Legal and Ownership Risks
The first and most fundamental issue is one of legal ownership. Once charity funds are transferred into a personal account, the account is legally operated in the individual’s name, and the bank’s contractual relationship is with that individual, not with the charity. The individual may still be required to hold and apply the money on the charity’s behalf, but the charity no longer has direct control of the account. If the individual dies, becomes incapacitated, enters into a dispute or has the account restricted, the charity may face significant difficulty and delay in establishing its rights and recovering the funds.
This loss of financial control also extends to operational risks. By placing money in an individual’s account, the charity may lose safeguards such as dual authorisation and independent oversight that would normally form part of its own banking controls. A hack, fraud attempt, or even an innocent error can therefore have far more damaging consequences.
Accounting and Reporting Complications
The year-end accounting treatment will depend on the substance of the arrangement. Where money has been advanced to an individual who is personally responsible for spending it or repaying the unused balance, it may need to be shown as an advance or other debtor rather than as cash held directly by the charity. In other circumstances, where the individual is acting strictly as an agent and the charity retains effective control, a different treatment may be appropriate. Either way, the arrangement will normally require careful reconciliation, supporting records and professional judgement.
If the account holder is a trustee, the arrangement must also be reviewed for trustee-expense and related-party disclosure purposes. Routine reimbursement of properly incurred trustee expenses is dealt with differently from a substantial advance, an outstanding balance or an arrangement under which the trustee controls charity money for an extended period.
If the account pays interest or generates rewards, these will ordinarily be reported by the provider under the individual account holder’s details. This can create uncertainty over who is beneficially entitled to the amount and may also create personal tax or reporting complications for the individual.
In other words, transferring money to a personal account does not automatically mean that the charity can continue to treat the balance in exactly the same way as money held in its own bank account.
Employment and Cultural Risks
Where an employee’s personal account is used, there are additional governance and employment considerations. An employment dispute, disciplinary process, or the simple fact of an employee moving on can leave the charity in a vulnerable position if funds are tied up in an account they no longer control. Furthermore, staff may feel under pressure to open an account in their own name, exposing themselves personally to financial and legal risks for the sake of the charity.
The individual may also be placed in the uncomfortable position of having to provide personal bank statements or account information to the charity’s finance team, independent examiner or auditor. Even where a separate account has been opened, its legal and digital identity remains personal to the employee or volunteer.
It is worth remembering that personal accounts are tied to personal identity, address and financial profile. Asking an employee to carry this responsibility, often without formal recognition or consent, raises questions of organisational culture and fairness.
Regulatory, Sanctions and Due-Diligence Risks From a regulatory perspective, the use of personal digital accounts can also attract scrutiny. If charity money flows into an individual’s account and then onwards to overseas recipients, the use of an account held in an individual’s name can make it more difficult to demonstrate the source, ownership, approval and final destination of the funds. This may attract questions from banks, regulators, auditors or independent examiners and may complicate the charity’s due-diligence, sanctions and end-use monitoring. Even where nothing improper has happened, an arrangement that is difficult to explain or evidence can create unnecessary regulatory and reputational risk.
Trustees must consider not just the likelihood of problems arising, but also the perception of their governance practices by regulators, auditors, and the public.
Why Charities Choose This PathIt is not difficult to understand why some charities turn to personal digital banking apps. They are familiar, user-friendly, and offer competitive exchange rates and international features. For many, the instinct is simply to replicate what they already use in their personal lives. The issue, however, is that what works perfectly for a holiday budget or family spending does not translate well to the needs of a regulated charity.
In our experience, charities rarely reach this position because they have deliberately chosen to weaken their financial controls. More often, they are trying to solve a practical problem – perhaps obtaining cards for overseas use, reducing foreign exchange costs or finding a payment method that works in a particular country.
The important thing is to recognise that a convenient solution can introduce risks elsewhere.
Better AlternativesThankfully, alternatives do exist. Depending on the charity’s legal structure and eligibility, corporate card and expense-management providers may offer cards, spending limits, multi-user access and international payment functionality while keeping the contractual arrangement in the organisation’s name. Examples may include Soldo, Equals Money and other specialist providers, although charities should verify current eligibility, fees, safeguarding arrangements and authorisation controls before applying.
Systems such as ExpensePlus can support the surrounding controls by recording approvals, attaching receipts, identifying funds and projects, and reconciling expenditure centrally. They do not, however, remove the underlying risks where the money itself is held in an individual’s personal account.
Where there is genuinely no reasonable alternative, trustees may establish a tightly controlled and documented agency or advance arrangement. This should specify the permitted purpose, maximum balance, approval arrangements, record-keeping requirements, timeframe for spending, treatment of unused funds and what happens if the individual leaves or becomes unavailable.
If using a personal account really cannot be avoided.
Wherever possible, charity funds should be held in accounts and payment arrangements that are in the charity's name and remain under the charity's control.
There may, however, be exceptional circumstances where trustees conclude that there is no reasonable alternative. If that happens, the arrangement should be treated as an exception requiring additional controls – not simply as another charity bank account.
If trustees conclude that there is genuinely no reasonable alternative to using a personal account, then trustees should:
- conduct a thorough risk assessment.
- ensure individuals fully understand the personal implications.
- document why organisational banking or corporate-card alternatives were unsuitable;
- approve the arrangement formally in trustee minutes;
- put in place written records for every transfer, advance, and repayment.
- set a maximum balance and short time limit;
- prohibit personal transactions through the account;
- ensure statements and receipts are accessible to the charity;
- reconcile the account frequently;
- require unused balances to be returned promptly;
- consider what happens on death, incapacity, suspension or departure;
- check insurance, sanctions and overseas due-diligence implications;
- determine the correct year-end accounting and disclosures.
- make disclosures where required, especially in trustee-related cases
The Charity Commission’s current internal-controls guidance stresses that controls should cover all ways in which a charity handles its money and assets.
Ultimately, the principle is simple: Charity funds must remain under the charity's control. Convenience should never outweigh good governance.
