Charities making overseas grants – Charity Commission launch statutory inquiry

The Charity Commission recently opened a statutory inquiry into a charity over concerns about the management & control of charitable funds sent abroad

In their initial press release, the Charity Commission highlighted the following areas of particular concern: 

1. the trustees’ compliance with the charity’s governing document; 

2. the end use of the charitable funds sent abroad;

3. the charity’s ability to evidence charitable expenditure; and

4. concerns about the charity’s due diligence processes and the suitability of partnerships. 

It is not uncommon for charities to make overseas grants; however, they pose a risk that trustees have a duty to mitigate. As overseas organisations are not classed as charities in the UK, extra precaution must be taken to ensure funds are used for the donor charity’s purposes and that the trustees of the UK comply with their duties as charity trustees.  

The level of due diligence and risk management will depend on the circumstances. For example, more risk management will be required if funds are sent to a higher risk location (for example a war zone), or the sums involved are large or represent a significant proportion of the charity’s expenditure. 

Although the findings of the inquiry above are yet to be revealed, the opening of this inquiry itself should serve as an important reminder to trustees of their duties when making overseas grants. 

Some of the key points for charity trustees to consider when making grants abroad are: 

• The grant must be in accordance with the charity’s purposes as set out in their governing document. This applies to all grant making charities and not just those making overseas grants. It is important trustees review the governing document regularly to make sure they are acting in line with the charity’s objects, including any restrictions on location or activity.

• Trustees must ensure the necessary due diligence and risk assessments are carried out. Trustees should ensure their beneficiaries are genuine and be alert to any suspicious circumstances. Having systems and policies in place for considering grant applications will assist with this.

• Trustees must also take “reasonable steps” to ensure funds are being used for the charitable purposes intended. If they are not being used for charitable purposes, the charity may be liable for tax and the Charity Commission may investigate.

HMRC have issued some guidance on what would be classed as “reasonable steps” in different circumstances. Please follow this link to read the HMRC guidance.

One way to mitigate risk and ensure funds are being used for the correct purpose is to have an agreement in place setting out the relevant terms and conditions of the grant. Such agreements will usually contain terms relating to the requirements for the receipt of the grant, monitoring and reporting conditions, and what should happen if the recipient organisation fails to, or can no longer, comply with the terms of the grant (e.g. clawback provisions). Trustees must note that monitoring the use of funds will still be necessary; it is not sufficient merely to have an agreement in place.

Please follow the link to read the further guidance from the Charity Commission - Grant funding an organisation that isn’t a charity.