Of interest to many of those pursuing the highest standards of corporate governance will be the news of the launch of a class inquiry by the Charities Commission into charities seriously breaching reporting requirements. It was at the regulator’s Annual Public Meeting (APM) that its chief executive confirmed that charities failing to file annual reports, accounts and returns – ‘the annual documents’ – for at least two years would be subject to formal investigation.

It is a criminal offence for charities to fail to submit annual documents to the Commission, which has described it as amounting to mismanagement and/or misconduct in a charity’s administration, with its association with wider mismanagement and poor corporate governance including charitable funds being misapplied or abused.

Sam Younger stated at the Commission’s APM in London in September that a class inquiry had been opened by the regulator into charities that default on their statutory obligations to meet reporting requirements, through the failure to file their annual documents for two or more years in the previous five years. The Commission started by examining charities with a last known income exceeding £500,000. Such charities may have succeeded with the submission of an annual return, but not submitted a Trustees’ Annual report and accounts – or vice versa.

Charities have been receiving telephone and written contact from the Commission as part of the enforcement action, with warnings that they are in default and full compliance is therefore required by a specific date. Not ensuring this will mean that they are moved into the inquiry.

86 charities for which the most recently known income was above £500,000, and that have also been in double default with their reporting requirements for a minimum of the last two financial years, have been identified by the regulator. Of these charities, 2 no longer existed and 16 had dissolved with Companies House, while 32 were identified as being in administration or liquidation, with the liquidation process covering the preparation of the missing and final accounts.

However, as of 23 September, there were still 12 charities in default out of the 86, leading to their inclusion in the inquiry. Trustees have been issued with a formal legal direction by the Commission as the first step of the inquiry, stating a set period of time for them to meet their reporting requirements. Failure to comply, except where it is evident that all reasonable steps for securing compliance were taken by the relevant trustees, will culminate in a referral to the police for criminal prosecution.

The Commission has also said that it could ensure compliance by exercising  its legal powers to appoint an Interim Manager, with the associated expense potentially being recovered from the trustees personally. With the Commission also promising to follow its targeting of double defaulters for which their incomes exceeded £500,000 with an investigation into every other outstanding double defaulter, charities with anything less than the highest standard of corporate governance should be freshly alerted to their reporting obligations.