Charity Commission reminds trustees their obligation of due diligence includes grant making

Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInEmail this to someone

The recent case of CAGE which describes itself as an advocacy group in receipt of grants from charities though not a charity in itself has prompted the involvement of the Charity Commission in these cases of those charities which did fund CAGE.

What is CAGE?
According to its website, CAGE is described as ‘an independent organisation working to empower communities impacted by the War on Terror’. Its work has focused on working with survivors of abuse and mistreatment across the globe. However, recently its director Asim Qureshi sparked debate when he described Mohammed Emwazi (reported to be an Islamic State militant) as “extremely kind and gentle” and suggested that his radicalisation may have been caused by the security services.

The role of the Charity Commission
Since 2013, the Charity Commission has been involved in this matter due to the fact that two British charities, the Joseph Rowntree Charitable Trust (JRCT) and The Roddick Foundation (RF) have funded CAGE. Both charities have confirmed to the Charity Commission that between the periods 2007 – 2009 they made award grants to CAGE totalling over £400,000.

In response to statements made by CAGE officials, which raised concerns about the use of funds to support their activities, the Charities Commission sought unequivocal assurances from both charities that they have ceased supporting CAGE and that no future funding would be provided. The Charities Commission is due to publish a report on the outcome of these two cases, which could be especially useful for other charities funding non-charitable bodies.

Response of charities involved
The RF responded as required stating that no support had been provided since 2012 and provided assurance that no future grants would be provided. JRCT also confirmed that no further payments would be made under the 2011 grant, although initially it did not provide the unequivocal assurance the Charities Commission was seeking.

In a statement issued on 6th March 2015 JRCT pointed out that ‘the Trust does not necessarily agree with every action of those that it funds’ and in relation to CAGE they had cooperated with the Charities Commission continuously. With regard to the unequivocal assurances sought, it said ‘in light of regulatory pressure, and to protect the interests of all…grantees and the other work of the trust…we confirm that we will not fund CAGE now or in the future’.

Due diligence obligations
In response to the events that unfolded with CAGE, the Charity Commission also issued a regulatory alert reminding every charity to exercise greater vigilance when considering funding non-charitable bodies, ensuring that funding is used only for those activities that further the charity objectives and minimising risks whether reputational or otherwise that impact on public trust and confidence.

Through this regulatory alert the Charity Commission deals with a number of important issues including:
• Inappropriate funding giving rise to regulatory concerns,
• Trustees’ legal duties and responsibilities and
• Wider issues trustees should be aware of.

Inappropriate funding giving rise to regulatory concerns
While the Charity Commission recognises that funding non-charitable bodies can be an effective way to further a charity’s purpose it does specify that ‘charities must only fund activities that further charitable purposes’ and trustees are under an obligation to protect their charity’s assets and reputation.

In the event that trustees fail to apply funds in accordance with the charity’s purpose and in their duties gives rise to regulatory concerns, which requires the Commission to get involved. Some of the scenarios that would give rise to serious regulatory concerns include:

• A charity funds activities that are not charitable nor capable of furthering the charity’s purposes;
• Trustees do not perform due diligence or ring fence grants in the hands of recipients, or have not taken adequate steps to protect the charity’s position and ensure proper use of funds;
• Trustees risk charity’s reputation through grant making where they have not fulfilled legal duties;
• Trustees fail to monitor the use of funds.

Trustees’ legal duties and responsibilities
The Charities Commission expects trustees to:
• Follow the Commission’s guidance on decision making including;
– Acting in good faith;
– Being adequately informed;
– Taking into account all relevant factors and disregarding those that are irrelevant;
– Seeking professional advice where relevant;
– Ensuring that responses are within the range of reasonable responses a body would make.
• Assess whether the grant poses reputational risk to the charity;
• Conduct due diligence on the recipient;
• Set proportionate terms and conditions to restrict use of funds (i.e. ring fencing);
• Take reasonable and appropriate steps to monitor use of funds;
• Seek repayment of funds if not used in accordance with the terms and conditions set.

Trustees’ wider awareness
In addition the Charity Commission points out that certain charitable purpose can be difficult to interpret. It particularly draws attention to community development and human rights and when working in these areas it calls for trustees to assure themselves that the grant will be used only for the activities that further the funding charity’s purposes. Similarly, certain activities such as political campaigning are only permissible within certain boundaries and in this regard, the Commission points out those charities must follow its guidance on campaigning and political activity.

Striking a proportionate balance?
The forthcoming report by the Charity Commission will undoubtedly provide further insight into these particular cases and offer further guidance to charities on these issues. At the same time, this is an issue that has generated a lot of debate including whether the response of requesting unequivocal assurances is a proportionate one. Recently a letter was sent to the editor of the Times Newspaper calling for the right of charities and foundations to freely pursue their objectives within the law. In expressing their support for the JRCT, it argued that the charity has a long and distinguished record of support for civil society work, which may have been risky or controversial but it has always acted with integrity. It contains more than 200 signatures from prominent public figures including trustees of non-governmental organisations, academics and legal professionals among others.

The Commission is not saying charities should never fund the activities of non-charitable bodies. There are simple steps charities can take to manage their funding activities including due diligence and the use of the appropriate funding terms. Funding from a charity does not have to be an outright gift with which the recipient can do whatever it chooses. Charities familiar with bidding for public sector or other charitable funding will know it comes with strings attached and there is no reason that charities making payments cannot adopt the same approach.

For advice and assistance with making funding payments or other aspects of charity governance contact Daniel Milnes.

Nat Avdiu

About Nat Avdiu

Nat Avdiu is a Paralegal in the Contracts and Projects team at Forbes Solicitors. Nat provides updates for clients on a range of issues including: governance, data protection and freedom of information, procurement and charity law.
This entry was posted in Corporate & Restructuring and tagged , , , , , , , .

Leave a Reply

Your email address will not be published. Required fields are marked *