This page contains information that has appeared on Sandy Adirondack's legal update website for voluntary organisations at www.sandy-a.co.uk/legal.htm. For current updates, including potential changes that are in the pipeline, see the legal update website.

These websites for each chapter update the 2nd edition of The Voluntary Sector Legal Handbook by Sandy Adirondack and James Sinclair Taylor (Directory of Social Change, 2001). The websites are not intended as a comprehensive update and should not be treated as such.

To order a copy of The Voluntary Sector Legal Handbook, print out the order form at www.sandy-a.co.uk/bookserv.htm or send an email order by clicking . It costs £50 for voluntary organisations or £80 for others, plus 10% p&p. We expect the third edition to be published in 2007.

The information here covers the law applicable to England and Wales. It may not apply in Northern Ireland and/or Scotland. These news items are not a full or definitive statement of the law and are not intended as a substitute for professional legal advice. No responsibility for loss occasioned as a result of any person acting or refraining from acting can be taken by the author.

Chapter 49
FINANCIAL PROCEDURES AND RECORDS

CHARITY TRUSTEES' RISK MANAGEMENT STATEMENT

Added 7/10/02; links updated 22/12/05. This information adds to ss.19.1.5 and 49.1 in The Voluntary Sector Legal Handbook 2nd edition.
Under the revised Statement of Recommended Practice (SORP 2000), Accounting and Reporting by Charities, trustees of charities with gross income of more than £250,000 must include, in their report on the annual accounts, a statement that the trustees have considered the main risks to the charity and have put in place controls to mitigate these. The obligation to consider and take steps to reduce risk is not new; trustees have always had a duty to safeguard the charity and its assets. What is new is the duty to say they have done so, which is helping to focus trustees' attention.

The Charity Commission has issued guidance and an example format for a risk register at www.charitycommission.gov.uk/investigations/charrisk.asp.

Trustees should introduce a rolling programme for identifying major risks and ensuring steps are taking to reduce the risk, and to minimise the negative effects if it does happen. This includes not only obvious risks such as health and safety, but also risks to finance (money going missing or being misused), funding risks (losing a major donor, grant or contract), risks to information (computer crash, breach of confidentiality or data protection), premises risks etc etc etc. Trustees of larger charities should ensure they are telling the truth when they authorise the risk statement to be signed on their behalf.

PREVENTING AND REPORTING MONEY LAUNDERING

Updated 2/1/04. This information updates ss.38.1.1 and 49.2 in The Voluntary Sector Legal Handbook 2nd edition.
Organisations such as CVSs and community accountancy projects which help organisations set up and which advise individuals and organisations on financial and management matters could be caught by the Money Laundering Regulations 2003. Management consultancies and businesses which advise on personnel and employment matters almost certainly will be, and accountants, tax advisors and banks definitely are.

In a surprise change to the final regulations, they were extended to cover anyone involved in "the provision by way of business of services in relation to the formation, operation or management of a company or trust". I have not yet been able to find out whether "company" in this context includes unincorporated associations (in some legislation it does, and in some it doesn't) and whether "trust" includes charitable trusts (there is no particular reason why it shouldn't). I have also not been able to find out whether "by way of business" will include services provided free of charge by charities.

The regulations, which mostly came into effect on 1 March 2004, require affected bodies to:

• verify the identity of new clients and keep records of identification evidence;
• retain records of transactions with clients;
• appoint one or more money laundering officers;
• train staff to be aware of money laundering;
• develop procedures to reduce the risk of money laundering;
• report to the national Criminal Intelligence Service suspicions of money laundering by their clients or others.

CHECKING AND REFUSING DONATIONS

Added 2/1/06. This information updates ss.44.3.2 and 49.2 in The Voluntary Sector Legal Handbook 2nd edition.
Governing body members could be prosecuted under the Proceeds of Crime Act 2002 or other money laundering regulations if their organisation accepts a donation or loan which turns out to be the proceeds of a crime, and the governing body member or members knew or suspected that the funds represented the proceeds of crime.

The Charity Commission has made clear that the mere fact that someone is proposing to donate a large amount to the charity is not in itself grounds for suspicion. However its guidance on charities and terrorism states that unsolicited donations could be suspicious, especially if trustees are unable to satisfy themselves about the credentials of the people involved or the propriety of the donation or loan. The guidance states:

• If offered large donations from persons unknown to the trustees, the trustees may wish to make further enquiries before accepting the donation, and may refuse a donation if satisfactory replies to enquiries are not received.
• Donations conditional upon particular individuals or organisations being used to do work for the charity may be refused.
• Offers of donations in cash, for a certain period of time, the charity to receive the interest, but the principal to be returned to the donor at the end of the specified period, may be refused.
• Donations in foreign currencies, with the provision as above, but the principal to be returned to the donor in the form of a sterling cheque, should be refused.

REDUCING THE RISK OF IDENTITY THEFT AND FRAUD

Updated 2/1/06. This information updates s.49.2 in The Voluntary Sector Legal Handbook 2nd edition.
Voluntary organisations are being advised not to publish documents with scanned signatures, such as annual reports and accounts, online. Such signatures can be copied from the website and can then be scanned into documents. This can be a particular problem where a charity has a gift aid form online, with its bank account details--enabling fraudsters to use the information and signatures to write to the bank and arrange a payment or standing order from the charity to the fraudster.

Organisations should carefully check their bank statements, to ensure all payments made by the bank were properly authorised by the organisation.

In the first six months of 2005, the identity of 114 companies was stolen by people who obtain forms from Companies House with company directors' signatures, then use those signatures to submit a form 287 falsely changing the company's registered address. The fraudsters then use the company's identity and amended address to order goods or services on credit.

In an attempt to reduce this type of identity theft, Companies House is offering a monitoring service, where companies can, for 50p per year, be notified by email of any documents filed. Once a company has signed up for the monitoring service, Companies House will only accept statutory forms relating to changes of address and directors via its password-protected electronic filing service.

Information is available at www.companieshouse.gov.uk.

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