Charities: Trustees’ Responsibilities

At AHACCOUNTANTS, we outline the main responsibilities of a trustee for a charity, particularly emphasizing accounting and audit requirements. If your charity is based in the Nottingham area, we can assist in maintaining your charity’s accounting records or preparing your annual report.

Serving as a trustee for a charity is often seen as an honour and an opportunity to give back to the community. However, this role comes with significant commitments and responsibilities that should not be underestimated.

Whether you are currently a trustee for a local project or a well-known charity, or if you are considering becoming involved, it is crucial to understand the responsibilities associated with this role.

Background

The charity sector in England and Wales is primarily overseen by the Charity Commission, a government department that requires most charities to register. The Commission plays a vital role in maintaining public confidence in the integrity of charities.

All charities must demonstrate that their aims serve the public benefit, both during their application process and annually when preparing their reports. A key aspect of the Commission’s work is to provide guidance to trustees, which can be found on their website, particularly in the section dedicated to setting up and running a charity.

Types of Charity

Charities can be established in several ways, typically as:

• Incorporated under the Companies Act 2006 or earlier (limited company charities).
• Incorporated under the Charities Act 2011 (Charitable Incorporated Organisations – CIOs).
• Created by a declaration of trust (unincorporated charities).

Each type of charity must register and file accounts with the Charity Commission, and limited company charities must also register with Companies House. The type of charity determines the extent of a trustee’s responsibilities.

Who is a Trustee?

The Charities Act 2011 defines trustees as individuals with general control and management over a charity’s administration. This typically includes:

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

Trustee Restrictions and Liabilities

Trustees face several restrictions designed to prevent conflicts of interest between personal interests and their duties. Generally, trustees:

• Cannot benefit personally from the charity, though reasonable out-of-pocket expenses may be reimbursed.
• Cannot be employees of the charity.

Trustees may be held personally responsible for any loss caused to the charity if they do not act prudently, lawfully, or according to the governing document.

Trustees’ Responsibilities

According to the Charity Commission guidance CC3a, ‘Charity Trustee: What’s Involved,’ trustees hold full responsibility for the charity and are required to:

• Follow the law and the charity’s governing document.
• Act responsibly and solely in the charity’s interests.
• Use reasonable care and skill.
• Make well-informed decisions, seeking advice when necessary.

The Charity Commission’s publication CC3, ‘The Essential Trustee: What You Need to Know,’ provides more detailed guidance on trustees’ duties under six headings:

1. Ensure your charity is fulfilling its purposes for public benefit.
2. Comply with your charity’s governing document and the law.
3. Act in your charity’s best interests.
4. Ensure your charity is accountable.
5. Manage your charity’s resources responsibly.
6. Act with reasonable care and skill.

Before becoming a charity trustee, you must ensure your eligibility. CC3a outlines eligibility criteria and highlights rules for automatic disqualification. If disqualified, you must not act unless authorized by a waiver from the Charity Commission.

Trustees have a legal obligation to ensure their charity’s funds are used solely for its charitable objectives and must maintain records to demonstrate this.

Fundraising

The Fundraising Regulator was established to enhance charity regulation and restore public trust in fundraising activities. Trustees should be aware of the requirements outlined in the Code of Fundraising Practice.

Accounting Requirements

Charities must meet specific accounting obligations, including:

• Maintaining full and accurate accounting records.
• Preparing charity accounts and an annual report.
• Ensuring an audit or independent examination is conducted.
• Submitting an annual return, annual report, and accounts to the Charity Commission (and, for limited company charities, to Companies House).

The extent of these requirements depends on the type of charity and its income.

Funds Requirements

Effective management of different ‘funds’ is crucial for charities. Funds represent the charity’s income, and there may be restrictions on how certain funds can be used. For instance, a donation might be given with the stipulation that it is used for a specific purpose. Trustees must ensure that these ‘restricted’ funds are utilized accordingly.

The Annual Report

The annual report is a comprehensive document that must include specific information as mandated by legislation. Typically, it consists of:

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

Audit Requirements

Whether a charity requires an audit depends mainly on its income. The income thresholds for audit requirements are:

• All charities with income exceeding £1,000,000 in a financial year require an audit.
• Charities (both incorporated and unincorporated) require an independent examination if their income is between £25,000 and £1,000,000.
• For income over £250,000, the independent examiner must be suitably qualified.

Additional criteria regarding total assets also apply, and we would be pleased to discuss these details 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, while all other charities must prepare accounts showing a ‘true and fair’ view. These accounts generally follow the requirements of the Charities Statement of Recommended Practice (SORP).

The SORP can be accessed at www.charitysorp.org, where charities can tailor a version specific to their circumstances.