Misuse of funds by a head teacher of a school with charitable status

In July 2014, it emerged that the head teacher of Gad's Hill school in Kent had increased his own salary by 381% over an 11 year period. In 2000, when he started his role, his salary was £35,130, increasing to £168,985 by 2011. He also used the school's debit and credit cards to make payments that were unauthorised by the governors. The school's governing body informed the Charity Commission of the salary increase and financial review they undertook, and both the school's governing body and the Commission decided no further action needed to be taken. However, the issue of misappropriation of funds, which was not mentioned when the Commission was first informed of the matter, has recently been brought to their attention and they have decided that further enquiries are necessary.

In order for a school to be a charity, it must have only charitable purposes as defined by the Charities Act 2011. It must also be for the public benefit, and has to be independent and not controlled by another organisation.  Advancement of Education is considered a charitable purpose under the Charities Act 2011, and the laws that create some types of schools automatically give them charitable status. These include the governing bodies of foundation, voluntary and foundation special schools, as well as qualifying academy proprietors.

Schools receive multiple advantages by being registered as charities, including various tax exemptions, which shows the importance of schools achieving charitable status. It is for the school's governing body as trustees to regulate the finances and to ensure that funds are being appropriated prudently. In their capacity as trustees, the governors must exercise due diligence in ensuring that funds given to the charity are used only for the furtherance of the educational purposes for which they were intended.

Trustees have a duty to exercise reasonable care and skill in performance of their duties.  The head teacher, as an employee of the charity, also has a role in supporting the trustees in carrying out their responsibilities.  As he had been put in charge of the day to day use of funds, there should have been adequate checks and balances put in place to ensure that the funds are being used in furtherance of the charity's aims.  The trustees are accountable for any misappropriation of the funds. If funds have been improperly used, and the trustees have failed to take reasonable steps to protect the funds and make sure they have been accounted for, the trustees may have to repay any loss that the charity has suffered.  There could also be tax implications for the charity.  If a charity incurs non-charitable expenditure, its tax reliefs can be restricted and the charity might be required to pay income and/or capital gains tax.

The Commission is also able to suspend trustees or employees of the charity pending investigation, and can appoint an interim manager who will manage the affairs of the charity alongside the trustees.

This highlights that all charities and their trustees should take financial controls seriously.

For further information  please call Gerry Morrison or Sarah Greendale

Posted on: 25/07/2014

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.

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