Conflicts of Interest and Registering as a Charity
Posted on 26 August 2016
This is the second blog post in our series on conflicts of interest and charities. The first explained what “related parties” and “conflicts of interest” meant. This post looks at how to become registered, and remain registered as a charity (in relation to conflicts of interest).
When we assess applications for registering as a charity, or when we evaluate any changes to your rules, we look at both your rules and your operation. This is to see whether you meet registration requirements, including whether we think there might be actual or potential benefit to related parties. If you operate for the benefit of an individual or individuals, you may not meet registration requirements.
Your rules need to make it clear that officers can’t influence a decision where the officer or a related party might benefit. Generally, your rules should state:
- That the officer with the conflict can’t vote on that particular decision;
- The officer will exclude themselves from that discussion in a meeting; and
- That the officer doesn’t get counted for a quorum.*
We have more detailed best practice operational policy and wording for your rules available on our Conflict of Interest page. If your organisation is a trust or incorporated society, your legal duties prevent you from influencing decisions so you don’t need any specific wording in your rules preventing conflicts. However, it’s best practice for your rules to have wording preventing conflicts so that officers are clear about their duties. If we see that you have wording in your rules contradicting your legal duties, we'll work with you to change it.
In some cases, being involved in discussions or being counted towards quorum can be justified despite conflicts. For example, an officer might need to provide expertise to the discussion (e.g. if they’re the only builder on a committee, and the committee is deciding on a building project), or be included in the quorum (e.g. if the quorum is 50% of the trustees, and two of the three trustees are related). Wording permitting this may be acceptable in some cases, but you’ll need to provide assurance that conflicts won’t lead to any private benefits.
Proposed changes to the Incorporated Societies Act 1908 include new provisions regarding conflicts of interest in decision making. We consider that the proposed wording would still meet our requirements. For more information on this change, see the Ministry of Business, Innovation and Employment’s website(external link).
Unincorporated groups that are not trusts need to include specific wording in their rules that prevent influence and profit. Some companies can also qualify as charities, but in that case, the rules need to be very clear that conflicted individuals can’t influence decisions, and shareholders that aren’t charities can’t receive any benefit. Go to our Rules and the Charities Act page for helpful information and specific wording.
How You Operate
As well as looking at the wording of your rules, we assess each application on a case by case basis to determine whether there is an actual or potential conflict. A clear example would be where two related people are the only officers. As they can’t make decisions to benefit themselves, they wouldn’t be able to receive salaries or other payments for services from the charity. In these situations, we’ll work with you to find a solution.
The best practice is always making sure you have enough independent officers to make decisions. Charities operate best when there are additional people, who are not related, involved in the operation of the charity.
In some circumstances, this may not be possible. When this happens, the charity should not provide any benefit or advantage to their officers or any related persons, and we will accept their word that they won’t do this (although we may ask questions about it in the future).
In some cases, it may be acceptable to use an independent party to make decisions regarding payment, but you’ll need clear policies on how you’ll do this. For example, you could refer any decisions regarding related parties to your accountant or lawyer to verify that they’re reasonable and consistent with the charitable purposes of the organisation. This will only be acceptable if we’re satisfied the organisation will not provide any private benefits. In some cases, the appointment of independent officers will be necessary.
One thing we recommend is maintaining both an “Interests Register” and a “Conflict Register”. The Interests Register should list any interests you have that might impact on your involvement with the charity, including employment, membership on other boards or personal affiliations. This should be updated each meeting as a standing item. The Conflict Register should be filled out when an actual or perceived conflict is identified in a meeting, with details on how the meeting decided to address that conflict.
If you have any questions about our approach or want to check that what you’re doing is right, don’t hesitate to ask by sending an email to email@example.com.
For more information about conflict and being an officer, see the information on our Conflict of Interest page.