First time for everything: local authority receives Charity Commission official warning

Earlier this month, the Charity Commission issued an official warning to a local authority for failing to comply with its duties as a trustee of 13 charities, marking the first time the Charity Commission has made an official warning to a local authority. 

Chris Hook, partner, and Victoria Walton, solicitor apprentice, both in our charities team, discuss the lead-up to the warning and what it entails.

Background

In August the Charity Commission announced, via a press release, that it had issued an official warning to Calderdale Metropolitan Borough Council (Calderdale) after finding that it had failed to fulfil its duties as corporate trustee of 13 charities.

Calderdale’s official warning follows the Commission’s regulatory alert to all local authorities in England and Wales urging them to take action to ensure compliance with their duties when acting as a charity trustee.

Despite several cases of failures by local authorities, Calderdale was the only local authority, and the first ever, to receive an official warning of this kind.

In particular, the Commission found that Calderdale had failed over several years to file annual returns and accounts with the Commission for 13 charities of which it is a corporate trustee.

These administrative failings occurred despite Calderdale being issued with an action plan last year, and the charities’ outstanding accounts remained overdue.

As such, their conduct to date amounted to misconduct and/or mismanagement by Calderdale in the administration of the charities.

Remedial action

As part of the Commission’s official warning, Calderdale is required to carry out and evidence remedial action within six months from the date of the official warning.

Failing that, the Commission may take further regulatory action. The remedial action includes Calderdale having to:

• File all outstanding accounts;
• Implement processes to ensure that going forward;
• Locate and identify all charities of which it is a corporate trustee on a local register and set out details about each charity and its assets; and
• Hold regular trustee meetings for each of the charities, ensuring that councillors understand their duties and responsibilities and treating each of the charities as separate entities.
   

Revised guidance

The Commission’s official warning follows publication of updated guidance on the topic for local authorities, a supporting guide for councillors, and the newly issued guidance for trustees of recreation ground charities.

The guidance makes clear that the duties imposed on local authorities when carrying out the role of a corporate trustee are the same duties imposed on individuals.

It  also usefully sets out what local authorities can do to ensure the protection of charity assets and comply with their own duties.

This includes ensuring that legal requirements for managing and disposing of charity land are understood and followed, and reviewing its asset register and clearly identifying those assets that are charitable.

What can we learn?

The issuing of Calderdale’s official warning is a helpful reminder to local authorities to ensure that they are complying with their obligations when acting as a charity trustee; otherwise they may be subject to regulatory action from the Commission.

Local authorities may also face the costs of correcting such failures and putting pressure on their resources, as well as potentially being subject to public criticism.

The charities under the management of the local authorities may also face some financial loss as a result of the mismanagement.

If your local authority would like advice on how to comply with its duties as a charity trustee, please contact Chris Hook at [email protected] or 0191 211 7801 or Samantha Pritchard at [email protected] or 0191 211 7899.