Stewardship of funds and assets – the key principles

All charitable funds and assets are held by a charity in order to pursue its charitable purposes for the public benefit. This fundamentally affects the stewardship of such funds and assets. Certain funds and assets of a charity may also be subject to additional legal restrictions that further affect how they can be spent or used and may also affect how they can be disposed of.

The trustees have prime responsibility for the care, custody and correct application of a charity’s funds and assets. In particular, they must ensure the funds and assets are:

• safeguarded against accidental loss or deliberate misappropriation;
• applied within the charity’s purposes; and
• managed and used effectively and efficiently to deliver the greatest possible public benefit, appropriate to the charity’s particular charitable purposes.

Funds and assets of charities – key principles

All the funds and assets of a charity must be used within the powers of that particular charity and in furtherance of its charitable purposes. Misuse of charitable funds is likely to be a breach of trust and can lead to personal liabilities for trustees (even if the charity is incorporated).

In this context, ‘funds and assets’ includes cash, investment funds, income from all sources and hard assets (e.g. land and buildings or movable tangible assets, such as vehicles or computers). It also includes the charity’s staff and volunteers and the charity’s goodwill, reputation and good standing.

In its guidance Managing Charity Assets and Resources (CC25) the Charity Commission points out that trustees need to consider these key areas:

1. Protection and correct use of financial resources and other assets and resources (including staff and volunteers).
2. Appropriate investment of charitable funds, in the best interests of the charity.
3. Assessment and review of risks in all areas of the charity’s activities.
4. Soundness of the internal financial controls in the charity.
5. Appropriate levels of financial reserves, to meet the unexpected, absorb setbacksand take advantage of relevant future opportunities.
6. Compliance with fundraising law requirements and good practice standards in fundraising.

The guidance also highlights the importance of correct stewardship in relation to maintaining suitable insurances, avoiding improper payments to or benefits for trustees and those connected with trustees, managing trading activities correctly, dealing properly with land and buildings (in particular sales and purchases) and managing financial difficulties effectively.

The overriding importance of the charity’s purposes

The charity’s purposes are of overriding importance in the stewardship of all its resources, both tangible and intangible. Those resources must not be used for any purpose outside of the charity’s own purpose (not even some other charitable purpose).

Impact of the public benefit obligations on stewardship

Charities exist for the public benefit, which has fundamental legal and practical consequences on how their resources can be used. A charity’s entire resources and all its activities should be clearly focused on the delivery of appropriate benefits to the relevant beneficiary group. Those benefits should mainly flow directly from the charity’s activities, as indirect, secondary, benefits are only partially relevant to fulfilling the public benefit obligation. The trustees must report on their stewardship of the charity’s funds and assets in their annual trustees’ report, indicating how they have used the charity’s resources to further its purposes and deliver public benefit to the relevant beneficiary group. They must also indicate the strategic objectives they have adopted in their management of the charity and explain the strategies chosen to pursue those objectives. The trustees should also explain how all of those relate to the charity’s charitable purposes for the public benefit.

Stewardship of restricted funds and endowed funds

Trustees need to exercise additional care in their stewardship of restricted funds and assets or endowed funds and assets, ensuring these are managed and used within the relevant legal restrictions. To do so effectively, they need to understand what restrictions apply to each restricted fund held by the charity and know which assets represent each such fund. It is also important that the annual trustees’ report gives the required details of all restricted funds held by the charity, including a summary of the restrictions, the opening and closing balances of each fund, transactions relating to them during the year and details of the assets that represent each fund.

People

A charity’s people, including its trustees, other volunteers and any staff employed by the charity are amongst its most important resources. Using them well is central to the good stewardship and effective operation of the charity. The same principles described above and below therefore apply to the trustees’ stewardship of the charity’s people resources. It is important for charities to encourage a shared understanding amongst everyone in the charity of its charitable purposes and the fundamental nature of the organisation as a charity.

The board, senior staff and key volunteers should also share an understanding of:

• how and where those purposes can be carried out;
• what activities the charity can or must do, and in some cases what it cannot do to further the purposes;
• what charitable benefits should arise from those activities; and
• who should gain those benefits – in legal terms, the correct beneficiary group for the charity.

Charity Law and Governance: A Practical Guide, 2nd edition

Authors: Cecile Gillard, Kirsty Semple

Price: £29.95 | September 2018

ISBN: 9781860727573

Charity Law and Governance: A Practical Guide is the essential publication on the legal and regulatory framework within which charities in England and Wales operate.

Containing a wealth of expert commentary and case studies highlighting important aspects of charity law and governance, this book is an invaluable guide to anyone involved in the sector.