The Class Inquiry of Double Defaulter Charities

The Charity Commission (“the Commission”) opened a statutory class inquiry to investigate concerns that some charities were not fulfilling their legal obligations by failing to file their annual documents for 2 or more years in the last 5 years.

Following these investigations, the charities were faced with final warnings to comply by a specific date, and if they persisted in their non-compliance they would become part of the inquiry. The Commission initially focused on issuing final warnings to charities with a last known income over £500,000, those with an income of over £250,000, and then those with an income of between £200,000 and £249,000.

One charity that the Commission focused its inquiry on was the Rossington Miners’ Welfare Scheme (“the charity”). Its charitable objects include “the provision of a recreation ground and welfare institute for the benefit of the inhabitants (and in particular, but not exclusively, such of the said inhabitants as are members of the mining community) of the area of benefit without distinction of political, religious or other opinions with the object of improving the conditions of life.”

The charity was under investigation because it failed to submit its annual accounts, reports and annual returns to the Commission for the financial years ending 31 March 2013 and 2014. Despite numerous reminders being sent to the charity, they still defaulted in their statutory obligations under the Charities Act 2011.

The trustees explained the reason for the delay leading to non-compliance was due to their engagement with the liquidation of a local welfare learning centre and the transfer of assets of a nursery in connection with the charity. This explanation was evidently deemed to be unsatisfactory by the Commission who concentrated their inquiry on the trustees’ mismanagement and misconduct and alleviating the consequential legal damage caused by their non-compliance.

When the charity’s outstanding documents were submitted, their accounts were subjected to intense scrutiny by the Commission’s accountants. The charity managed to release itself from the inquiry on 13 January 2016 when it ceased being in default of its legal obligations by submitting its final missing documents.

As the Commission points the wider issues for the sector include that it is a criminal offence to turn a blind eye and not submit accounts and other relevant documents to the Commission. Such failure may also constitutes administrative mismanagement and misconduct as it prevents transparency.

This latest decision emphasises the importance for trustees of charities with an income of over £25,000 to comply with their legal duties to submit annual returns, annual reports and accounting documents to the Commission. Even if the charity’s annual income is not more than £25,000 trustees are still expected to submit annual accounts and reports.

Provided that charities maintain transparency in their financial governance they will succeed in fulfilling their legal obligations. Charities must always bear in mind that they are accountable to their donors, beneficiaries and the public, and if this duty is abandoned it carries the risk of losing public trust and support of the charity. The legal obligation to file financial information is applicable to a range of charities and of all sizes as the Commission’s investigation highlights including housing associations that are registered charities.

Forbes Solicitors regularly advise a range of charities with a range of queries including housing associations. If you have any questions on charity law and practice, please 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.
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