Are You Exceeding Your Authority?

An overview from Chantrey Vellacott DFK

One of the trends we have started to notice both from our own client base and from reports emanating from the Charity press are a growing incidence of Charities inadvertently acting “Ultra Vires” or beyond their powers. We are not talking here of charities making “non-charitable” payments, but charities making payments which are not authorised by their constitution.

The reader may think that this could not happen with the necessary controls that good charities have in place but it is easier than you think to make a slip of this nature. Many charities have trust deeds or constitutions that were drafted many years ago and which placed particular restrictions on the class of beneficiary for whom the charity was meant to exist. For example, such restrictions might relate to the age of the beneficiary, their geographical location, or perhaps the particular disease that the charity was set up to research.

We came across one charity whose classes of beneficiaries all related to a particular London Borough and yet inadvertently, they were making payments to a particular beneficiary who qualified in every respect other than they were now resident in the next-door borough and were no longer eligible. An honest mistake but nevertheless a payment had been made which was “ultra vires”.

Yet another charity was set up to benefit children of a particular age group but long-term beneficiaries of the charity were still receiving payments outside of the upper end of the age range.

In a third case, a medical charity had been set up to carry out research into a particular disease. Medical breakthroughs had meant that research had naturally extended into a related field but not the same disease and consequently such payments were starting to drift beyond the powers of the existing charity.

It is therefore essential that trustees keep their constitution regularly under review. This is particularly necessary when a charity starts to contemplate a new project. The first question they must decide is whether or not they have the power to do so. If they have any doubts it is advisable to consult and if necessary to make an application to the Charity Commission either for a ruling on whether or not their proposals can be dealt with under their existing constitution or whether a change would be both necessary and approved.

Remember, ultimately the responsibility for acting “ultra vires” lies with the trustees so if you believe you may have a problem please have a word with your advisers - or members may care to call Chantrey Vellacott DFK using the Charity Finance Helpline, the number of which can be found in the Members' section of this website.

(c) CVDFK 2005

For more information on Charntrey Vellacott DFK, please visit their website www.cvdfk.com