Early 2004 was a busy period for the Charity Commission. As well as publishing their report on effectiveness, the Commissioners produced a new guide to conflicts of interests, a topic of growing importance in the voluntary sector.

In any organisation, and not just charities, occasional conflicts of interest are inevitable. Sometimes a conflict may be more apparent than real, but even so the reputation of the charity can be harmed.

A conflict can take many farms, but some of the most obvious are payments to a trustee for a service, employment of a trustee or close family member, the award of a contract to a business with which a trustee is associated or trustees becoming beneficiaries of the charity.

Broadly, trustees are not allowed to receive benefits from their position, unless expressly authorised by the Commission, the charity's governing document or the courts.

Even if a benefit is authorised it could be open to challenge by the Commission (or a beneficiary). If the benefit was found to be invalid the trustee may be liable to repay the value. It is even passible that criminal charges may be brought.

Perhaps much of this is well known. But how should charities react if they discover a conflict? The first step is to determine if the trustee will receive a material benefit. If the answer is yes, and no authorisation can be found for it in the governing document, the charity must apply for authorisation from the Charity Commission.

The Commission is unlikely to grant it unless the charity can explain why this is in its best interests and show that it has appropriate conflict management procedures in place. These should include a clear undertaking that the trustee will be removed from all relevant decisions. All discussions regarding the conflict should be recorded, and a list should be kept of those taking part.

The Charity Commission suggests that charities should prepare a register of interests and ensure each trustee includes all relevant details. It is also considered prudent lo determine whether new trustees have any such interests before they are appointed.

Quite apart from the specific rules governing the matter there is the question of damage to reputation. This is a subject in which the media and the public take a keen interest. The press is always quick to seize upon stories in which trustees appear to be gaining personally from their position. In fact, the whole voluntary sector is receiving much more media attention, partly because the Draft Charities Bill has raised public awareness.

Adverse publicity could have an effect on fundraising and the recruitment of volunteers - a more harmful outcome, perhaps, than any legal problems.

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