Trustee Conflicts of Interest
The Charity Commission has recently published a decision in relation to an inquiry into Combined Funds Limited.
The inquiry was opened as it transpired that the charity had given loans to four of its trading subsidiaries and The Charity Commission also had concerns around the financial management of the charity and it how managed conflicts of interests and conflicts of loyalty. The Combined Funds Limited was a grant making charity which made grants to other charities and individuals in order to advance the Orthodox Jewish Faith and relief of poverty.
The Charity Commission, in its findings, stated that "the inquiry was informed by the original trustees that the loans were to replace higher interest mortgages, which would allow the subsidiaries to have more money available to the charity". The Charity Commission did not find a misappropriation of funds or any loss to the charity and the charity did have a written investments policy and the loans were repaid to the charity.
The more significant issue in the inquiry was that conflicts of interests and conflicts of loyalty were not adequately managed.
In order to manage trustee conflicts of interests, they should be declared and any interested trustee should not take part in the decision making process and leave the room (or the online meeting in more recent circumstances) before the decision is taken. It is important that trustees are able to take decisions that are quorate and are free from any conflicts and The Charity Commission found in this case that there was misconduct and mismanagement in the administration of the charity.
Furthermore, the inquiry found that the trustees did not have adequate grant making policies, methods for assessing grant applications or any mechanism for completing minimal checks for organisations where grants would be awarded.
This is a lesson for all trustees to consider, however, in the context of a grant making charity, it is important that these charities have appropriate policies and procedures in place for managing conflicts of interests and conflicts of loyalties. This would include having appropriate governance documents in place. Governance documents may include grant making policies, conflicts of interest policies and registers of risks and interests as an absolute minimum. These documents would give the charity trustees a framework to follow and ensure that they are complying with their trustee duties and remind trustees that they have a duty to act in the best interests of the charity.
Furthermore, trustees should take account of Charity Commission guidance in relation to conflicts of interest (CC29) and failure to act properly where there is a conflict of interest will breach any trustee's legal duties.
A full report of the inquiry is available at https://www.gov.uk/government/publications/charity-inquiry-combined-funds-limited/charity-inquiry-combined-funds-limited.
If any charity trustees feel they need advice in relation to managing conflicts of interests, please feel free to get in touch.
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.