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Charities Commission compliance actions explained
Updated June 2010
There are a number of key phrases in the Charities Act 2005, such as "no longer qualified", that determine the basis on which the Commission might remove a charity from the Charities Register.
The purpose of this information sheet is to explain the meaning of the key phrases, the different compliance actions we can take, and the possible results of those actions.
"No longer qualified"
The Charities Act 2005 (section 32(1)(a) and (2)) says that one of the grounds for removing a charity from the Register is "the entity is not, or is no longer, qualified for registration".
A charity qualifies for registration if:
- it is established and maintained for charitable purposes
- it is not for the private profit of any individual or group
- it has a name that complies with the Act
- all the officers of the organisation are qualified to be officers under the Act.
Registration under the Charities Act is not necessarily a permanent status. A charity must continue to qualify for registration in order to remain on the Register.
We assess the eligibility of a charity to remain registered if something happens to make us decide to open an investigation or a monitoring review.
We will open an investigation in response to specific information – for example, a complaint, adverse information received about a charity's activities, a negative media report, a court judgement relating to a similar type of charity, or concerns identified by the Commission at the time of registration.
Or, we may open an investigation because of information provided by the charity itself. This includes:
- notification of changes to its rules which mean its purposes are no longer charitable
- notification of changes to its winding up clause which means the winding up clause no longer meets our criteria
- an Annual Return that shows spending on activities that are not related to its charitable purpose
- an Annual Return that indicates someone is receiving a private financial profit.
We may open a monitoring review based on the general risk characteristics of a charity – for example, the nature of its activities. Or, we may select a charity at random to ensure that its information on the Register is up-todate and it stills qualifies for registration.
An investigation or review looking at whether a charity continues to qualify for registration uses powers under section 50 of the Charities Act. The Commission uses these powers to ask a charity about its activities, purposes, management, administration, outcomes and the use of its property and income.
"Significant or persistent failure"
The Charities Act 2005 (section 32(1)(b)-(d)) says that one of the grounds for removing an entity from the Register is "there has been a significant or persistent failure by the entity", one or more of its officers, or one or more of its collectors, " to meet its obligations under this Act or any other enactment"
Obligations specified in the Charities Act include the duty:
- of telephone and internet collectors to disclose the charity's registration number when asked for it (section 39)
- to notify changes to the Commission (section 40)
- to provide Annual Returns that include both a complete Annual Return Form and financial accounts (section 41)
- to assist the Commission when it asks for information while carrying out its functions (section 51).
Obligations specified under any other Act may relate to matters that indicate a significant failure by an entity in its operation as a charity.
The most common reason for compliance action in relation to "significant or persistent failure" is the failure to file an Annual Return that includes a completed Annual Return Form and a set of financial accounts.
"Engaged in serious wrongdoing"
The Charities Act 2005 (section 32(1)(e)) says that one of the grounds for removing a charity from the Register is "the entity has engaged in serious wrongdoing or any person has engaged in serious wrongdoing in connection with the entity" .
Section 4(1) of the Act defines serious wrongdoing as:
- unlawful or a corrupt use of the funds or resources of the entity; or
- an act, omission, or course of conduct that constitutes a serious risk to the public interest in the orderly and appropriate conduct of the affairs of the entity; or
- an act, omission, or course of conduct that constitutes an offence; or
- an act, omission, or course of conduct by a person that is oppressive, improperly discriminatory, or grossly negligent, or that constitutes gross mismanagement.
Types of activities that may be considered to be serious wrongdoing under section 4(1)(b) and (d) include:
- persistent failure to keep proper financial records
- filing financial reports that are largely inaccurate
- the inability to account for the way public donations are used
- presenting largely inaccurate information to the public about the charity's purpose or activities
- money laundering
- allowing funds to be used to assist illegal activities or terrorism
- making or allowing private financial profit
- persistently working outside the rules of the charity
- knowingly allowing an officer who does not qualify in terms of the Charities Act to remain as an officer.
Making an order
Under section 31(4) of the Charities Act 2005 the Commission has the power to make orders that prevent a deregistered charity from registering again for a set length of time, and to prevent an officer of that deregistered charity from being an officer of any registered charitable entity for a set length of time.
An order preventing registration
We consider the following questions when making an order preventing a deregistered charity from registering again within a set timeframe:
- have the activities of the charity, or any of its officers, had an adverse affect on public trust and confidence in the charitable sector or the effective use of charitable resources?
- has the charity, or any of its officers, engaged in conduct that the Charities Act does not permit?
- will the risk of adverse activities continuing, or happening again, be reduced by an order under section 31(4)(a)?
Examples of situations that might lead to a recommendation for a prevention order include:
- financial controls that put funds collected from the public at risk
- allowing private financial profit
- undertaking unlawful activities or purposes
- keeping inadequate financial records
- not actively pursuing a charitable purpose
- persistently failing to file Annual Returns
- not taking appropriate remedial action after serious wrongdoing has occurred.
Other situations that might lead to a recommendation for a prevention order include the failure to take active steps to:
- protect vulnerable beneficiaries from exploitation
- prevent further crimes of dishonesty if a crime of dishonesty has already occurred
- prevent the diversion of funds or resources to terrorism
- prevent the charity being used for money laundering
- control inappropriate behaviour by a collector.
The purpose of an order preventing a deregistered charity from registering again within a set timeframe is to:
- allow the charity time to reflect on the issues leading to its deregistration
- give the charity time to put remedial strategies in place
- protect the public from dishonest charities and individuals.
The prevention order may be for a minimum of one year and for up to a period of several years, depending on the situation.
An order disqualifying an officer
We consider the following factors when making an order disqualifying an officer from being an officer of a registered charitable entity for a set length of time:
- have the activities of the officer undermined public trust and confidence in the charitable sector or adversely impacted on the effective use of charitable resources?
- will the risk of the activities continuing or reoccurring be reduced by an order under section 31(4)(b)?
The risk of recurrence will inevitably be greater if the officer:
- collects donations from the public
- delivers services to vulnerable beneficiaries
- is one of a small number of officers
- acts without the knowledge of other officers
- holds a position of trust and confidence within the charity
- works with other officers who have little or no experience in risk management.
Examples of situations that might lead to a recommendation for an order disqualifying an officer are situations where the Commission has evidence that the officer has been directly responsible for:
- inadequate financial records or reporting
- poor financial management
- the lack of protection of vulnerable beneficiaries
- diversion of funds or resources to terrorism
- use of the charity for money laundering
- inappropriate behaviour by a collector
- unlawful activities
- serious wrongdoing as defined by the Act, in relation to the charity.
The purpose of an order disqualifying an officer from holding a position of responsibility in a charity is to:
- give the charity the opportunity to take remedial action that may include improving their governance and management
- give the charity the opportunity to put new officers in place
- protect other charities, if there is a possibility that the person will try to become an officer of another charity.
The disqualifying order could be for a minimum of one year, and for up to a period of several years, depending on the situation.
Further information
For more details about officers, notifying changes, Annual Returns and deregistration see our information sheets –
