Trustees have a legal duty to act only in the best interests of SSAFA, and the Charity Commission expects them to take action in line with the policy set out in this document to ensure that they do. A conflict of interest is any situation in which a trustee’s personal interests or loyalties could or could be seen to prevent them from making a decision only in the best interest of SSAFA.

While personal and professional connections can bring benefits to the work of SSAFA and often form part of the reason why an individual has been asked to become a trustee, they can also give rise to conflicts of interest to which trustees must respond effectively. The existence of a conflict of interest does not of itself reflect on the integrity of the affected trustee provided it is properly addressed.

Trustees should consider conflicts of interest before appointment; prospective trustees should be asked about potential conflicts of interest and these should be declared to Council.

The Charity Commission reports that it sees too many cases of unidentified or poorly handled conflicts of interest, many of which could have been prevented by better trustee awareness and stronger systems. Trustees are expected to identify and address effectively conflicts of interest that affect them or their charity.

Trustees also need policies to ensure any conflicts of interest affecting the charity’s staff, particularly its senior staff, can be dealt with correctly. The principles are largely the same as those for trustees affected by a conflict of interest. However, unlike trustees, staff are normally paid and may receive other benefits from the charity as part of their remuneration. They should not be involved in trustee decisions about the remuneration they receive.

Conflicts of interest should be addressed using the three-step process of ‘identify, protect and record’, which will ensure compliance with trustees’ legal duties and avoid:

• making decisions that could be overturned;
• risking SSAFA’s reputation;
• having to repay SSAFA for unauthorised payments to trustees.

Each trustee has a personal legal responsibility to declare possible conflicts of interest that affect them as soon as they are aware of them. There should be strong systems in place to identify conflicts of interest and ensure that individual trustees have a clear understanding of the issue as well as their personal duty to declare them.

The Charity Commission expects SSAFA trustees to have a standard agenda item at the beginning of each Council meeting to declare any actual or potential conflicts of interest. Any possible conflict of interest a trustee has in an item to be discussed should be declared at the earliest opportunity, and certainly before discussion of the item itself. If a SSAFA trustee is aware of an undeclared conflict of interest affecting another trustee they should inform Chairman of Council.

A conflict of interest exists even where there is the possibility that personal or wider interests could influence the trustee’s decision-making. Merely the perception that there is a conflict of interest can damage SSAFA’s reputation. Where the perception is not accurate because there is no conflict of interest, trustees must always be able to respond appropriately by managing the reputational risks and being prepared to explain how they have made their decisions only in the best interests of SSAFA.

Conflicts of interest relate to a trustee’s personal interests and the interests of those connected to them. This means that there is a conflict of interest where there is a proposed transaction between SSAFA and a connected person. Similarly, there is a conflict of interest where there is a benefit or a potential benefit to a connected person.

A conflict of interest can also result where a trustee’s duty to SSAFA competes with a duty or loyalty they owe to another organisation or person. Trustees may decide that where a conflict of loyalty poses little or no risk to decision-making in the best interests of SSAFA, the affected trustee, having declared their other interest, can participate in decision-making as long as trustees ensure they can demonstrate that they have taken their decision only in the best interests of SSAFA.

It is best practice for trustees to complete a declaration of interests (see Annex A) and for the Senior Staff Officer to maintain a register of interests (see Annex B) to enable individual trustees and Council as a whole to identify possible conflicts promptly. The register should be updated when trustees’ circumstances change and when new trustees are appointed. The Charity Commission encourages all trustees to make the operation of their charity as transparent as possible. With this in mind Council may decide to make its policy on conflicts of interest and some or all of its register of interests available to the public.

Conflicts of interest often arise because a decision involves a potential trustee benefit. Where this is the case the trustee benefit must be properly authorised and Council must follow any conditions attached to the authority that state how the conflict of interest should be handled.

