Risk, Training and Dominant Trustees

A review of the Charity Commission’s published Inquiries so far in 2021 highlights a common theme; risk management features heavily in eight of the ten published cases so far in the year. Two cases are Nanaksar Thath Isher Darbar Trust and Afghan Heroes.

In the case of Nanaksar Thath Isher Darbar Trust, the charity had taken out loans of £5.5m with three separate banks, secured on the charity’s properties, mostly schools. The charity was also understood to be owed over £3m by Nanaksar Thath Isher Trust Canada and to owe almost £3m, in total, to New Zealand Nanaksar Thath Isher Trust and Anand Isher in Australia. Furthermore, they had converted land to a car park without planning permission raising concerns over whether the trustees were managing the charity’s resources responsibly.

The Charity Commission concluded that there had been significant mismanagement and/or misconduct which had the impact of putting the charity’s assets at risk and creating a risk that its beneficiaries would lose access to the school and temple. There was found to be no evidence that the trustees assessed the risks involved before taking out other substantial loans and mortgages.

In the case of Afghan Heroes, reputational and financial risks were forefront. Afghan Heroes had engaged a fundraising organisation called PPL to fundraise for them. PPL are reported to have raised over £3.5m with the charity receiving only £750k. The trustees were unable to demonstrate to the inquiry that they actively managed the reputational risks arising from the fundraising activities or that they ensured that the charity complied with relevant laws applicable to fundraising.

Much of the money raised was then invested in trading companies to refurbish two pubs which would provide retreats for veterans. Both ventures turned out to be loss making and one of the properties refurbished was not owned by the charity; with no right over that property, trustees risked losing the monies invested in the refurbishment. The inquiry also found that there was inadequate financial reporting to the full board of trustees which exposed the charity’s funds to undue risk.

In a recent Charity Commission publication referring to the National Trust case, it was reiterated that “as long as you can show that you were at all times driven by your charity’s purpose, and the interests of those it was set up to serve, that you have followed our guidance, and have given careful consideration to the reputational impact on your charity, the Commission will not take regulatory action.” 

Reputational risk was a key issue in the National Trust case and is one of many risks that may feature on a charity’s risk register. Where regulatory action has been taken and published so far in 2021 in relation to risk management, the trustees have failed to show that they followed the Charity Commission’s guidance in relation to risk management or that they have given careful consideration to risk management. The outcome could have been different in these cases had the Charity Commission model for risk assessment and management been engaged with at each stage of the decision making process:

1. Establishing a risk policy
2. Identifying risks
3. Assessing risks
4. Evaluating what action needs to be taken on risks
5. Periodic monitoring and assessment

In any subjective matter, such as risk assessment, it is crucial that all perspectives are considered and that all trustees regularly and actively take part in the collective decision-making process.

The importance of collective involvement in risk management is highlighted in two of the ten 2021 reviewed cases: Under Tree Schools and Afghan Heroes. In these cases, the influence of dominant trustees on decision making was raised as an issue with a lack of challenge or risk assessment from other trustees. It could be argued that the implementation of and engagement with an appropriate risk management model could have contributed to a different outcome in these cases.

An interesting issue raised in the Charity Commission’s most recent published enquiry was their request to see records of trustee training undertaken at Nanaksar Thath Isher Darbar Trust. In this case, the trustees stated in their annual report that new trustees received training and were encouraged to attend external training courses. However, the Charity Commission found that there was no documentation or record of any training being undertaken. Trustees failed to understand their duties, particularly around safeguarding assets and risk management. This theme follows on from the somewhat disappointing results of a 2016 Charity Commission article in which it was disclosed that a year after launching the revised essential trustee CC3 guidance only 114,000 out of 950,000 trustees in the UK had accessed it. This highlights the importance of training for both new and existing trustees and keeping a documentary record of training undertaken. A great addition to your trustee training records for 2021 might be around risk management.

The ICAEW Trustee e-learning course includes a module on Risk Management.

Louisa Burton ACA, Senior Teaching Fellow at the University of Portsmouth, is a member of the Volunteering Community's advisory group.

^{*The views expressed are the author’s and not ICAEW’s.}