Jennifer Scott and Sophie Bird, in our Charities & Education team, break down the rules and the risks Charities should be aware of when paying Trustees for Goods and Services.
A recent statutory inquiry by The Charity Commission (the Commission) into Island Health Trust (available to read here) has resulted in the disqualification of the former Chair, as well as their repayment of £165k, after their consultancy was paid almost £350k of charity funds.
The above (and other findings) led the Commission to conclude that there had been serious misconduct and/or mismanagement in the administration of the charity by the former Chair (and former trustees), who breached their legal trustee duties and responsibilities by failing to act in the best interests of the charity and acting outside the powers of the governing document (in particular, the objects of the charity).
This inquiry raises important issues for the wider sector. Whilst the role of trustee is generally a voluntary one, in certain circumstances, such as when a trustee provides goods or services to the charity, it may be possible for charities to pay the trustee. In such circumstances however, and as highlighted in this inquiry, certain rules apply, with associated risks for non-compliance.
This article explores the rules and risks for charities concerning paying trustees for the provision of goods and services, to help ensure compliance and avoid consequences.
When may charities pay trustees for the provision of goods or services?
In this case, ‘goods and services’ mean a charity receiving and paying for goods, services, or both goods and services together, including the provision of consultancy services. Note that this does not include, however, employment (in which circumstances different rules apply).
Where certain legal conditions are met, a statutory power allows a charity to pay a trustee for providing goods or services. The legal conditions are as follows:
- Your charity’s governing document must not contain a prohibition;
- Getting the goods or services from the trustee must be in your charity’s best interest;
- The amount you agree to pay must be reasonable;
- There must be a written agreement;
- Only a minority of trustees may be paid at any one time; and
- A conflicted trustee must not take part in any discussion or decisions about the arrangement.
If a charity cannot comply with all the legal conditions, the statutory power cannot be used.
Note that a charity’s governing documents may contain an equivalent power to pay a trustee for providing goods or services to the charity. In these circumstances, either the equivalent power (subject to any conditions) or the statutory power may be used.
It is relevant for all charities to record their decisions and to follow the rules on disclosing trustee payments in their charity accounts. It is further relevant for charitable companies to check how company law rules which may apply.
What are the risks for non-compliance?
If the statutory power is not used correctly, payments may be ‘unauthorised’. As a result, the trustee who received the payment (or all the trustees) may be required to repay the charity.
Further, the Commission may launch a statutory inquiry into a charity where there is alleged mismanagement and/or misconduct. The outcome of such an inquiry may include the disqualification of a trustee considered responsible for said misconduct and/or mismanagement. Our previous article to statutory inquiries is available to read here.
For further information or legal advice on the payment of trustees, or another matter of charity law, please email law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
