Managing any conflict of interests is a big part of policy and governance as a charity, and with recent news regarding the winding up of charity Achiezer, the Charity Commission has once again highlighted the need for charities and their trustees to continually review, update and manage their policies and procedures to remain on the right side of the law.
Perceptions and, ultimately, wrongdoings can hugely damage a charity’s reputation, and often at the heart of these perceptions is a failure to identify and manage conflicts of interest effectively.
In the case of Achiezer, investigations found accounts of poor financial management and governance, apparent failure to manage conflicts of interest with no independent trustees and trustees obtaining personal benefit, resulting in the removal of two trustees and the charity being removed from the register of charities.
In support of Trustees Week (7-11 November) and this year’s theme focusing on `making a difference in changing times and the positive impact trustees make to the charity sector`, we look at what defines a conflict of interest, how they can be effectively managed, links to transparency, and the role of a trustee.
What are conflicts of interest?
All charities have a legal responsibility to manage conflicts of interest effectively and appropriately.
A conflict of interest is where the personal interests or loyalties of a trustee affect/prevent the trustee from making a decision that is in the charity’s best interests, and only in the charity’s best interests.
There are two types of conflicts to be aware of:
Financial Conflicts: The trustee benefits financially from a decision they have made. This means as a charity, you can’t:
- employ a trustee for a particular job role within the charity
- sell, loan, or lease charity assets to a trustee
- buy, borrow, or lease from a trustee
- purchase goods from a company owned by a trustee.
Loyalty Conflicts: The trustee, for various reasons, can’t make a decision that is in the charity’s best interests. For example, the decision may involve the trustee’s employer or another charity where they are also a trustee, and the decision is in direct conflict between the two. Maybe the decision will also affect relatives or friends of the trustee.
The importance of managing conflicts of interest
Managing conflicts of interest isn’t important; it is essential to running a charity. It is also a legal responsibility to prevent personal and private interests from affecting the decisions made for the charity.
Having clear policies and governance in place is particularly important because if conflicts of interest are not recognised and controlled appropriately, they can undermine the fundamental integrity of the charity and any decisions it makes. Negatively affecting people’s perceptions about your charity and leading to a negative impact on funding and support.
How to manage conflicts of interest
Managing conflicts of interest requires a constant balance between three key areas: identifying, preventing, and recording.
Identifying – you need to raise awareness of where conflicts of interest can arise. Tell trustees when conflicts of interest commonly happen, how to declare them, and what trustees’ roles in managing conflicts of interest are.
Preventing – you need to be prepared to respond to conflicts of interest by building effective procedures and capacity to resolve specific situations; this could include regular training sessions with all trustees and having a robust conflict of interest policy in place.
Prevention can include:
- Changing your charity’s plan to avoid conflict.
- Asking trustees to resign if a conflict is deemed serious.
- Not appointing a trustee based on a known conflict.
Recording – make sure to keep an updated Register of Interests. You must be able to evidence that you have dealt with any conflicts of interest appropriately, also recognising that it is not just the trustee’s responsibility to meet the charity’s legal responsibilities. If a conflict of interest arises, record what the conflict is, who or what is affected, when it was declared, and how it was managed. Ultimately, you must show that you acted accordingly and in line with your charity governance.
You should regularly update and review all policies and registers to ensure that they remain fit for purpose, and always refer to your charity’s governing document and the direction from the Charity Commission if you are unsure.
Transparency and the role of trustees
Charity trustees hold a lot of responsibility. Their roles are wide and far-reaching; however, their primary duty and legal responsibility are to ensure that they only act in the charity’s best interests.
They must not, at any time, put their personal interests or values before the charity. Trustees can only receive payment or benefits from the charity if prior permission has been granted, and even in these situations, you must still manage conflicts of interest at every stage.
A trustee should:
- Be transparent in all actions and decisions.
- Make decisions that benefit the charity.
- Identify and declare any conflicts of interest immediately.
- Not ignore any conflicts of interest or hide any conflicts of interest from the charity.
- Take all appropriate actions to prevent conflicts of interest from affecting their decisions.
- Seek approval from the Charity Commission for any payments/benefits.
- Leave relevant discussions, not participate in voting decisions, and not be counted in quorum if they feel conflicted.
- Communicate and talk to others if they are unsure about any area of conflict-of-interest governance.
Managing conflicts of interest
Conflicts of interest can affect any charity, and it’s important to remember that it is your and your trustee’s legal responsibility to manage conflict appropriately and effectively.
The outcome of the Achiezer case shows how trustees must be transparent in their actions. Managing their charity effectively, and responsibly, and ensuring all financial decisions are in the charity’s best interests.
The Charity Commission expects trustees, in particular, to manage conflict better, have better awareness surrounding conflicts of interest, and have stronger systems in place.
This means it is vital that charities ensure they have governance policies and procedures and financial processes that work for them.
For further support and governance and accounting guidance, contact us today; we’d be happy to help.
Don’t forget Trustees Week is just around the corner (7-11 November), and is an excellent opportunity for trustees to chat with peers, ask questions, and take part in round table discussions and presentations.
