As we move into Autumn it’s often the time of year where many charities have their AGM’s and say goodbye to long standing Trustees and welcome new Trustees onboard. Trustees are the lifeblood of the sector and having a diverse board with a mix of skills will add huge amounts of value to any organisation. Becoming a Trustee is a rewarding and enriching experience, and everyone has something to offer, however it’s important that as an individual you know what becoming a trustee means for you as an individual and what your responsibilities are.
Fortunately, there’s a lot of guidance out there, this article will summarise your key responsibilities, things to think about and flag post this guidance for you and provide access to BHP’s free Trustee training!
What are the legal responsibilities of Trustees?
Charity trustees have six basic legal duties:
- Ensuring a charity is carrying out its purposes for the public benefit
- Complying with the charity’s governing document and the law
- Acting in the charity’s best interests
- Managing the charity’s resources responsibly
- Acting with reasonable care and skill
- Ensuring the charity is accountable
The Charity Commission has issued guidance CC3 – The Essential Trustee: What you need to know, what you need to do, this lays out the detail behind each of these responsibilities and should be considered essential reading for all new Trustees, and good reference material to be shared as part of the new Trustee induction.
Understanding your personal liability
When you consider a Trusteeship, it is important that you understand the extent of any personal responsibility and liability.
CC3 lays out the charity law specific considerations and when a Trustee can be considered personally liable for a loss to the charity, very broadly these relate to acts of dishonesty on improper use of funds. Almost all Trustees act honestly and in good faith, however improper use of funds can be something that can happen quite inadvertently, issues such as spending funds outside the objects of the charity and unauthorised payments to Trustees are quite common. So do make sure you understand your objects and act within them, just because something is charitable in nature does not mean you can spend your funds on it, for example, a charity set up to care for dogs only must not spend money on looking after cats – that would be outside of the charitable objects.
Understanding the legal structure of the charity is also critical, the veil of incorporation provides significant protection to the Trustees. Without this, the Trustees are liable for the liabilities of the charity irrespective of the absence of any wrong doing. An unincorporated charity is not its own legal personality, and it is the Trustees who are entering into contractual arrangements rather than the charity and therefore remain liable for them.
Incorporated entities will be either charitable companies or Charitable Incorporated Organisations (CIOs), which have their own legal personality and can enter into contracts in the name of the charity. This means that a claim made by a third party would usually be made against the charity itself rather than its Trustees as long as they’ve complied with their legal duties as Trustees and Directors.
There is further guidance for Trustees about personal liability in the Charity Commission’s guidance CC49: Charities and Insurance and the Trustee Liability Guide.
Ensuring you manage your charity’s resources responsibly
Managing the financial resources of charity is a collective responsibility, often there is a Trustee/s with a financial background who take the lead as this is their skills area, however all trustees are equally responsible.
The Charity commission has a series of 5-minute guides for charity trustees – GOV.UK (www.gov.uk), which are generally extremely useful and accessible. The guide relating to finances lays out your financial responsibilities and how to protect your charity’s funds, ensuring spend is within the objects, that control and procedures are in place to minimise loss through theft, and that appropriate recordkeeping is in place.
Understanding the financial position for the charity is critical, you need visibility of quality financial information, you need to understand what funds you have and what you expect in and very importantly you need to have a budget. Working to budget will protect the charity and the financial position and enable you to take action when you see things are not going to plan.
Managing conflicts of interest
Again, the Charity Commissions 5-minute guides for charity trustees – GOV.UK (www.gov.uk) – give some really concise guidance in this area in the Conflicts of Interest Guide. This is a critical area and thematic reviews have highlighted that many key failures in the sector have stemmed from an unmanaged conflict.
Conflicts of interest could be financial (an actual or perceived beneficial interest in a transaction) or loyalty conflicts (a common relationship perhaps an employment or common Trusteeship/Directorship or involvement with a close family member). A Register of Interests should be completed by all new trustees and updated for changes and in full at least annually, and at each board meeting you should have an agenda item to declare any conflicts.
The Charity Commission lays out a 4-step plan to manage the risks associated with a conflict of interest.
How can BHP help?
Every year, we run our Trustee training programme, which comprises two webinars—one for newer Trustees or those considering Trusteeship and an advanced session for more experienced Trustees.
These sessions look at key legal and financial responsibilities and key topic issues and challenges to help trustees understand their responsibilities and manage the challenges they face.
Access to recordings of our 2024 Trustee training sessions can be found here.
