Navigating regulatory engagement with the Charity Commission

Annual reports and accounts

The Commission monitors a sample of annual reports and accounts filed each year to check charities’ compliance with the Charities Statement of Recommended Practice (SORP) and to identify issues of regulatory concern. If there are repeated failures to file accounts, or issues arising, the Commission may open an inquiry. Charity auditors and independent examiners also have a duty to report matters of material significance, such as dishonesty, fraud, governance failures, criminal activities, safeguarding issues, and unauthorised payments to trustees. They may also report less serious issues as needed, being guided by the principle: 'when in doubt, report it'.

Serious incident reports

If your charity has filed a serious incident report, the Commission will respond to the issues raised directly with the trustees to navigate a way forward.

Complaints to the Charity Commission

Any person may file a complaint to the Charity Commission about a charity, although they are encouraged to exhaust the charity’s internal complaints procedures first. Trustees should ensure they have a robust complaints policy and dispute resolution procedures in place.

Media coverage

Negative publicity, including ‘social media storms’, can have lasting damage on a charity’s reputation and may attract Charity Commission attention. Charities should have in place an effective social media policy, as well as giving thought to public relations, communications, and reputation management strategies. Trustees should consider whether to submit a serious incident report to the Commission themselves if media coverage could lead to risk.

Operating in high-risk areas

The Commission can take a more proactive approach to charities operating in “high-risk areas”, such as conflict zones or areas suffering corruption or widespread criminality. Charities operating in this space should have appropriate risk management policies, safeguarding, and due diligence processes in place.

Reports from other regulators

Sometimes, other regulators, such as HMRC, may notify the Commission of issues to be investigated. 

The Commission may exercise its powers to investigate, supervise, and monitor a charity in order to protect charity assets, beneficiaries and uphold public trust in the sector.  

The Commission may intervene in several ways:

Initial Interventions

• Open a regulatory compliance case – information-gathering: The Commission has statutory powers to encourage and facilitate the better administration of charities.  Under this power, the Commission may request information from the charity about aspects of its operations and governance, including requesting copies of policies and board minutes. Trustees are expected to answer the Commission’s questions and provide information as requested.  The Commission can also require third parties to provide it with documents or information, such as a charity’s bank. 
• Compliance visits: As well as seeking written information, the Commission may set up a call or meeting with the trustees, or arrange a compliance visit.  These visits enable the Commission to observe a charity’s operations, focusing on specific areas of risk (such as safeguarding, risk management, complaints handling, and governance oversight), to check whether it is functioning in accordance with its charitable objects and according to the trustees’ legal duties.

It is important for trustees to be aware that that providing false or misleading information to the Commission, either knowingly or recklessly, is a criminal offence under Section 60 of the Charities Act 2011. Similarly, wilfully altering, suppressing, concealing, or destroying any document required to be produced to the Commission is also a criminal offence. These offences carry penalties including fines and imprisonment for up to two years.

If the Commission is satisfied with the trustees’ responses, they may confirm that the case is closed with no further action, or issue the trustees with advice before closing the case. 

Generally, the outcomes of initial regulatory compliance cases are not reported on by the Commission, unless there is a significant public interest in doing so. This means that charities can avoid the potential reputational and operational damage arising from a regulatory intervention.  

However, if the Commission continues to have concerns, it has fairly significant investigative and protective powers available to it. 

Escalation

• Statutory Inquiry: The Commission can open a statutory inquiry into a charity to investigate the most serious cases of abuse and regulatory concern.  The opening of such an inquiry is often accompanied by a public statement to inform stakeholders and the public about the investigation. While the opening of an inquiry is not a finding of wrongdoing, it can have a significant impact on a charity’s reputation, fundraising and operations. 
• Interim Manager: In cases where the trustees are unable to manage the charity effectively or where there is significant risk to the charity's assets, the Commission can appoint an interim manager.  This individual can either act alongside, or in place of, the trustees and intended to stabilise the charity’s operations and ensure compliance with legal requirements.
• Official Warnings: The Commission has the authority to issue Official Warnings, whether before or after the opening of a statutory inquiry. These warnings can be directed at either charity trustees or the charity, and are in response to breaches of trust, duty, or other instances of misconduct or mismanagement. In 2022-23, the Commission issued Official Warnings on 11 occasions (compared to 12 in 2021-22).
• Removal and trustee disqualification: The Commission can remove trustees and can also disqualify individuals from serving as trustees, or being employed in senior management functions at a charity, for up to 15 years if certain conditions are met.  In 2022-23, the Commission used this power 11 times (down from 14 in 2021-22).
• Establish a Scheme or Wind Up the charity: The Commission can establish a scheme for the administration of the charity. Or, if it is determined that a charity can no longer function effectively or in accordance with its charitable purposes, the Commission may order it to wind up.  This involves closing the charity and distributing its remaining assets in line with its charitable objectives.

In our experience, trustees engaging fully at the outset of any intervention can provide the best protection against escalation by the Commission. We have supported many clients during various periods of regulatory intervention.  At the early stages, we can:

• assist trustees in responding to the Commission, including reviewing and compiling documents requested, reporting to the Commission on progress towards resolving the issues faced by the charity, and accompanying trustees during compliance visit.
• proactively address governance issues, including identifying and rectifying issues related to governance and policy, financial management, and operational practices to protect the charity’s integrity and public trust. 
• help the charity implement necessary changes, by creating step-plans to bring the charity back to a state of good governance and management, advising on potential restructuring, or changes in policies and procedures. 

Understanding the Charity Commission’s expectations and preparing accordingly will help your charity to navigate compliance cases and visits effectively. Regularly reviewing your charity’s policies, ensuring transparency in decision-making, adhering to guidance, and practising proactive good governance will help your charity to maintain compliant and protect its reputation.