28 November 2014

Charity Commission compliance case: founder benefit and conflicts of interest

The Charity Commission recently reported on an Operational Compliance case into the alleged conflicts of interest and private benefits relating to the estate agency business of the founder of House the Homeless.

House the Homeless is an unregistered charity with objects to relieve poverty by helping people who are homeless or are likely to become homeless.

The Commission received a complaint in March 2014 highlighting concern, reflected in the local press, that the activities of the organisation benefitted its founder's estate agency business.

In 2010 the Commission had turned down the organisation's application to register as a charity, but following amendments to its objects, HMRC had accepted it as an unregistered charity in 2012. The Commission therefore not only wished to consider the allegations of unmanaged conflicts of interest but also whether the organisation's objects were now charitable.

The Commission requested minutes of trustee meetings and information regarding management of conflicts of interest and links between the organisation and the estate agency. The Commission then met with the trustees in September 2014. It found that the organisation:

  • is now set up for exclusively charitable purposes for the public benefit, but its income falls below the £5,000 registration threshold;
  • shared premises, personnel, a phone line and service charge costs with the estate agency, although the agency did not charge it rent;
  • listed its founder as ‘co-ordinator' on its website and as ‘Authorised Official' for HMRC purposes even though the founder had now stepped down;
  • had trustees with little experience of running a charity and who had not appreciated the conflicts of interest or the risks in operating the charity as an unincorporated association.

These issues were addressed through the charity working with the Commission.

The important points for other charities arising from this case are:

  • even trustees of smaller charities must balance their focus on beneficiaries with focus on governance and reputation;
  • trustees should not leave all charity business to one individual and should have the charity's interests as their primary concern;
  • the public should be aware that establishing and running a charity is a significant commitment;
  • the Commission has produced guidance on setting up a charity, conflicts of interest, decision making and on the duties of a charity trustee.

Category: Article