Protecting Your Charity From Harm: Would Your Board Recognise The Warning Signs?

How confident are you that your board would spot the warning signs that something was not right? How confident are you that concerns being raised elsewhere in your charity would reach the board? And, if something did not look right, would you know what to do next? Two statutory inquiries announced by the Charity Commission within days of each other provide a timely reason for trustees to consider those questions.

The first is a class inquiry concerning charities alleged to have applied funds or resources in connection with illegal Israeli settlements in Palestine. The Commission is examining what charitable resources may have been used for and whether their application was in furtherance of the charities' stated charitable purposes.

The second concerns Al-Khair Foundation, following serious allegations relating to Hamas. Here, the Commission is examining issues including due diligence on international partners, monitoring the end use of funds and whether appropriate policies and procedures were in place to protect charitable funds from misuse.

Both inquiries are at an early stage and no conclusions should be drawn from their commencement. But the questions the Commission is asking reach far beyond the particular charities concerned and provide a timely opportunity for every trustee board to consider the resilience of its own governance. For many trustees, the circumstances behind these inquiries may seem a world away from their own charity. They may not operate internationally, work in conflict-affected areas or have any obvious exposure to geopolitical, terrorism or extremism-related risks. But this risks missing the wider governance lesson.

The particular threat will differ from charity to charity. It might involve an overseas partner or the movement of funds internationally. But it could equally involve someone seeking to use a charity's premises, events, intellectual property, funding, communications, reputation or relationships for purposes which do not properly further the charity's own.

The important question for every board is therefore not whether the particular circumstances now being investigated could arise within their charity. It is whether their governance arrangements are capable of recognising when the charity's money, assets, activities or reputation may be being used in ways which do not further its charitable purposes and whether the trustees would know how to respond.

Policies are only part of the answer

The Charity Commission has long provided guidance to help trustees protect charities from harm and abuse, including terrorism, due diligence, monitoring the end use of funds, moving money safely, and extremist abuse.

But having a policy is not the same as being able to recognise when something is wrong. Would somebody recognise an unfamiliar warning sign? Would apparently separate pieces of information be joined together? Could assurances from a trusted partner or senior individual be tested? And would uncomfortable questions be asked?

Trustees should understand their charity as it operates today, where its money goes, how its activities are delivered, who it works with and who may use its facilities, name or reputation.

Due diligence should also be more than documents retained on file. Where money or goods are transferred, can their end use be established? Where another organisation delivers activities on the charity's behalf, do you understand who controls it and how it operates? Where somebody uses the charity's name, logo, premises or platform, have the associated risks been considered?

Effective governance requires continuing curiosity. Trustees should be prepared to ask not simply, "Have the checks been completed?" but “What do those checks actually tell us and is there anything here that does not make sense?

Would concerns reach your board?

What happens when an employee, volunteer, trustee or professional adviser notices something that does not appear right? Would that information reach the board? Can senior or influential individuals be challenged? Could a payment or activity be paused while concerns are examined? And would those responsible know when independent advice, a serious incident report or engagement with the Charity Commission, law enforcement or another regulator should be considered? Good governance therefore depends on culture as well as controls.

Could your board justify what it did and why?

If a serious concern were to emerge within your charity, would your board be able to answer five relatively simple questions and be confident in the answers?

1. What did we know?
2. What did we check?
3. What warning signs did we identify?
4. What questions did we ask?
5. What did we do with the answers we received?

Good governance is not demonstrated simply by having policies, it is demonstrated through the decisions, enquiries, challenges, and actions taken when those policies are tested. The Charity Commission's two inquiries will now take their course. Trustees do not need to wait for their outcome, however, to ask whether their own governance arrangements would work when tested.

For some boards, that will provide reassurance. For others, it may expose uncertainty about whether existing controls and reporting arrangements are as effective as assumed. Sometimes the most valuable governance intervention is not solving a crisis. It is identifying a vulnerability before it becomes one. 

The first step may need to be no more than a conversation. If something here has made you pause over a particular issue, relationship or aspect of your charity's governance or simply ask, "Could that happen here?" Talking it through confidentially with an experienced independent adviser can help establish whether there is genuinely something that needs attention and, if so, what a proportionate response might look like.

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.