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Gambling with charity funds

Governance | 10 Nov 2010

When the treasurer records a large windfall, trustees are surprised to hear its origin. Here a trustee asks, should they whistleblow or was gambling with charity funds a means to an end?

Dear editor,

I have recently joined the board of a small charity which has no paid staff. Trustees and volunteers work incredibly hard to deliver the work of the charity. Like many small charities we struggle to raise money to do our vital work in the community.

Unbeknown to us the treasurer put what is a considerable amount of the charity’s money on Spain to win the Football World Cup. He placed the bet at precisely the right time and got very good odds – the charity made quite a killing. He returned the money he “borrowed” and the books show his winnings as a very generous donation from an unknown benefactor. This has helped the charity considerably.

We have only just found out because in the end he couldn’t resist telling us. He and the other trustees are hugely amused. I’m not.

I’m not against taking the occasional flutter myself but is his action legal? What if he does it again and this time he doesn’t win?

What should I do? Should I whistleblow to the Charity Commission?

Yours sincerely

A trustee who cannot see the funny side

Dear trustee,

I can quite see why you cannot see the funny side of the charity’s ‘windfall’. As you suspect, there are strict rules on what charity trustees can do with charity funds. They are under an obligation to safeguard the assets of their charity. Taking the funds to the betting shop is hardly consistent with this duty.

More particularly, there are Charity Commission guidelines on trustees’ duties as regards to investment. Unsurprisingly, the list of appropriate investments does not include a bet on the outcome of the World Cup. Even Premium Bonds are not appropriate investments, as there is a gamble as to whether or not there is a return.

Your treasurer has clearly breached his duties to the charity. But as you say, the outcome hasn’t been bad. The usual course of action in these circumstances is to make a claim against the trustee for any resulting loss to the charity. Here, happily, there has been no loss – in fact quite the reverse. There are also obligations on trustees to report ‘serious incidents’ to the Charity Commission. I don’t think that this is a ‘serious incident’, as there was apparently no fraud, and no loss but consistent problems might trigger a need to make a report.

You are quite right to be concerned about the future. It concerns me that the treasurer was able to take a considerable amount of money without referring his decision to anyone else. While it can be difficult to strike a balance between the need for flexibility, and the need for sensible internal financial controls, no single person should have sole responsibility for a single transaction. You should raise your concerns with the board.

Internal controls must be introduced – and implemented – to ensure that something similar cannot happen again. The Charity Commission’s guidance CC8 Internal Financial Controls for Charities has some useful guidelines. If the treasurer is hostile – which he shouldn’t be, as what you are suggesting is more than sensible – then he isn’t the right person to serve on your board.

Yours sincerely, 

Rosamund McCarthy

Partner, Bates Wells and Braithwaite LLP

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