18 February 2016

Charity Commission comments on unauthorised trustee benefits


Alison Paines
Partner | UK

The Charity Commission has published its case report on the charity Nice Time which provides recreational facilities to advance the physical education of children and young people. Two of the trustees were benefiting from payments made by the charity's subsidiary. One trustee was paid to serve as the managing director of the subsidiary and the other, a qualified accountant, had received payments for financial assistance provided to the charity by his accountancy practice. 

Unauthorised personal benefits are a serious cause for concern and trustees who act improperly may have to repay the funds to the charity. The Charity Commission found that the payments were unauthorised as the charity's governing document prohibited trustee benefits and the trustees had not sought permission to make the payment from the Charity Commission or the courts. However, the Charity Commission also recognised that the charity had acted swiftly by ceasing the payments, appointing independent trustees and by the trustee acting as managing director stepping down from his roles as both trustee and managing director.  

The Charity Commission advised the newly appointed trustees of the charity to:

1. Formally review the payments to decide whether they were made in good faith and in the best interests of the charity; and
2. Amend the charity's governing document to allow trustees to be paid for goods and services.   

The independent trustees concluded that the payments were reasonable, necessary for the charity to operate and had been made in good faith. They also concluded that the funds had not been misused and, therefore, that it was not necessary for the funds to be recovered. The Charity Commission found that the independent trustees had gone through a proper decision making process and supported their findings. 

Ultimately, when deciding whether to pay or employ a trustee, it is important to:   

1. Make sure you have the necessary authority to do so;
2. Recognise that payments to trustees, even when authorised, create a conflict of interest which should be handled appropriately; and
3. Ensure that it can be demonstrated that the payment is clearly in the best interest of the charity.  

Category: Article

Client types: Charities and non-profit