A warning to all local authorities.
The Charity Commission has issued an official warning to Calderdale Metropolitan Borough Council. This level of action against a local authority is a first for the Charity Commission. Calderdale is a trustee of 13 charities for which it had failed to file annual returns and accounts. The Commission deemed this, along with failing to comply with an action plan issued by the Commission in 2023, as misconduct and/or mismanagement.
In the warning, Calderdale were notified of the actions it now needs to take to rectify a number of governance shortfalls; this included filing all outstanding accounts for the charities, ensuring compliance with financial responsibilities in future, and holding trustee meetings for each of the charities to make sure all parties are informed of their duties. Further details of the Charity Commission's initial findings can be found here.
Whilst the Commission has identified a number of instances in which the responsibilities of local authorities have become conflated where they have simultaneously acted as charity trustees, this level of action is a first but should act as a warning to all local authorities who find themselves in such role.
Indeed, in response to the increasing number of complaints, an open letter to all local authorities in England and Wales has been issued by the regulator warning them to comply with their duties, especially in relation to charitable property. The letter can be found here.
Many local authorities are not aware when they are dealing with charitable property and assets and so do not carry out the proper procedures when dealing, disposing or changing the use of the assets. The problem has only worsened with the budgetary problems reported by many local authorities where they may be looking to dispose of some assets. The letter, by Chief Executive; David Holdsworth, sets out some actions that local authorities can take to support compliance with their trustee duties:
- Review the assets that are held or managed by the local authority and understand whether they are charitable;
- Make clear on any records which assets are property of the charity; and
- Understand the trustee duties and responsibilities and any restrictions there may be on dealing with charity assets.
New and updated guidance for local authorities and councils can be found here which has been produced by the Charity Commission, in association with the Local Government Association. Below we highlight some of the key steps which can be taken to ensure compliance with charity trustees' responsibilities:
- Making decisions – Local authorities, acting as charity trustees, must be mindful of the breadth of their responsibilities in relation to the management of charities.
- Record keeping - They must ensure accurate records are kept in relation to decisions about the general operation of the charity, grants, disposals of charity property and fundraising, changes in appointments to trusteeships and ensuring all annual accounts and returns are filed properly and on time.
- Managing conflicts of interest – This is an area of high risk due to potential overlap of functions between charities and local authorities. Local authorities should be mindful of the interface between these roles and the extent to which they may act in the best interests of the charity. Local authorities should keep this consideration under constant review, and act appropriately in every decision made by the charity. A suitable conflict of interest policy is essential for such charities.
- Managing and disposing of charity land – As well as considering whether the local authority is interested in such a transaction, such as in a sale or lease of facilities to a local authority, trustees must be mindful of the additional duties imposed when considering transactions involving land. These may be contained in the charity's governing document or may be imposed by charity law.
- Replacing the local authority as a trustee – Local authorities may decide they no longer wish to act as a charity trustee for a number of reasons. Where this is the case, the local authority must ensure their retirement is permitted by the governing document and take appropriate advice and steps where it is not.
- Trustee training – consider whether this would be beneficial for any councillors who are appointed as charity trustees under the terms of a charity's governing document as representatives of the local authority, particularly if they are unfamiliar with the charity law framework or the role and responsibility of being a charity trustee.
Further guidance from the Commission for councillors, including a number of useful case studies designed to illustrate some of the key pitfalls of local authorities acting as charity trustees, can also be found here. The Charity Commission has warned of "significant administrative headaches" for local authorities if they do not comply with their trustee duties, so we urge all local authorities and councils to read the guidance provided and take appropriate advice where necessary.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
