Casework Guidance

Please read the IMPORTANT NOTE on the front page

OG15 C2

OG15 C2 Whistle-blowing - 14 March 2012 

1. What is meant by the term whistle-blowing?

“Whistle-blowing” is the colloquial term used to describe the auditor or examiner (or reporting accountant) making a report to the Commission to draw our attention to a matter which they have reasonable cause to believe is of material significance to the exercise of our functions under s.156(3). Please note that the examiner and auditor (or reporting accountant) may also make a discretionary report on any matter they believe is relevant to our work.

Whilst an initial whistle-blowing contact may initially take the form of a comment or telephone call, to avoid doubt or confusion it is important that the communication is confirmed in a written form, including e-mail, originated by the auditor or examiner (or reporting accountant). Auditors or examiners (or reporting accountants) are not relieved of their duty to make a written report where an oral report has been previously made to the Charity Commission or by any informal discussions of the issue with Charity Commission staff. Similarly, auditors are not relieved of their duty to report on the basis that any other party has provided relevant information, whether written or oral, to the Charity Commission.

A transcript of a conversation or verbal communication is not sufficient to discharge the legal duty of the auditor or examiner (or reporting accountant) has in reporting a matter of material significance to the regulator.

Where there is doubt the advice of a Commission accountant should be sought as to the nature of any verbal or written communication as to whether the communication constituted whistle-blowing. Similarly if during our work, particularly our Investigations work, we identify matters of concern here we might have expected a whistle-blowing report to have been made, the advice of an accountant should be taken to confirm if a whistle-blowing duty had arisen.

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2. Our regulatory interest in whistle-blowing

Whistle-blowing is an important source of intelligence on matters of material significance to our regulatory remit. Since the examiner or auditor will see the books and records and accounts for the charity up to 10 months before the accounts are filed with the Commission, a timely whistle-blowing report gives early notification of a concern which merits consideration.

To ensure reports are handled efficiently and immediately, auditors and examiners should make reports to the regulators as follows:

• by e-mail – whistleblowing@charitycommission.gsi.gov.uk  

The e-mail should be headed “Auditors reporting a matter of material significance” and within the body of the e-mail, or in an attachment thereto, the following information should be provided:

• Your name
• Your business address
• The name of your audit or accounting services firm, if applicable
• Your contact e-mail address and contact telephone number
• Charity name
• Charity Registration number
• The heading(s) under which you are reporting
• Details of the matter(s) reported
• The information you have available on the matter(s) reported
• The amount(s) involved, if known
• Any action(s) known to you which the trustees have taken or are taking regarding the matter
• And if the report concerns terrorist or criminal activity confirmation that you have already notified the Serious Organised Crime Agency and/or the Police as appropriate.
• And if the report concerns the abuse of vulnerable beneficiaries details of whether you have contacted the Police and/or Social Services.

Once a whistle-blowing report is received it should be reviewed by the Post Assessment Team in First Contact in Liverpool with advice from the Commission accountant.

The accountant should consider the issues raised, along with any other relevant information about the charity and advise about the materiality of the matter raised, whether it merits further review and what additional information may be needed.

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3. The responsibilities of trustees

Our guidance CC3 The essential trustee: what you need to know sets out the responsibilities of trustees. Trustees are responsible for the governance of the charity and should ensure that charity assets are safeguarded against fraud and loss and that a satisfactory system of internal controls (refer to our guidance CC8 Internal financial controls for charities).

Trustees who are also Directors under company law have additional duties set out in the Companies Act 2006 sections 171 to 177.

Our Annual Return guidance now requires trustees to report serious incidents as they have occurred or, if they have failed to do so, as part of the Annual Return. The trustees cannot rely on their examiner (or reporting accountant) or auditor to make such a report or on them taking responsibility for detecting these matters.

Similarly, auditors are not relieved of their duty to report on the basis that any other party, including trustees, has provided relevant information, whether written or oral, to the Charity Commission.

Where trustees wish to make a submission to the charity regulators as to the circumstances and steps being taken to address a reportable matter, the auditors may attach such a memorandum or report prepared by the trustees to their report.

Where such additional information is provided auditors refer to the additional information in their report, and indicate whether or not they have undertaken additional procedures to determine whether any remedial actions described have been taken.

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4. Whistle-blowing by independent examiners

From 1 April 2008 the statutory reporting duty is now identical to that of the auditor. Further guidance is available to independent examiners in our publication CC31: Independent Examination of Charity Accounts.

