Local authorities warned by Charity Commission

Written by Marie Philippe, Associate in our Charities team.

The Charity Commission is clamping down on mismanagement and/or misconduct of charity assets by local authorities and councils. It has issued its first official warning to a local authority acting as charity trustee this month. Calderdale Metropolitan Borough Council has failed to properly manage 13 charities and the Charity Commission has decided to act.

The mismanagement highlighted by the Commission in its official warning should be seen as a warning to all local authorities to get their houses in order when it comes to acting as charity trustees and looking after charitable assets.

To aid local authorities, the Charity Commission has recently updated its guidance on local authorities as trustees and its guide for councillors which contains case studies. The Commission has also updated its guidance on recreation ground charities which may also be applicable given that local authorities often hold recreational land on trust for charities.

Councils are typically trustees of charities that run public facilities serving local communities, such as recreation grounds, public gardens, concert halls, and buildings of historic interest. One of the main issues that the Charity Commission highlights is that some local authorities are not aware of what land they hold on charitable trust, resulting in land being used by the council for its own purposes, being used in ways that are not compatible with the trusts of the charity and land being disposed of without complying with the requirements under charity law. This can result in reputational damage to the council and be expensive to rectify.

The Charity Commission has produced the following checklist for local authorities who are charity trustees. All local authorities and councils who act as charity trustees should review this checklist to ensure that they are complying with it:

1. Do you have an up-to-date list of the charities of which the local authority is trustee?
2. Is there central management of the charities?
3. Do you have a copy of all the charities’ governing documents?
4. Do the charities’ governing documents have the rules you need?
5. Are the charities registered with the Charity Commission where they meet the requirements for registration?
6. Do you produce annual accounts for the charities?
7. Is the local authority up to date with filing requirements?
8. Have you considered applying for a linking direction?
9. Do you keep separate records for the charities?
10. How often does the local authority as trustee consider the business of its charities? Does this comply with the rules in the relevant charity’s governing document?
11. Does the local authority review, where certain activities are delegated to (for example) council officers or committees, that the arrangement remains appropriate?
12. Does the local authority as trustee consider the effectiveness of the charities?
13. Are there any dormant funds?
14. Does the local authority use any charity land as corporate property? If it does, this should be remedied immediately.
15. What is the decision-making structure for the local authority to consider charity business and make decisions?
16. Is there a mechanism to collect feedback from beneficiaries and other interested parties on relevant trustee decisions?
17. How does the local authority manage conflicts of interest when making decisions?
18. Does the local authority have a separate conflict of interest policy?
19. Do you review and manage the risks faced by the charities?
20. Do you monitor financial performance during the year?
21. Have you considered sources of income, and do you have a strategy in place to raise funds?
22. Do any of the charities have permanent endowment? If so, have you considered whether you can spend all or some of it as income?

This checklist raises complex issues for Local Authorities and Councils to navigate, and compliance is not always straightforward.