Our charity is a Scottish Charitable Incorporated Organisation. We've received funding from central government in the UK which we intend to give to an organisation in Africa to deliver a specific project. The trustees are keen to clarify their position with regard to their personal liability if something goes wrong in Africa. From a trustee's perspective, what should we think about when entering into such an arrangement with a foreign organisation?
Answer (March 2016):
The trustees of the SCIO are unlikely to be found liable if there is any negligence on the part of the African organisation if it fails to deliver the project as agreed or if some harm comes to those who are intended to benefit from the project, at least in as far those beneficiaries are concerned. That would seem to us to be too far removed from the SCIO which is simply funding the project.
There are some other things to think about here though:
- above all, the trustees must make sure that any decision they take is in the best interests of the SCIO and is in accordance with the SCIO's purpose;
- it's not clear whether the SCIO proposes to pay the money to the African organisation by way of grant (as opposed to payment for services), but if it is a grant then the trustees should be aware of draft guidance issued by the Charity Commission just recently on the subject of charities giving grants to non-charities: https://www.gov.uk/guidance/draft-guidance-grant-funding-an-organisation-that-isnt-a-charity The Charity Commission is the English charity regulator, but it's guidance is generally useful to trustees of Scottish charities too;
- both from a legal and reputational perspective, the trustees need to be confident that appropriate checks are in place to ensure that the money will be used by the African organisation in the way in which the SCIO intends it to be used. So, for example, what 'due diligence' has been done on the African organisation to reassure the trustees that it can deliver the project? What monitoring will the SCIO do along the way to ensure the African organisation is continuing to meet its targets? Again, the Charity Commission has produced guidance for charities which operate abroad including providing due diligence checklists and so forth: https://www.gov.uk/guidance/charities-how-to-manage-risks-when-working-internationally#traceability-keep-track-of-money-and-resources
- for tax purposes, HMRC's guidance states that "in general, a payment by a charity for its charitable purposes is charitable expenditure by the charity. However, where the payment is to an overseas body an additional condition must be met in order for the payment to be charitable expenditure for UK tax purposes". That additional condition is that the charity must be able to clearly demonstrate to HMRC that it has taken steps which HMRC considers are reasonable to ensure that the payment is applied for charitable purposes. This is of course not dissimilar to the previous point. Note that HMRC's guidance goes on to state that "it’s not sufficient for the charity to simply establish that the overseas body is a charity under the domestic law of the host country. Nor is it enough to keep records of how things are spent". But it does accept that the steps which should be taken need to be proportionate to the sums in question. We recommend the trustees read over the HMRC guidance here.
- the agreement with central government will be in writing so check what it says about the extent of the SCIO's liability to government if the SCIO or those it contracts with (i.e. the African organisation) fail to deliver on the agreed outcomes - can government claw back payment from the SCIO?