Charities In Scotland: Trustees’ Responsibilities

Being a trustee of a Scottish charity comes with significant responsibilities. At AHACCOUNTANTS, we provide guidance on reporting requirements for charities in the Nottingham area.

Serving as a charity trustee is often regarded as an honour and a valuable opportunity to give back to the community. However, this role entails a commitment and level of responsibility that should not be underestimated.

Whether you are already a trustee for a local project or a well-known charity or are contemplating taking on this role, it is essential to understand the various responsibilities it entails.

Background

In Scotland, the charity sector is primarily overseen by the Office of the Scottish Charity Regulator (OSCR), an independent regulator and registrar for Scottish charities. The OSCR plays a critical role in maintaining public confidence in the integrity of charities and assisting trustees in understanding and complying with their legal obligations.

A key function of the OSCR is to provide advice to trustees, with a wealth of useful information available on their website, particularly regarding trustees’ duties.

Types of Charity

Scottish charities operate under the Charities and Trustee Investment Act (Scotland) 2005 (the 2005 Act). They can be established in several ways, typically as:

• Incorporated under the Companies Act 2006 or earlier (limited company charities).
• Incorporated under the 2005 Act through the Scottish Charitable Incorporated Organisations Regulations 2011 (Scottish Charitable Incorporated Organisations – SCIOs).
• Created by a declaration of trust (unincorporated charities).

Each type of charity must register and file accounts with the OSCR, and limited companies are also registered with Companies House. The type of charity determines the extent of a trustee’s responsibilities.

Who is a Trustee?

The 2005 Act defines trustees as individuals responsible for the general control and management of a charity’s administration. This typically includes:

• Members of the executive or management committee for unincorporated charities and SCIOs.
• Directors or management committee members for limited company charities.

Charities must consistently fulfill their charitable purposes, and it is the duty of all trustees to ensure this.

Trustee Restrictions and Liabilities

In addition to the responsibilities of being a trustee, various restrictions apply to prevent conflicts of interest between personal interests and trustee duties. Generally, trustees:

• Cannot benefit personally from the charity, although reasonable out-of-pocket expenses may be reimbursed.
• Should not receive payment for their role as trustees.

Exceptions to these principles are outlined in the 2005 Act. Trustees who fail to act prudently, lawfully, or in accordance with their governing document may be personally liable for any losses incurred by the charity.

Trustees’ Responsibilities

The OSCR guidance titled “Charity Trustee Duties” explains the role of trustees and their responsibilities. Trustees are responsible for ensuring the charity acts in its best interests and should:

• Operate in a manner consistent with the charity’s charitable purposes.
• Follow the law and adhere to the rules in the charity’s governing document.
• Act with care and diligence.
• Manage any conflicts of interest between the charity and any person or organisation that may appoint trustees.

Trustees must ensure that charity funds are used solely for charitable purposes and keep appropriate records to demonstrate compliance.

Charity trustees must prioritize the charity’s interests over their own or those of relatives and business interests. If a decision presents a conflict of interest, the trustee must disclose it to the other trustees and refrain from participating in the discussion or decision-making process.

Specific Duties

The Charity Trustee Duties guidance outlines specific duties outlined in the 2005 Act, including:

• Updating Charity Details: Providing necessary information to keep the Scottish Charity Register up to date.
• Reporting to OSCR: Complying with the statutory duty to supply certain information regarding annual monitoring, charity accounting, and changes to the charity.
• Financial Record Keeping: Maintaining proper accounting records and preparing an annual statement of account and report, which are externally scrutinized and submitted alongside the annual return to the OSCR.
• Fundraising: Taking control of how the charity raises funds.
• Providing Public Information: Ensuring transparency by making information available to the public.

These duties are collectively shared by all trustees; no individual trustee, such as the Chair or Treasurer, holds more responsibility than others.

Accounting Requirements

The 2005 Act mandates that charities:

• Maintain full and accurate accounting records, with particular attention to funds.
• Prepare charity accounts and an annual report detailing activities.
• Ensure an audit or independent examination is conducted.
• Submit an annual return, annual report, and accounts to the OSCR (and, for limited company charities, to Companies House).

The extent of these requirements typically depends on the charity’s type and income level.

Funds Requirements

Understanding the different types of ‘funds’ a charity can hold is crucial. Funds represent the charity’s income, and certain restrictions may apply to how these funds can be used. For example, a donation may be provided with the stipulation that it is used for a specific purpose. It is the trustees’ responsibility to ensure that such ‘restricted’ funds are used only as intended.

Fundraising

Effective management and oversight of fundraising activities is another essential responsibility of trustees. The Scottish Fundraising Standards Panel oversees fundraising standards and handles complaints for Scottish registered charities in accordance with the Code of Fundraising Practice.

The Annual Report

The annual report is typically a comprehensive document that must include specific information mandated by legislation. It generally consists of:

• A trustees’ report (which may also serve as a directors’ report and strategic report for charitable companies).
• A statement of financial activities for the year.
• An income and expenditure account for the year (for certain charitable companies).
• A balance sheet.
• A statement of cash flows.
• Notes to the accounts (including accounting policies).

Audit Requirements

The requirement for a charity audit depends primarily on its income:

• All charities with income exceeding £500,000 require an audit.
• Other charities require an independent examination. If ‘accruals’ accounts are prepared, the independent examiner must be suitably qualified.

Additional criteria regarding total assets also apply, and we are happy to discuss these in more detail with you.

Reporting Requirements

A comprehensive framework dictates how charity accounts should be prepared. Unincorporated charities with income below £250,000 may prepare receipts and payments accounts unless otherwise specified in their governing document. All other charities must prepare accounts showing a ‘true and fair’ view, known as ‘accruals’ accounts. To achieve a ‘true and fair’ view, the accounts must generally follow the requirements of the Charities Statement of Recommended Practice (SORP).

The SORP can be accessed at www.charitysorp.org, where charities can develop a bespoke version tailored to their circumstances.