A trustee benefit means any instance where money, or other property, goods or services with a monetary value, are received by a trustee. Examples of trustee benefits include cases where trustees decide to:

• sell, loan or lease charity assets to a trustee;
• acquire, borrow or lease assets from a trustee;
• pay a trustee for carrying out their trustee role;
• pay a trustee for carrying out a separate paid post within the charity, even if that trustee has recently resigned as a trustee;
• pay a trustee for carrying out a separate paid post as a director or employee of the charity’s subsidiary trading company;
• pay a trustee, or a person or company closely connected to a trustee, for providing any kind of service to the charity, from legal, accountancy or consultancy services through to decorating the charity’s premises or any other maintenance work;
• employ a trustee’s spouse or other close relative at the charity or its subsidiary trading company;
• make a grant to a service user trustee, or a service user who is a close relative of a trustee;
• allow a service user trustee to influence service provision to their exclusive advantage.

The law says that trustees cannot receive a benefit from their charity, whether directly or indirectly, unless they have an adequate legal authority to do so. The term ‘trustee benefit’ does not include any payments for legitimate out-of-pocket expenses.

Where trustees are using the power in the Charities Act that allows, in some circumstances, for the payment of trustees for the provision of services to SSAFA, the decision must be made only by those trustees who will not benefit. Trustees must adhere to the Royal Charter, Rules and Regulations as well as the law when deciding how to manage a conflict of interest.

Each possible conflict of interest must be acted on so that any potential effect on decision- making is eliminated. How to do this depends on the circumstances. In cases of serious conflicts of interest it may mean deciding to remove the conflict by:

• not pursuing a course of action;
• proceeding with the issue in a different way so that a conflict of interest does not arise;
• not appointing a particular trustee or securing a trustee resignation.

Where trustees have decided against removal of the conflict of interest, they must prevent it from affecting their decision in a different way. The circumstances in which Council requires withdrawal from decision-making are covered in the Royal Charter, Rules and Regulations. A conflicted trustee who stands to benefit from a decision, should, in most cases, withdraw from relevant meetings, discussions, decision-making and votes.

Where there is a conflict of loyalty but the affected trustee does not stand to gain any benefit they should still declare the interest. The other trustees must then decide what level of participation, if any, is acceptable. The options might include, but are not limited to, deciding whether the conflicted trustee can fully participate, can stay in the meetings where the decision is discussed and made but not participate, or should withdraw from the decision-making process in the way described above.

However it proceeds, Council should be satisfied the affected trustee understands they cannot use information obtained at SSAFA for their own benefit or that of another organisation if it has been obtained in confidence or has special value such as commercial sensitivity.

Where the conflict of interest is so acute or extensive that following these options will not allow Council to demonstrate that it has acted in the best interests of SSAFA, it will need to seek the authority of the Charity Commission or the Court.

Trustees should formally record any conflicts of interest and how they were handled. If they prepare accruals accounts they must disclose any benefits to trustees and connected persons including family members and businesses in SSAFA’s accounts.

They are also required to say under what legal authority the payments or benefits have been made, together with the reason for them. Whether or not they are required to prepare accruals accounts, all charities should disclose benefits received by trustees and connected persons in their annual accounts.

A written record of the decision should include the nature of the conflict; the name(s) of the affected trustee(s); whether the conflict of interest was declared in advance; an outline of the discussion; whether anyone withdrew from the discussion; and how Council took the decision in the best interests of SSAFA.

Recording decisions in this way helps trustees to show that they have acted properly in compliance with their legal responsibilities. Failure to take such action would be a breach of duty. A transaction affected by a conflict of interest where the trustees have not acted properly could be challenged by the Charity Commission or by an interested party. In some circumstances the transaction may be unsafe and invalidated or, in the worst case, might be void from the start.

Where they have not acted properly trustees may have to repay any sums paid by SSAFA, whether they result from an unauthorised trustee benefit or another breach of duty. This can be the case even where SSAFA has benefited from the arrangement. If SSAFA has suffered a loss, trustees may have to make good such loss to SSAFA.

The Charity Commission will intervene where it has concerns about trustee misconduct or mismanagement or if there is a risk to SSAFA property. The regulatory consequences of making a decision subject to a conflict of interest largely depend on the nature and severity of the conflict, its impact on SSAFA and the ability of trustees to resolve the problem and operate in line with their legal duties.

Factors that may have a higher impact on the charity include conflicts of interest associated with unauthorised trustee benefit, other loss of charity funds, bad publicity for SSAFA or potential damage to public trust and confidence in charities generally. Any failure to implement fully the actions required by the Charity Commission is likely to be regarded as misconduct or maladministration and may lead to heavy fines and/or prosecution.