a trustee t withdraw frm a meeting; Allwing a trustee t remain in a meeting but nt participate in the relevant discussin; Allwing a trustee t participate but nt vte; Allwing a trustee t participate fully. All decisins made by the trustees abut cnflicts f interest must be minuted t include: the nature and extent f the cnflict and which trustees were invlved; the discussin that tk place; the actin taken t manage the cnflict; why the actin taken was in the best interests f the charity. Presenters Gerald Kidd Gerald is the managing partner f PWW and heads up the Charities and Private Client Teams. He specialises in advising charities and religius cmmunities n gvernance, cmmercial and general financial matters and private clients n Wills, tax and Trusts. gkidd@pwwslicitrs.c.uk Nadeem Azhar Nadeem is a partner in the Charities Team. He advises a brad range f charities and private clients n cmmercial, cnstitutinal and gvernance matters including taxatin, with a fcus n charity clients. He has experience f advising charitable investment funds and pensin schemes. nazhar@pwwslicitrs.c.uk 6