What can your charity learn from this case study?
Contributors
A: Neal Green
B: Steve Barnett
Script
Neal: (Introduction)
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Hello and welcome to this podcast looking at why it is vital to understand conflicts of
interest, and to make sure that your charity has the right policies and procedures in
place to help you recognise a conflict and to know how to respond – we’ll introduce
some of the key principles of the Commission’s guidance: Conflicts of Interest.
My name is Neal Green, Senior Policy adviser at the Commission. And I’m joined by
Steve Barnett, Head of Operational case work in London. His team deals with most
of our serious compliance cases and engage with charities on a daily basis.
Conflicts of interest can arise in charities of all kinds.
It’s no slur on a trustee’s character to say they might have a conflict of interest.
Trustees’ personal and professional knowledge and contacts can often bring
significant benefits to their trusteeship and the charity work.
So it’s fully understandable that trustees might have personal interests that could
potentially conflict with the best interests of the charity or appear to improperly
influence their decision making
But the basic rule is that trustees must not put themselves in a position where their
duty as a trustee conflicts with any personal interest they may have
The trustees should give some thought to whether it would be better for the charity
to remove the conflict of interest or avoid introducing it.
If it can’t be avoiced, it must be effectively managed in the best interests of the
charity by making sure it cannot improperly influence the trustees’ decision making.
If approached properly, most conflicts of interest can be dealt with in this way.
Having said that conflicts of interest can arise in all kinds of charities, Steve has
joined me to share some experience from our case work
Steve: (cont. intro)
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Thanks Neal.
We are still seeing too many charities that are not getting the basics right and
managing conflicts of interest is one of the basics.
Unmanaged conflicts are something that we see across the spectrum of our case
work, all the way up to our most serious engagement with charities in the form of a
statutory inquiry
Of 85 investigations we concluded in 2011-12, 16 of those involved serious concerns
about unmanaged conflicts of interest
These cases often involve financial loss and serious reputational damage to the
charity
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But more broadly, when these issues come to light they risk undermining public
confidence in charities and bring into question the integrity of trustees generally
Neal: (Intro case study)
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I think that’s right, particularly because a common conflict of interest that charities
face involves trustees receiving some sort of benefit from their charity.
This might be a direct or indirect benefit and could include:
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the charity awarding a contract to a business the trustee owns
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a trustee’s partner being employed by the charity
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or where a trustee is a user of the charity’s services
But it’s also worth remembering that, even where there is no benefit to a trustee
they can still have a conflict of loyalty, for example in relation to the charity doing
business with their employer, a friend, or another charity that they are involved with
Steve, you bought an anonymised case study today that we can look at to highlight
where things went wrong and to draw out what steps should have been taken to
avoid the problems that arose.
So what happened in this case?
Steve: (Case study explained)
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The case revolves around a charity that is an animal shelter providing care and
rehabilitation for rescued animals within a local area
It all started because the Commission received a number of complaints from the
public and we received a serious incident report from the charity directly
What was being alleged was that the son of a trustee had been paid a total of
£70,000 in cash for carrying out work at the shelter and that not all of the trustees
were aware of the payments
After assessing all the information we had, the Commission instructed the trustees
to provide information about the payments along with evidence of how conflicts of
interest had been managed
It soon emerged that the trustee’s son had actually been paid £100,000 for work
that was later valued as being worth no more than £40,000
On top of that, the responses from the trustees made it clear that they had not
managed the conflicts of interest involved
It also became clear from the responses from the trustees that they didn’t have any
financial controls in place that would otherwise have ensured better oversight of
money spent in this way
The topic of financial controls is covered in another podcast we’ve done Neal, so we
won’t go into detail here
But sticking with the issues about conflict in interest, one of the trustees obviously
had a conflict of interest as their son considerably benefitted.
It is alarming that the trustees didn’t even seem to have considered whether this
was a conflict of interest, and just as alarming that some of them didn’t know about
the payments.
Neal:
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And what were the outcomes as a result of the Commission’s intervention?
Steve:
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Well, several new trustees were appointed at an AGM and we worked with them to
improve the charity’s governance including conflicts of interest policy and
procedure, and some essential financial controls
The charity were also supported by their local Council for Voluntary Service (CVS)
which continued to support them developing their policies to best practise event
after the Commission closed its case
It’s worth also noting that the new trustees are seeking legal advice as to whether
any loss of charity funds can be recovered
Neal: (joiner)
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Those are some serious outcomes: a change in trusteeship and the consideration of
reclaiming lost funds
And as we said before, its common for conflict of interest cases to involve financial
loss
What would you have expected to see if the charity had a policy in place?
Steve: (What should the charity have had?)
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Initially, the question is whether it was necessary to use a trustee relation to
undertake the work in the first place as the trustee could have avoided putting
themselves in the position of having a conflict
But of the things the charity didn’t do, they didn’t properly record conversations
about how/when decisions were made – so we don’t know whether such a
conversation was had
In other circumstances it might have been possible to conclude that it was in the
best interests of the charity to use a trustee’s relative to conduct the work (because
he offered the best value; but in this case he clearly did not).
But in any case, it should have been automatic for the conflicted trustee to declare
their interest and, if it was a potential financial conflict, absent themselves from the
discussion and decision making process
The unmanaged conflict, the lack of any conflict of interest policy and poor financial
controls, meant that we did have serious concerns about the governance of the
charity
However, what we should make clear is that the charity did report the issue to the
Charity Commission
It’s important to remember that if you recognise that a decision has been taken
without a conflict of interest being recognised and managed, you should consider
reporting this to us as a serious incident – if it is a serious breach you are required to
report this to us
As was the case here, if we have regulatory concerns our intervention can ensure
that the issues are robustly dealt with and that they are prevented from happening
again
You also mentioned conflicts of loyalty earlier. Just to say these are less serious than
conflicts involving a trustee benefit of any kind, but they still need to be identified
and recorded, and if possible avoided.
The unconflicted trustees can take a more proportionate approach in managing
conflicts of loyalty, however; taking account of all the circumstances they might
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decide that it is OK, or even helpful, for the conflicted trustee to participate in the
discussion.
It’s always worth applying the ‘tabloid test’, however. Think about how it would look
to your supporters if they read about it in the papers tomorrow!
Neal: (Additional advice and sum up)
 Thanks Steve
 There is some good advice in there about properly recording decisions when a
conflict is spotted and the conflicted trustee excusing themselves from the decision
making process - you can find out more from our publication “It’s your decision”
 In addition, our Conflicts of Interest guidance also recommends keeping a register of
trustees’ interests to make it easier to spot a potential conflict
 It also explains how/when trustee benefits could be authorised: it might be that
certain provisions are made in a charity’s governing document if the trustee is
providing a professional service to the charity OR instances when authorisation for a
benefit should be sought from the Commission
 That’s about all we have time for today – in summary, regardless of the type or size
of your charity, conflicts of interest can occur
 It’s vital that as trustees you recognise when it happens and approach it properly
 We will also be updating our guidance soon but the guidance on the now has as ***
mentioned a useful tick list if you’ve spotted a conflict of interest, what should you
do next? And it includes advice about how to create your own policy
 It’s also worth noting that this case study is also included in a publication from the
Commission called Tackling Advice and Mismanagement
 There are more case studies to be learnt from in there, along with how the
Commission intervened in each case and more detail about our investigations work
 You can read this on the website, along with any other guidance we’ve mentioned
today including when you should report an incident to the Commission
 So thanks for joining me Steve
 And thanks for listening
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