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5. Whistle-blowing by auditors

In ss.156, 158 and 159 the statutory reporting duty is identical for both company and non-company audits.

The provisions dealing with what an auditor or an independent examiner has to report are as follows. Where 'P' is mentioned it means 'that person'.

156 Duty of auditors etc. to report matters to Commission

“(2) If, in the course of acting in the capacity mentioned in subsection (1) (ie as an auditor or examiner), P becomes aware of a matter-

(a) which relates to the activities or affairs of the charity or of any connected institution or body, and

(b) which P has reasonable cause to believe is likely to be of material significance for the purposes of the exercise by the Commission of its functions under the provisions mentioned in subsection (3),

P must immediately make a written report on the matter to the Commission.

(3) The provisions are -

(a) sections 46, 47 and 50 (inquiries by Commission);

(b) sections 76 and 79 to 82 (Commission's powers to act for protection of charities).

(4) If, in the course of acting in the capacity mentioned in subsection (1), P becomes aware of any matter-

(a) which does not appear to P to be one that P is required to report under subsection (2), but

(b) which P has reasonable cause to believe is likely to be relevant for the purposes of the exercise by the Commission of any of its functions,

P may make a report on the matter to the Commission.

 

(5) Where the duty or power under subsection (2) or (4) above has arisen in relation to P acting in the capacity mentioned in subsection (1), the duty or power is not affected by P's subsequently ceasing to act in that capacity.

(6) Where P makes a report as required or authorised by subsection (2) or (4), no duty to which P is subject is to be regarded as contravened merely because of any information or opinion contained in the report.

157 Meaning of "connected institution or body" in s.156(2)

 (1) In section 156(2) "connected institution or body", in relation to a charity, means -

(a) an institution which is controlled by, or

(b) a body corporate in which a substantial interest is held by,

the charity or any one or more of the charity trustees acting as such.”

Auditors should also refer to guidance issued by the Auditing Practices Board in ISA (UK and Ireland) 250:Section B - The Auditor’s Right and Duty to Report to Regulators in the Financial Sector and to PN11 - The Audit of Charities in the UK which gives further guidance to how this duty applied in the context of charities.

This APB guidance includes the following statement by the Commission and OSCR:

“Both the Charity Commission and OSCR will always consider the following to be of material significance and hence reportable:

• matters suggesting dishonesty or fraud involving a significant loss of, or a major risk to, charitable funds or assets;
• failure(s) of internal controls, including failure(s) in charity governance, that resulted in a significant loss or misappropriation of charitable funds, or which leads to significant charitable funds being put at major risk;
• matters leading to the knowledge or suspicion that the charity or charitable funds have been used for money laundering or such funds are the proceeds of serious organised crime or that the charity is a conduit for criminal activity;
• matters leading to the belief or suspicion that the charity, its trustees, employees or assets, have been involved in or used to support terrorism or proscribed organisations in the UK or outside of the UK;
• evidence suggesting that in the way the charity carries out its work relating to the care and welfare of beneficiaries, the charity’s beneficiaries have been or were put at significant risk of abuse or mistreatment;
• significant or recurring breach(es) of either a legislative requirement or of the charity’s trusts;
• a deliberate or significant breach of an order or direction made by a charity regulator under statutory powers including suspending a charity trustee, prohibiting a particular transaction or activity or granting consent on particular terms involving significant charitable assets or liabilities; and
• the notification on ceasing to hold office or resigning from office, of those matters reported to the charity’s trustees.
• These matters are considered central to the integrity of a charity and as such will require evaluation and where appropriate investigation by the regulators.”

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6. What to do if a matter is discovered which should have been advised to the Commission under the whistle-blowing duty

The Commission looks to examiners and auditors to diligently carry out their legal duties and as important allies in encouraging best practice, compliance with the SORP for accruals based accounts, and for valuable intelligence and whistle-blowing information.

Making a whistle-blowing report is not an easy matter for the auditor or examiner (or reporting accountant) both in terms of handling the situation itself and maintaining a relationship with their client. It is therefore important that the examiner (or reporting accountant) or auditor knows that we assess their report carefully. It is therefore important that we acknowledge all such reports and provide a brief explanation of our assessment process in line with our standard practices.

It is also important to demonstrate that we take the legal duty to report seriously. Failure to comply with the legal duty to report is regarded as a matter for the professional bodies to deal with pursuant to their own disciplinary procedures. Guidance on reporting poor practice by auditors or examiners is provided in OG 15 C1.

