Charity Commission inquiry: lessons for trustees from the £22 million cheque-cashing case

Robert Levy, Executive Partner

Charity Commission inquiry serves as a warning on governance, financial controls and regulatory risk

The Charity Commission has concluded its investigation into four charities as part of a wider statutory class inquiry involving 105 charities.

The inquiry was launched after charities were found to have issued cheques that were subsequently exchanged for cash, with transactions totalling approximately £22 million between December 2021 and March 2023. While the Commission was satisfied that the charities were carrying out legitimate charitable activities, it nevertheless identified misconduct and/or mismanagement due to the use of blank or open cheques and weaknesses in financial oversight.

The findings are an important reminder that regulatory concerns do not arise only where there is evidence of fraud or deliberate wrongdoing. Increasingly, regulators are focusing on governance failures, inadequate oversight and weaknesses in financial controls.

Regulatory scrutiny extends beyond fraud

One of the key themes emerging from the Charity Commission’s findings is that organisations can face significant regulatory intervention even where funds have ultimately been used for legitimate purposes.

In this case, the regulator’s concerns centred on the controls governing the movement of funds rather than the underlying charitable activities. Blank or open cheques were considered high risk because they weakened authorisation controls, reduced transaction traceability and made it harder for trustees to demonstrate accountability for charitable funds.

For trustees and senior leaders, this serves as a reminder that regulators increasingly expect organisations to demonstrate not only that money has been spent appropriately, but that robust processes exist to evidence, monitor and control those decisions.

How weak charity governance can trigger a regulatory investigation

Many organisations assume that investigations are triggered by allegations of dishonesty or misuse of funds. In reality, regulatory reviews often begin with concerns about processes, record keeping, governance arrangements or financial controls.

Whether undertaken by the Charity Commission, HMRC, the Solicitors Regulation Authority, the Financial Conduct Authority or other regulators, investigations frequently focus on questions such as:

• Were appropriate controls in place?
• Were risks properly identified and managed?
• Was there sufficient oversight by trustees, directors or senior management?
• Is there a clear audit trail supporting financial decisions?
• Can the organisation demonstrate compliance when challenged?

Where those questions cannot be answered confidently, organisations may find themselves facing extensive regulatory enquiries despite there being no evidence of fraud.

What should charity trustees review now?

Although this inquiry relates to the charity sector, the principles apply much more widely.

Regulators are increasingly focused on governance, accountability and financial transparency. Organisations that rely on historic practices, informal procedures or poorly documented decision-making processes may find themselves exposed when subjected to scrutiny.

Charity trustees and senior leaders should review the following areas to test whether their governance and financial controls would withstand regulatory scrutiny:

• Financial controls and authorisation processes.
• Cash handling procedures.
• Record keeping and audit trails.
• Governance frameworks and reporting structures.
• Risk management processes.
• Trustee, director and senior management oversight.

A proactive review can often identify weaknesses before they become the subject of a formal investigation.

When to seek advice during a Charity Commission inquiry

Regulatory investigations can be disruptive, time-consuming and reputationally damaging. Obtaining advice at an early stage can help organisations understand their obligations, manage regulatory engagement effectively and address any underlying governance concerns.

The Charity Commission’s latest findings demonstrate that regulators are prepared to take action where governance standards fall short, even where there is no suggestion that funds have been deliberately misused.

For trustees, directors and senior management teams, the message is clear: strong governance and effective financial controls are no longer simply examples of best practice. They are increasingly becoming a key line of defence against regulatory scrutiny.

How Kuits can help with charity governance and regulatory investigations

Kuits advises charities, businesses, trustees, directors and senior management teams on regulatory investigations, governance issues, financial compliance and risk management.

Our team regularly supports clients responding to enquiries from regulators and tax authorities, conducting internal reviews, strengthening governance frameworks and managing investigations where financial controls or compliance arrangements have come under scrutiny.

For advice on Charity Commission enquiries, reviews, financial controls or related tax issues, please contact Robert Levy or Graham Wood.