In light of the Oxfam and Red Cross scandals, the full details of which are now coming to light, it is a good time to reflect on this and other issues that have befallen charities and their trustees.
In the same way companies and their directors can be held liable for mistakes and mismanagement of the business, charities and their trustees can have legal actions and regulatory investigations against them, including personally. As has already happened with Oxfam, investigations are underway by a number of governmental and regulatory bodies for which legal costs, fines and penalties will no doubt be levied against the charity and potentially, if found culpable, individual trustees.
As a result of these shocking discoveries, regulatory bodies will now put all charities under even greater scrutiny. As confirmed by Vicky Browning, leader of the Association of Chief Executives of Voluntary Organisations (Acevo)
“If we want charities to be transparent we’re unfortunately going to hear more about things going wrong as we uncover them.” She also stated: “If we are going to continue to do the work we are most proud of, we must actively confront the parts of the sector we are most ashamed of.”
The Charity Commission has launched a statutory inquiry into Oxfam as part of its duty to promote trust and public confidence in charities was to be expected, but the Commission also has to reassure an increasingly sceptical audience that its own regulatory culture is rigorous and diligent enough to deserve trust and confidence.
It can be any type of conduct of the organisation and their people that the trustees are at risk of fallout following breaches of appropriate practice. It was less than three years ago when the sector was rocked by the exposure of acute governance and financial failings in the charity, Kids Company, which collapsed following widespread fundraising malpractice. The Insolvency Service
is to bring disqualification proceedings against the former directors to have them disqualified from running or controlling companies for periods of between two-and-a-half and six years.
So what does this mean for charities in the future? Well, two immediate implications spring to mind:
A reduction in donations and the financial impact this will have on a charities ability to undertake the work they do combined with the pressure and scrutiny this will put on their finances.
Their inability to attract trustees. In 2017 the Charity Commission stated 1 in 5 charities had unfilled vacancies for trustees. That number is now only likely to increase. In desperation to fill the roles, could this lead to lower quality / less qualified trustees with potential impact further down the line? Potentially, a vicious circle.
One way charities can look to alleviate the fears trustees may have over taking up a position would be to evidence that they have insurance protection in place. A correctly purchased charity trustees indemnity insurance
policy, would provide protection for the trustee should an allegation of a "wrongful act" be made against them - potentially covering the costs that would arise from being dragged into an investigation or litigation.
Original article posted by Plus Risk.
This guide is for information purposes and based on sources we believe are reliable, the general risk management and insurance information is not intended to be taken as advice with respect to any individual circumstance and cannot be relied upon as such.