Consequently a failure to whistle-blow has a bearing on the work of the Commission and public confidence in the reporting and accounting framework for charities. The Commission has a regulatory interest in the quality of the work undertaken by auditors and examiners (and reporting accountants); where there are incidences of poor practice, such as a failure to whistle-blow, there is a need to consider whether that poor practice has been detrimental to our regulatory objectives.

The advice of a Commission accountant for your business area should always be sought about whether the particular situation constitutes both a failure to whistle-blow constitutes poor practice.

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7. Tipping off offences and reporting to the regulator

Section 333 of the Proceeds of Crime Act 2002 introduces the offence of tipping off.

The offence occurs where someone knows or suspects that a disclosure about money laundering has been made and then discloses this fact or supposition in a way that is likely to prejudice any criminal investigation resulting from the original disclosure.

The suspicion or knowledge of money laundering or terrorism does not override the requirement to make a report to the Charity Commission of a matter of material significance to the exercise of our statutory inquiry powers. Whilst such reports should normally be made immediately, it is important that where money laundering or terrorism is suspected, the examiner (or reporting accountant) or auditor should contact the Serious Organised Crime Agency (SOCA) or the Police immediately and seek their advice first, so that the authorities can take the necessary action to disrupt or prevent the carrying out of criminal or terrorist activity or conspiracies.

Similarly volunteer unpaid examiners on the rare occasion when they might have alerted the Police to a terrorist offence must ensure that they do not commit a tipping off offence.

The Consultative Committee of Accountancy Bodies (CCAB) has issued helpful guidance Anti-Money Laundering (Proceeds of Crime and Terrorism) Second Interim Guidance For Accountants (May 2004). This provides valuable advice as to how to reconcile the duty to avoid tipping off with the obligation to report to the regulator. Quoting from this guidance:

“If it is considered necessary, firms may find the following principles useful when pursuing their other reporting duties, in order to reconcile their otherwise conflicting responsibilities.

For the generality of reports for clients, or for publication, it should be noted that it is not possible to obtain consent to “tip off”. However, businesses should request contact with the relevant investigating authority to see if wording can be agreed for reports which satisfies both the business’s other duties and the needs of the relevant law enforcement authority. If such wording can be agreed, it is unlikely that the business will know or suspect that the report will prejudice an investigation, which is an essential element of the tipping off offence.

Where reports are required to regulators or government agencies, which are not intended for publication or receipt by clients, caution is still required as regards tipping off and it is recommended that businesses seek to identify a person within the organisation to whom they are reporting that has the requisite appreciation of the Act and appropriate seniority, thus mitigating the risk of tipping off; and if a suitable compromise cannot be reached that reconciles the duties of businesses to make other reports with the need to avoid tipping off, businesses should seek legal advice and potentially the directions of the Court to protect themselves.”

It is therefore important for us to ensure that the staff in our Complaints teams dealing with reports that may provide information relating to money launder activity have requisite appreciation of the Proceeds of Crime Act 2002 and that in our handling of any related assessment that necessary steps are taken to ensure the security of the information received.   

If you are uncertain as to whether the examiner or auditor (or reporting accountant) has acted correctly, you should take advice from a Commission lawyer.

The requirement to avoid tipping off may require the examiner (or reporting accountant) or auditor not to alert their client to the suspicions, or knowledge, of terrorist or money laundering activity and therefore the examiner (or reporting accountant) or auditor may not be able to refer to the particular circumstances in the examiner’s or auditor’s report. The accounts would then be filed with a report which makes no reference to the matter and, if there are no other matters, may indeed be unqualified. We would expect the examiner (or reporting accountant) or auditor to alert us by advising us of a matter of material significance prior to the filing of their report on the accounts, so that as the regulator we are aware that of the situation and can take, in collaboration with the Police, SOCA or other agencies, appropriate regulatory action.

In the event of our opening a s.46 statutory inquiry, the statutory inquiry would also need to consider the filed audit or examination report on the accounts and the filed accounts.

Auditors seeking further guidance should also be referred to guidance issued by the Auditing Practices Board in PN12 (revised): Money Laundering Legislation - Interim Guidance for Auditors in the UK.

If you are uncertain as to whether the examiner (or reporting accountant) or auditor has acted correctly, you should take advice from a Commission accountant.

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