Why it’s essential to keep your charity accounting and reporting up to date – even if it’s inactive

A registered charity is active for a time but then becomes inactive. A number of years pass and the Trustees wish to recommence charitable activity. However, in the intervening years, reporting to the Charity Commission has not been kept up-to-date, including submission of annual accounts and returns. Where do they now stand?

Action Planning charity finance and governance expert David Wm. Reynolds writes:

When a charity is registered with the Charity Commission it is required to submit Annual Returns and Accounts, even for years when it is inactive. Not doing so suggests poor governance that would be likely to trigger an investigation by the Commission into the charity’s affairs and utilisation of funds.

The Commission exists to ensure that charities are properly managed and assure donors that their money is not being misappropriated. Regardless of how big or small a charity is, and how much it turns over, the requirement to fulfil its annual reporting obligations to the Commission is the same.

Funding investigation
Whether a charity wants to wind up properly or resume activities, as in this scenario, if it has neglected these responsibilities it will face serious questioning from the Commission on two counts:

1. Funding
2. Governance

The Commission will want to know what has happened to the charity’s funds. This could involve a forensic investigation into the charity’s accounts for every year since it last filed. The Commission will need to be satisfied that any income and expenditure has been properly accounted for and there are no holes. If it can’t find the evidence it needs, it may trigger a criminal investigation.

The governance question will be levelled at all the trustees. Why were the accounts and returns not filed?

Trustees ‘struck off’
Being unaware of these obligations is not an excuse. A good governance approach will ensure that every trustee is made aware of their obligations before they sign up for the role. Furthermore, the Commission will have sent letters and emails chasing up the unsubmitted documents. Why were these communications ignored?

Not fulfilling reporting requirements not only reflects very badly on the trustees but may be seen as the tip of the iceberg – what other obligations have not been fulfilled? It is possible that an investigation by the Commission might lead to Trustees being struck off and barred from holding a trustee role going forward – for this or any other charity. This could nullify any plans to resume the charity’s activities.

Staying compliant
The outlook for any charity in this position is not good. In order to avoid such a situation arising – because charities do run out of steam and everyone who starts a charity up should be aware of this – here are three simple pieces of guidance.

1. If the reason for your charity to exist ceases, close it down properly without delay, or explore a merger with another charity.
2. Know your governance obligations and ensure you continue to report to the Charity Commission every year. The Charity Governance Code is there to guide Trustees in their responsibilities. Regular Governance Reviews can keep Trustees upskilled and engaged.
3. If you’re unsure about any governance matter, call the Commission and talk it through with them.

The Charity Comission is not the enemy. They are there to help and will talk to you in plain language until you are clear on what you have to do.

Action Planning can help you develop and implement your charity’s Strategy – even if that is to wind down operations. We can work with you to undertake a Governance Code aligned governance review. For a friendly, informal chat, get in touch.

Action Planning provides consultancy and operational guidance, not legal services. We do not provide regulated legal advice. Clients should obtain independent legal advice on specific governance matters or where legal interpretation is required.