April-May 2018

Under my Umbrella..ella..ella

Some of our audit clients can get a bit annoyed with us when we start asking questions about documentation for money that they don’t consider to be theirs. This mostly concerns ‘umbrella’ arrangements, where an unincorporated group approaches an incorporated group to use their legal status to open a bank account or apply for funding. Some organisations, mostly churches, have groups (such as a youth or women’s group), for which they open a separate bank account over which this group has separate control.

Any agreements with third parties that are made using the legal documents of your group (such as your incorporation certificate, Charity registration or income tax exemption) become the legal responsibility of the governance body of your group. This means that if another group is under your umbrella, any bank overdrafts, funding agreements, public liability for events etc become your responsibility. The setting up of a separate bank account for that group, or the fact that it may have their own committee, does not change this responsibility in any way.

The governance of the group providing the umbrella has no legal comeback if something goes wrong. All the relevant Acts (Charitable Trusts Act, Incorporated Societies Act, Companies Act) specifically state that contracts that have been entered into in your name in good faith are legally binding. ‘Good faith’ means the other party had no reason to suspect that the person they were dealing with was not authorised to perform the transaction. The Companies Act also does not allow you to contract away any such statutory governance responsibilities (such as through an umbrella agreement), and presumably this applies equally to Societies and Trusts, although it has never been tested in Court. The buck stops with the officers of the umbrella group.

An auditor may accept another group’s independence from the umbrella group if they do no more than having their own bank account under you – although the group may act fraudulently in doing so if they are avoiding income tax in this way. Once there is a grant agreement or any other agreement (such as with the Council over the use of public spaces for events) in the umbrella group’s name, an auditor must consider the potential liabilities arising from this, the assets being used to service these, and the transactions that may give rise to any such liabilities.

If you do umbrella another group, it is a good idea to include this group’s activities in your meeting reporting cycle. If that group performs activities which may have a public impact, such as a public event, it’s also worth checking if that is covered by your public liability insurance. Chances are that if your insurer does not know about such activities, you are not covered.