A case report published this month by the Charity Commission has highlighted the legal and reputational risks which arise where a charity employs and pays a salary to one of its trustees.
This report followed an investigation into the acquisition by a local branch of the RSPCA of a cattery, and its appointing as the cattery manager, with live-in accommodation, a trustee of the charity and daughter of the branch’s Chair (and also Chair of the national charity). While the purchase of a property to use as a cattery was found to be legitimate and justified, there were significant failings in how the cattery manager was appointed.
Conflicts of interest and the no-profit rule
At the heart of this investigation was the principle that charity trustees have a legal duty to act only in the best interests of the charity, and must avoid any situation where their personal and professional connections or interests may conflict with their duties as a trustee, or could lead to decisions which are not in the best interests of the charity. There are also strict limits (the “no-profit rule”) on the circumstances in which trustees, or persons connected to them, can receive payment or other material benefits from the charity which they manage and administer.
The Commission’s conclusions
The branch had taken steps to ensure a fair recruitment process for the cattery manager post, and taken some steps to manage conflicts of interest once the Chair’s daughter made known her intention to apply for the role, with the Chair stepping away from the recruitment process and enlisting a selection panel from the national society. However, there was no written record of the cattery manager resigning as a trustee before she was offered the cattery manager position, nor any relevant references in the minutes of the trustees’ meetings and AGM, and in fact she continued to attend trustee meetings after her appointment and was also still listed as a trustee in the charity’s annual reports.
The Commission concluded that the connections of the selection panel members to the Chair created a real risk to the perception of independence of the recruitment process and so jeopardised public confidence in the charity. Because the cattery manager was still a trustee when she was appointed, the Commission’s authorisation of her appointment was required under the Charities Act 2011. Her receipt of salary and accommodation was in breach of the branch rules which prohibited a committee member receiving remuneration or other material benefit. However, in the circumstances the Commission concluded that it was likely that she would be entitled to an equitable allowance for the benefit received.
The Commission also identified failures in the governance and record-keeping of the charity, including the quality of its minutes of meetings and its annual reports. These conclusions resulted in the issue of a strict action plan setting out the steps required to resolve weaknesses in the charity’s management and administration and to ensure that its trustees meet their legal duties.
Lessons for trustees
This investigation and case report highlight clear lessons for the trustees of charities in the areas of managing conflicts of interest, avoiding unauthorised payments to trustees, and making and recording decisions as charity trustees.
If your charity has any queries about its employment practices and procedures, please contact Patrick Glencross.