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Help! Our chief executive is charged with fraud

Governance | 12 Jan 2011

A chief executive appears to have been involved in a major fraud case and the charity faces losing their leader. Lizzie Jones advises the board how to redeem the situation. 

Dear editor,

A week after I read the November postbag question in Governance, our board was faced with the possible sudden loss of our chief executive (CE) but for completely different reasons. On Monday, as chair of trustees I received a telephone call from another charity on which our CE serves as treasurer to say that the police had been called in to investigate major fraud at that charity and that it appears our CE is involved. Yesterday we heard that he has been charged but his wife assures me that he is blameless and that he will be able to prove his innocence. The chair of the other charity informs me that the evidence against our CE is very strong.

We have to act to minimise any potential damage to our charity (the press haven’t got hold of the story yet) but at the same time we feel we must also support our CE who surely is innocent until proven guilty? What should we do in this difficult situation?

Yours sincerely

A board in a nightmare situation

Dear board,

Finding out a person in a position of trust may not merit that trust is normally very shocking. In these circumstances, it is important to act quickly.

Below are the suggested key steps. The steps in sections 1-3 will be very urgent.

1. The charity and the fraud

Consider if any steps (such as suspension) need to be taken at this stage against the CE. Consult your HR consultants or an employment lawyer beforehand.

Conduct an internal investigation to assess whether there is any loss to your charity resulting from actions by the CE. You may need assistance from an accountant.

If the CE has defrauded your charity as well, take steps against the CE to recover losses. These steps may include negotiating with the CE or as a last resort pursuing the CE in the courts.

2. Dealing with regulators

Report this to the Charity Commission as a serious incident.

Notify HMRC of the possibility that the charity has been run by a person who is not a ‘fit and proper person’ and inform HMRC an investigation is underway. At a later stage it may be necessary to request that HMRC deem the charity met the ‘management condition’ throughout the period the CE worked at the charity, to ensure the charity’s tax status is not jeopardised.

3. Reputational risk

• Have a PR strategy and press release that are regularly updated in case of media enquiries.
• Develop a strategy for communicating with key stakeholders, as necessary.

4. Check your own policies and controls

• Review HR policies to assess whether any improvements could be made to hiring policies – including in relation to the ‘fit and proper person’ test.
• Annually review internal financial controls to check these comply with the Charity Commission’s recommendations.
• Review whether the levels of authority delegated to the senior management team by the trustees are appropriate.

Yours sincerely

Lizzie Jones

Trustee, Share Community Solicitor, Farrer & Co

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