When it comes to financial stewardship, the vast majority of UK charity trustees are on the right track. A report on trustee confidence levels, published in August by the Charity Commission found that UK trustees generally understand what they should be doing when making important decisions.

Occasionally, though, a high-profile failure spawns uncomfortable headlines for the third sector and shows how things can go badly wrong. Such is the case with Fashion for Relief.

Founded in 2005 by supermodel Naomi Campbell and registered as a charity in 2015, Fashion for Relief was launched with the main purpose of preventing or relieving poverty among people in disaster areas. Campbell served as a trustee alongside lawyer Bianka Hellmich and businesswoman Veronica Chou.

On 26 September, the Commission published a damning, final report following a three-year statutory inquiry into management turmoil at the charity, highlighting a number of failings. They included a low level of charitable expenditure, poor financial controls leaving the charity unable to meet its liabilities, a main bank account that was never used, extravagant expenses on behalf of trustees and persistent late filing of accounts. The Commission concluded that the charity had suffered from serious management misconduct.

In light of its findings, the Commission disqualified Campbell from serving as a charity trustee for five years. Hellmich was disqualified for nine years and Chou for four – even though she had resigned her role following the opening of the inquiry.

Checks and balances

For BDO National Head of Charities Fiona Condron, the report highlights a number of lessons for other charities. “A never-used bank account is always a cause for concern,” she says. “If you establish a bank account, it’s got to serve a purpose. From an audit perspective, bank accounts that aren’t being used properly are where you would typically look for fraud risks.”

A charity’s viability is based on understanding sources of income and forecasting which activities it is going to be involved with going forward – plus, how much they are likely to cost in terms of overheads and how the charity aims to meet its stated purpose in that context. A clear reserves policy is also critical for good financial management, Condron explains. 

“If you’re a start-up charity, I would definitely recommend following the Commission’s CC8 checklist, which is very clear on the checks and balances you must put in place to provide strong financial controls,” Condron adds.

Another fundamental duty for trustees is to understand their own governing document and any stated restrictions. This is particularly important for setting out how and when the charity can give trustees money – whether in relation to expenses-based activities or the performance of duties.

“Some charities may say it’s difficult to set a policy around how much of your funds you should spend on your intended beneficiaries,” Condron says. “But to the man on the street, it would be fairly obvious that you should devote a significant proportion of your expenditure to your charitable purpose.”

Therefore, not defining at the outset what ‘good’ looks like is a failing, Condron says. “Trustees must have a clear sense of what they are trying to achieve, how they are going to achieve it and what a positive impact should look like.”

Evidence trail

One governance mechanism that charities should implement is a clear procurement policy matrix – particularly for screening high-value purchases. For example, if you are buying a product or service for more than £10,000, the matrix may stipulate getting two quotes. For purchases of £50,000 to £100,000, it may require you to source three quotes, and so on. The idea is to encourage staff to shop around so they can demonstrate that they have sought value for money and avoided conflicts of interest in their decision making.

Condron believes many governance issues can stem from ‘founder syndrome.’ “There’s an old adage that charity is voluntary, but never amateur. Good governance is based on trustees understanding where their relevant skills start and stop,” Condron says. 

“There are professional specialists who have a flair for running charities in a way that doesn’t interfere with trustees’ ability to use their own, unique skills to raise funds. For charities that don’t have access to those individuals, the Commission has copious guidance – including its five-minute guides – on how to set up a charity for success.”

Condron urges charities to document all their decision making on spending. “Ultimately, the monies you’re handling aren’t yours. They’re someone else’s. So, having an on-paper evidence trail of what you’ve agreed to in meetings is ethically vital.”

A charity’s financial controls also require a measure of board oversight. “Any expenditure items that are either quantitatively or qualitatively sensitive should be subject to board approval. That’s where governance and finance combine. When the board looks into the charity’s financial controls, its job shouldn’t be to reperform them – but to ensure that it has sufficient evidence that they’re working as they should.”

ICAEW Head of Charity and Voluntary Sector Kristina Kopic says that while the majority of trustees take on the role with good intentions, not everyone understands what it entails. “That’s why we got together with the Commission and other sector experts to develop our free Trustee Training Modules. We wanted to create an online course that all trustees can follow at their own pace to understand what the role involves and how to do it well.”

ICAEW members with trustee roles are required to complete some sector-specific training each year. “Our annual CPD course for charity trustees is focused on what our members, as finance professionals, need to know about current developments in the sector. It also refreshes their knowledge about the role’s core responsibilities,” Kopic says. 

Reflecting on what charity leaders can learn from the investigation, Kopic says: “Being a trustee should be an enriching and joyful experience, but it’s crucial to keep learning and striving for best practice. After all, good governance will lead to better outcomes for your charity’s beneficiaries – and isn’t that why you took on the role in the first place?”