Practical guidance on duties of a charity trustee

This year marks the 10th anniversary of the Office of the Scottish Charity Regulator (OSCR). It has been a year of continued progress in supporting the charity sector in Scotland. As well as introducing its Notifiable Events scheme, it has published its Targeted Regulation framework, begun publishing charity accounts online on the Scottish Charity Register, and revised its guidance on "Meeting the Charity Test".

OSCR’s Guidance for Charity Trustees has also been a valuable source of guidance and, in the second half of 2015, OSCR revised the guidance and published a draft for public consultation. This revised guidance document is now available on OSCR’s website. Readers of the guidance might wonder what has changed.

Out with the old…

The original guidance document was published around 2008 and set out the legal duties and responsibilities of charity trustees in accordance with the 2005 Act. It was a clear, concise and relatively short document which narrated the statutory position using softened legal language, but the general tone of the guidance document was factual with a bit of a focus on black-letter law.

The legal sections were punctuated with "examples of good practice", but the text was short and the examples were general in nature. It should be remembered, of course, that this guidance document was published only a few years after OSCR’s inception and examples of good practice from OSCR’s own experience by then will have been in reasonably short supply. The guidance dealt with a range of topics: who are charity trustees, disqualification, general duties, specific duties, remuneration, investment powers, and breach of duty, all of which largely mirrored the 2005 Act.

In September 2015, OSCR published a draft of its revised guidance and commenced a public consultation on the draft. OSCR made it clear that the statutory duties had not changed: this was not why the guidance was being revised.

But OSCR had over a decade of regulatory work accumulated a wealth of experience advising on charity trustee duties and conducting inquiries into the actions (or alleged actions) of charity trustees. As a result, OSCR was in a position to offer guidance with wider texture and context, using examples from its practical experience in regulating charities.

…in with the new

The format of the new guidance helps to separate out threads of legal duty on the one hand and good or best practice on the other. The addition of icons indicating "Legal Duty" (what you must do) and "Good Practice" (what you could or should do), as well as different coloured text to indicate links within the guidance to the OSCR website, external links and a glossary, make the document much more interactive and user-friendly.

Case studies and practical advice are largely contained in a "Good Governance" section, which is accessible separately from the main guidance. Guidance sections also end with links to other sources of help and a "Legal Note" which refers to the relevant sections of the 2005 Act and related regulations.

It is important to stress that the guidance explains the duties of charity trustees under the 2005 Act only. It does not go into detail on applicable common law duties, or duties under the Companies Act 2006 for charities whose legal form is a company limited by guarantee. There is also no detailed reference to charity trustees’ duties within other areas of law, such as health and safety, employment, anti-bribery rules, etc.

Of course, that is not the purpose of the OSCR guidance, but it is important for charity trustees to be aware that their duties under the 2005 Act are supplemented by wider legal duties. The OSCR guidance is nevertheless an excellent starting point for charity trustees grappling with their charity law duties.

Restatement of 2005 Act duties

Although the duties and responsibilities imposed upon and expected of charity trustees under the 2005 Act have not changed, it is worth setting out a reminder of these key duties, since they should always be in the forefront of a charity trustee’s mind. As before, the guidance is split between general duties and specific duties.

General duties

The two main general duties are that charity trustees must: (1) act in the interests of the charity and (2) comply with the provisions of the 2005 Act. The first general duty – to ensure that you do what is best for the charity and its assets – is split into three pillars. A charity trustee must:

  1. Act in good faith, and only in a manner which is consistent with the charity’s purposes. The charitable purposes can be found in the charity’s constitution or governing document and should be referred to regularly to avoid mission drift or the charity acting ultra vires (outside its powers).
  2. Act with care and diligence. Charity trustees must deal with the charity’s affairs to the standard of care expected of a person dealing with the affairs of another. Charity trustees must set strategic plans and goals for the charity, and review and update these as necessary, as well as being aware of and managing the charity’s financial position.
  3. Manage and mitigate any conflict of interest between the charity and any person or organisation who appoints charity trustees. Potential and actual conflicts must be disclosed and managed, and the interests of the charity put first. Where a charity trustee faces a conflict in duties, that trustee must refrain from participating in the deliberations and decision-making on that particular matter. The use of a Register of Interests is considered good governance.

Specific duties

Charity trustees must be aware of wider legal obligations which come along with charitable status. The "specific duties" relate to the more detailed operation of a charity. In some instances, carrying out these duties might be delegated to staff members or volunteers, but they remain the ultimate responsibility of the charity trustees. The specific duties are:

  • Ensure that the charity’s details on the Scottish Charity Register are correct and updated as necessary.
  • When seeking to make changes to the charity, ensure OSCR’s prior consent is obtained where required and all changes are notified to OSCR within three months of the date the change took effect. Charity trustees must also ensure that any requirements in the constitution or governing document are complied with.
  • Ensure that accurate financial records are maintained, appropriate accounts and reports are prepared and audited/independently examined (depending on the legal form of the charity and its size), and that OSCR’s annual reporting requirements are complied with timeously. Charity trustees should be aware that from 1 April 2016, OSCR revised its Annual Return form.
  • If the charity is undertaking fundraising as a method of raising income to fund its charitable activities, certain additional rules and conditions will apply. The regulation of fundraising is currently under review in Scotland.
  • Charities must provide certain information and documents to the public upon request and comply with the rules on displaying their name and charitable status.

Guidance sections

OSCR’s revised guidance also contains sections in relation to: Governing Documents and Meetings, Conflict of Interest, Charity Finances, Remuneration and Publicising Charitable Status. The additional detail and practical examples provided under these headings are welcome and useful additions to the OSCR guidance.

Failing to comply

If a charity trustee fails to comply with their duties, it is considered misconduct in the administration of the charity under the 2005 Act. As regulator, OSCR has powers under the 2005 Act to undertake inquiries where there are concerns about a charity or its trustees and to take action against the charity or its trustees depending on the outcome of its investigations.

The options at OSCR’s disposal include powers to suspend an individual from acting as a charity trustee, give directions restricting the types of transactions a charity can enter into, give directions to third parties holding charity assets not to administer the assets without OSCR’s prior consent and, in the worst cases, remove a charity from the register.

Even where there has been a breach of their duties, if charity trustees can be shown to have acted reasonably and honestly, their actions are unlikely to be considered misconduct, and OSCR will typically work with the charity and its trustees to ensure the breach is rectified and doesn’t happen again.

As well as OSCR taking action to deal with concerns of misconduct, charity trustees are also obliged under the 2005 Act to take reasonable steps to ensure that any breach of duty is corrected by the charity trustees in breach and not repeated. Also, if a charity trustee commits a serious breach or is persistently breaching their duties, the other trustees are obliged to ensure that they are removed as a trustee of the charity.

Useful aid

Overall, the revised guidance is a useful aid for charity trustees and charity advisers alike. The expanded explanations and practical content from OSCR gives readers a better understanding of the statutory duties under the 2005 Act, how OSCR interprets them and their everyday application in the operation of Scottish charities. This is an excellent starting place for any charity board wishing to refresh their working knowledge of their formal legal duties.

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