When Charity Trustees Break the Trust

The role of charity trustees: responsibilities and risks

Charity trustees hold a critical role in ensuring that their organisations are run ethically and effectively, jointly responsible for everything their charity does. This includes all legal and financial responsibilities, from how the charity is run to how its all-important funds are spent, its assets managed and how this is all reported. While their work often goes unnoticed when done correctly, failures in their duties can lead to severe consequences for both the charity and its trustees.

The recent case of Naomi Campbell, who was banned from being a trustee of her own charity, Fashion for Relief, underscores the importance of trustee accountability. Allegations of funds being misused for luxury expenses and discrepancies in fundraising promises highlight what can happen when a trustee fails to meet their responsibilities.

Celebrity trustees: The benefits and challenges

High-profile individuals can bring numerous benefits to a charity, including increased visibility and donations. However, when celebrities establish or join charities, they must understand that charitable funds, once donated, no longer belong to them and are subject to rigorous scrutiny.

The Naomi Campbell case serves as a cautionary tale. No matter how wealthy or well-intentioned a trustee may be, all funds must be spent in line with the individual charity’s objectives. Mismanagement can lead to formal investigation98 by the Charity Commission, reputational damage, and even the closure of the organisation.

Understanding the legal and ethical duties of trustees

Trustees must be fully aware of their obligations and the legal framework governing their actions. For example, trustees are collectively responsible for ensuring that:

• Funds are spent appropriately and for their intended purpose.
• Charity assets are managed prudently.
• Decisions are made collaboratively, without one trustee dominating the process.

Even unintentional misadministration (where the trustees do not discharge their duties correctly) can result in significant harm, including reputational damage and a loss of public trust, which are often irreparable in the charity sector.

In a sector where reputation and integrity mean everything, it can be extremely hard for a charity to recover from negativity, meaning that it may be unable to continue. This not only impacts its employees as they seek new employment, but also has a severe impact on the people and initiatives that it was set up to serve.

The Charity Commission’s role in ensuring accountability

As the regulator of charities in England and Wales, the Charity Commission has the authority to intervene when concerns about a charity’s governance arises, often putting the affected charity on an improvement plan to fix the issues.

Trustees can also face personal liability for breaches of trust, including repaying misapplied funds. In cases of fraud or criminal activity, the consequences can extend to fines or imprisonment.

It is up to the Charity Commission to direct this activity, taking into account the actions of the trustees as well as the reasoning behind any inappropriate spending – for example, the trustees may have received poor or inaccurate advice. Where grant funding has been spent inappropriately, the grant organisation can seek ‘clawback’ from the charity due to a breach in contractual terms as a result of the trustees misapplying the funds given from their intended purpose.

How charities can prevent trustee mismanagement

For charities, prevention is key to avoiding the pitfalls of trustee mismanagement. To mitigate risks:

• Seek independent advice: Seeking advice at the earliest opportunity will provide a greater understanding of the role of a charity trustee. Poor advice can have lasting consequences, so it is vital to ensure that this is taken from an independent third party or other appropriate channel. It is also important for a trustee to ensure that they are taking on the position for the right reasons: to benefit those that the charity serves. Clear direction from the outset will make it easier to make decisions on what is an appropriate way to spend funds and what is not.
• Provide trustee training: Offering comprehensive training for new trustees and annual refresher courses to reinforce the mission of the charity and ensure it continues to shine a light on the people and causes it has been set up to serve will be time well-spent.
• Foster a collaborative culture: Trustees should operate as a team, ensuring transparency and accountability in decision-making. Alarm bells should ring if one trustee becomes overly involved or dominates discussions.

What to do when a trustee breaks the trust

If concerns about a trustee’s conduct arise, charities should act promptly to investigate and address the issue. Steps may include:

• Reviewing internal policies and procedures to ensure they align with Charity Commission requirements.
• Reporting concerns to the Charity Commission if evidence of misconduct or mismanagement is found.
• Taking disciplinary action or removing the trustee, if necessary, to protect the charity’s reputation and operations.

Why legal advice Is essential

Charity trustees operate in a highly regulated environment, where mistakes can have far-reaching consequences. Seeking expert legal advice can help charitable organisations understand these complexities, ensuring compliance with the law and protecting the charity’s mission.

With the right guidance, charities can build strong governance frameworks, protect their reputation, and continue to focus on their vital work serving beneficiaries.