August 2009

You may also view a full PDF version of NHS Charities and independence, indicators and evidence

Independence is one of the defining characteristics of being a charity. Independence must be evident from the charity's governing document and its operation in practice and be demonstrable. An organisation which is otherwise charitable but is not independently constituted and operable cannot be a charity.

Independence can exist under any trusteeship model but the need to demonstrate independence may be greater where a charity is closely linked to another body (public or private) by trusteeship or through a funding relationship.

A detailed explanation of the need for independence, and indicators of independence are explained in the following guidance:

• RR7 The independence of Charities from the State
• Charities and Public Service Delivery: An Introduction and Overview (CC37) (particularly at E2 and H)

What does independence look like? Indicators and evidence.

Independence is defined through the constitutional provisions within a charity's governing document and by the way trustees conduct the charity's affairs. For a charity to be independent its trustees' decisions must be separate from that of all external bodies and made solely in the interests of the charity.

The key decisions to be taken by the trustees will include the setting (and subsequent reviews) of the charity's overall priorities and spending strategies; the budget; and controlling the selection of those who are to benefit from the charity's resources and/ or services. Where the charity is closely linked to another body (public or private) by trusteeship (for example a corporate NHS trustee), or through a funding relationship, that link may be a factor in the charity's decisions but only to the extent that the link is in the interests of the charity. It should not be the only factor, however, or the factor which automatically takes priority over others.

As explained in the Charity Commission's publication the Hallmarks of an Effective Charity (CC10) the trustees should be clear about the charity's purposes and direction. A key element in this is to be clear as to who are the beneficiaries.

In the case of charities established under the NHS Acts, the beneficiaries are NHS patients. A linked body (even if it receives funding from the charity) is not the charity's beneficiary.

Indicators: essential

• The trustee(s) must make decisions solely in the interests of the charity and must undertake a separate process of decision making from that of any linked body. This would apply whether the linked body is the
  
  
  • trustee or appoints some or all of the trustees; or
    
  • primary funder of the charity; or
  • charity's main 'agent' for the application of the charity's funds.

• The decision making must be based on factors which can properly be taken into account by the charity's trustee(s). These may include the charity's objects, any restrictions properly imposed by donors and the need to demonstrate public benefit. It must also be clear that the trustees have not taken into account factors which were irrelevant to the making of a proper decision. They may also include conditions of funding which the trustees consider it is in the interests of the charity to accept. Where there is a corporate trustee, however, there must be no pre determined restriction on the priorities of the charity being able to diverge from those of the linked NHS body.
  
  
• The charity must comply fully with the statutory reporting requirements for charities, including the filing of an annual report and accounts in accordance with Part 8 of the Charities Act 2011.

• The trustee(s) must avoid conflicts of interest (including conflicts of loyalty) where those involved in the decisions have more than one role. In practice this may include maintaining a register of interests or similar record.

Indicators: possible

• Governance structures which separate those who consider decisions on behalf of the charity from those who control the linked body.

The Charity Commission's guidance also makes it clear that a corporate trustee can achieve independent decision making, even though the individuals managing the linked body also act for the corporate trustee. A corporate trustee may nevertheless feel that it is helpful to create a degree of visible separation in the consideration of decisions and day to day management of the charitable funds, for example by establishing a charitable funds committee (the membership of which is not confined to members of the corporate trustee's Board). If such arrangements are put in place the trustee will remain responsible for the charity's overall priorities, strategy, budget and statutory reporting responsibilities. It may delegate individual decisions made within that framework (and implementation of the trustee's decisions) but it cannot delegate the decisions that create the framework. The trustee is not at liberty to transfer its trusteeship, either formally or informally.

If a corporate trustee decides to retain day to day management of the charity in the hands of the linked body's Board, a clear separation of the charity's business should be demonstrated within the Board's meetings.

Evidence:

Overall the trustee(s) should maintain discrete records that demonstrate clearly the separation of the charity's decision making from decision making relating to the linked body. The records may include:

• Minutes illustrating separate decision making. The minutes could be for a separate meeting (from the linked body's business meeting) even if the two meetings are consecutive or they could be one or more discrete (charity only) items within the minutes of the linked body's business meeting. A minute discussing the charitable funds in the context of the linked body's spending and priorities would be indicative of a lack of separation and independence.

• Papers presented for consideration by the trustee(s) (where decisions are to be made (for example agreeing draft budgets or proposed spending priorities) that record the factors put forward to inform the decision. Those factors should not prioritise the interests or needs of the linked body but may include them if relevant. If the factors are recorded transparently in the minutes it is not necessary to retain these separate papers.

• An operational plan, business plan, or framework of priorities (or similar document) that sets out the strategy for the charity, its priorities for expenditure and how these priorities shape operational plans for the current year. The level of detail may vary according to the size of the charity concerned.

• Accounting records relating exclusively to the charity.

• The Trustees' Annual Report (and the material which has informed that report) explaining how the trustee has applied the charity's resources to achieving the charity's objects, in ways that demonstrate public benefit.

Other records which could further illustrate independence:

• If external professional advice is taken on any issue the instructions and the advice should make it clear that the adviser is acting exclusively for the charity and not for the linked body.

• If internal advice is sought (eg from paid officers of the linked body) on any issue the instructions and the advice should make it clear that the adviser is acting exclusively for the charity and not for the linked body.

• Conflict of interest policy. Minutes of trustee(s) meetings record conflicts of interest and what steps were taken to manage them.

• Service Level Agreements or contracts that demonstrate the charity has made decision about services provided by the linked NHS body.

• Standing Financial Instructions, Standing Orders, and similar policies that are specific to the charity. Where the corporate trustee has, for ease of logistics, adopted the linked NHS body's policies, that decision has been minuted.