Canadian charities can learn from another charity’s mistakes - small board and conflicts of interest

December 20, 2010 | By: .(JavaScript must be enabled to view this email address) Mark Blumberg
Topics: Canadian Charity Law

Here is a UK Charity Commission report on the “International Tiger Moth Charitable Trust” which took “sick and terminally ill children in a Second World War Tiger Moth aeroplane”. It is interesting because it shows how having a board of family members can result in poor governance, internal controls, safeguarding of vulnerable beneficiaries and use of funds.  It also shows that in the UK, where they don’t have massive charity tax evasion schemes and abusive charity gifting tax shelters worth billions of dollars like we have here in Canada, the Charity Commission can spend time quite carefully reviewing the performance of a small individual delinquent charity.

Some of the issues raised included:

1. Risk to the safety of the Charity’s beneficiaries;
2. Management of any conflicts of interest which had arisen through family connection including the suitability of the Operations Manager.
3. Adequacy of the internal financial controls and the resulting use of funds for non-charitable purposes;
4. Use of the Charity’s registered status by the continued use of the registered number after the Charity had been removed from the Register of Charities on 16 July 2008;

Here is a good statement from the UK Charity Commission on charities and internal controls: 

“Trustees have and must accept ultimate responsibility for directing the affairs of a charity, and ensuring that it is solvent, well-run, and delivering the charitable outcomes for the benefit of the public for which it has been set up. A key feature of good internal financial controls is ensuring that different individuals have responsibility for different parts of a financial transaction, from authorisation to payment and review. Controls put in place need to be monitored to ensure they are complied with and provide a sufficiently robust system for managing financial risk. The monitoring of financial activities by trustees and management on a regular basis is a vital part of this process.”

You can find more information on internal controls at the UK Charity Commission website at http://www.charity-commission.gov.uk/Publications/cc8.aspx

Here is a good note on the dangers of a charity or foundation having a small and/or non-arms length board:

“48. Conflicts of interest are more likely when there are only a small number of trustees on the board and when trustees are related or closely connected and where there are transactions between them and the charity. The Commission strongly recommends that if members of a trustee body are related to each other, they should take the appropriate steps to manage any such conflict.”


To read the full report see http://www.charitycommission.gov.uk/Library/ITMCT.pdf

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Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.

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